UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of April 2004
Commission File Number: 0-30628
ALVARION LTD.
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(Translation of registrant's name into English)
21A Habarzel Street, Tel Aviv 69710, Israel
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(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F. Form 20-F |X| Form 40-F |_|
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): ____
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): ____
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes |_| No |X|
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-___________
The following are included in this report on Form 6-K:
Exhibit Description
1. Notice dated March 29, 2004 of the 2004 Annual Shareholders
Meeting of the Shareholders and related Proxy Statement
2. Letter to shareholders dated March 28th, 2004
3. Consolidated Financial Statement as of December 31, 2003
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALVARION LTD.
Date: April 5, 2004 By: /s/ Dafna Gruber
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Name: Dafna Gruber
Title: Chief Financial Officer
ALVARION LTD.
NOTICE OF
2004 ANNUAL GENERAL MEETING OF SHAREHOLDERS
To all Alvarion shareholders:
NOTICE IS HEREBY GIVEN that the 2004 Annual General Meeting of Shareholders (the
"Meeting") of Alvarion Ltd. (the "Company" or "Alvarion") will be held on April
28, 2004 at 10:00 a.m. (Israel time), at the offices of the Company, 21A
Habarzel Street, Tel Aviv 69710, Israel, Tel. 972-3-6456262.
The agenda of the Meeting will be as follows:
(1) re-election of Messrs. Zvi Slonimsky and Amnon Yacoby, and election of Mr.
David Kettler, to the Company's Board of Directors;
(2) re-election of Ms. Robin Hacke as an external director to the Company's
Board of Directors;
(3) approval of a change to the terms of the unvested portion of the stock
options previously granted or to be granted in the future to the Company's
directors upon a change of control;
(4) approval of option grant to Mr. Anthony Maher;
(5) approval of option grant to Mr. David Kettler;
(6) approval of directors' compensation;
(7) approval of Mr. Zvi Slonimsky's 2004 compensation, bonus plan and
additional bonus amount and an additional option grant;
(8) approval of amendment to the Company's indemnification agreement with each
of its officers and directors;
(9) approval of purchase of directors' and officers' insurance policy;
(10) approval of an increase in the number of stock options available for future
grant under the Company's Global 2002 Share Option Plan;
(11) reappointment of Kost Forer Gabbay & Kasierer, a member of Ernst & Young
Global, as the Company's independent auditors for the period ending upon
the next Annual General Meeting of Shareholders and the authorization of
the Company's Audit Committee to set their remuneration; and
(12) review of the Company's audited consolidated financial statements for the
year ended December 31, 2003.
Shareholders of record at the close of business on March 29, 2004 are entitled
to notice of, and to vote at the Meeting. All shareholders are cordially invited
to attend the Meeting in person.
Shareholders who are unable to attend the Meeting in person are requested to
complete, date and sign the enclosed form of proxy and to return it promptly in
the pre-addressed postage-paid envelope provided. Shareholders may revoke their
proxies at any time before the exercise thereof by filing with the Company a
notice of revocation or a duly executed proxy bearing a later date, or by voting
their shares in person at the Meeting.
Joint holders of shares should take note that, pursuant to Article 34.4 of the
Articles of Association of the Company, the vote of the senior holder of the
joint shares who tenders a vote, in person or by proxy or by deed of vote, will
be accepted to the exclusion of the vote(s) of the other joint holder(s). For
this purpose seniority will be determined by the order in which the names of
such holders stand in the Company's Shareholder Register.
By Order of the Board of Directors,
/s/ Anthony Maher
Anthony Maher, Chairman
Dated: March 29, 2004
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ALVARION LTD.
21A Habarzel Street
Tel Aviv 69710, Israel
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PROXY STATEMENT
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This Proxy Statement is furnished to the holders of ordinary shares, NIS
0.01 nominal value (the "Ordinary Shares"), of Alvarion Ltd. ("Alvarion" or the
"Company") in connection with the solicitation by the Board of Directors of
proxies for use at the 2004 Annual General Meeting of Shareholders (the
"Meeting"), or at any adjournment thereof, pursuant to the accompanying Notice
of 2004 Annual Meeting of Shareholders. The Meeting will be held on April 28,
2004 at 10:00 a.m. (Israel time), at the offices of the Company, 21A Habarzel
Street, Tel Aviv 69710, Israel, Tel: 972-3-6456262.
The agenda of the Meeting will be as follows:
(1) re-election of Messrs. Zvi Slonimsky and Amnon Yacoby, and election of Mr.
David Kettler to the Company's Board of Directors;
(2) re-election of Ms. Robin Hacke as an external director to the Company's
Board of Directors;
(3) approval of a change to the terms of the unvested portion of the stock
options previously granted or to be granted in the future to the Company's
directors upon a change of control;
(4) approval of option grant to Mr. Anthony Maher;
(5) approval of option grant to Mr. David Kettler;
(6) approval of directors' compensation;
(7) approval of Mr. Zvi Slonimsky's 2004 compensation, bonus
plan and additional bonus amount and an additional option grant;
(8) approval of amendment to the Company's indemnification agreement with each
of its officers and directors;
(9) approval of purchase of directors' and officers' insurance policy;
(10) approval of an increase in the number of stock options available for future
grant under the Company's Global 2002 Share Option Plan;
(11) reappointment of Kost Forer Gabbay & Kasierer, a member of Ernst & Young
Global, as the Company's independent auditors for the period ending upon
the next Annual General Meeting of Shareholders and the authorization of
the Company's Audit Committee to set their remuneration; and
(12) review of the Company's audited consolidated financial statements for the
year ended December 31, 2003.
The Company currently is not aware of any other matters which will come
before the Meeting. If any other matters are presented properly at the Meeting,
the persons designated as proxies intend to vote upon such matters in accordance
with their best judgment.
A form of proxy for use at the Meeting and a pre-addressed postage-paid
return envelope for the proxy are enclosed. Shareholders may revoke the
authority granted by their execution of proxies at any time before the exercise
thereof by filing with the Company a written notice of revocation or duly
executed proxy bearing a later date, or by voting in person at the Meeting.
Unless otherwise indicated on the form of proxy,
shares represented by any proxy in the enclosed form, if the proxy is properly
executed by the holder thereof and received by the Company not less than two (2)
hours prior to the time fixed for the Meeting, will be voted in favor of all the
matters to be presented to the Meeting, as described above. On all matters
considered at the Meeting, abstentions and broker non-votes will not be treated
as either a vote "for" or "against" the matter, although they will be counted in
determining whether a quorum is present.
Proxies for use at the Meeting are being solicited by the Board of
Directors of the Company. Only shareholders of record at the close of business
on March 29, 2004 will be entitled to vote at the Meeting. Proxies are being
mailed to shareholders on or about April 5, 2004 and will be solicited primarily
by mail. However, certain officers, directors, employees and agents of the
Company, none of whom will receive additional compensation therefor, may solicit
proxies by telephone, telegram or other personal contact. The Company will bear
the cost of the solicitation of the proxies, including postage, printing and
handling, and will reimburse the reasonable expenses of brokerage firms and
others for forwarding material to beneficial owners of shares.
The Company had outstanding as of March 17, 2004, 56,253,510 Ordinary
Shares, each of which is entitled to one vote upon each of the matters to be
presented at the Meeting. Two or more shareholders present in person or by
proxy, or who have delivered to the Company a deed of vote indicating their
manner of voting, and who hold or represent in the aggregate at least 33 1/3 %
of the voting power of the Company, will constitute a quorum at the Meeting.
BENEFICIAL OWNERSHIP OF ORDINARY SHARES
The following table sets forth certain information regarding the beneficial
ownership of the Company's Ordinary Shares as of March 17, 2004, by each person
or entity known by the Company to own beneficially more than 5% of the Company's
outstanding Ordinary Shares based on information provided to the Company by the
holders or disclosed in public filings with the Securities and Exchange
Commission. The voting rights of the shareholders listed below are not different
from the voting rights of the Company's other shareholders.
Ordinary Shares
Beneficially Owned
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Name Amount Percent(1)
---- --------- ----------
Fidelity Investments (2) 4,690,600 8.3%
Star Group Entities (3) 4,234,118 7.5%
Siemens Aktiengesellschaft 3,500,000 6.2%
Kern Capital Management, LLC (4) 3,266,800 5.8%
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(1) Based on 56,253,510 Ordinary Shares outstanding as of March 17, 2004.
Ordinary shares deemed beneficially owned by virtue of the right of any
person or group to acquire such shares within 60 days of the date of this
proxy statement are treated as outstanding only for the purpose of
determining the percentage owned by such person or group, but not treated
as outstanding for the purpose of determining the percentage owned by any
other person or group.
(2) Aggregate holdings of certain institutional accounts and/or open-end
investment companies managed by FMR Corp and Fidelity International
Limited. FMR Corp and Fidelity International Limited are the parent
companies of various investment advisors that manage institutional accounts
and/or open-end investment companies.
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(3) Consists of 686,081 Ordinary Shares held by STAR Management of Investment
(1993) Limited Partnership ("Israel Star Partnership"); 1,016,888 Ordinary
Shares held by SVE STAR Ventures Enterprises No. III, a German Civil Law
Partnership (with limitation of liability) ("SVE III"); 83,756 Ordinary
Shares held by SVE STAR Ventures Enterprises No. IIIA, a German Civil Law
Partnership (with limitation of liability) ("SVE IIIA"); 447,314 Ordinary
Shares held by SVM STAR Ventures Managementgesellschaft mbH Nr. 3 & Co.
Beteiligungs KG ("SVE IV"); 602,631 Ordinary Shares held by SVE Star
Ventures Enterprises No. V, a German Civil Law Partnership (with limitation
of liability) ("SVE V"); 66,422 Ordinary Shares held by SVM STAR Ventures
Managementgesellschaft mbH Nr. 3 & Co. Beteiligungs KG Nr. 2 ("SVE VI");
748,361 Ordinary Shares held by SVE Star Ventures Enterprises No. VII, a
German Civil Law Partnership (with limitation of liability) ("SVE VII");
and 415,560 Ordinary Shares held by SVM STAR Ventures Management GmbH Nr. 3
("Star Germany" and together with Israel Star Partnership, SVE III, SVE
IIIA, SVE IV, SVE V, SVE VI and SVE VII, the "Star Group"). Star Germany
manages the investments of SVE III, SVE IIIA, SVE IV, SVE V, SVE VI and SVE
VII. SVM Star Venture Capital Management Ltd. ("Star Israel") manages the
investments of Israel Star Partnership. Dr. Meir Barel, one of the
Company's directors, is the sole director and primary owner of Star Germany
and Star Israel. Dr. Barel has the sole power to vote or direct the vote,
and the sole power to dispose or direct the disposition of, the shares
beneficially owned by SVE III, SVE IIIA, SVE IV, SVE V, SVE VI, SVE VII and
Israel Star Partnership. Star Germany has the sole power to vote or direct
the vote, and the sole power to dispose or direct the disposition of, the
shares beneficially owned by SVE III, SVE IIIA, SVE IV, SVE V, SVE VI and
SVE VII. Star Israel has the sole power to vote or direct the vote, and the
sole power to dispose or direct the disposition of, the shares beneficially
owned by Israel Star Partnership. Dr. Barel disclaims beneficial ownership
of all of the shares held by the Star Group. Also includes options to
purchase 167,105 Ordinary Shares held by Dr. Barel which are exercisable
within 60 days of March 17, 2004.
(4) Messrs. Robert E. Kern Jr. and David G. Kern are the principal and
controlling members of Kern Capital Management, LLC, and accordingly, have
shared power to vote or direct the vote, and to dispose or direct the
disposition of, ordinary shares owned by Kern Capital Management, LLC.
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ITEM 1- ELECTION OF DIRECTORS
At the Meeting, shareholders will be asked to: (i) re-elect Messrs. Zvi
Slonimsky and Amnon Yacoby to the Company's Board of Directors; and (ii) elect
Mr. David Kettler to the Company's Board of Directors, each for a term expiring
at the third annual general meeting of the shareholders of the Company following
the Meeting.
A brief biography of each nominee is set forth below:
Zvi Slonimsky has been the Company's Chief Executive Officer since June
2000 and, prior thereto, was the Company's President and Chief Operating Officer
since May 1999. Following the Company's merger with Floware Wireless Systems
Ltd. ("Floware") in August 2001, Mr. Slonimsky became a member of the Company's
Board of Directors and served as the Company's co-Chief Executive Officer. Since
the beginning of 2002 he has been the Company's sole Chief Executive Officer.
Prior to joining the Company, Mr. Slonimsky was President and Chief Executive
Officer of MTS Ltd., a company supplying add-on software to PBXs, since its
inception in December 1995 when it was spun off from C. Mer Industries. Mr.
Slonimsky joined C. Mer in November 1992 as Vice President of its products
division. Before joining C. Mer, he was the General Manager of Sorek Technology
Center from September 1991 to November 1992. In the years 1989 through 1991, Mr.
Slonimsky was the General Manager of DSPG Ltd., the Israeli-based subsidiary of
DSPG, Inc. Prior thereto, he held various management positions in Tadiran, an
Israeli communication equipment manufacturer. Mr. Slonimsky holds B.Sc. and
M.Sc. degrees in Electrical Engineering from the Technion-Israel Institute of
Technology and an M.B.A. degree from Tel-Aviv University.
Amnon Yacoby has been a member of the Company's Board of Directors since
its merger with Floware in August 2001. Prior to the merger, Mr. Yacoby founded
Floware and served as its Chief Executive Officer and as a member of its Board
of Directors. Following the Company's merger with Floware and until the end of
2001, Mr. Yacoby served as the Company's co-Chief Executive Officer. In 1987,
Mr. Yacoby founded RAD Network Devices Ltd., a developer of data networking
devices, and served as its president and Chief Executive Officer until 1995.
From 1972 to 1986, he served in the Israel Defense Forces' Electronic Research
Department in various positions, most recently as head of such department. He
twice received the Israel Security Award. Mr. Yacoby holds B.Sc. and M.Sc.
degrees in Electrical Engineering from the Technion-Israel Institute of
Technology.
David Kettler consults for H.I.G. Capital in Atlanta through DAK Solutions
LLC. Previously, Mr. Kettler served as the BellSouth Vice President in charge of
the Science & Technology organization and Chief Architect for the BellSouth
Network until his retirement at the end of 2000. Prior to BellSouth, Mr. Kettler
spent over 15 years at AT&T Bell Laboratories and in Strategic Planning at AT&T
Corporate Headquarters. He earned his BEE, MSEE, and Ph.D.EE from the University
of Virginia and is a member of the ECE Industrial Advisory Board. He has
actively contributed to Computer Science & Telecommunications Board Committee
Reports on the Internet and Broadband. Mr. Kettler also serves on the Georgia
Tech College of Computing Advisory Board and numerous research and economic
development steering committees. He has proactively engaged university/industry
activities, led numerous consortia projects and facilitated the technology
transfer from research laboratories toward commercialization. Mr. Kettler is an
IEEE Fellow.
4
Vote Required
The affirmative vote of the holders of a majority of the voting power
represented at the Meeting in person or by proxy and voting thereon is necessary
for approval of the following resolution.
It is proposed that at the Meeting, the following resolution be adopted:
"RESOLVED, that Messrs. Zvi Slonimsky and Amnon Yacoby be re-elected, and
Mr. David Kettler be elected, to the Board of Directors of the Company,
effective immediately, each for a term expiring at the third annual general
meeting of shareholders of the Company following the Meeting."
The Board of Directors recommends a vote FOR approval of the proposed
resolution.
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ITEM 2- RE-ELECTION OF ROBIN HACKE AS AN EXTERNAL DIRECTOR
The Israeli Companies Law, 5759-1999 (the "Companies Law") requires that
the Board of Directors of an Israeli public company have at least two external
directors. To qualify as an external director, an individual may not have, and
may not have had at any time during the previous two years, any affiliation with
the Company or its controlling persons, as such terms are defined in the
Companies Law. In addition, no individual may serve as an external director if
such individual's position or other activities create or may create a conflict
of interest with his or her role as an external director. For a period of two
years from the expiration or termination of an external director's term of
office, a company may not appoint a former external director as a director or
employee of such company or receive professional services from such former
external director for compensation.
External directors are required to be elected by the shareholders. The term
of an external director is three years and may be extended for one additional
three year term. All of the external directors of a company must be members of
its Audit Committee and each other committee of a company's Board of Directors
must include at least one external director.
The Company's Board of Directors currently includes three external
directors of which two are ending their respective terms. One of the two, Ms.
Robin Hacke, is eligible to be re-elected for a second term of three years.
At the Meeting the shareholders will be asked to re-elect Ms. Robin Hacke
as an external director to the Company's Board of Directors for a second term to
expire at the third annual general meeting of shareholders of the Company
following the Meeting.
A brief biography of the nominee is set forth below:
Ms. Robin Hacke has been a member of Floware's Board of Directors since
Floware's initial public offering in August 2000 and has been an external
director on the Company's Board of Directors since its merger with Floware. From
January to July 2003, Ms. Hacke served as Managing Director of Triport Advisors
Ltd., a company founded by Ms. Hacke that provides advisory services to
investment companies. Since August 2003, Ms. Hacke has been based in the United
States, where as Managing Director of Pentaport Venture Advisors Inc., she
continues to advise investment companies, including Portview Communications
Partners. From 1990 until 2002, Ms. Hacke served as the Chief Executive Officer
of HK Catalyst Strategy and Finance Ltd., a company that she founded that
provides advisory services to investment companies and high tech enterprises.
From 1986 to 1990, Ms. Hacke held various management positions at Aitech Ltd.,
an Israeli start-up company. Prior to that, she was an investment banker at
Shearson Lehman Brothers in New York. Ms. Hacke is a member or observer on the
Board of Directors of several privately held companies and a lecturer at the
Technion-Israel Institute of Technology, in the field of entrepreneurship and
venture capital. Ms. Hacke holds an A.B. magna cum laude degree from
Harvard-Radcliffe College and an M.B.A. degree from Harvard Business School.
Vote Required
The election of external directors requires the affirmative vote of a
majority of the Ordinary Shares present, in person or by proxy, and voting on
the matter, including at least one third of the Ordinary Shares of
non-controlling shareholders voted on the matter (unless the total number of
shares of non-controlling shareholders voted against the election of the
external directors does not exceed one percent of the outstanding Ordinary
Shares).
6
It is proposed that at the Meeting, the following resolution be adopted:
"RESOLVED, that Ms. Robin Hacke be elected as an external director to the
Company's Board of Directors for a second term to expire at the third annual
general meeting of shareholders of the Company following the Meeting."
The Board of Directors recommends a vote FOR approval of the proposed
resolution.
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ITEM 3 - APPROVAL OF CHANGE TO TERMS OF UNVESTED PORTION OF STOCK
OPTIONS PREVIOUSLY GRANTED OR TO BE GRANTED IN THE FUTURE TO THE
COMPANY'S DIRECTORS UPON A "CHANGE OF CONTROL"
Pursuant to the Companies Law, the payment of compensation to directors
including the grant of any stock option, and any change in the terms thereto,
requires the approval of the Company's Audit Committee, followed by the Board of
Directors, and then the shareholders.
The Company's Audit Committee has resolved that any unvested stock options
previously granted or to be granted in the future to any member of its Board of
Directors under the Company's Global 2002 Stock Option Plan (the "Plan") become
vested upon a "Change of Control" of the Company. For this purpose, "Change of
Control" is defined as each of (i) a Transaction (which is defined in the Plan
as a merger or acquisition of the Company with or by one or more other entities,
following which the shareholders of the Company hold less than 50% of the
surviving entity), or (ii) a situation whereby a shareholder (including a group
of shareholders acting together), other than a person who is a Principal
Shareholder (i.e., a person that the Company knows holds 5% or more of the
Company's outstanding Ordinary Shares) on the date of the Meeting, shall have
acquired such number of shares that entitle such shareholder or shareholder to
20% or more of the voting rights in the annual general meeting of shareholders,
and, within a 12 month period following such acquisition, 50% or more of the
members of the Board of Directors (excluding external directors) shall have
ceased to be directors.
The Company's Audit Committee approved this resolution on March 8, 2004 and
the Company's Board of Directors approved this resolution on March 9, 2004. As
set forth above, the adoption of the above resolutions of the Company's Audit
Committee and Board of Directors with respect to vesting of directors' options
is subject to the approval of the Company's shareholders, which shall be sought
at the Meeting.
Vote Required
The affirmative vote of the holders of a majority of the voting power
represented at the Meeting in person or by proxy and voting thereon is necessary
for approval of the following resolution.
It is proposed that at the Meeting the following resolution be adopted:
"RESOLVED, that any unvested stock options previously granted or to be
granted in the future to any member of the Company's Board of Directors under
the Company's Global 2002 Stock Option Plan (the "Plan") become vested upon a
"Change of Control" of the Company, which for this purpose will be defined as
each of (i) a Transaction (as such term is defined in the Plan), and (ii) a
situation whereby a shareholder (including, for this purpose, a group of
shareholders acting together), other than a Principal Shareholder as of the date
of the Meeting, shall have acquired such number of shares that entitle it to 20%
or more of the voting rights in the annual general meeting of shareholders, and
within a 12 month period following such acquisition 50% or more of the members
of the Board of Directors (excluding external directors) shall have ceased to be
directors."
The Board of Directors recommends a vote FOR approval of the proposed
resolution.
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ITEM 4 - APPROVAL OF OPTION GRANT TO MR. ANTHONY MAHER
Following Mr. Anthony Maher's appointment as Chairman of the Company's
Board of Directors, the Company's Audit Committee and Board of Directors
resolved, subject to shareholders' approval, to grant Mr. Anthony Maher an
additional option to purchase 150,000 Ordinary Shares of the Company.
The Audit Committee and the Board of Directors recommended that the
additional option be granted under the Plan, at an exercise price per share
equal to the closing price of the Company's Ordinary Shares as reported on the
Nasdaq National Market on the last trading day immediately preceding the date of
the Meeting. The additional option shall vest as follows: thirty-three percent
(33%) shall vest on the first anniversary of the date of grant; and the
remaining amount shall vest in eight (8) quarterly installments over a
twenty-four (24) month period, commencing on the ninetieth day following the
first anniversary of the date of grant.
In the event Mr. Maher ceases to serve as Chairman of the Company's Board
of Directors for any reason other than the occurrence of a "Change of Control"
as such term is defined in Item 3 above, the unvested portion of the additional
option shall be automatically cancelled.
Pursuant to the Companies Law, the payment of compensation, including any
grant of any stock option, to directors requires the approval of the Company's
Audit Committee, followed by the Board of Directors, and then by the
shareholders. The Company's Audit Committee has approved the grant of the
additional option on February 1, 2004 and the Company's Board of Directors has
approved the grant of the additional option on February 4, 2004. Accordingly,
the adoption of the above resolutions of the Company's Audit Committee and Board
of Directors with respect to Mr. Maher is subject to approval of the Company's
shareholders, which shall be sought at the Meeting.
Vote Required
The affirmative vote of the holders of a majority of the voting power
represented at the Meeting in person or by proxy and voting thereon is necessary
for approval of the following resolutions.
It is proposed that at the Meeting the following resolutions be adopted:
"RESOLVED, to approve the grant of options under the Plan to Mr. Maher to
purchase 150,000 Ordinary Shares of the Company having an exercise price per
share equal to the closing price as reported on the Nasdaq National Market on
the last trading day immediately preceding the date of the Meeting. The options
shall vest as follows: thirty-three percent (33%) shall vest on the first
anniversary of the date of grant; and the remaining amount shall vest in eight
(8) quarterly installments over a twenty-four (24) month period, commencing on
the ninetieth day following the first anniversary of the date of grant."
"RESOLVED FURTHER, to adopt the recommendation of the Company's Audit
Committee and the Board of Directors pursuant to which, in the event Mr. Maher
ceases to serve as Chairman of the Company's Board of Directors for any reason
other than the occurrence of a "Change of Control", as such term is defined in
Item 3 above, the unvested portion of the options shall be automatically
cancelled.
The Board of Directors recommends a vote FOR approval of the proposed
resolutions.
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ITEM 5 -APPROVAL OF OPTION GRANT TO MR. DAVID KETTLER
The Company's Audit Committee and Board of Directors resolved, subject to
the Company's shareholders' approval, that Mr. David Kettler, if elected by the
shareholders, will be granted options to purchase 40,000 Ordinary Shares of the
Company. These options shall be granted under the Plan, at an exercise price per
share equal to the closing price of the Company's Ordinary Shares as reported on
the Nasdaq National Market on the last trading day immediately preceding the
date of the Meeting. These options shall vest as follows: 10,000 shall become
vested on the date of grant; 7,500 shall vest on the first anniversary of the
date of grant; and the remaining 22,500 shall vest in twelve quarterly
installments over a thirty six month period, commencing on the ninetieth day
following the first anniversary of the date of grant.
Pursuant to the Companies Law, the payment of compensation, including any
grant of any stock option, to directors requires the approval of the Company's
Audit Committee, followed by the Board of Directors, and then by the
shareholders. The Company's Audit Committee has approved the grant of the
options on March 8, 2004 and the Company's Board of Directors has approved the
grant of the options on March 9, 2004. Accordingly, the adoption of the above
resolutions of the Company's Audit Committee and Board of Directors with respect
to Mr. Kettler is subject to approval of the Company's shareholders, which shall
be sought at the Meeting.
Vote Required
The affirmative vote of the holders of a majority of the voting power
represented at the Meeting in person or by proxy and voting thereon is necessary
for approval of the following resolution.
It is proposed that at the Meeting the following resolution be adopted:
"RESOLVED, to approve the resolutions of the Company's Audit Committee and
Board of Directors pursuant to which (i) options to purchase 40,000 Ordinary
Shares of the Company having an exercise price per share equal to the closing
price of the Company's Ordinary Shares as reported on the Nasdaq National Market
on the last trading day immediately preceding the date of the Meeting shall be
granted to Mr. Kettler under the Plan, and (ii) that the options shall vest as
follows: 10,000 shall vest on the date of grant; 7,500 shall vest on the first
anniversary of the date of grant; and the remaining 22,500 shall vest in twelve
quarterly installments over a thirty six month period, commencing on the
ninetieth day following the first anniversary of the date of grant."
The Board of Directors recommends a vote FOR approval of the proposed
resolution.
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ITEM 6 -APPROVAL OF DIRECTORS' COMPENSATION
The Companies Regulations (Rules Relating to Compensation and Expenses to
External Directors), 5760 -2000 (the "Companies Regulations") governs the
remuneration payable to external directors and prescribes a fee schedule for
payment of annual compensation and compensation payable for participation in
meetings of the board or committees thereof, which may be substituted, under
certain conditions which the Company has met, by remuneration that is relative
to the remuneration payable to "other board members", as defined in the
Companies Regulations. Currently, the Company's non-employee directors are
entitled to the minimum amounts set forth under the Companies Regulations.
The Company's Audit Committee and Board of Directors resolved that the fees
payable to the Company's non-employee directors be adjusted such that each of
the its non-employee directors (excluding the Company's Chairman) shall receive,
in lieu of the current remuneration, a flat fee equal to US$25,000 per year,
which fee shall cover the participation of such director in all meetings of the
Board of Directors and committees of the Board of Directors during the year. The
Company's Audit Committee and Board of Directors further recommend that the
remuneration payable to the Company's Chairman of the Board of Directors be set
at US$100,000 per year, which fee shall cover the participation of the Chairman
in all meetings of the Board of Directors and committees of the Board of
Directors during the year.
Pursuant to the Companies Law, the payment of compensation to directors
requires the approval of the Company's Audit Committee, followed by the Board of
Directors, and then by the shareholders. The Company's Audit Committee has
approved the proposed directors' fees on March 8, 2004 and the Company's Board
of Directors has approved the proposed directors' fees on March 9, 2004.
Accordingly, the adoption of the above resolutions of the Company's Audit
Committee and Board of Directors with respect to the compensation of directors
is subject to approval of the Company's shareholders, which shall be sought at
the Meeting.
Vote Required
The affirmative vote of the holders of a majority of the voting power
represented at the Meeting in person or by proxy and voting thereon is necessary
for approval of the following resolutions.
It is proposed that at the Meeting the following resolutions be adopted:
"RESOLVED, that the fees payable to the non-employee directors of the
Company be adjusted such that each non-employee director (excluding the
Chairman) shall receive, in lieu of the current compensation, a flat fee equal
to US$25,000 per year, which fee shall cover the participation of such director
in all meetings of the Board of Directors and committees of the Board of
Directors during the year."
11
"RESOLVED FURTHER, that the compensation payable to the Chairman of the
Board of Directors of the Company be set at an amount equal to US$100,000 per
year, which fee shall cover the participation of the Chairman in all meetings of
the Board of Directors and committees of the Board of Directors during the
year."
The Board of Directors recommends a vote FOR approval of the proposed
resolutions.
12
ITEM 7 - APPROVAL OF MR. SLONIMSKY'S 2004 COMPENSATION,
BONUS PLAN AND ADDITIONAL BONUS AMOUNT AND AN ADDITIONAL OPTION GRANT
A. At the Meeting, the shareholders will be asked to approve to Mr. Zvi
Slonimsky, the Company's Chief Executive Officer, (i) annual compensation in an
amount equal to the NIS equivalent of US$245,000, and (ii) the grant of an
annual bonus of up to US$75,000, which shall be contingent upon the Company
reaching the 2004 sales objectives set forth in Appendix A to this Proxy
Statement, which is incorporated herein by reference.
The shareholders will be also asked to approve the grant to Mr. Slonimsky
of a special one-time bonus in an amount equal to US$33,333 (the "Additional
Bonus"), in recognition of Mr. Slonimsky's achievements and the Company's
financial results for calendar year 2003.
Under the Companies Law, the annual compensation and the bonuses require
the approval of the Company's Audit Committee, followed by the Board of
Directors, and then by the shareholders. The Company's Audit Committee approved
the annual compensation and the bonus for 2004 on March 8, 2004 and the Board of
Directors approved the annual compensation and the bonus for 2004 on March 9,
2004. The Additional Bonus was approved by the Company's Audit Committee on
February 1, 2004 and by the Board of Directors on February 4, 2004. Accordingly,
at the Meeting, shareholders will be asked to approve the annual compensation,
the bonus and the Additional Bonus.
Vote Required
The affirmative vote of the holders of a majority of the voting power
represented at the Meeting in person or by proxy and voting thereon is necessary
for approval of the following resolutions.
It is proposed that at the Meeting the following resolutions be adopted:
"RESOLVED, (i) that the annual compensation payable to Mr. Zvi Slonimsky be
set at the NIS equivalent of US$245,000, and (ii) that an annual bonus of up to
US$75,000 be paid to Mr. Slonimsky, contingent upon the Company reaching the
sales objectives set forth in Appendix A to the Proxy Statement."
"RESOLVED FURTHER, that the payment of a special one-time bonus of
US$33,000 to Mr. Slonimsky in recognition of his achievements and the Company's
financial results for calendar year 2003, be approved, adopted and ratified in
all respects."
13
B. At the Meeting, the shareholders will also be asked to approve the grant
to Mr. Slonimsky of an additional option to purchase 350,000 Ordinary Shares of
the Company. The Audit Committee and the Board of Directors recommended that the
additional option be granted under the Plan, at an exercise price per share
equal to the closing price of the Company's Ordinary Shares as reported on the
Nasdaq National Market on the last trading day immediately preceding the date of
the Meeting. The additional option shall vest in quarterly installments over a
forty eight (48) month period, commencing on the ninetieth day following the
date of grant.
Under the Companies Law, the grant of the additional option requires the
approval of the Company's Audit Committee, followed by the Board of Directors,
and then by the shareholders. The Company's Audit Committee approved the grant
of the additional option on March 8, 2004 and the Board of Directors approved
the grant of the additional option on March 9, 2004.
Vote Required
The affirmative vote of the holders of a majority of the voting power
represented at the Meeting in person or by proxy and voting thereon is necessary
for approval of the following resolutions.
It is proposed that at the Meeting the following resolutions be adopted:
"RESOLVED, to approve the resolutions of the Company's Audit Committee and
Board of Directors pursuant to which (i) options to purchase 350,000 Ordinary
Shares of the Company having an exercise price per share equal to the closing
price of the Company's Ordinary Shares as reported on the Nasdaq National Market
on the last trading day immediately preceding the date of the Meeting shall be
granted to Mr. Slonimsky under the Plan, and (ii) that the options shall vest in
quarterly installments over a forty eight month period, commencing on the
ninetieth day following the date of grant."
The Board of Directors recommends a vote FOR approval of the proposed
resolutions.
14
ITEM 8 -APPROVAL OF AMENDMENT TO THE COMPANY'S INDEMNIFICATION
AGREEMENT WITH EACH OF ITS OFFICERS AND DIRECTORS
The Companies Law permits the Company to indemnify its directors and office
holders for acts or omissions in their capacity as directors and office holders,
respectively. Pursuant to the Companies Law, the adoption of an indemnification
agreement between the Company and any directors of the Company (each, an
"Indemnification Agreement") requires the approval of the Company's Audit
Committee, followed by the Board of Directors, and then by the shareholders.
The Company's Audit Committee and Board of Directors have recommended,
subject to the Company's shareholders' approval, that the existing
Indemnification Agreements that the Company has entered into with each of its
directors and office holders be amended such that the maximum amount payable by
the Company upon an Indemnifiable Event (as such term is defined in the
Indemnification Agreements) be increased from the current amounts, which
currently applies to each director and office holder individually, to an amount
of US$50,000,000 for all directors and office holders in the aggregate.
The Company's Audit Committee has approved the proposed amendment to the
indemnification agreement with each of the directors and office holders on March
8, 2004 and the Company's Board of Directors has approved the proposed amendment
to the indemnification agreement with each of the directors and office holders
on March 9, 2004. As set forth above, the adoption of the above resolutions of
the Company's Audit Committee and Board of Directors with respect to the
amendment of the indemnification agreement with each of the directors is subject
to approval of the Company's shareholders, which shall be sought at the Meeting.
Vote Required
The affirmative vote of the holders of a majority of the voting power
represented at the Meeting in person or by proxy and voting thereon is necessary
for approval of the following resolution.
It is proposed that at the Meeting the following resolution be adopted:
"RESOLVED, that the Indemnification Agreements be amended such that the
Limit Amount (as such term is defined in the Indemnification Agreements) in the
event of an Indemnifiable Event (as such term is defined in the Indemnification
Agreements) be amended to US$50,000,000 for all directors and office holders in
the aggregate."
The Board of Directors recommends a vote FOR approval of the proposed
resolution.
15
ITEM 9 - APPROVAL OF PURCHASE OF DIRECTORS' AND OFFICERS' INSURANCE POLICY
The Companies Law permits the Company to purchase, maintain and renew
insurance for the benefit of its directors and office holders for acts or
omissions in their capacity as directors and office holders, respectively. The
Companies Law also imposes certain restrictions on the insurance of directors
and office holders. Pursuant to the Companies Law, the purchase of the directors
and officers insurance policies requires the approval of the Company's Audit
Committee, followed by the Board of Directors, and then by the shareholders.
The Audit Committee and Board of Directors resolved, subject to the
Company's shareholders' approval, to approve the purchase of directors and
officers insurance policies for the Company's directors and office holders,
provided that the policy to be purchased by the Company will comply with the
restrictions imposed under the Companies Law.
The Company's Audit Committee has approved the purchase of the directors
and officer holders' insurance policies on March 8, 2004 and the Company's Board
of Directors has approved the purchase of the directors and officer holders'
insurance policies on March 9, 2004. Accordingly, the adoption of the above
recommendations of the Company's Audit Committee and Board of Directors with
respect to the purchase of the directors and officers insurance policies is
subject to approval of the Company's shareholders, which shall be sought at the
Meeting.
Vote Required
The affirmative vote of the holders of a majority of the voting power
represented at the Meeting in person or by proxy and voting thereon is necessary
for approval of the following resolutions.
It is proposed that at the Meeting the following resolutions be adopted:
"RESOLVED, to approve the procurement by the Company of insurance with
respect to the liability of the directors and office holders of the Company that
may serve from time to time, with a cost to the Company not to exceed
US$1,000,000 per annum."
"FURTHER RESOLVED, that, subject to the maximum cost as set forth above, no
further action of the Company's shareholders will be required in connection with
the procurement from time to time of such insurance coverage and the renewal
and/or extension thereof."
The Board of Directors recommends a vote FOR approval of the proposed
resolutions.
16
ITEM 10 - APPROVAL OF INCREASE IN THE NUMBER OF STOCK OPTIONS AVAILABLE
UNDER THE COMPANY'S GLOBAL 2002 SHARE OPTION PLAN
The Company's Audit Committee and Board of Directors resolved, subject to
the Company's shareholders' approval, to approve an increase of 4,000,000
Ordinary Shares in the number of the Company's Ordinary Shares subject to the
Plan. This pool is intended to be used for grant to employees and officers over
the next two years.
The Company's Audit Committee has approved an increase in the number of the
Company's Ordinary Shares on March 8, 2004 and the Company's Board of Directors
has approved the Audit Committee recommendation on March 9, 2004.
Vote Required
The affirmative vote of the holders of a majority of the voting power
represented at the Meeting in person or by proxy and voting thereon is necessary
for approval of the following resolution.
It is proposed that at the Meeting the following resolution be adopted:
"RESOLVED, that the number of the Company's Ordinary Shares subject to the
Company's Plan be increased by 4,000,000."
The Board of Directors recommends a vote FOR approval of the proposed
resolution.
17
ITEM 11 - REAPPOINTMENT AND REMUNERATION OF INDEPENDENT AUDITORS
At the Meeting, the shareholders will be asked to approve the reappointment
of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, as the
Company's independent auditors for the period ending at the Company's next
Annual General Meeting of Shareholders. The shareholders will also be asked to
authorize the Board of Directors to fix the remuneration of the auditors.A
representative of the auditors will be present at the Meeting and will be
available to respond to appropriate questions by the shareholders. In addition,
at the Meeting, the shareholders will receive a report of the Company's Board of
Directors with respect to the compensation of Kost Forer Gabbay & Kasierer for
the year ended December 31, 2003.
Vote Required
The affirmative vote of the holders of a majority of the voting power
represented at the Meeting in person or by proxy and voting thereon is necessary
for approval of the following resolutions.
It is proposed that at the Meeting the following resolutions be adopted:
"RESOLVED, that Kost Forer Gabbay & Kasierer, a member of Ernst & Young
Global, be appointed as the independent auditors of the Company for the period
ending upon the next annual general meeting of shareholders."
"RESOLVED FURTHER, that the Board of Directors of the Company be authorized
to fix the compensation of the independent auditors."
The Board of Directors recommends a vote FOR approval of the proposed
resolutions.
18
ITEM 12 - REVIEW OF THE COMPANY'S AUDITED CONSOLIDATED FINANCIAL
STATEMENTS FOR YEAR ENDED DECEMBER 31, 2003
At the Meeting, the audited consolidated financial statements of the
Company for the year ended December 31, 2003 and the Auditors' Report in respect
thereto will be reviewed and the auditors will answer appropriate questions.
19
OTHER BUSINESS
Management knows of no other business to be transacted at the Meeting.
However, if any other matters are presented properly at the Meeting, the persons
designated as proxies intend to vote upon such matters in accordance with their
best judgment.
By Order of the Board of Directors,
/s/ Anthony Maher
Anthony Maher, Chairman
Dated: March 29, 2004
20
ANNEX A
Zvi Slonimsky 2004 Compensation Package
---------------------------------------
Mr. Slonimsky's annual bonus shall be restated, as follows:
The Bonus Plan for 2004:
--------------------------------------------------------------------------------------------------------------------
Bonus Based on Formula Maximum Bonus Notes
--------------------------------------------------------------------------------------------------------------------
Company sales: $40,000 M$170 - $20,000
0-$40,000 World wide total sales M$190 - $30,000
(shipments) M$200 - $40,000
--------------------------------------------------------------------------------------------------------------------
Board Meeting key targets in
0-$35,000 Discretion: $35,000 the Company
By the Chairman organization, R&D,
budgets, financials,
market share and build out.
--------------------------------------------------------------------------------------------------------------------
Maximum bonus $75,000
21
[ALVARION LOGO]
LETTER TO SHAREHOLDERS
AND 2003 FINANCIAL STATEMENTS
To Our Shareholders:
2003 was an important transitional period for us. After two very difficult
years, we grew our revenues, both organically and through a strategic
acquisition, improved our margins and continued to reduce our loss, and managed
to report a net profit in Q4 . For a detailed view of 2003 financial results, we
encourage you to refer to the enclosed financial statements. Now, we are focused
on leading the broadband wireless industry in its next phase of growth,
transforming it from a niche to a mainstream market.
Return to Growth and Profitability
Our revenues grew 43% to $127 million in 2003, reflecting improving demand and
the successful acquisition of InnoWave at the beginning of the second quarter.
We achieved sequential growth in each quarter and improved gross margins from
39% in Q1 to 42% in Q4.
We also maintained tight control over our operating expenses and reduced our
operating loss from $4.3 million in Q1 to only $792,000 in Q4. On a GAAP basis,
we achieved breakeven EPS in Q4 and, excluding amortization, we reported a
profit of $0.01 per fully diluted share. Our entire team worked very hard this
past year to maintain our market leadership and position the company for the
future, while also improving our bottom line and achieving profitability. This
was an important interim milestone on the way to achieving our long term goals.
Growth in Demand for Broadband
Three years ago, only five million DSL lines had been installed. Now there are
over 80 million DSL lines deployed around the world. Yet there are tens of
millions of additional customers who want broadband connectivity but can't get
it because in developed regions there are "white zones" DSL or other broadband
solutions can't reach. In the U.S., for example, as overall demand for broadband
increases, so does the demand in areas lacking coverage from DSL or cable, which
is prompting the incumbent operators to consider broadband wireless technology.
Strong demand is coming from the developing regions of the world where the
existing infrastructure is of poor quality or missing entirely. The authorities
in areas such as Latin America, China, India, Africa and Eastern Europe are
choosing to leapfrog the limitations of wireline technology and deploy wireless
networks to support universal voice and broadband data services. Our largest
project so far, which began in Q4, is a major infrastructure initiative in Latin
America that calls for tens of thousands of lines to be rolled out over a few
quarters. The acquisition completed in 2003 was very successful. and we are in a
much stronger position with respect to serving the needs of the developing
regions as a result of adding these products.
Regulatory Factors
During 2003, the Chinese Ministry of Information Industry , awarded licenses in
32 cities. We are pleased to report that each of the major Chinese operators, in
turn, awarded business to Alvarion together with one of its local partners. In
fact, we believe we have the highest market share of any vendor outside of
China. We are pleased with our initial progress in China, which we believe
positions us to take advantage of future opportunities in the region. Additional
licenses will be awarded on a province level in 2004, and we expect China to
become an important source of revenue over the next few years. We are also
active in several additional developing areas such as Russia and Africa and we
see future potential in several other deregulating low teledensity regions such
as India.
In Western Europe, many governments and municipalities are now mandating 100%
broadband availability, requiring the incumbent operators to fill their DSL
coverage gaps. In most European countries, this represents a significant number
of households. Broadband wireless solutions provide a fast and cost effective
way to meet this requirement. Currently, we are working with telcos in the UK,
France and Sweden on universal access projects which are mostly in a trial
phase.
The Role of Standards
The ability of standards adoption to act as a catalyst for growth is evident in
the growth patterns of the fax, cellular and wirless LAN markets. Our belief in
the power of standards has caused us to be active in this area for several
years. We have been one of the most active proponents of the 802.16 standard and
we helped found the WiMAX Forum in 2003 to promote its adoption.
In one of the major developments of 2003, Intel Corporation made a very strong
commitment to the standard, pledged to develop 802.16-compliant silicon, which
is to be available to equipment vendors by the end of 2004. We are fortunate to
have a close strategic relationship with Intel and we have been working in close
cooperation with them. With the availability of mass produced chips, the cost of
customer premise equipment is expected to decline dramatically.
Lower cost, coupled with better throughput and greater ease of installation
resulting from next generation technology, plus interoperability to facilitate
multi-vendor networks are some of the advantages that are expected to fuel
growth in demand for WiMAX-compliant solutions.
Market Leadership
According to a well-respected market research firm, Pyramid Research, in a
report published in November 2003, Alvarion is leading the wireless broadband
market with 45% market share, while the second largest market participant has
only a 10% share. In the same report, Pyramid estimates that our industry will
grow 20-40% annually. The report indicates that, even in a conservative
scenario, broadband wireless connections are expected to expand globally at a
27% compound average growth rate between now and 2008.
Although it is difficult to predict the exact rate, we expect our market to grow
many multiples of the single-digit growth of the telecom industry as a whole,
and we look forward to the future with great enthusiasm. I would like to
recognize the contribution of our entire team in maintaining our leadership
position and in relentlessly pursuing the drive toward profitability during this
past year. Having achieved that goal, we are now setting our sight even higher
and hope to increase both growth and profitability and establish the standard by
which the entire industry will be judged in the future.
Finally, I would like to thank our shareholders for having faith in us during
the difficult years and we look forward to enjoying success together in the
years to come.
Sincerely yours
Zvi Slonimsky
Chief Executive Officer
March 28, 2004
ALVARION LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003
IN U.S. DOLLARS
INDEX
Page
----------
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Operations F-5
Statements of Changes in Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-38
- - - - - - -
[ERNST & YOUNG LOGO]
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
ALVARION LTD.
We have audited the accompanying consolidated balance sheets of Alvarion
Ltd. ("the Company") and its subsidiaries as of December 31, 2002 and 2003, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiaries as of December 31, 2002 and 2003, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States.
Tel-Aviv, Israel /s/ KOST FORER GABBAY & KASIERER
February 5, 2004 A Member of Ernst & Young Global
F-2
ALVARION LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars in thousands
December 31,
-----------------------------------
2002 2003
---------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 22,356 $ 22,323
Short-term bank deposits - 30,036
Marketable securities (Note 3) 41,199 27,060
Trade receivables (net of allowance for doubtful accounts of $918 and
$712 as of December 31, 2002 and 2003, respectively) (Note 17) 11,750 21,199
Other accounts receivable and prepaid expenses (Note 4) 4,872 4,499
Inventories (Note 5) 27,502 36,981
---------------- ---------------
Total current assets 107,679 142,098
---------------- ---------------
LONG-TERM INVESTMENTS:
Long-term bank deposits 43,748 20,687
Marketable securities (Note 3) 55,360 53,510
Long-term receivables - 834
Severance pay fund 3,732 5,493
---------------- ---------------
Total long-term investments 102,840 80,524
---------------- ---------------
PROPERTY AND EQUIPMENT, NET (Note 6) 11,116 11,939
---------------- ---------------
INTANGIBLE ASSETS, NET (Note 7) 13,200 12,165
---------------- ---------------
GOODWILL 37,240 38,231
---------------- ---------------
Total assets $ 272,075 $ 284,957
================ ===============
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
ALVARION LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars in thousands except share data
December 31,
-----------------------------------
2002 2003
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 10) $ - $ 1,749
Trade payables 15,847 23,780
Other accounts payable and accrued expenses (Note 8) 17,595 26,210
---------------- ----------------
Total current liabilities 33,442 51,739
---------------- ----------------
LONG-TERM LIABILITIES:
Long-term debt (Note 10) - 5,248
Accrued severance pay 5,446 7,768
Other long-term liabilities (Note 11) 5,357 -
---------------- ----------------
Total long-term liabilities 10,803 13,016
---------------- ----------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 13)
SHAREHOLDERS' EQUITY (Note 14):
Share capital -
Ordinary shares of NIS 0.01 par value:
Authorized: 85,080,000 and 85,080,000 shares as of December 31,
2002 and 2003, respectively; Issued: 55,011,202 shares and
57,618,340 shares as of December 31, 2002 and 2003, respectively;
Outstanding: 51,915,629 and 53,821,567 shares as of December 31,
2002 and 2003, respectively 142 148
Additional paid-in capital 370,978 376,161
Treasury shares at cost 3,095,573 shares and 3,796,773 shares as of
December 31, 2002 and 2003, respectively (6,543) (7,876)
Deferred stock compensation (488) (160)
Accumulated deficit (136,259) (148,071)
---------------- ----------------
Total shareholders' equity 227,830 220,202
---------------- ----------------
Total liabilities and shareholders' equity $ 272,075 $ 284,957
================ ================
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
ALVARION LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data
Year ended December 31,
---------------------------------------------------
2001 2002 2003
--------------- -------------- --------------
Sales (Notes 16 and 17) $ 98,968 $ 88,849 $ 127,208
Cost of sales 59,484 55,120 68,535
Write-off of excess inventory and provision for inventory
purchase commitments (Note 1e) 53,881 250 6,562
--------------- -------------- --------------
Gross profit (loss) (14,397) 33,479 52,111
--------------- -------------- --------------
Operating costs and expenses:
Research and development, net (Note 18a) 21,096 24,077 23,505
Selling and marketing 30,258 26,570 32,904
General and administrative 6,226 6,018 6,323
Merger and acquisition related expenses 2,841 - 2,201
Amortization of intangible assets 1,200 2,400 2,606
Amortization of deferred stock compensation (Note 18b) 726 580 511
In-process research and development write-off 26,300 - -
Restructuring (Note 9) 5,437 1,102 -
One-time expense related to a settlement of an OCS
program (Note 11) 6,535 - -
--------------- -------------- --------------
Total operating expenses 100,619 60,747 68,050
--------------- -------------- --------------
Operating loss (115,016) (27,268) (15,939)
Financial income, net (Note 18c) 8,540 6,587 4,127
Other expenses (Note 18d) (3,535) - -
--------------- -------------- --------------
Net loss $ (110,011) $ (20,681) $ (11,812)
=============== ============== ==============
Basic and diluted net loss per share $ (2.80) $ (0.38) $ (0.23)
=============== ============== ==============
Number of shares used in calculating basic and diluted
net loss per share 39,298,469 53,940,722 52,127,250
=============== ============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
ALVARION LTD. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share data
Ordinary shares Additional
-------------------------- paid-in Treasury
Number Amount capital shares
------------- ------------- ------------- ------------
Balance as of January 1, 2001 ...................................... 28,130,320 $ 78 $ 217,984 $ --
Net loss ........................................................ -- -- -- --
Exercise of employee stock options .............................. 1,837,925 4 2,161 --
Compensation in respect of shares granted to former directors ... -- -- 185 --
Issuance of shares, options and warrants pursuant to the merger
of Floware and exchange of options to employees ............... 24,681,023 59 150,594 --
Cancellation of deferred stock compensation due to termination of
employment .................................................... -- -- (71) --
Amortization of deferred stock compensation ..................... -- -- -- --
------------- ------------- ------------- ------------
Balance at December 31, 2001 ....................................... 54,649,268 141 370,853 --
Net loss ........................................................ -- -- -- --
Exercise of employee stock options .............................. 361,934 1 222 --
Purchase of Treasury shares ..................................... (3,095,573) -- -- (6,543)
Cancellation of deferred stock compensation due to termination
of employment .................................................. -- -- (97) --
Amortization of deferred stock compensation ..................... -- -- -- --
------------- ------------- ------------- ------------
Balance at December 31, 2002 ....................................... 51,915,629 142 370,978 (6,543)
Net loss ........................................................ -- -- -- --
Exercise of employee stock options .............................. 2,607,138 6 4,922 --
Purchase of Treasury shares ..................................... (701,200) -- -- (1,333)
Deferred stock compensation related to options granted
to a director .................................................. -- -- 183 --
Amortization of deferred stock compensation related to options
granted to a director ........................................ -- -- -- --
Issuance of warrant pursuant to acquisition of InnoWave ......... -- -- 78 --
Amortization of deferred stock compensation ..................... -- -- -- --
------------- ------------- ------------- ------------
Balance at December 31, 2003 ....................................... 53,821,567 $ 148 $ 376,161 $ (7,876)
============= ============= ============= ============
Deferred Total
stock Accumulated shareholders'
compensation deficit equity
-------------- ------------- -------------
Balance as of January 1, 2001 ...................................... $ -- $ (5,567) $ 212,495
Net loss ........................................................ -- (110,011) (110,011)
Exercise of employee stock options .............................. -- -- 2,165
Compensation in respect of shares granted to former directors ... -- -- 185
Issuance of shares, options and warrants pursuant to the merger
of Floware and exchange of options to employees ............... (2,100) -- 148,553
Cancellation of deferred stock compensation due to termination of
employment .................................................... 71 -- --
Amortization of deferred stock compensation ..................... 864 -- 864
-------------- ------------- -------------
Balance at December 31, 2001 ....................................... (1,165) (115,578) 254,251
Net loss ........................................................ -- (20,681) (20,681)
Exercise of employee stock options .............................. -- -- 223
Purchase of Treasury shares ..................................... -- -- (6,543)
Cancellation of deferred stock compensation due to termination
of employment .................................................. 97 -- --
Amortization of deferred stock compensation ..................... 580 -- 580
-------------- ------------- -------------
Balance at December 31, 2002 ....................................... (488) (136,259) 227,830
Net loss ........................................................ -- (11,812) (11,812)
Exercise of employee stock options .............................. -- -- 4,928
Purchase of Treasury shares ..................................... -- -- (1,333)
Deferred stock compensation related to options granted
to a director .................................................. (183) -- --
Amortization of deferred stock compensation related to options
granted to a director ........................................ 23 -- 23
Issuance of warrant pursuant to acquisition of InnoWave ......... -- -- 78
Amortization of deferred stock compensation ..................... 488 -- 488
-------------- ------------- -------------
Balance at December 31, 2003 ....................................... $ (160) $(148,071) $ 220,202
============== ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
ALVARION LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars in thousands
Year ended December 31,
----------------------------------------------------
2001 2002 2003
--------------- -------------- ---------------
Cash flows from operating activities:
Net loss .......................................................... $(110,011) $ (20,681) $ (11,812)
Adjustments required to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation ...................................................... 3,302 3,575 4,128
Amortization of deferred stock compensation ....................... 864 580 511
Compensation in respect of shares granted to former directors ..... 185 -- --
Interest, amortization of premium and accretion of discounts on
held-to-maturity marketable securities, bank deposits and other
long-term liabilities ........................................... 394 261 148
Loss (gain) as a result of sale and impairment of held-to-maturity
marketable securities ........................................... 407 (13) --
Write-off of property and equipment ............................... 1,123 -- --
Expenses related to a settlement of an OCS program ................ 6,535 -- --
In-process research and development write-off ..................... 26,300 -- --
Amortization of other intangible assets ........................... 1,200 2,400 2,606
Write-off of investment ........................................... 3,500 -- --
Decrease (increase) in trade receivables .......................... 13,562 5,329 (5,683)
Discount accretion related to long-term receivables ............... -- -- 325
Decrease in other accounts receivable and prepaid expenses ........ 1,598 4,401 915
Decrease (increase) in inventories ................................ 32,380 3,562 (934)
Increase (decrease) in trade payables ............................. (17,693) (6,976) 6,524
Increase (decrease) in other accounts payable and accrued expenses (1,592) (1,962) 3,280
Accrued severance pay, net ........................................ (160) (14) 561
Others ............................................................ 35 27 95
--------------- -------------- ---------------
Net cash provided by (used in) operating activities ............... (38,071) (9,511) 664
--------------- -------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment ................................ (6,023) (4,260) (3,105)
Proceeds from sale of property and equipment ...................... 145 34 --
Proceeds from maturity of bank deposits ........................... 147,881 74,568 8,025
Investment in bank deposits ....................................... (136,810) (52,821) (14,925)
Investment in held-to-maturity marketable securities .............. (132,323) (135,350) (55,232)
Proceeds from maturity of held-to-maturity marketable securities .. 157,719 114,854 69,861
Proceeds from sale of held-to-maturity marketable securities ...... 6,973 9,478 1,137
Proceeds from long-term receivables ............................... -- -- 915
Cash and cash equivalents resulted (used) pursuant to the merger of
Floware (a) and the acquisition of InnoWave (b) ................. 23,566 (118) (9,334)
--------------- -------------- ---------------
Net cash provided by (used in) investing activities ............... 61,128 6,385 (2,658)
--------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from exercise of employee stock options .................. 2,165 223 4,928
Purchase of Treasury shares ....................................... -- (6,543) (1,333)
Proceeds from long-term debt ...................................... -- -- 6,900
Settlement of an OCS long-term liability .......................... -- -- (8,534)
--------------- -------------- ---------------
Net cash provided by (used in) financing activities ............... 2,165 (6,320) 1,961
--------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents .................. 25,222 (9,446) (33)
Cash and cash equivalents at the beginning of the year ............ 6,580 31,802 22,356
--------------- -------------- ---------------
Cash and cash equivalents at the end of the year .................. $ 31,802 $ 22,356 $ 22,323
=============== ============== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
ALVARION LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars in thousands
Year ended December 31,
---------------------------------------------------
2001 2002 2003
-------------- --------------- --------------
Supplemental disclosure of cash flows activities:
Cash paid during the year for interest $ 358 $ 41 $ 334
=========== =========== ===========
Non-cash transactions:
Purchase of property and equipment against trade payables $ 882 $ 481 $ 128
=========== =========== ===========
(a) Cash and cash equivalents from the merger with Floware
(see also Note 1c):
Net fair value of the assets acquired and liabilities
assumed at the merger date was as follows:
Working capital, net (excluding cash and cash equivalents
short-term bank deposits and marketable securities) $ 9,865
Short-term bank deposits and marketable securities 31,902
Property and equipment 3,507
Accrued severance pay, net (509)
In-process research and development 26,300
Current technology 16,800
Goodwill 37,240
Deferred stock compensation 2,100
-----------
127,205
Issuance of Ordinary shares, options and warrants, net (150,653)
Accrued expenses related to the merger (118)
-----------
$ (23,566)
===========
(b) Cash and cash equivalents from the acquisition of InnoWave
(see also Note 1d):
Net fair value of the assets acquired and liabilities
assumed at the acquisition date was as follows:
Working capital, net $ 3,137
Long-term receivables 1,512
Property and equipment 2,200
Other intangible assets 1,572
Goodwill 991
-----------
9,412
(78)
Issuance of warrant -----------
$ 9,334
===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 1:- GENERAL
a. Alvarion Ltd. together with its worldwide subsidiaries ("the
Company") is a provider of wireless broadband connectivity
infrastructure. The Company's solutions are used by telecom
carriers and service providers worldwide. The Company's products
provide broadband data and voice services for subscribers in the
"last mile" of connectivity for feeding cellular networks and for
private network. The Company's product offerings provide a range
of integrated broadband wireless solutions by market segment and
frequency band, designed to address the various business models
of carriers and service providers. The Company's products are
usually used in a point-to-multipoint architecture and address a
wide scope of end-user profiles, from residential and small
office, home office markets, through small and medium enterprises
and multi-tenant units/multi-dwelling units. The Company's
products operate in licensed and license-free bands ranging from
2.4 GHz to 28 GHz frequency bands.
As for geographic markets and major customers, see Note 16.
On August 1, 2001, following the merger with Floware Wireless
Systems Ltd., the Company changed its name from BreezeCOM Ltd. to
Alvarion Ltd.
b. Alvarion Ltd. has 14 wholly-owned subsidiaries: in the United
States, United Kingdom, France, Romania, Brazil, Hong-Kong,
Germany, Japan, Mexico, Turkey, Poland, Israel, Netherlands and
Uruguay.
c. Merger with Floware:
Effective August 1, 2001, Floware Wireless Systems Ltd.
("Floware") was merged into the Company in a stock-for-stock
transaction. The merger has been accounted for under Statement of
Financial Accounting Standard No. 141 "Business Combinations"
("SFAS No. 141") using the purchase method of accounting.
Floware, developed, manufactured and sold fixed broadband
wireless access systems used mainly by telecommunications
carriers that connect primarily business customers in the "last
mile" of connectivity.
The Company determined the fair value of the issued Ordinary
shares using Emerging Issues Task Force No. 99-12 "Determination
of the Measurement Date For the Market Price of Acquirer
Securities Issued in a Purchase Business Combination" ("EITF No.
99-12"). According to EITF No. 99-12 the fair value is determined
based on the average market price of the Company's Ordinary
shares a few days before and after the announcement date.
The total purchase price of the merger was $ 155,377.
The purchase price consisted of the issuance of 24,681,023 of the
Company's Ordinary shares (at an estimated fair value of
$130,316), options to purchase 5,230,469 of the Company's
Ordinary shares (at an estimated fair value of $ 19,612), a
warrant to purchase 416,174 of the Company's Ordinary shares (at
an estimated fair value of $ 725) and merger-related expenses of
approximately $ 4,724. The allocation of the purchase price based
on the fair value of assets acquired and liabilities assumed was
as follows:
F-9
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 1:- GENERAL (Cont.)
Net tangible assets $ 72,937
Intangible assets:
Goodwill 37,240
Current technology 16,800
Deferred stock-based compensation 2,100
In-process research and development 26,300
------------------
Total $ 155,377
==================
The amounts allocated to current technology are amortized on a
straight-line basis over seven years.
The amount allocated to deferred stock-based compensation relates
to the intrinsic value of the unvested Floware stock options
assumed. The Floware stock options generally vested over a period
of four years and accordingly, this deferred stock-based
compensation is amortized over the remaining vesting period of
the individual awards as of the merger date.
The amount allocated to in-process research and development
("IPRD") was determined based on an appraisal performed by an
independent third party and was expensed upon consummation of the
merger in accordance with FASB Interpretation No. 4,
"Applicability of FASB Statement No. 2 to Business Combinations
Accounted for by the Purchase Method" ("FIN 4"), because
technological feasibility had not been established and no future
alternative use existed for it.
The operations of Floware are included in the consolidated
statements from the effective date.
The unaudited pro forma information below assumes that the merger
had been consummated on January 1, 2001 and includes the effect
of amortization of current technology and the deferred
stock-based compensation from that date. The impact of
non-recurring charges for purchased IPRD has been excluded, as it
does not represent a continuing expense. This data is presented
for information purposes only and is not necessarily indicative
of the results of future operations or the results that would
have been achieved had the acquisition taken place on that date.
The pro forma information is as follows:
Year ended
December 31,
----------------
2001
----------------
Unaudited
----------------
Net revenues $ 137,099
================
Net loss $ (130,848)
================
Basic and diluted net earnings loss per share $ (2.43)
================
F-10
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 1:- GENERAL (Cont.)
d. Acquisition of InnoWave Wireless Systems:
On April 1, 2003, the Company acquired certain assets and assumed
certain liabilities of InnoWave Wireless Systems Ltd.
("InnoWave") for an aggregate purchase price of $ 9,428. The
purchase price consists of a cash payment of $ 9,100, fair value
of $ 78 related to a warrant issued to the selling company
("ECI") to purchase 200,000 Ordinary shares of the Company and $
250 acquisition related costs.
InnoWave was a provider of fixed wireless wideband voice and data
point-to-multipoint solutions.
The acquisition of InnoWave strengthens and enlarges the
Company's diversified customer base and distributions channels
and enables the Company to offer its customers with a
comprehensive range of integrated wireless broadband access
products and platforms.
The acquisition has been accounted for using the purchase method
of accounting as determined in SFAS No.141 and accordingly, the
purchase price has been allocated to the assets acquired and the
liabilities assumed based on the estimated fair value at the date
of acquisition.
Based upon a valuation of tangible and intangible assets
acquired, the Company has allocated the total cost of the
acquisition, as follows:
At April 1, 2003
-----------------------
Current assets $ 13,411
Property and equipment 2,200
Long-term receivables 1,512
Intangible assets:
Technology 1,072
Customer relations 500
Goodwill 991
-----------------------
Total assets acquired 19,686
-----------------------
Liabilities assumed:
Current liabilities (10,258)
-----------------------
Total liabilities assumed (10,258)
-----------------------
Net assets acquired $ 9,428
========================
The amount of the excess cost attributable to current technology
of two products - the MGW and eMGW is $ 1,072 and was determined
using the Income Approach on the basis of the present value of
cash flows attributable to the current technology over expected
future life.
F-11
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 1:- GENERAL (Cont.)
The value assigned to the customer relations amounted to $ 500.
The Company's customer relations have been valued using the
Income Approach. The valuation of the customer relations derives
mostly from long standing relationships with customers with no
contracts.
The excess of the cost of $ 991 over the net of the amounts
assigned to assets acquired and liabilities assumed is recognized
as goodwill. An acquired workforce that does not meet the
separability criteria has been included in the amount recognized
as goodwill.
The amounts allocated to intangible assets other than goodwill
are amortized on a straight-line basis over a weighted average
amortization period of 6.8 years, ranging between three and a
half to eight years (see also Note 2j and 2k).
The operations of InnoWave are included in the consolidated
statements since April 1, 2003.
The unaudited pro forma information below assumes that the
acquisition had been consummated on January 1, 2002 and January
1, 2003 and includes the effect of amortization of intangible
assets from that date. This data is presented for information
purposes only and is not necessarily indicative of the results of
future operations or the results that would have been achieved
had the acquisition taken place on those dates. The pro forma
information is as follows:
Year ended December 31,
-----------------------------------
2002 2003
----------------- ----------------
Unaudited
-----------------------------------
Net revenues $ 134,633 $ 130,675
================= ================
Net loss $ (99,682) $ (13,734)
================= ================
Basic and diluted net loss per share $ (1.85) $ (0.26)
================= ================
e. Inventories write-off:
The Company periodically assesses the valuation of its
inventories with respect to dead and slow moving items, revenue
forecasts and technological obsolescence. When inventories on
hand exceed the foreseeable demand or become obsolete, the value
of excess inventory, which at the time of the review was not
expected to be sold, is written off.
During 2001, 2002 and 2003, the Company recorded inventories
write-offs in a total amount of $ 45,281 $ 250 and $ 5,255,
respectively and an additional $ 8,600, $ 0 and $ 1,307,
respectively related to the Company's commitments to purchase
inventories no longer required.
F-12
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 1:- GENERAL (Cont.)
The purchase commitment liability is related to on-order
inventory that is in excess of the Company's future demand
forecasts, amounted to approximately $ 3,400 and $ 4,390 as of
December 31, 2002 and 2003, respectively.
During 2003, approximately $ 6,133 of inventory previously
written-off had been utilized.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United
States ("U.S. GAAP").
a. Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
b. Financial statements in U.S. dollars ("dollars"):
A majority of the Company's revenues are generated in dollars. In
addition, a substantial portion of the Company's costs are
denominated and determined in dollars. The Company's management
believes that the dollar is the primary currency in the economic
environment in which the Company operates. Thus, the functional
and reporting currency of the Company is the dollar.
Accordingly, monetary accounts maintained in currencies other
than the dollar are remeasured into dollars in accordance with
Statement of the Financial Accounting Standard No. 52 "Foreign
Currency Translation" ("SFAS No. 52"). All transaction gains and
losses from the remeasurement of monetary balance sheet items are
reflected in the statement of operations as appropriate.
c. Principles of consolidation:
The consolidated financial statements include the accounts of
Alvarion Ltd. and its wholly-owned subsidiaries. Intercompany
transactions and balances, including profits from intercompany
sales not yet realized outside the Company, have been eliminated
in consolidation.
d. Cash equivalents:
Cash equivalents are short-term highly liquid investments that
are readily convertible to cash, with maturities of three months
or less at the date acquired.
e. Short-term and long-term bank deposits:
F-13
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Bank deposits with maturities of more than three months and up to
one year are included in short-term bank deposits. Bank deposits
with maturities of one year or more are included in long-term
bank deposits. As of December 31, 2002 and 2003, most of the bank
deposits are in U.S. dollars and bear interest at a weighted
average interest rate of 3.6% and 4.06% respectively. The
deposits are presented at their cost, including accrued interest.
f. Marketable securities:
The Company accounts for its investments in marketable securities
using Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115").
Management determines the appropriate classification of its
investments in debt securities at the time of purchase and
reevaluates such determinations at each balance sheet date.
Marketable debt securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the
securities to maturity and are stated at amortized cost.
In the years ended December 31, 2002 and 2003, all securities
covered by SFAS No. 115 were designated by the Company's
management as held-to-maturity.
The amortized cost of held-to-maturity securities is adjusted for
amortization of premiums and accretion of discounts to maturity.
Such amortization and interest are included in the statements of
operations as financial income or expenses, as appropriate.
Realized gains and losses on sales of investments, as determined
on a specific identification basis, are included in the
statements of operations.
g. Inventories:
Inventories are stated at the lower of cost or market value. Cost
is determined as follows:
Raw materials and components - using the "weighted moving average
cost" method.
Work in process and finished products is based on the cost of raw
material and components used and the cost of production as
follows:
Labor and overhead calculated on a periodic average basis, which
approximates actual cost including direct and indirect
manufacturing costs and related overhead.
Inventory write offs have been provided to cover risks arising
from dead and slow moving items, technological obsolescence and
excess inventories according to revenue forecasts (see also Note
1e).
h. Long-term trade receivables
F-14
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Long-term receivables from InnoWave's acquisition carrying
extended payment terms, were recorded at estimated present values
determined based on appropriate interest rates and reported at
their net amount in the accompanying financial statements.
Imputed interest is recognized, using the effective interest
method as a component of interest income in the accompanying
statements of operations.
i. Property and equipment, net:
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is calculated by the straight-line
method over the estimated useful lives of the assets, at the
following annual rates:
%
---------------------------------
Office furniture and equipment 7 - 15
Computers and manufacturing equipment 15 - 33
Motor vehicles 15
Leasehold improvements Over the term of the lease
j. Impairment of long-lived assets:
The Company's long-lived assets and certain identifiable
intangible assets are reviewed for impairment in accordance with
Statement of Financial Accounting Standard No. 144, "Accounting
for the Impairment or Disposal of Long-lived Assets" ("SFAS No.
144"), whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to the future
undiscounted cash flows expected to be generated by the assets.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. As of
December 31, 2002 and 2003, no impairment losses have been
identified.
k. Other intangible assets, net:
Intangible assets acquired in a business combination should be
amortized over their useful life using a method of amortization
to reflect the pattern in which the economic benefits of the
intangible assets are consumed or otherwise used up, in
accordance with Statement of Accounting Standard No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142"):
Current technology - (i) the acquired Floware current technology
is being amortized over a period of seven years on the
straight-line method and, (ii) the amount allocated to the
InnoWave current technology is being amortized on a straight-line
basis over 4.75 years and 7.75 years reflecting different product
amortization schedules.
Customer relations - The amount allocated to the customer
relations is being amortized on a straight-line basis over 3.75
years reflecting the expected attrition in customer
relationships.
F-15
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
l. Goodwill:
The Company assesses the carrying value of goodwill in accordance
with SFAS No. 142, under which goodwill acquired in a business
combination for which the date is on or after July 1, 2001,
should not be amortized, but tested for impairment at least
annually or between annual tests in certain circumstances, and
written down when impaired. Goodwill attributable to the
Company's single reporting unit as defined under SFAS No. 142,
was tested for impairment by comparing its fair value with its
carrying value. Fair value is determined using income approach
and market approach. Estimates used in the methodologies include
future cash flows, future short-term and long-term growth rates,
weighted average cost of capital and estimates of market
multiples.
During 2002 and 2003, the Company performed the required annual
impairment tests of goodwill's fair value. Based on management
projections, expected future discounted operating cash flows and
market multiples, no indication of goodwill impairment was
identified.
m. Income taxes:
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standard No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). This Statement prescribes the
use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences
between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to
reverse. The Company provides a valuation allowance, if
necessary, to reduce deferred tax assets to their estimated
realizable value.
n. Accounting for stock-based compensation:
The Company has elected to follow Accounting Principles Board
Statement No. 25, "Accounting for Stock Options Issued to
Employees" ("APB No. 25") and FASB Interpretation No. 44
"Accounting for Certain Transactions Involving Stock
Compensation" ("FIN No. 44") in accounting for its employee stock
option plans. Under APB No. 25, when the exercise price of an
employee stock option is equivalent to or above the market price
of the underlying stock on the date of grant, no compensation
expense is recognized.
The Company adopted the disclosure provisions of Financial
Accounting Standards Board Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" ("SFAS No.
148"), which amended certain provisions of SFAS 123 to provide
alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for
stock-based employee compensation. The Company continues to apply
the provisions of APB No. 25, in accounting for stock-based
compensation.
Pro forma information regarding the Company's net loss and net
loss per share is required by SFAS No. 123 and has been
determined as if the Company had accounted for its employee stock
options under the fair value method prescribed by SFAS No. 123.
F-16
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The fair value of options granted in 2001, 2002 and 2003 is amortized
over their vesting period and estimated at the date of grant using a
Black-Scholes options pricing model with the following weighted
average assumptions:
2001 2002 2003
-------------- -------------- --------------
Dividend yield 0% 0% 0%
Expected volatility 84% 53% 94%
Risk-free interest 2.5-5% 1.5% 3%
Expected life of up to 4 years 4 years 4 years
Pro forma information under SFAS No. 123, is as follows:
Year ended December 31,
----------------------------------------------------
2001 2002 2003
-------------- ------------- ---------------
Net loss available to Ordinary shares - as $ (110,011) $ (20,681)
reported $ (11,812)
Add - stock-based employee compensation -
intrinsic value 864 580 511
Deduct - stock-based employee compensation
-fair value (12,182) (7,618) (8,064)
-------------- -------------- ---------------
Pro forma:
Net loss $ (121,329) $ (27,719) $ (19,365)
============== ============== ===============
Net loss per share:
Basic and diluted net loss, as reported $ (2.80) $ (0.38) $ (0.23)
============== ============== ===============
Pro forma basic and diluted net loss $ (3.09) (0.51) $ (0.37)
============== ============== ===============
o. Revenue recognition:
The Company generates revenues from selling its products
indirectly through distributors and OEMs and directly to
end-users.
Revenues from products are recognized in accordance with Staff
Accounting Bulletin No. 104 "Revenue Recognition in Financial
Statements" ("SAB No. 104"), when the following criteria are met:
persuasive evidence of an arrangement exists, delivery has
occurred, the seller's price to the buyer is fixed or
determinable, no further obligation exists and collection is
reasonably assured.
The Company generally does not grant a right of return. However,
the Company has granted to certain distributors limited rights of
return on unsold products. Product revenues on shipments to these
distributors are deferred until the distributors resell the
Company's products to their customers.
The Company generally does not grant a right of return to its
OEMs and end users. In certain instances, when such a right has
been granted, the Company defers revenue until the right of
return expires, at which time revenue is recognized provided that
all other revenue recognition criteria are met.
F-17
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
During 2003, the Emerging Issues Task Force issued EITF Issue No.
00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF
00-21"). The provisions of EITF 00-21 applied to revenue
arrangements entered into in fiscal periods beginning after June
15, 2003. This consensus addresses certain aspects of accounting
by a vendor for arrangements under which it will perform multiple
revenue-generating activities, including, how to determine
whether an arrangements involving multiple deliverables contains
more than one unit of accounting.
In cases under which the Company is obligated to perform post
delivery installation services, the Company considers the sale of
equipment and installation to be one unit of accounting in
accordance with EITF 00-21 guidelines. As such, revenues
generated from such arrangements are recognized upon completion
of the installation.
In transactions, where a customer's contractual terms include a
provision for customer acceptance, revenues are recognized either
when such acceptance has been obtained or the acceptance
provision has lapsed.
p. Warranty costs:
The Company offers a 12 to 36 months warranty period for all of
its products. The specific terms and conditions of a warranty
vary depending upon the product sold and customer it is sold to.
The Company estimates the costs that may be incurred under its
warranty and records a liability in the amount of such costs at
the time product revenue is recognized. Factors that affect the
Company's warranty liability include the number of units,
historical rates of warranty claims and cost per claim. The
Company periodically assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary.
Changes in the Company's warranty allowance during the period are
as follows:
Year ended December 31,
-------------------------------
2002 2003
-------------- --------------
Balance at the beginning of the year $ 2,640 $ 1,202
Warranties issued during the year 1,057 4,529
Settlements made during the year (1,510) (1,213)
Changes in liability for pre-existing warranties during the year,
including expirations (985) (448)
-------------- --------------
Balance at the end of the year $ 1,202 $ 4,070
============== ==============
q. Research and development:
Research and development costs, net of grants received, are
charged to the statement of operations as incurred.
F-18
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
r. Grants and participations:
Royalty and non-royalty bearing grants from the Government of
Israel for funding approved research and development projects are
recognized at the time the Company is entitled to such grants, on
the basis of the costs incurred and included as a deduction of
research and development costs. Total royalties accrued or paid
amounted to $ 2,425, $ 0 and $ 1,167 in 2001, 2002 and 2003,
respectively.
s. Severance pay:
The liability for severance pay for the Israeli companies is
calculated pursuant to Israel's Severance Pay Law, based on the
most recent salary of the employees multiplied by the number of
years of employment as of the balance sheet date for all
employees in Israel. Employees are entitled to one month's salary
for each year of employment or a portion thereof. The Company's
liability for all of its employees is fully provided by monthly
deposits with severance pay funds, insurance policies and by an
accrual. The value of these policies is recorded as an asset in
the Company's balance sheet.
The deposited funds include profits accumulated up to the balance
sheet date. The deposited funds may be withdrawn only upon the
fulfillment of the obligation pursuant to Israel's Severance Pay
Law or labor agreements. The value of these policies is recorded
as an asset in the Israeli companies' balance sheets. Severance
pay expenses for the years ended December 31, 2001, 2002 and
2003, were $ 4,787, $ 2,787 and $ 2,410, respectively.
t. Advertising expenses:
Advertising expenses are carried to the statement of operations
as incurred. Advertising expenses for the years ended December
31, 2001, 2002 and 2003, were $ 1,138, $ 351 and $ 250,
respectively.
u. Basic and diluted net loss per share:
Basic net loss per share is computed based on the weighted
average number of Ordinary shares outstanding during each year.
Diluted net loss per share is computed based on the weighted
average number of Ordinary shares outstanding during each year,
plus dilutive potential of Ordinary shares considered outstanding
during the year, in accordance with Statement of Financial
Standard No. 128, "Earnings Per Share." ("SFAS No. 128").
All outstanding stock options and warrants have been excluded
from the calculation of the diluted net loss per Ordinary share
because all such securities are anti-dilutive for all periods
presented. The total weighted average number of shares related to
the outstanding options and warrants excluded from the
calculations of diluted net loss per share was 12,473, 14,730 and
15,548 for the years ended December 31, 2001, 2002 and 2003,
respectively.
F-19
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
v. Concentration of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
cash equivalents, short-term bank deposits, long-term bank
deposits, marketable debt securities, trade receivables and
long-term receivables.
The majority of the Company's cash and cash equivalents,
short-term bank deposits and long-term bank deposits are invested
in U.S. dollar deposits with major U.S., European and Israeli
banks. Deposits in the U.S. may be in excess of insured limits
and are not insured in other jurisdictions. Management believes
that the financial institutions that hold the Company's
investments are financially sound and accordingly, minimal credit
risk exists with respect to these investments.
The Company's marketable securities include investments in
debentures of U.S. corporations. Management believes that those
corporations are financially sound, the portfolio is well
diversified and, accordingly, minimal credit risk exists with
respect to these marketable securities.
The trade receivables and the long-term receivables of the
Company and its subsidiaries are derived from sales to customers
located primarily in North America and Latin America, the Far
East and Europe. The Company and its subsidiaries generally do
not require collateral; however, under certain circumstances, the
Company and its subsidiaries may require letters of credit, other
collateral, additional guarantees or advance payments. Regarding
certain credit balances, the Company is covered by foreign trade
risk insurance. The Company and its subsidiaries perform ongoing
credit evaluations of their customers and, to date, have not
experienced material losses. An allowance for doubtful accounts
is determined with respect to specific receivables whose
collection may be doubtful.
The allowance for doubtful accounts expenses (income) for the
years ended December 31, 2001, 2002 and 2003, was $ 200, $ 88 and
$ (582), respectively.
As for derivative financial instruments, see Note 12.
w. Fair value of financial instruments:
The estimated fair value of financial instruments has been
determined by the Company using available market information and
valuation methodologies. Considerable judgment is required in
estimating fair values. Accordingly, the estimates may not be
indicative of the amounts the Company could realize in a current
market exchange.
The carrying amounts of cash and cash equivalents, short-term
bank deposits, trade receivables and trade payables approximate
their fair values, due to the short-term maturities of these
instruments.
The fair value of marketable debt securities are based on quoted
market prices and do not significantly differ from carrying
amount (see Note 3).
F-20
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The fair value of long-term bank deposits, long-term receivables,
and long-term liabilities were estimated by discounting the
future cash flows, using the rate currently available for
deposits and for the long-term receivables and liabilities of
similar terms and maturity. The carrying amount of the Company's
long-term bank deposits, long-term receivables, and long-term
liabilities approximate their fair value.
The fair value of derivative instruments is estimated by
obtaining current quotes from banks.
x. Derivative instruments:
Financial Accounting Standards Board Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"), requires companies to recognize all of its
derivative instruments as either assets or liabilities in the
statement of financial position at fair value. The accounting for
changes in the fair value (i.e., gains or losses) of a derivative
instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and further, on the
type of hedging relationship. For those derivative instruments
that are designated and qualify as hedging instruments, a company
must designate the hedging instrument, based upon the exposure
being hedged, as a fair value hedge, cash flow hedge or a hedge
of a net investment in a foreign operation.
For derivative instruments that are designated and qualify as a
fair value hedge (i.e., hedging the exposure to changes in the
fair value of an asset or a liability or an identified portion
thereof that is attributable to a particular risk), the gain or
loss on the derivative instrument as well as the offsetting loss
or gain on the hedged item attributable to the hedged risk are
recognized in current earnings during the period of the change in
fair values. For derivative instruments that are designated and
qualify as a cash flow hedge (i.e., hedging the exposure to
variability in expected future cash flows that is attributable to
a particular risk), the effective portion of the gain or loss on
the derivative instrument is reported as a component of other
comprehensive income and reclassified into earnings in the same
period or periods during which the hedged transaction affects
earnings. The remaining gain or loss on the derivative instrument
in excess of the cumulative change in the present value of future
cash flows of the hedged item, if any, is recognized in current
earnings during the period of change. For derivative instruments
not designated as hedging instruments, the gain or loss is
recognized in current earnings during the period of change (see
also Note 12).
y. Impact of recently issued accounting standards:
In April 2003, the FASB issued SFAS No. 149 ("SFAS 149"),
"Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS 149 amends and clarifies (1) the accounting
guidance on derivative instruments (including certain derivative
instruments embedded in other contracts) and (2) hedging
activities that fall within the scope of FASB Statement No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 149 amends SFAS 133 to reflect decisions made
(1) as part of the Derivatives Implementation Group ("DIG")
process that effectively required amendments to SFAS 133, (2) in
connection with other projects dealing with financial
instruments, and (3) regarding implementation issues related to
the application of the definition of a derivative. SFAS 149 is
effective (1) for contracts entered into or modified after June
30, 2003, with certain exceptions, and (2) for hedging
relationships designated after June 30, 2003. The guidance is to
be applied prospectively.
F-21
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Generally, SFAS 149 improves financial reporting by (1) requiring that
contracts with comparable characteristics be accounted for similarly
and (2) clarifying when a derivative contains a financing component
that warrants special reporting in the statement of cash flows. SFAS
149 is not expected to have a material impact on the Company's
financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"). The objective of FIN 46 is
to improve financial reporting by companies involved with variable
interest entities. A variable interest entity is a corporation,
partnership, trust, or any other legal structure used for business
purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities. FIN 46
requires a variable interest entity to be consolidated by a company if
that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. FIN 46 also
requires disclosures about variable interest entities that the company
is not required to consolidate but in which it has a significant
variable interest. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31,
2003. The consolidation requirements apply to older entities in the
first fiscal year or interim period end after December 31, 2003.
Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the
variable interest entity was established. As of December 31, 2003, the
Company does not expect the adoption of FIN 46 to have a material
impact on its consolidated financial statements.
NOTE 3:- MARKETABLE SECURITIES
The following is a summary of held-to-maturity marketable securities:
Gross Gross Estimated
Amortized unrealized unrealized fair market
cost gains losses value
---------------- --------------- --------------- --------------
December 31, 2002:
Corporate and bank debentures:
Maturing within one year ....... $ 41,199 $ 612 $ (7) $ 41,804
Maturing within one to two years 55,360 810 (14) 56,156
-------- -------- -------- --------
$ 96,559 $ 1,422 $ (21) $ 97,960
======== ======== ======== ========
December 31, 2003:
Corporate and bank debentures:
Maturing within one year ....... $ 27,060 $ 79 $ (224) $ 26,915
Maturing within one to two years 53,510 138 (353) 53,295
-------- -------- -------- --------
$ 80,570 $ 217 $ (577) $ 80,210
======== ======== ======== ========
The Company sold held-to-maturity marketable securities during the
years ended December 31, 2001, 2002 and 2003 amounting to $ 6,973, $
9,478 and $ 1,137, respectively. The marketable securities were sold
before their maturity, due to a deterioration in their credit rating.
As a result of the sale, the Company recorded immaterial gains during
2001, 2002 and 2003.
F-22
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 3:- MARKETABLE SECURITIES (Cont.)
As of December 31, 2003, the aggregate amount of gross unrealized
losses, which have been in a continuous loss position for 12 months or
longer was immaterial.
NOTE 4:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
December 31,
------------------------
2002 2003
------- -------
Government authorities $ 2,307 $ 1,552
Prepaid expenses 1,190 1,231
Others 1,375 1,716
------- -------
$ 4,872 $ 4,499
======= =======
NOTE 5:- NVENTORIES
Raw materials and components $10,320 $11,624
Work in process 10,121 10,623
Finished products 7,061 14,734
------- -------
$27,502 $36,981
======= =======
See also Note 1e.
NOTE 6:- ROPERTY AND EQUIPMENT, NET
Cost:
Office furniture and equipment $ 1,566 $ 1,582
Computers and manufacturing equipment 16,806 21,367
Motor vehicles 33 38
Leasehold improvements 2,182 2,552
------- -------
20,587 25,539
------- -------
Accumulated depreciation:
Office furniture and equipment 451 575
Computers and manufacturing equipment 8,389 12,137
Motor vehicles 18 20
Leasehold improvements 613 868
------- -------
9,471 13,600
------- -------
Depreciated cost $11,116 $11,939
======= =======
F-23
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 7:- OTHER INTANGIBLE ASSETS
Intangible assets:
December 31,
-------------------------
2002 2003
-------- --------
Cost:
Current technology $ 16,800 $ 17,871
Customer relations -- 500
-------- --------
16,800 18,371
Accumulated amortization:
Current technology 3,600 6,106
Customer relations -- 100
-------- --------
Accumulated amortization (3,600) (6,206)
-------- --------
Amortized cost $ 13,200 $ 12,165
======== ========
Current technology amortization expenses amounted to $ 1,200, $ 2,400
and $ 2,507 for the years ended December 31, 2001, 2002 and 2003,
respectively. The estimated amortization expenses for each of the
succeeding years will be $ 2,542 for the first four years, $ 1,332 for
the fifth year and additional $131 for the sixth and seventh years.
Customer relations amortization expenses amounted to $ 100 for the
year ended December 31, 2003. The estimated amortization expenses for
each of the three succeeding years will be $ 133.
NOTE 8:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31,
-------------------------
2002 2003
-------- --------
Employees and payroll accruals $ 6,061 $ 8,831
Accrued expenses 3,355 6,649
Royalties payable the OCS 3,571 1,477
Allowance for restructuring costs 616 --
Provision for merger and acquisition
related expenses 707 839
Warranty provision 1,202 4,070
Provision for agent commissions 717 2,740
Others 1,366 1,604
-------- --------
$17,595 $26,210
======== ========
F-24
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 9: - RESTRUCTURING COSTS
During 2001, the Company announced that it was implementing a cost
reduction plan including the layoff of approximately 200 employees.
The Company recorded a charge of $ 5,437. The cash and non-cash
elements of the restructuring charge are $ 4,314 and $ 1,123,
respectively.
On November 5, 2002, the Company announced that it was implementing an
additional plan intended to further reduce costs and increase
efficiencies. As part of the cost reduction initiative, approximately
60 employees were laid off. The Company recorded restructuring charges
of $ 1,102.
The Company has accounted for the 2001 and 2002 restructuring plans in
accordance with EITF 94-3, "Liability Recognition for Certain Employee
Benefits and Other Costs to Exit an Activity (Including Certain Costs
Incurred in a Restructuring)" and Staff Accounting Bulletin No. 100
"Restructuring and Impairment Charges ("SAB No. 100"), except for the
2001 write down of long-lived assets, which has been accounted for in
accordance with Statement of Financial Accounting Standard No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS No. 121").
As of December 31, 2003, the major components of the 2001 and 2002
restructuring plans charges are as follows:
Balance
Utilized as of
Original ----------------------------- December 31,
accruals Cash Non-cash 2003
-------- ---- -------- ------------
Write-down of long lived assets $1,123 $ -- $1,123 $ --
Employees termination benefits 3,830 3,830 -- --
Lease abandonment 1,359 1,359 -- --
Other 227 227 -- --
-------- ------ -------- ------------
$6,539 $5,416 $1,123 $ --
======== ====== ======== ============
NOTE 10:- LONG-TERM DEBT
December 31,
2003
------------
Long-term loan (1) $6,996
Less - current maturities 1,748
------------
$5,248
============
As of December 31, 2003, the aggregate annual maturities of the
long-term loan are as follows:
First year (current maturities) $1,748
Second year $1,749
Third year $1,749
Fourth year $1,750
F-25
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 10:- LONG-TERM DEBT (Cont.)
1) During 2003, the Company entered into a long-term loan agreement
with a bank designated for the settlement of a portion of its OCS
royalties payment obligation (see also Note 11).
The loan is linked to the U.S. dollar and is payable in four
equal annual installments carrying variable interest of LIBOR +
0.33% per annum. The accrued interest as of December 31, 2003,
amounted to $ 96.
NOTE 11:- OTHER LONG-TERM LIABILITIES
Through December 2001, the Company participated in royalties bearing
programs sponsored by the Israeli Government for the support of
research and development activities. The Company had obtained grants
from the Office of the Chief Scientist in Israel's Ministry of
Industry and Trade ("the OCS") and was obligated to pay royalties to
the OCS, amounting to 3%-5% of the sales of the products and other
related revenues generated from the projects funded by the OCS. The
obligation to pay royalties was contingent on actual sales of the
products funded.
In December 2001, the Company entered into an arrangement
(hereinafter: "the Arrangement") with the OCS for early payment of all
royalties arising from future sales with respect to previous research
and development grants to the Company. Under the Arrangement, the
Company settled its outstanding contingent royalty commitment,
regardless of the actual level of future sales. As a result of this
Arrangement, the Company recorded a one-time operating charge of $
6,535 with respect to the payments, which the Company is obligated to
make to the OCS.
Under the Arrangement, the repayment to the OCS could be made over a
period of five years from the date of settlement. The liability is
linked to Israel's Consumer Price Index ("CPI") and bears annual
interest of 4%. During 2003, the Company settled the amount due for $
8,534 (see also Note 10).
This Arrangement enables the Company to participate in new OCS
programs under which it will be eligible to receive grants for
research and development projects without any royalty repayment
obligations excluding OCS programs grants resulting from InnoWave's
former operations which were not included in the Arrangement .
NOTE 12:- DERIVATIVE FINANCIAL INSTRUMENTS
a. Cash Flow Hedging Strategy
To hedge against the risk of overall changes in cash flows
resulting from forecasted foreign currency salary payments during
the year, the Company has instituted a foreign currency cash flow
hedging program. The Company hedges portions of its forecasted
expenses denominated in NIS with put and call options (zero -
cost collar). These option contracts are designated as cash flow
hedges, as defined by SFAS No. 133 and are all effective.
The Company recognized gains of $2,214 during the year ended
December 31, 2003. All amounts have been included in salary
expenses in the statement of operations.
F-26
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 12:- DERIVATIVE FINANCIAL INSTRUMENTS (Cont.)
b. Fair Value Hedging Strategy
The Company enters into forward exchange contracts to hedge a
portion of its NIS trade payables denominated in foreign currency
for a period of one to three months. The purpose of the Company's
foreign currency hedging activities is to protect the Company
from changes in the foreign exchange rate.
The Company recognized gains of $360 during the year ended
December 31, 2003 related to the forward exchange contracts.
NOTE 13:- COMMITMENTS AND CONTINGENT LIABILITIES
a. Premises occupied by the Company are leased under various lease
agreements. The lease agreements for the premises in Israel and
the U.S. will both expire in May 2006.
The Company has leased various motor vehicles under operating
lease agreements. These leases expire in fiscal year 2006.
Future minimum rental payments under non-cancelable leases for
the year ending December 31, 2003 are as follows:
Rental of Lease of
premises motor vehicles
--------- --------------
2004 $2,918 $2,029
2005 2,003 1,357
2006 620 453
--------- --------------
$5,541 $3,839
========= ==============
Total rental expenses for the years ended December 31, 2001, 2002
and 2003, were $ 2,925, $ 3,594 and $ 3,991, respectively. Motor
vehicle leasing expenses for the years ended December 31, 2001,
2002 and 2003, were $ 1,453, $ 2,041 and $ 2,219, respectively.
b. Litigations
1. A third party has made a demand to enforce an alleged
agreement with the Company under which, the Company
should be the lessee, for the lease of approximately
150,700 square feet. Under the alleged agreement the
monthly lease and maintenance payments are
approximately $ 300 and the lease is for a period of
seven years. The Company and the third party are
negotiating settlement and the management of the
Company does not believe it would have a material
effect on the Company's financial results.
F-27
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 13:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
2. The Company received a notice from a former customer
claiming for reimbursement of approximately $3,000 from
the Company. As this notice is yet in its preliminary
stage, it is impractical to predict its outcome.
The management of the Company does not believe it will
have a material effect on the Company's financial
results.
c. As of December 31, 2003 the Company obtained bank
guarantees in the total amount of approximately $9,911, in
favor of vendors, customers, lessors and Government
authorities.
d. Royalties:
The Company participated in programs sponsored by the
Israeli Government for the support of research and
development activities. During 2003, the Company had
recorded royalty-bearing grants from the Office of the
Chief Scientist of Israel's Ministry of Industry and Trade
("the OCS") aggregating to $1,087 for certain of the
Company's research and development projects. The Company is
obligated to pay royalties to the OCS, amounting to 3%-5%
of the sales of the products and other related revenues
generated from such projects, up to 100%-150% of the grants
received, linked to the U.S. dollar and for grants received
after January 1, 1999 also bearing interest at the rate of
LIBOR. The obligation to pay these royalties is contingent
upon actual sales of the products, and in the absence of
such sales, no payment is required.
During 2003, the Company has paid or accrued royalties to
the OCS in the amount of $1,167. As of December 31, 2003,
the aggregate contingent liability to the OCS amounted to
$9,778.
F-28
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data
NOTE 14:- SHARE CAPITAL
a. The Company listed its shares for trade on the Nasdaq National
Market and on the Tel-Aviv Stock Exchange.
As for issuance of shares related to Floware's merger, see also
Note 1c.
b. Shareholders' rights:
The Ordinary shares confer upon the holders rights to receive
notice to participate and vote in general meetings of the
Company, to receive dividends, if and when declared and to
receive, upon liquidation, a pro rata share of any remaining
assets.
c. Treasury stocks:
Through December 31, 2002, the Company resolved to implement a
share buy-back plan under which the total amount to be paid for
the repurchased shares shall not exceed $ 9,000.
As of December 31, 2003, the Company purchased 3,796,773 shares
at a weighted average price per share of approximately $ 2.07 per
share.
d. Exchange offer plan:
During September 2002, the Company adopted a voluntary employee
stock option exchange program, under which the employees were
offered the right to cancel outstanding stock options carrying an
exercise price above $ 4.6 in exchange for a future grant. The
number of new options for each participant was calculated under
the terms of the plan based on each participant's cancelled
options exercise price. The future grant took place six months
and one day from the cancellation date and ranged from 2% to 85%
of the number of cancelled options.
The new options, generally, vest over two and a half years of
employment. The exercise price of the new options is based on the
fair market value of the Company's Ordinary shares at the time of
the grant thereof. The total number of options cancelled under
the exchange program was 6,031,913.
e. Warrants:
In connection with Floware's merger, the Company issued warrants
to purchase 416,174 of its Ordinary shares exercisable through
March 2005, at a weighted average exercise price of $ 5.42 per
share, in exchange for then outstanding Floware warrants. (See
also Note 1c).
In connection with the acquisition of InnoWave, the Company
issued to ECI Telecom Ltd. ("ECI") a warrant to purchase 200,000
Ordinary shares of the Company exerciseable over a period of five
years at an exercise price of $ 3 per share.
F-29
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data
NOTE 14:- SHARE CAPITAL (Cont.)
f. Share options:
Since 1994, the Company has granted options to purchase Ordinary
shares to key employees, directors and consultants as an
incentive to attract and retain qualified personnel under several
plans. Under the terms of these plans options generally vest
ratably over a period of up to four years, commencing on the date
of grant. The options generally expire no later than 10 years
from the date of grant, and are non-transferable, except under
the laws of succession. Each option may be exercised to purchase
one Ordinary share for an exercise price that is generally equal
to the fair market value of the underlying share on the date of
grant. Options that are cancelled or forfeited before expiration
become available for future grants.
The Company has five stock option plans under which 20,588,178
Ordinary shares were reserved for issuance. As of December 31,
2003, 997,092 Ordinary shares of the Company are still available
for future grants under the various option plans.
A summary of the Company's stock option activity (except options
to consultants) and related information is as follows:
Year ended December 31,
-------------------------------------------------------------------------------------
2001 2002 2003
---------------------------- ---------------------------- ---------------------------
Weighted Weighted Weighted
average average average
Amount exercise Amount of exercise Amount of exercise
of options price options price options price
-------------- ------------ -------------- ------------ ------------- ------------
Outstanding at the 9,367,507 $ 6.92 16,017,081 $ 5.88 8,074,838 $ 3.18
beginning of the
year
Granted *)11,017,692 $ 5.43 489,300 $ 1.77 8,019,296 $ 3.51
Exercised (1,886,746) $ 1.13 (361,934) $ 0.62 (2,607,138) $ 1.89
Forfeited or
cancelled (2,481,372) $ 11.39 (8,069,609) $ 8.58 (630,688) $ 7.08
-------------- -------------- -------------
Outstanding at the
end of the year 16,017,081 $ 5.88 8,074,838 $ 3.18 12,856,308 $ 3.45
============== ============ ============== ============ ============= ============
Options exercisable
at December 31,
2002 5,957,460 $ 4.88 5,286,793 $ 3.03 5,815,793 $ 2.9
============== ============ ============== ============ ============= ============
*) Including 5,230,469 options granted to former Floware
employees at the merger date (see Note 1c).
In connection with the grant of certain share options to
employees in 2001, 2002 and 2003, the Company recorded
amortization of deferred stock compensation of $ 864, $ 580 and $
511, respectively, for the aggregate differences between the
respective exercise price of options at their dates of grant and
the fair value of the Ordinary shares subject to such options.
Unamortized deferred stock compensation is presented as a
reduction in shareholders' equity and is amortized ratably over
the vesting period of the related options.
F-30
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data
NOTE 14:- SHARE CAPITAL (Cont.)
The options outstanding as of December 31, 2003, have been
classified into range of exercise prices, as follows:
Options Weighted Options
outstanding average Weighted exercisable Weighted
as of remaining average as of average
Exercise price December 31, contractual exercise December 31, exercise
(range) 2003 life (years) price 2003 price
--------------------- --------------- ------------- ---------- --------------- -------------
$ $ $
--------------------- ---------- -------------
0.0023 - 0.003 225,821 3.1824 0.00 225,821 0.00
0.56 - 0.639 69,595 2.7772 0.60 69,595 0.60
0.96 - 1.2692 658,656 4.5022 1.10 637,641 1.09
1.9 - 2.74 8,024,162 8.2071 2.17 2,728,038 2.14
2.992-3.52 1,664,442 3.1681 3.58 1,662,750 3.55
4.6023 - 6.39 767,411 7.9963 5.69 239,973 5.31
8.9297-13.2986 1,405,727 8.9927 10.95 220,201 11.86
13.5 - 16.9492 29,324 5.5422 14.01 22,956 13.95
35.04 11,170 5.7220 35.04 8,818 35.04
--------------- ---------------
12,856,308 3.45 5,815,793 2.9
=============== ========== =============== =============
Weighted average fair value of options whose exercise price is
greater than, equal to or lower than the market price of the
shares at date of grant are as follows:
Weighted average fair value of
options granted at an exercise price
----------------------------------------------------
2001 2002 2003
--------------- -------------- ---------------
Less than fair value at date of grant $ 3.31 $ - $ 0.16
=============== ============== ===============
Equal to fair value at date of grant $ 1.63 $ 0.73 $ 2.27
=============== ============== ===============
Exceeds the fair value at date of grant $ 2.13 $ - $ -
=============== ============== ===============
During 2002 the Company issued 40,000 options to purchase
Ordinary shares with an exercise price of par value to its former
directors. Since the Company was committed to issue such shares
during 2001, the Company recorded a $ 185 charge as merger
expenses in 2001.
During 2003, the Company issued 300,000 options to purchase
Ordinary shares to one of its directors. As a result, the Company
recorded deferred stock compensation amounting to $ 183.
The director's grants terms are included in the aforementioned
tables.
i Dividends:
In the event that cash dividends are declared in the future, such
dividends will be paid in NIS. The Company's Board of Directors
has determined that tax exempt income if any, will not be
distributed as dividends.
F-31
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 15:- TAXES ON INCOME
Income derived by Alvarion Ltd. is generally subject to the regular
Israeli corporate tax rate of 36%. However, as detailed below, income
derived in Israel from certain "Approved Enterprises" will enjoy
certain tax benefits for a specific definitive period. The allocation
of income derived from approved enterprises is dependent upon
compliance of certain requirements with the Investment Law.
a. Tax benefits under the Law for the Encouragement of Capital
Investments, 1959:
Alvarion Ltd. has been granted status as an "Approved Enterprise"
under the Law for the Encouragement of Capital Investments, 1959
("the investment law"). According to the provision of the law,
Alvarion Ltd. has elected the "alternative benefits" track
provisions of the investment law, pursuant to which Alvarion has
waived its right to grants and instead receives a tax benefit on
undistributed income derived from the "Approved Enterprise"
program. The entitlement to tax benefits depends upon compliance
with the investment law regulations. In 1995, Alvarion Ltd. was
first granted the status of "Approved Enterprise" regarding the
production facilities in Tel-Aviv. By reason of the tax benefits,
the income derived from this "Approved Enterprise" will be tax
exempt for a period of four years, and will be taxed at a reduced
rate of 10% to 25% for six additional years (depending on the
percentage of foreign investment in the Company). The 10-year
period of benefits will commence with the first year in which
Alvarion Ltd. earns taxable income. In 1997, Alvarion Ltd.'s
production facility in Nazareth was granted status as an
"Approved Enterprise". Accordingly, Alvarion Ltd.'s income from
that "Approved Enterprise" will be tax-exempt for a period of 10
years. The 10-year period of benefits will commence with the
first year in which Alvarion Ltd. earns taxable income.
During February 2000, Alvarion Ltd. submitted an expansion
request for its third "Approved Enterprise" regarding its
production facilities in Nazareth and Carmiel. The income derived
from this "Approved Enterprise" will be tax-exempt for a period
of 10 years. The 10-year period of benefits will commence with
the first year in which Alvarion Ltd. earns taxable income.
Alvarion Ltd.'s expansion request has been approved.
The period of tax benefits is subject to limits of the earlier of
12 years from the commencement of production, or 14 years from
receiving the approval. The period of benefits for the first,
second and third plans have not yet commenced, and will expire in
2008, 2010 and 2014, respectively.
In connection with its merger with Floware, Alvarion Ltd. assumed
the following Floware Ltd. "Approved Enterprise" agreement:
Floware Ltd. was granted an "Approved Enterprise" status for its
1997 plan regarding the production facility in Or-Yehuda. After
the merger, the operations were relocated to Alvarions's
facilities in Tel-Aviv. The income derived from this "Approved
Enterprise" will be tax-exempt for a period of two years and will
enjoy a reduced tax rate thereafter of 10% - 25% for an
additional period of five to eight years (depending on the
percentage of foreign investment in the Company). The period of
benefits will commence with the first year in which Alvarion Ltd.
earns taxable income.
F-32
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 15:- TAXES ON INCOME (Cont.)
In order to maintain its eligibility for benefits following the
merger with Floware, the Company must continue to meet specified
conditions, however, Alvarion has yet to finalize the status of
the tax benefits with the tax authorities following the merger of
Floware.
InnoWave was granted an "Approved Enterprise" status for its 1997
plan regarding the production facility in Omer. During 1999,
InnoWave's request for an expansion was approved.
During 2003, the Company had applied for the assignment of former
InnoWave's "Approved Enterprise" status to Alvarion. As of
December 31, 2003, such approval has not yet been obtained.
Alvarion Ltd.'s entitlement to the above benefits is conditional
upon its fulfilling the conditions stipulated by the Investment
Law, regulations published thereunder and the letters of approval
for the specific investments in "Approved Enterprises". In the
event of failure to comply with these conditions, any benefits
which were previously granted may be canceled and Alvarion Ltd.
may be required to refund the amount of the benefits, in whole or
in part, including interest.
If these retained tax-exempt profits are distributed in a manner
other than in the complete liquidation of the Company they would
be taxed at the corporate tax rate applicable to such profits as
if the Company had not elected the alternative system of
benefits, currently between 15%-20% for an "Approved Enterprise".
As of December 31, 2003, the accumulated deficit of the Company
does not include tax-exempt profits earned by the Company's
"Approved Enterprise".
Alvarion Ltd. has had no taxable income since inception.
b. Tax benefits under the Law for the Encouragement of Industry
(Taxation), 1969:
Alvarion Ltd. is an "industrial company" under the above law and,
as such, is entitled to certain tax benefits, mainly accelerated
depreciation of machinery and equipment. For tax purposes only,
the Company may also be entitled to deduct over a three-year
period expenses incurred in connection with a public share
offering and to amortize know-how acquired from third parties.
c. Measurement of results for tax purposes under the Income Tax Law
(Inflationary Adjustments), 1985:
Results for tax purposes are measured in real terms of earnings
in NIS after certain adjustments for increases in the Consumer
Price Index. As explained in Note 2b, the financial statements of
Alvarion Ltd. are presented in U.S. dollars. The difference
between the annual change in Israel's Consumer Price Index and in
the NIS/dollar exchange rate causes a difference between taxable
income and the income before taxes shown in the financial
statements. In accordance with paragraph 9(f) of SFAS No. 109,
Alvarion Ltd. has not provided deferred income taxes on the
difference between the reporting currency and the tax bases of
assets and liabilities.
F-33
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 15:- TAXES ON INCOME (Cont.)
Commencing with taxable year 2003, the Company has elected to
measure its results for Israeli tax purposes on the basis of
amounts nominated in US dollar. This election obligates the
Company for three years.
d. Income (loss) before taxes on income:
Year ended December 31,
---------------------------------------------------
2001 2002 2003
--------------- --------------- ---------------
Domestic $ (98,276) $ (20,696) $ (11,798)
Foreign (11,735) 15 (14)
--------------- --------------- ---------------
$ (110,011) $ (20,681) $ (11,812)
=============== =============== ===============
e. Carryforward losses:
As of December 31, 2003, Alvarion Ltd. had an available tax loss
carryforward amounting to approximately $ 91,000, which may be
carried forward, in order to offset taxable income in the future,
for an indefinite period.
In addition, the accumulated net tax operating loss carryforward,
in a total amount of approximately $ 65,000, resulted from the
merger with Floware and, at the effective time of the merger, may
be carried forward to subsequent years and may be set off against
the merged company's taxable income, commencing with the tax year
immediately following the merger. This set off is limited to the
lesser of:
1. 20% of the aggregate net tax operating losses carryforward
of the merged companies prior to the effective time of the
merger; and
2. 50% of the combined company's taxable income in the relevant
tax year before the set off of losses from preceding years.
These restrictions, with several modifications, also apply to the
set off of capital losses of the merged companies against capital
gains of the combined company.
As of December 31, 2003, the state and the federal tax losses
carryforward of the U.S. subsidiary amounted to approximately $
6,522 and $ 15,072, respectively. Such losses are available to be
offset against any future U.S. taxable income of the U.S.
subsidiary and will expire in 2008 and 2023, respectively.
Utilization of U.S. net operating losses may be subject to
substantial annual limitations due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state
provisions. The annual limitation may result in the expiration of
net operating losses before utilization.
F-34
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 15:- TAXES ON INCOME (Cont.)
f. Deferred taxes:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's
deferred tax liabilities and assets are as follows:
December 31,
------------------------------------
2002 2003
---------------- ----------------
Tax assets in respect of:
Allowance for doubtful accounts $ 257 $ 114
Severance pay and accrued vacation pay 333 457
Other deductions for tax purposes 1,964 2,386
Net loss carryforward 19,285 19,525
---------------- ----------------
Total deferred tax assets before valuation allowance 21,839 22,482
Valuation allowance (21,839) (22,482)
---------------- ----------------
Net deferred tax assets $ - $ -
================ ================
The Company has provided valuation allowances in respect of
deferred tax assets resulting from tax loss carryforward and
other temporary differences, since the Company has a history of
losses over the past three years. Management currently believes
that it is more likely than not that the deferred tax assets
regarding the loss carryforward and other temporary differences
will not be realized.
The main reconciling items between the statutory tax rate of the
Company and the effective tax rate are the non-recognition of tax
benefits resulted from the Company's accumulated net operating
losses carryforward due to the uncertainty of the realization of
such tax benefits and the effect of the "Approved Enterprise".
NOTE 16:- GEOGRAPHIC AND MAJOR CUSTOMERS INFORMATION
a. The Company manages its business on a basis of one
reportable segment (See Note 1a for a brief description of
the Company's business) and follows the requirements of
Statement of Financial Accounting Standard No. 131
"Disclosures About Segments of an Enterprise and Related
Information" ("SFAS No. 131").
F-35
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 16:- GEOGRAPHIC AND MAJOR CUSTOMERS INFORMATION (Cont.)
b. The following presents total revenues for the years ended
December 31, 2001, 2002 and 2003, and long-lived assets as of
December 31, 2001, 2002 and 2003:
2001 2002 2003
------------------------- ------------------------- -------------------------
Long- Long- Long-
Total lived Total lived Total lived
revenues assets revenues assets revenues Assets
------------ ----------- ------------ ----------- ------------ ------------
Israel $ 656 $ 62,293 $ 655 $ 59,976 $ 1,294 $ 60,892
United States (including
Canada) 32,010 1,212 28,434 1,040 31,710 834
Europe (without Russia,
Sweden, Czech Republic,
and Germany) 24,833 443 18,999 509 21,701 531
Sweden 5,046 - 1,530 - 2,362 -
Czech Republic 2,062 - 3,378 - 2,773 -
Russia 2,240 - 4,087 - 9,802 -
Chile 4,032 - 8,440 - 4,180 -
Mexico 1,411 - 873 - 18,655 38
Japan 8,110 - 6,754 6 217 -
Africa 3,604 - 4,437 - 13,223 -
China 3,456 - 2,843 - 5,086 -
Asia (without China and
Japan) 4,236 24 4,546 - 6,965 15
Latin America (without
Mexico, Chile) 6,934 21 3,634 25 8,093 25
Australia 338 - 239 - 1,147 -
------------ ----------- ------------ ----------- ------------ ------------
$ 98,968 $ 63,993 $ 88,849 $ 61,556 $ 127,208 $ 62,335
============ =========== ============ =========== ============ ============
c. Major customers' data as percentage of total sales:
Year ended December 31,
--------------------------------------------------
2001 2002 2003
-------------- -------------- --------------
Customer A 0% 0% 15.20%
============== ============== ==============
Customer B (related party, see Note 17) 3.16% 11.40% 8.50%
============== ============== ==============
Customer C 5.54% 10.32% 3.68%
============== ============== ==============
F-36
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 17:- RELATED PARTY
The Company generates revenues from the sales of its products to one
of the Company's shareholder in the ordinary course of business. The
balances with and the revenues derived from that related party were as
follows:
a. Balances with that related party:
December 31,
---------------------------------
2002 2003
--------------- ---------------
Trade receivables $ 3,039 $ 2,985
=============== ===============
b. Revenues from that related party:
Year ended December 31,
---------------------------------------------------
2001 2002 2003
--------------- --------------- ---------------
Total revenues $ 3,134 $ 10,185 $ 10,883
=============== =============== ===============
NOTE 18:- SELECTED STATEMENTS OF OPERATIONS DATA
a. Research and development:
Year ended December 31,
---------------------------------------------------
2001 2002 2003
--------------- --------------- ---------------
Research and development costs $ 27,078 $ 27,597 $ 27,351
Less - grants 5,982 3,520 3,846
--------------- --------------- ---------------
$ 21,096 $ 24,077 $ 23,505
=============== =============== ===============
b. Amortization of deferred stock compensation:
Cost of revenues $ 51 $ 72 $ 60
Research and development, net 341 310 261
Selling and marketing 167 114 96
General and administrative 167 84 94
--------------- --------------- ---------------
$ *) 726 $ 580 $ 511
=============== =============== ===============
*) In addition, the merger expenses include $ 138 in
amortization of deferred stock compensation expenses for the
year ended December 31, 2001.
F-37
ALVARION LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 18:- SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)
c. Financial income, net:
Year ended December 31,
---------------------------------------------------
2001 2002 2003
--------------- --------------- ---------------
Financial income:
Interest and others $ 9,156 6,445 $ 4,710
Gain on sale of held-to-maturity marketable
securities 13 13 -
Foreign currency translation differences 332 455 (8)
--------------- --------------- ---------------
9,501 6,913 4,702
--------------- --------------- ---------------
Financial expenses:
Interest and bank expenses (541) (326) (575)
Loss on sale and impairment of held to
maturity marketable securities (420) - -
--------------- --------------- ---------------
(961) (326) (575)
--------------- --------------- ---------------
$ 8,540 $ 6,587 $ 4,127
=============== =============== ===============
d. Other expenses:
The investment in a privately-held U.S. company ("the Investee")
was stated at the lower of cost or estimated fair value, since
the Company owns less than 10% of the outstanding shares of the
Investee, and therefore does not have the ability to exercise
significant influence over the operating and financial policies
of the Investee.
During 2001, due to continuing losses and negative cash flows of
the Investee, the Company wrote-off the entire investment in the
amount of $ 3,500. The impairment loss was recorded in other
expenses.
- - - - - - - - - - -
F-38
Corporate Directory*
Board of Directors
Anthony Maher -- Chairman of the Board of Directors
Dr. Meir Barel -- Vice Chairman of the Board of Directors
Dr. Orna Berry -- External Director
Robin Hacke -- External Director
Dr. Raphael Amit -- External Director
Benny Hanigal -- Director
Oded Eran -- Director
Amnon Yacoby -- Director
Zvi Slonimsky -- Director
Executive Management
Zvi Slonimsky -- Chief Executive Officer
Tzvi Friedman -- President and Chief Operating Officer
Amir Rosenzweig -- President, Alvarion, Inc.
Dafna Gruber -- Chief Financial Officer
Zvi Harnik -- Executive Vice President -- Research & Development
Benny Glazer -- Senior Vice President -- Corporate Sales
Independent Auditors
Kost Forer and Gabbay
Member firm of Ernst & Young Global
3 Aminadav Street
Tel Aviv, 67067, Israel
Investor Relations
Carmen Deville
Alvarion Ltd.
21A Habarzel Street
Tel Aviv, 60710, Israel
carmen.deville@alvarion.com
Transfer Agent
American Stock Transfer
59 Maiden Lane
Plaza Level
New York, NY 10038
info@amstock.com
Shares
The Company's shares are traded over the counter (National Market System) under
the NASDAQ symbol ALVR. The Company's ordinary shares are also traded on the
Tel Aviv Stock Exchange.
*As of March 28, 2004