UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 20-F
 
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2016
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________
 
OR
 
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report ____________
 
Commission file number 0-29452
 
RADCOM LTD.
(Exact Name of Registrant as Specified in its Charter)
 
N/A
(Translation of Registrant's Name into English)
 
Israel
(Jurisdiction of Incorporation or Organization)
 
24 Raoul Wallenberg Street, Tel-Aviv 69719, Israel
(Address of Principal Executive Offices)
 
Mr. Yaron Ravkaie :
 (+972) 77-7745-060 (tel), (+972) 3-647-4681 (fax)
24 Raoul Wallenberg Street, Tel Aviv 69719, Israel
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
 

 
Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class
 
Name of Each Exchange on Which Registered
Ordinary Shares, NIS 0.20 par value per share
 
NASDAQ Capital Market
 
Securities registered or to be registered pursuant to Section 12(g) of the Act:     None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:   None
 
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:  As of December 31, 2016 , there were 11,586,228 ordinary shares, NIS 0.20 par value per share, outstanding.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  
 
Yes o No  x
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  
 
Yes o No  x
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  
 
Yes  x No   o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  
 
Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large Accelerated Filer o     Accelerated Filer x     Non-Accelerated Filer o
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP  x
 
International Financial Reporting Standards as issued by the International Accounting Standards Board o
 
Other o
 
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant elected to follow.
 
Item 17 o Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
 
Yes o No x
 
2


INTRODUCTION
 
Except for the historical information contained herein, the statements contained in this annual report on Form 20-F, or this Annual Report, are forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management.

As used in this Annual Report, the terms "we," "us," "our," "RADCOM" and the "Company" mean RADCOM Ltd. and its subsidiaries, unless otherwise indicated.
 
Omni-Q ® is our only registered trademark. All other trademarks and trade names appearing in this Annual Report are owned by their respective holders.

Below are definitions of certain technical terms that are used throughout this Annual Report that are important for understanding this Annual Report.

GLOSSARY OF TECHNICAL INDUSTRY TERMS
 
 
 
3G
 
 
3G (also known as UMTS) is the third generation of wireless mobile telecommunications technology. This is based on a set of standards used for mobile devices and mobile telecommunications use services and networks that comply with the International Mobile Telecommunications -2000 (IMT-2000) specifications by the International Telecommunication Union.
 
4G
 
4G (also known as LTE) is the fourth generation of wireless mobile telecommunications technology, succeeding 3G. In March 2008, the International Telecommunications Union-Radio communications sector (ITU-R) specified a set of requirements for 4G standards, named the International Mobile Telecommunications Advanced (IMT-Advanced) specification. On December 6, 2010, ITU-R recognized that other technologies that go beyond-3G technologies that do not fulfill the IMT-Advanced requirements, could be considered "4G", provided they represent forerunners to IMT-Advanced compliant versions and "a substantial level of improvement in performance and capabilities with respect to the initial third generation systems now deployed."
 
CEM
 
 
Customer Experience Management . A solution to support the strategy that focuses the operations and processes of a business around the needs of the individual customer.
 
CSP
 
 
Communication Service Provider. Includes all service providers offering telecommunication services or some combination of information and media services, content, entertainment and applications services over communication networks. CSPs include the following categories: Telecommunications carrier and cable service provider.
 
CDR
 
 
Call Detail Record is a data record containing metadata that describe a specific instance of a telecommunication transaction, but does not include the content of that transaction. A call detail record can include such data as the phone numbers of both the calling and receiving parties, the start time, and duration of that call.
 
 
3

 
 
GSM
 
 
Global System for Mobile Communications is a standard developed by the European Telecommunications Standards Institute (ETSI) to describe the protocols for second-generation (2G) digital cellular networks used by mobile phones, first deployed in Finland in July 1991.
 
HSPA
 
High-Speed Packet Access . An amalgamation of two mobile protocols, High Speed Downlink Packet Access (HSDPA) and High Speed Uplink Packet Access (HSUPA), that extends and improves the performance of existing 3G mobile telecommunication networks using the WCDMA protocols. A further improved 3GPP standard, Evolved High Speed Packet Access (also known as HSPA+), was released late in 2008.
 
IMS  
 
IP Multimedia Subsystem. An internationally recognized standard defining a generic architecture for offering Voice Over IP and multimedia services to multiple-access technologies.
 
IoT
 
Internet of Things. Internet of things is the internetworking of physical devices, vehicles (also referred to as "connected devices" and "smart devices"), buildings, and other items—embedded with electronics, software, sensors, actuators, and network connectivity that enable these objects to collect and exchange data. IoT is expected to offer advanced connectivity of devices, systems, and services that goes beyond machine-to-machine (M2M) communications and covers a variety of protocols, domains, and applications
 
IP
 
Internet Protocol. The Internet Protocol is the method or protocol by which data is sent from one computer to another on the Internet.
 
KPI
 
Key Performance Indicators.   A set of quantifiable measures that a company uses to gauge its performance over time.
 
KQI
 
Key Quality Indicators are used to gauge the quality of service and can relate to both customer service and technological issues.
 
LTE
 
 
 
 
 
Long Term Evolution. LTE is a set of enhancements to the UMTS which was introduced in 3rd Generation Partnership Project (3GPP) Release 8. Much of 3GPP Release 8 focuses on adopting 4G mobile communications technology, including an all-IP flat networking architecture.
 
LTE-A
 
Long Term Evolution – Advanced. A mobile communication standard and a major enhancement of the LTE standard. LTE-A is a standard for high-speed wireless communication for mobile phones and data terminals, based on the GSM/EDGE and UMTS/HSPA technologies.
 
M2M
 
Machine-2-Machine.   Direct communication between devices using any communications channel, including wired and wireless. Typically, M2M refers to isolated instances of device-to-device communication, and IoT refers to a grander scale, synergizing software stacks to automate and manage communications between multiple devices.
 
NFV 
 
Network Function Virtualization. NFV is a software-centric design approach for building complex information technology (IT) networks and applications, particularly for use by CSPs.  NFV virtualizes entire classes of network functions into building blocks that may be connected, or chained together to create services in software-based, virtualized network environments.  NFV offers a new way to design, deploy and manage networking services. NFV decouples network functions, such as network address translation (NAT), firewalling, intrusion detection, domain name service (DNS), caching, etc., from proprietary hardware appliances, so that these functions can run as virtualized software applications. It is designed to consolidate and deliver the networking components needed to support a fully virtualized infrastructure – including virtual servers, storage and even other networks.  It utilizes standard IT virtualization technologies that run on high-volume service, switch and storage hardware to virtualize network functions. It is applicable to any data plane processing or control plane function in both wired and wireless network infrastructures.
 
 
4

 
 
MANO
 
NFV Management and Orchestration (MANO) is the ETSI-defined framework for the management and orchestration of all resources in the cloud network. This includes computing, networking, storage and virtual machine (VM) resources.
 
OSS
 
 
 
Operational Support System. A suite of programs that enables the enterprise to monitor, analyze and manage a network system. Used in general to mean a system that supports an organization's network operations.
 
OSSii
 
Operations Support Systems interoperability initiative. The initiative has Ericsson, Huawei and Nokia as initiating parties. A system enabling easier interoperability between OSS systems, reducing overall OSS integration costs and enabling shorter time-to-market.
 
Protocol
 
A specific set of rules, procedures or conventions governing the format, means and timing of transmissions between two devices.
 
QoE
 
Quality of Experience . A measure of a customer's experiences with a service (web browsing, phone call, TV broadcast, call to a call center), focuses on the entire service experience, and is a more holistic evaluation than the more narrowly focused user experience (focused on a software interface) and customer-support experience (support focused).
 
Session
 
A lasting connection between a user (or a user agent) and a peer, typically a server, usually involving the exchange of many packets between the user's computer and the server. A session is typically implemented as a layer in a network protocol.
 
SDN
 
Software-Defined Networking. An approach to computer networking that allows network administrators to programmatically initialize, control, change, and manage network behavior dynamically via open interfaces and abstraction of lower-level functionality.
 
SIGTRAN
 
 
The name, derived from signaling transport, of a defunct Internet Engineering Task Force (IETF) working group that produced specifications for a family of protocols that provide reliable datagram service and user layer adaptations for Signaling System 7 (SS7) and ISDN communications protocols. The SIGTRAN protocols are an extension of the SS7 protocol family and are used today together with IMS.
 
 
5

 
TCP
 
 
Transmission Control Protocol. TCP provides a reliable stream delivery and virtual connection service to applications through the use of sequenced acknowledgment with retransmission of packets when necessary. It is one of the core protocols of the IP Suite. TCP is one of the two original components of the suite (the other being IP), so the entire suite is commonly referred to as TCP/IP. Whereas IP handles lower-level transmissions from computer to computer as a message makes its way across the Internet, TCP operates at a higher level, concerned only with the two end systems, for example a Web browser and a Web server.
 
Triple Play
 
A marketing term for the provisioning of the three services: high-speed Internet, television (Video on Demand or regular broadcasts) and telephone service over a single broadband connection.
 
UMTS
 
 
Universal Mobile Telecommunications Service. A third-generation digital high-speed wireless technology for packet-based transmission of text, digitized voice, video, and multimedia that is the successor to GSM.
 
VM-to-VM
 
Virtual Machine-to-Virtual Machine. communications. In a physical network the communications between functions are between a physical element. In a software-defined network, functions such as network elements are virtual machines. VM-to-VM communication is the line of communication between the different VMs.
 
VoIP
 
 
Voice over Internet Protocol (Voice over IP, VoIP and IP telephony) is a methodology and group of technologies for the delivery of voice communications and multimedia sessions over IP networks, such as the Internet.
 
VoLTE
 
 
Voice over Long Term Evolution. VoLTE is GSM's adoption of the "One Voice" initiative, which describes standard configurations for carrying (packet) voice over LTE. VoLTE eliminates the need for 2G/3G voice, the whole problem of multiple networks, certain extra components and costs of devices by carrying the voice over the LTE channel using adaptive multi rate (AMR) coding. Using IMS specifications developed by 3GPP as its basis, GSM has expanded upon the original scope of One Voice work to address the entire end-to-end voice and short message service (SMS) ecosystem by also focusing on roaming and interconnect interfaces, in addition to the interface between customer and network.
 

6


NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains express or implied “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other U.S. Federal securities laws.

These forward-looking statements include, but are not limited to:

 
·
our plans to become the market leader for service assurance to leading CSPs and increase our sales;
 
·
our plans to focus our expansion efforts in tier 1 and other leading CSPs in the North American, European, and Asian markets and our success in doing so;
 
·
our ability to leverage our technology leadership and our cumulative experience to implement one of the largest and most comprehensive NFV deployments;
 
·
our expectations to maintain our technological advantage over our competitors;
 
·
Our failure to meet any guidance we may give to the public from time to time
 
·
delivering and implementing successfully our solutions to AT&T;
 
·
our ability to identify, market and sell our solutions to CSPs migrating to the NFV, LTE, VoLTE and 5G;
 
·
our expectation that the NFV market will continue gaining momentum during 2017;
 
·
mobile data services to become a significant revenue source for CSPs; and
 
·
increased spending by CSPs of next-generation services and increased usage of such services and increase of the potential need for service assurance solutions.
 
In some cases, forward-looking statements are identified by terminology such as "may," "will," "could," "should," "expects," "plans," "anticipates," "believes," "intends," "estimates," "predicts," "potential," or "continue" or the negative of these terms or other comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ materially from those projected. These statements are only current predictions and are subject to known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. The forward-looking statements contained in this Annual Report are subject to risks and uncertainties, including those discussed under Item 3.D. Risk Factors and in our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we are under no duty to (and expressly disclaim any such obligation to) update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Annual Report.
7

 
TABLE OF CONTENTS
 
  10
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 10
OFFER STATISTICS AND EXPECTED TIMETABLE 10
KEY INFORMATION 10
 
A.
SELECTED FINANCIAL DATA
10
 
B.
CAPITALIZATION AND INDEBTEDNESS
12
 
C.
REASONS FOR THE OFFER AND USE OF PROCEEDS
12
 
D.
RISK FACTORS
12
INFORMATION ON THE COMPANY 28
 
A.
HISTORY AND DEVELOPMENT OF THE COMPANY
28
 
B.
BUSINESS OVERVIEW
29
 
C.
ORGANIZATIONAL STRUCTURE
41
 
D.
PROPERTY, PLANTS AND EQUIPMENT
41
UNRESOLVED STAFF COMMENTS 42
OPERATING AND FINANCIAL REVIEW AND PROSPECTS 42
 
A.
OPERATING RESULTS
45
 
B.
LIQUIDITY AND CAPITAL RESOURCES
50
 
C.
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
54
 
D.
TREND INFORMATION
54
 
E.
OFF–BALANCE SHEET ARRANGEMENTS
55
 
F.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
55
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 56
 
A.
DIRECTORS AND SENIOR MANAGEMENT
56
 
B.
COMPENSATION
59
 
C.
BOARD PRACTICES
61
 
D.
EMPLOYEES
65
 
E.
SHARE OWNERSHIP
66
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 67
 
A.
MAJOR SHAREHOLDERS
67
 
B.
RELATED PARTY TRANSACTIONS
68
 
C.
INTERESTS OF EXPERTS AND COUNSEL
70
FINANCIAL INFORMATION 70
 
A.
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
70
 
B.
SIGNIFICANT CHANGES
70
THE OFFER AND LISTING 70
 
A.
OFFER AND LISTING DETAILS
70
 
B.
PLAN OF DISTRIBUTION
71
 
C.
MARKETS
71
 
D.
SELLING SHAREHOLDERS
72
 
E.
DILUTION
72
 
F.
EXPENSES OF THE ISSUE
72
ADDITIONAL INFORMATION 72
 
A.
SHARE CAPITAL
72
 
B.
MEMORANDUM AND ARTICLES OF ASSOCIATION
72
 
C.
MATERIAL CONTRACTS
79
  D EXCHANGE CONTROLS 79
 
E.
TAXATION
79
 
F.
DIVIDENDS AND PAYING AGENTS
85
 
G.
STATEMENT BY EXPERTS
86
  H.
DOCUMENTS ON DISPLAY
86
 
I.
SUBSIDIARY INFORMATION
86
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET  RISK 86
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 87
 
8

       
    87
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 87
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 87
CONTROLS AND PROCEDURES 87
AUDIT COMMITTEE FINANCIAL EXPERT 88
CODE OF ETHICS 88
PRINCIPAL ACCOUNTANT FEES AND SERVICES 89
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 89
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 89
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT 89
CORPORATE GOVERNANCE 90
MINE SAFETY DISCLOSURE 92
          
    92
FINANCIAL STATEMENTS 92
FINANCIAL STATEMENTS 92
EXHIBITS 93
 
 
9

PART I
 
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable.
 
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ITEM 3.
KEY INFORMATION
 
   A.
SELECTED FINANCIAL DATA
 
We have derived the following selected consolidated statements of operations data for the years ended December 31, 2016, 2015 and 2014 and the selected consolidated balance sheet data as of December 31, 2016 and 2015 from our audited consolidated financial statements and notes included in this Annual Report. Our selected consolidated statements of operations data for the years ended December 31, 2013 and 2012 and the selected consolidated balance sheet data as of December 31, 2014, 2013 and 2012, have been derived from audited consolidated financial statements not included in this Annual Report. We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP.
 
You should read the selected consolidated financial data together with "Item 5—Operating and Financial Review and Prospects" and our consolidated financial statements and related notes included elsewhere in this Annual Report. All references to "dollar," "dollars" or "$" in this Annual Report are to the "U.S. dollar" or "U.S. dollars."  All references to "NIS" are to the New Israeli Shekels.

10


                               
Statement of Operations Data:
 
Year Ended December 31,
(in thousands of U.S. dollars except share and per share data)
 
                               
   
2016
   
2015
   
2014
   
2013
   
2012
 
                               
Revenues:
                             
Products and related services
 
$
8,642
   
$
15,500
   
$
18,342
   
$
17,917
   
$
12,480
 
Projects
   
17,534
     
622
     
2,205
                 
Warranty and Support
   
3,334
     
2,551
     
3,089
     
2,565
     
3,306
 
     
29,510
     
18,673
     
23,636
     
20,482
     
15,786
 
Cost of revenues:
                                       
Products and related services
   
5,603
     
3,924
     
7,863
     
7,540
     
5,765
 
Projects
   
2,902
     
117
     
487
     
-
     
-
 
Warranty and Support
   
477
     
285
     
343
     
350
     
417
 
     
8,982
     
4,326
     
8,693
     
7,890
     
6,182
 
Gross profit
   
20,528
     
14,347
     
14,943
     
12,592
     
9,604
 
Operating expenses:
                                       
Research and development
   
8,047
     
6,071
     
5,812
     
5,615
     
6,102
 
Less - royalty-bearing participation
   
1,693
     
1,582
     
1,664
     
1,537
     
1,567
 
Research and development, net
   
6,354
     
4,489
     
4,148
     
4,078
     
4,535
 
                                         
Sales and marketing, net
   
8,528
     
7,834
     
7,295
     
7,592
     
8,515
 
                                         
General and administrative
   
4,523
     
2,393
     
2,262
     
2,051
     
2,107
 
                                         
Total operating expenses
   
19,405
     
14,716
     
13,705
     
13,721
     
15,157
 
                                         
Operating income (loss)
   
1,123
     
(369
)
   
1,238
     
(1,129
)
   
(5,553
)
                                         
Financial income (expenses), net
   
816
     
(433
)
   
(332
)
   
(291
)
   
(314
)
Income (loss) before taxes on income
   
1,939
     
(802
)
   
906
     
(1,420
)
   
(5,867
)
Taxes on income
   
(24
)
   
(121
)
   
(180
)
   
---
     
(120
)
                                         
Net income (loss)
   
1,915
     
(923
)
   
726
     
(1,420
)
   
(5,987
)
Basic net income (loss) per ordinary share
 
$
0.18
   
$
(0.11
)
 
$
0.09
   
$
(0.19
)
 
$
(0.93
)
Weighted average number of ordinary shares used to compute basic net income (loss) per ordinary share
   
10,406,897
     
8,572,681
     
8,088,974
     
7,340,056
     
6,442,068
 
                                         
Diluted net income (loss) per ordinary share
 
$
0.18
   
$
(0.11
)
 
$
0.08
   
$
(0.19
)
 
$
(0.93
)
Weighted average number of ordinary shares used to compute diluted net income (loss) per ordinary share
   
10,779,547
     
8,572,681
     
8,592,387
     
7,340,056
     
6,442,068
 
                                         
Balance Sheet Data:
                                       
Working capital
 
$
38,854
   
$
9,643
   
$
10,062
   
$
7,762
   
$
5,194
 
Total assets
 
$
54,568
   
$
20,135
   
$
20,318
   
$
19,645
   
$
19,867
 
Shareholders' equity
 
$
40,143
   
$
9,863
   
$
10,262
   
$
7,499
   
$
4,997
 
Share capital
 
$
523
   
$
372
   
$
361
   
$
335
   
$
251
 

11

 
                 Exchange Rate Information
 
The following table shows, for each of the months indicated the high and low exchange rates between the NIS and the U.S. dollar, expressed as NIS per U.S. dollar and based upon the daily representative rate of exchange as published by the Bank of Israel:
 
Month
 
High (NIS)
   
Low (NIS)
 
March (through March 24, 2017)
   
3.693
     
3.614
 
February 2017
   
3.768
     
3.659
 
January 2017
   
3.860
     
3.769
 
December 2016
   
3.867
     
3.787
 
November 2016
   
3.876
     
3.799
 
October 2016
   
3.856
     
3.778
 
September 2016
   
3.786
     
3.746
 

On March 24, 2017, the daily representative rate of exchange between the NIS and U.S. dollar as published by the Bank of Israel was NIS 3.646 to $1.00.
 
The following table shows, for each of the periods indicated, the average exchange rate between the NIS and the U.S. dollar, expressed as NIS per U.S. dollar, calculated based on the average of the representative daily rate of exchange during the relevant period as published by the Bank of Israel:

Year
 
Average (NIS)
 
2017 (through March 24, 2017)
   
3.740
 
2016
   
3.841
 
2015
   
3.884
 
2014
   
3.577
 
2013
   
3.609
 
2012
   
3.858
 
 
The effect of exchange rate fluctuations on our business and operations is discussed in "Item 5.A—Operating and Financial Review and Prospects—Operating Results—Impact of Inflation and Foreign Currency Fluctuations."
 
   B.
CAPITALIZATION AND INDEBTEDNESS
 
Not applicable.
 
   C.
REASONS FOR THE OFFER AND USE OF PROCEEDS
 
Not applicable.
 
   D.
RISK FACTORS
 
Investing in our ordinary shares involves a high degree of risk.  You should carefully consider the risks described below before investing in our ordinary shares.

Our business, operating results and financial condition could be seriously harmed due to any of the following risks, among others.  If we do not successfully address the risks to which we are subject, we could experience a material adverse effect on our business, results of operations and financial condition and our share price may decline.  We cannot assure you that we will successfully address any of these risks.
 
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Risks Related to Our Business and Our Industry
 
     Our business is dependent on a limited number of significant customers, and the loss of our significant customers could harm our results of operations.

     Our business is dependent on a limited number of significant customers. For example, our two largest customers accounted for approximately 79% of our revenue in fiscal 2016 and 57% in fiscal 2015. The loss of any significant customer, a significant decrease in business from any such customer or a reduction in customer revenue due to adverse changes in the terms of our contractual arrangements, market conditions, customer circumstances or other factors could harm our results of operations and financial condition. Revenue from individual customers may fluctuate from time to time based on the commencement, scope and completion of projects or other engagements, the timing and magnitude of which may be affected by market or other conditions.

A reduction in some CSPs' revenues and profitability, which could lead them to decrease their investment in capital equipment and infrastructure, may in turn affect our revenues and results of operations. A continued slowdown in our customers' investment in capital equipment and infrastructure might materially and adversely affect our revenues and results of operations.

Our future success is dependent upon the continued growth of the telecommunications industry as well as the specific sectors that we target, which currently include NFV transformation, 4G cellular, Triple Play networks, VoLTE, 5G and IoT. During the last few years, some of the CSPs have experienced a reduction in their revenues from subscribers and lower profitability, which affected their spending budget, and this trend may continue. The global telecommunications industry, as well as the various sectors within the industry, is evolving rapidly, and it is difficult to predict its potential growth rate or future trends in technology development.

 Our future success also depends upon the increased utilization of our solutions by next-generation network operators and specifically virtualized networks, who may not adopt our technology.

 During the last few years, developments in the communications industry such as the impact of general global economic conditions, industry consolidation, emergence of new competitors, commoditization of voice services, the plans of CSPs to shift, transform and adapt their network operations to the NFV and changes in the regulatory environment, have had a material effect on our existing and/or potential customers, and may continue to have such an effect in the future. In the past, these conditions reduced the high growth rates that the communications industry had previously experienced, and caused the market value, financial results, prospects, and capital spending levels of many communications companies to decline. Over the last few years, the telecommunications industry experienced significant financial pressures that caused many in the industry to cut expenses and limit investment in capital intensive projects, and in some cases, led to restructurings.
 
Our future success will depend on our ability to develop and maintain long-term relationships with our customers and to meet their expectations in providing solutions and related services.
 
     We believe that our future success will depend to a significant extent on our ability to develop and maintain long-term relationships with successful CSPs who have the financial and other resources required to invest in significant ongoing Service Assurance and CEM solutions. If we are unable to develop sustainable customer relationships, our business may be harmed. In addition, if we are unable to meet customers’ expectations in providing solutions and related services, our business and results of operations could be harmed.
 
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     We may enter into long-term sales agreements with large customers. Such agreements may prove unprofitable as our costs and product mix shift over the lives of the agreements.

     We may enter from time to time into long-term sales agreements with large customers. Agreements that we enter into with large customers may require us to sell products and services at fixed prices over the lives of the agreements, and some may in the future require, us to sell products and services that we would otherwise discontinue, thereby diverting our resources from developing more profitable or strategically important products. The costs we incur in fulfilling some of our sales agreements may vary substantially from our initial cost estimates. Any cost overruns that we cannot pass on to our customers could adversely affect our results of operations.

Past and future economic conditions, including turmoil in the financial and credit markets, may adversely affect our business.

The recent economic environment may have a significant negative impact on business around the world . The impact of these conditions on the technology industry and our major customers has been quite severe. Conditions may continue to be depressed, or may be subject to further deterioration, which could lead to a further reduction in consumer and customer spending overall, which could have an adverse impact on sales of our products. A disruption in the ability of our significant customers to access liquidity could cause serious disruptions or an overall deterioration of their businesses, which could lead to a significant reduction in their orders of our products and the inability or failure on their part, to meet their payment obligations to us, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity. In addition, any disruption in the ability of our customers to access liquidity could lead them to request longer payment terms from us or long-term financing of their purchases from us. If we are unable to grant extended payment terms when requested by customers, our sales could decrease. Granting extended payment terms or a significant adverse change in a customer's financial and/or credit position, may have an immediate negative effect on our cash balance, and could require us to assume greater credit risk relating to that customer's receivables, or could limit our ability to collect receivables related to purchases by that customer. As a result, we may have to defer recognition of revenues, our reserves for doubtful accounts and write-offs of accounts receivable may increase and we may incur losses.

Our plans to focus most of our sales efforts on tier 1 and other leading CSPs in the North American and European markets may not be successful.

With the recognition of our technological leadership in the service assurance for NFV we have enhanced our presence in North America and Western Europe, where a significant share of the NFV activity is expected to take place. Although our selection in 2015 by AT&T Services, Inc., a top-tier leading North American mobile operator, or AT&T, is expected to significantly help open doors to a relatively untapped market for us, we may not be successful in expanding our business in said markets as we plan.

Our expectation that the NFV market will continue gaining momentum during 2017 and thereafter may not materialize.

We believe that the majority of the industry’s leading   CSPs will transform their network to the NFV or are at the very least, evaluating their transformation to NFV. Our expectation is that the NFV market will continue to gain momentum during year 2017 and thereafter. However, our expectations may not be correct, and the actual pace of NFV transformation may take longer than we anticipate, or may not occur at all. If the NFV market does not continue to grow, our business, financial condition and results of operations may suffer.

  We have a history of net losses and may not achieve or sustain profitability in the future.

We have a history of net losses. Although we were profitable in 2016 and in 2014, in 2015 we incurred a net loss of $0.9 million. We may not continue to be profitable in the future, which could materially affect our cash and liquidity and could adversely affect the value and market price of our shares.

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The market for our products is characterized by changing technology, and its requirements, standards and products, and we may be materially adversely affected if we do not respond promptly and effectively to such changes.
 
The telecommunications market for our products is characterized by rapidly changing technology, network infrastructure, changing customer requirements, evolving industry standards and frequent new product introductions. These changes could reduce or shift the market for our products or require us to develop new products and to keep adapting them, in order to remain up to date with our customers' requirements. For example, in light of the development of the NFV, LTE, VoLTE and 3G networks, we developed and launched the MaveriQ in 2014, which replaced our previous OmniQ hardware-based solutions. In addition to that, we enhanced our solutions to support NFV as we saw during 2015 and 2016, an increased interest from CSPs using NFV-capable solutions for service assurance and CEM.

New or enhanced telecommunications and data communications-related products developed by other companies could be incompatible with our products. Therefore, our timely access to information concerning, and our ability to anticipate, changes in technology and customer requirements and the emergence of new industry standards, as well as our ability to develop and market new and enhanced products successfully and on a timely basis, will be significant factors in our ability to remain competitive. 

In addition, a 2014 cooperation agreement called OSSii aimed to facilitate interoperability between network management systems from different vendors. If this initiative succeeds, it could lead to a decreased need for our probe-based solutions, as network elements could supply the performance and quality measurements provided by our probe-based solutions. As a result, we cannot quantify the impact of new product introductions on our future operations.

We have a history of quarterly fluctuations and unpredictability in our results of operations and expect these fluctuations to continue. This may cause our share price to fluctuate and/or to decline.
 
In the past we experienced, and may also experience in the future, significant fluctuations in our quarterly results of operations. Factors that may contribute to fluctuations in our quarterly results of operations include:
 
 
·
the variation in size and timing of individual purchases by our customers;
 
·
seasonal factors that may affect capital spending by customers, such as the varying fiscal year-ends of customers;
 
·
the relatively long sales cycles for our products;
  
·
the request for longer payment terms from us or long-term financing of customers' purchases from us, as well as additional conditions tied to such payment terms;
  
·
competitive conditions in our markets;
  
·
the timing of the introduction and market acceptance of new products or product enhancements by us and by our customers, competitors and suppliers;
  
·
changes in the level of operating expenses relative to revenues;
  
·
product quality problems;
  
·
supply interruptions;
  
·
changes in global or regional economic conditions or in the telecommunications industry;
  
·
delays in or cancellation of projects by customers;
  
·
changes in the mix of products sold;
  
·
the size and timing of approval of grants from the Government of Israel; and
  
·
foreign currency exchange rates.
 
Our costs of revenues consist of variable costs, which include hardware purchasing, packaging, royalties to the Israel Innovation Authority, or the Innovation Authority of the Israeli Ministry of Economy and Industry (the successor of the Office of Chief Scientist), or the MoE, license fees paid to third parties and import taxes, recurring and non-recurring write-off of inventory , importation taxes, warranty expenses, subcontractors’ expenses and of fixed costs which include facilities' payments, employees' salaries and related costs and overhead expenses. A major part of our costs of sales is relatively variable, and the costs are determined based on our anticipated revenue. We believe, therefore, that quarter-to-quarter comparisons of our operating results may not be a reliable indication of future performance.
 
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Our revenues in any quarter generally have been, and may continue to be, derived from a relatively small number of orders with relatively high average revenues per order. Therefore, the loss of any order or a delay in closing a transaction could have a more significant impact on our quarterly revenues and results of operations, than on those of companies with relatively high volumes of sales or low revenues per order.
 
We may experience a delay in generating or recognizing revenues for several reasons, including due to revenue recognition accounting requirements. In many cases, we cannot recognize revenue from an order prior to customer acceptance, which may take three to 12 months from the commencement of the project. Therefore, a major part of the revenue of a fiscal quarter is derived from the backlog of orders under delivery, and generally is not tied to the date of a customer's order or the delivery date.
 
Our revenues for a specific quarter may also be difficult to predict and may be affected if we experience a non-linear sales pattern. We generally experience significantly higher levels of sales orders towards the end of a quarter, as a result of customers submitting their orders late in the quarter. Furthermore, orders received towards the end of the quarter are usually not delivered within the same quarter, and are usually only recognized as revenue at a later stage.
 
If our revenues in any quarter remain level or decline in comparison to any prior quarter, our financial results for that quarter could be adversely affected.
 
Due to the factors described above, as well as other unanticipated factors, in future quarters our results of operations could fail to meet any guidance we may give to the public from time to time or the expectations of public market analysts or investors. If this occurs, the price of our ordinary shares may fall.

We expect our gross margins to vary over time, and we may not be able to sustain or improve upon our recent level of gross margins, which may have a material adverse effect on our future profitability.
 
We may not be able to sustain or improve upon our recent level of gross margins. Our gross margins may be adversely affected by numerous factors, including:
 
 
·
increased price competition;
 
·
local sales taxes which may be incurred for direct sales;
 
·
increased industry consolidation among our customers, which may lead to decreased demand for and downward pricing pressure on our products;
 
·
changes in customer, geographic or product mix;
 
·
our ability to reduce and control production costs;
 
·
increases in material or labor costs;
 
·
excess inventory and inventory holding costs;
 
·
obsolescence charges;
  
·
reductions in cost savings due to changes in component pricing or charges incurred due to inventory holding periods if parts ordering does not correctly anticipate product demand;
 
·
changes in distribution channels;
 
·
losses on customer contracts; and
 
·
increases in warranty costs.
 
Further deterioration in gross margins, due to these or other factors, may have a material adverse effect on our business, financial condition and results of operations.
 
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Our actual cash flows may not be sufficient to meet our obligations.
 
If our cash flow does not meet or exceed our current projections, then our ability to pay our obligations could be materially impaired. We believe that our existing capital resources and cash flows from operations will be adequate to satisfy our expected liquidity requirements to meet our operating obligations, as they come due, at least through end of March 2018. However, if our actual sales and spending differ materially from our projections, we may be required to raise capital, borrow additional funds or reduce discretionary spending in order to provide the required liquidity. There is no assurance that if required, we will be able to raise such additional capital, borrow additional funds or reduce discretionary spending.
 
  Our sales derived from emerging market countries may be materially adversely affected by economic, exchange rates, regulatory and political developments in those countries.
 
In parallel to our increased sales focus going forward in North America, Western Europe and additional developed markets, in 2017 we plan to continue to generate revenue from various emerging market countries. As these countries represent a portion of our existing business and our expected growth, economic or political turmoil in these countries could materially adversely affect our revenues and results of operations. Our investments in emerging market countries may also be subject to risks and uncertainties, including unfavorable taxation treatment, exchange rates, challenges in protecting our intellectual property rights, nationalization, inflation, currency fluctuations, or the absence of, or unexpected changes in, regulation as well as other unforeseeable operational risks.

Any reversal or slowdown in the deregulation of telecommunications markets could materially harm the markets for our products.
 
Future growth in the markets for our products will depend, in part, on the continued privatization, deregulation and the restructuring of telecommunications markets worldwide, as the demand for our products is generally higher when a competitive environment exists. Any reversal or slowdown in the pace of this privatization, deregulation or restructuring could materially harm the markets for our products. Moreover, the consequences of deregulation are subject to many uncertainties, including judicial and administrative proceedings that affect the pace at which the changes contemplated by deregulation occur, and other regulatory, economic and political factors. Furthermore, the uncertainties associated with deregulation have in the past, and could in the future, cause our customers to delay purchasing decisions pending the resolutions of these uncertainties.
 
Our inventory may become obsolete or unusable.
 
We hold some hardware equipment in inventory. Changes in our business or technology that reduce our need for these components, could result in these components becoming obsolete prior to their intended use or otherwise unusable in our business. This would result in a write-off of inventories for these components. In addition, a portion of our inventory is located on our customers' premises, either as spare parts or as it has not yet been accepted in accordance with the terms of their orders and therefore, has not yet been recognized as revenue, making the control of such inventory more difficult.
 
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Most of our customers usually require a detailed and comprehensive evaluation process before they order our products. Our sales process may be subject to delays that may significantly decrease our revenues and which could result in the eventual cancellations of some sale opportunities.
 
We derive all of our revenues from the sale of products and related services for CSPs. As common practice in our industry, our products generally undergo a lengthy evaluation process before we can sell them. In recent years, our customers have been conducting a more stringent and detailed evaluation of our products and decisions are subject to additional levels of internal review. As a result, the sales cycle generally takes between three to six months for small transactions, and between nine to 18 months for large transactions. The following factors, among others, affect the length of the approval process:
 
 
·
the time involved for our customers to determine and announce their specifications;
 
·
the time required for our customers to process approvals for purchasing decisions;
 
·
the complexity of the products involved;
 
·
the technological priorities and budgets of our customers; and
 
·
the need for our customers to obtain or comply with any required regulatory approvals.
 
If customers continue to delay project approval, delays are further lengthened, or such continued delays result in the eventual cancellation of any sale opportunities, it may have a material adverse effect on our business, financial condition and results of operations.
 
We have experienced periods of growth and consolidation of our business. If we cannot adequately manage our business, our results of operations may suffer.

Throughout 2016, we substantially increased the size of our workforce and we may continue to increase our workforce, in North America and possibly in other regions during 2017 in order to enable us to meet our projections for 2017 and beyond. There is no guarantee that these efforts to increase our work force will have a positive effect on our business. Future growth or consolidation may place a significant strain on our managerial, operational and financial resources.
 
We cannot be sure that we have made adequate allowances for the costs and risks associated with possible expansion and consolidation of our business, or that our systems, procedures and managerial controls will be adequate to support our operations. Any delay in implementing, or transitioning to, new or enhanced systems, procedures or controls may adversely affect our ability to record and report financial and management information on a timely and accurate basis. We believe that significant growth may require us to hire additional personnel. Competition for qualified personnel can be intense in the areas where we operate, and the processes of locating, training and successfully integrating qualified personnel into our operations can be lengthy and expensive. If we are unable to successfully manage our expansion, we may not succeed in expanding our business, our expenses may increase and our results of operations may be adversely affected.

In addition, employees may seek future employment with our business partners, customers or competitors. We cannot assure you that the confidential nature of our proprietary information will not be compromised by any such employees who terminate their employment with us. Furthermore, we believe that our future success will largely depend upon our ability to attract, incentivize and retain highly skilled personnel.
 
We may lose significant market share as a result of intense competition in the markets for our existing and future products.
 
Many companies compete with us in the market for service assurance and CEM solutions. We expect that competition will increase in the future, both with respect to products and solutions that we currently offer and products and solutions that we are developing.  Moreover, manufacturers of data communications and telecommunications equipment which are current and potential partners of ours, may in the future incorporate into their products capabilities similar to ours, which would reduce the demand for our products.  
 
Some of our existing and potential competitors have substantially greater resources, including financial, technological, engineering, manufacturing, and marketing and distribution capabilities, and several of them may enjoy greater market recognition than us. We may not be able to compete effectively with our competitors. A failure to do so could adversely affect our revenues and profitability.

In July 2015, NetScout Systems Inc. announced that it had completed the acquisition of Danaher Corporation's communications business, which includes Tektronix Communications, enabling it to expand its network performance monitoring and security monitoring capabilities. This transaction resulted in NetScout Systems Inc. holding a very significant market share, making it a stronger competitor, and may as a result have a negative impact on our competitive environment.
 
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Our non-competition agreements with our employees may not be enforceable under Israeli law. If any of these employees leaves us and joins a competitor, our competitor could benefit from the expertise our former employee gained while working for us.

We generally enter into non-competition agreements with our key employees. These agreements prohibit those employees, while they work for us and for a specified length of time after they cease to work for us, from directly competing with us or working for our competitors for a limited period. Under applicable Israeli law, we may be unable to enforce these agreements or any part thereof against our Israeli employees. If we cannot enforce our non- competition agreements against our Israeli (or any other) employees, then we may be unable to prevent our competitors from benefiting from the expertise of these former employees, which could impair our business, results of operations and ability to capitalize on our proprietary information.
 
Our business could be harmed if we were to lose the services of one or more members of our senior management team, or if we are unable to attract and retain qualified personnel.
 
Our future growth and success depends to an extent upon the continuing services of our executive officers and other key employees, including our Chief Executive Officer, Mr. Yaron Ravkaie, the Chief Executive Officer of our U.S. subsidiary, Radcom, Inc., or RADCOM US, Mr. Eyal Harari, and our Vice President of Research and Development, Mr. Hilik Itman. We do not have long-term employment agreements with any of our employees. Competition for qualified management and other high-level telecommunications industry personnel is intense, and we may not be successful in attracting and retaining qualified personnel. If we lose the services of any key employees, we may not be able to manage our business successfully or to achieve our business objectives.

Our success also depends on our ability to identify, attract and retain qualified technical, sales, finance and management personnel. We have experienced, and may continue to experience, difficulties in hiring and retaining candidates with appropriate qualifications. If we do not succeed in hiring and retaining candidates with appropriate qualifications, our revenues and product development efforts could be harmed.
 
Our large customers have substantial negotiating leverage, which may require that we agree to terms and conditions that may have an adverse effect on our business.
 
Large CSPs have substantial purchasing power and leverage in negotiating contractual arrangements with us. These customers may require us to develop additional features and may impose penalties on us for failure to deliver such features on a timely basis, or failure to meet performance standards. As we seek to sell more products to large CSPs, we may be required to agree to such terms and conditions, which may decrease our revenues and/or increase the time it takes to convert orders into revenues, and could result in a material adverse effect on our business, financial condition and results of operations.
 
The complexity and scope of the solutions we provide to larger CSPs is increasing. Larger projects entail greater operational risk and an increased chance of failure.
 
The complexity and scope of the solutions and services we provide to larger CSPs is increasing. The larger and more complex such projects are, the greater the operational risks associated with such projects. These risks include failure to deliver successfully our solution, the failure to fully integrate our products into the service provider's network with third party products and complex environments, and our dependence on subcontractors and partners for the successful and timely completion of such projects. Failure to complete a larger project successfully, such as the project we have for AT&T, could expose us to potential contractual penalties, claims for breach of contract and in extreme cases, to cancellation of the entire project, or increase the difficulty in collecting payment and recognizing revenues from such project. 
 
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We could be subject to claims under our warranties and extended maintenance and support agreements which may affect our financial condition.
 
Products as complex as ours sometimes contain undetected errors. These errors can cause delays in product introductions or require design modifications. In addition, we are dependent on other suppliers for key components that are incorporated in our products. Defects in systems in which our products are deployed, whether resulting from faults in our products or products supplied by others, due to faulty installation or any other cause, may result in customer dissatisfaction, product returns and, potentially, product liability claims being filed against us. Our warranties permit customers to return defective products for repair. The warranty period is mostly for one year but could be extended either in the initial purchase of our product or after the initial warranty period ends, or the extended maintenance agreements. Any failure of a system in which our products are deployed (whether or not our products are the cause), any product recall, or product liability claims with any associated negative publicity, could result in the loss of, or delay in, market acceptance of our products and harm to our business. In addition, under the warranty and extended maintenance agreements, we need to meet certain service levels and if we fail to meet them, we may be exposed to penalties.
 
We incorporate open source technology in our products, which may expose us to liability and have a material impact on our product development and sales.
 
Some of our products utilize open source technologies. These technologies are licensed to us under varying license structures. These licenses pose a potential risk to products in the event they are inappropriately integrated. In the event that we have not, or do not in the future, properly integrate software that is subject to such licenses into our products, we may be required to disclose our own source code to the public, which could enable our competitors to eliminate any technological advantage that our products may have over theirs. Any such requirement to disclose our source code or other confidential information related to our products could, therefore, materially adversely affect our competitive advantage and impact our business, financial condition and results of operations.
 
We depend on limited sources for key components and if we are unable to obtain these components when needed, we may experience delays in delivering our products.
 
We currently obtain key components for our products from a limited number of suppliers. We have one long-term contract with a supplier of hardware and servers, which is a major supplier in its field. The agreement is scheduled to expire during 2017, with a one-year extension option. We do not have long-term supply contracts with any of our other existing suppliers. This presents the following risks:
 
 
·
delays in delivery could interrupt and delay delivery and result in cancellations of orders for our products;
  
·
suppliers could increase component prices significantly and with immediate effect;
 
·
we may not be able to locate alternative sources for product components; and
  
·
suppliers could discontinue the supply of components used in our products. This may require us to modify our products, which may cause delays in product shipments and/or delivery, increased production costs and increased product prices.

Our proprietary technology is difficult to protect, and unauthorized use of our proprietary technology by third parties may impair our ability to compete effectively.
 
Our success and ability to compete depend in large part upon protecting our proprietary technology. We rely upon a combination of contractual rights, software licenses, trade secrets, copyrights, non-disclosure agreements and technical measures to establish and protect our intellectual property rights in our products and technologies. In addition, we sometimes enter into non-competition, non-disclosure and confidentiality agreements with our employees, distributors, sales representatives and certain suppliers with access to sensitive information. We currently have two pending patent applications and we are in the process of filing additional patent applications. However, we have no registered patents and these measures may not be adequate to protect our technology from third-party infringement. Additionally, effective intellectual property protection may not be available in every country in which we offer, or intend to offer, our products.
 
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We may expand our business or enhance our technology through partnerships and acquisitions that could result in diversion of resources and extra expenses. This could disrupt our business and adversely affect our financial condition.
 
Part of our growth strategy may be to selectively pursue partnerships and acquisitions that provide us access to complementary technologies and accelerate our penetration into new markets. The negotiation of acquisitions, investments or joint ventures, as well as the integration of acquired or jointly developed businesses or technologies, could divert our management's time and resources. Acquired businesses, technologies or joint ventures may not be successfully integrated with our products and operations. We may not realize the intended benefits of any acquisition, investment or joint venture and we may incur future losses from any acquisition, investment or joint venture.
 
In addition, acquisitions could result in, among other things:
 
 
·
substantial cash expenditures;
  
·
potentially dilutive issuances of equity securities;
  
·
the incurrence of debt and contingent liabilities;
 
·
a decrease in our profit margins; and
 
·
amortization of intangibles and potential impairment of goodwill.
 
If we implement our growth strategy by acquiring other businesses, and this disrupts our operations, our business, financial condition and results of operations could be adversely affected. As of the date of this Annual Report, we have not proceeded with such acquisitions.
 
Because we received grants from the Innovation Authority, we are subject to ongoing restrictions.
 
We have received an aggregate of $40.1 million in royalty-bearing grants from the Innovation Authority (previously the Israeli Office of the Chief Scientist), for certain research and development activities pursuant to an incentive program. Accordingly, we are obligated to pay royalties to the Innovation Authority on revenues from products developed pursuant to  the program or deriving therefrom . In addition, under the terms of the program our ability to transfer any resulting know-how, especially outside from Israel abroad, is limited. The Law for the Encouragement of Research, Development and Technological Innovation in the Industry, 1984-5744, or the R&D Law, generally requires a grant recipient and its controlling shareholders to notify the Innovation Authority of changes in the ownership of the recipient company and to undertake to the Innovation Authority to observe the laws governing the grant programs.
 
A recent amendment or Amendment No. 7, to the R&D Law the formation of the Innovation Authority, to replace the Chief Scientist.    Pursuant to Amendment No. 7, the Innovation Authority may establish new guidelines and promulgate new regulations under the R&D Law. These changes in the structure of the Innovation Authority and the R&D Law may affect our existing or future Innovation Authority programs and incentives. At this stage, we cannot predict what changes, if any, the new authority may make. For more information, see "Item 4.B—Information on the Company—Business Overview—Israeli Innovation Authority."
 
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We may be subject to litigation and other claims, including, without limitation, infringement claims or claims that we have violated intellectual property rights, which could seriously harm our business.
 
Third parties may from time to time assert against us infringement claims or claims that we have violated a patent or infringed a copyright, trademark or other proprietary right belonging to them.  If such infringement were found to exist, we might be required to modify our products or intellectual property or to obtain a license or right to use such technology or intellectual property.  Any infringement claim, even if not meritorious, could result in the expenditure of significant financial and managerial resources.
 
Additionally, in May 2010, we received a notice from the Innovation Authority regarding alleged miscalculations in the amount of royalties paid by us to the Innovation Authority for the years 1992 through 2009 and the revenues on which the Company has to pay royalties. During 2011, we reviewed with the Innovation Authority these alleged miscalculations. We believe that all royalties due to the Innovation Authority from the sale of products developed with funding provided by the Innovation Authority during such years were properly paid or were otherwise accrued as of December 31, 2016. However, we cannot be sure that the Innovation Authority will accept our  arguments mentioned above, which if not accepted, may result in the expenditure of significant financial resources.
   
Yehuda Zisapel and Zohar Zisapel beneficially own, in the aggregate, approximately 29% of our ordinary shares and therefore have significant influence over the outcome of matters requiring shareholder approval, including the election of directors.
 
As of March 24, 2017, Yehuda Zisapel and Zohar Zisapel (the former Chairman of our Board of Directors), who are brothers, may be deemed to beneficially own an aggregate of 3,348,192 ordinary shares, including options exercisable for 10,000 ordinary shares that are exercisable within 60 days of March 24, 2017, representing approximately 29% of our outstanding ordinary shares.  As a result, despite the fact that each one of them, to our knowledge, operates independently from the other with respect to his respective shareholding of our shares, Yehuda Zisapel and Zohar Zisapel have significant influence over the outcome of various actions that require shareholder approval, including the election of our directors. In addition, Yehuda Zisapel and Zohar Zisapel may be able to delay or prevent a transaction in which shareholders might receive a premium over the prevailing market price for their shares and prevent changes in control or in management.
 
We engage in transactions, and may compete with, companies controlled by Yehuda Zisapel and Zohar Zisapel, which may result in potential conflicts.
 
We are engaged in, and expect to continue to be engaged in, numerous transactions with companies controlled by Yehuda Zisapel and/or Zohar Zisapel.  We believe that such transactions are beneficial to us and are generally conducted upon terms that are no less favorable to us than would be available from unaffiliated third parties. Nevertheless, these transactions may result in a conflict of interest between what is best for us and the interests of the other parties in such transactions. Furthermore, in some cases we may compete, or buy third party components from other companies who compete, with some of these companies controlled by Zohar Zisapel and/or Yehuda Zisapel.

For more information, see "Item 7.B- Major Shareholders and Related Party Transactions—Related Party Transactions" and "Item 10.B- Fiduciary Duties of Shareholders."
 
    Our growing international presence exposes us to risks associated with varied and changing political, cultural, legal and economic conditions worldwide and if we fail to adapt appropriately to the challenges associated with operating internationally, the expected growth of our business may be impeded and our operating results may be affected.

While we are headquartered in Israel, approximately 98% of our sales in 2016, 93% of our sales in 2015 and 86% of our sales in 2014 were generated outside of Israel, including in North America, Europe, Asia and South America. Our international sales will be limited if we cannot continue to establish and maintain relationships with international distributors and resellers, set up additional foreign operations, expand international sales channel management, hire additional personnel, develop relationships with international CSPs and operate adequate after-sales support internationally. 
 
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Even if we are able to successfully expand our international operations, we may not be able to maintain or increase international market demand for our products. Our international operations are subject to a number of risks, including:

·
·
legal and cultural differences in the conduct of business;
challenges in staffing and managing foreign operations due to the limited number of qualified candidates, employment laws and business practices in foreign countries, any of which could increase the cost and reduce the efficiency of operating in foreign countries;
·
our inability to comply with import/export, environmental and other trade compliance and other regulations of the countries in which we do business including additional labor laws, particularly in Brazil and India, together with unexpected changes in such regulations;
·
insufficient measures to ensure that we design, implement, and maintain adequate controls over our financial processes and reporting in the future;
·
our failure to adhere to laws, regulations, and contractual obligations relating to customer contracts in various countries;
·
our inability to maintain a competitive list of distributors and resellers for indirect sales;
·
tariffs and other trade barriers;
·
economic and political instability in foreign markets;
·
wars, acts of terrorism and political unrest;
·
language and cultural barriers;
·
lack of integration of foreign operations;
·
currency fluctuations;
·
variations in effective income tax rates among countries where we conduct business;
·
potential foreign and domestic tax consequences and withholding taxes that limit the repatriation of earnings;
·
technology standards that differ from those on which our products are based, which could require expensive redesign and retention of personnel familiar with those standards;
·
laws and business practices favoring local competitors;
·
longer accounts receivable payment cycles and possible difficulties in collecting payments, which may increase our operating costs and hurt our financial performance; and
·
failure to meet certification requirements.
 
Any of these factors could harm our international operations and have a material adverse effect on our business, results of operations, and financial condition. The continuing weakness in foreign economies could have a significant negative effect on our future operating results.
 
Because our revenues are generated primarily in foreign currencies (mostly in U.S. dollars but also in other currencies), but a significant portion of our expenses are incurred in New Israeli Shekels, our results of operations may be seriously harmed by currency fluctuations.
 
We sell in markets throughout the world and most of our revenues are generated in U.S. dollars. We also generate revenues in Brazilian Real, or BRL, Euro and other currencies. Financing activities are also made in U.S. dollars. Accordingly, we consider the U.S. dollar to be our functional currency. However, a significant portion of our expenses is in NIS, mainly related to employee expenses. Therefore, fluctuations in exchange rates between the NIS and the U.S. dollar as well as between other currencies and the U.S. dollar may have an adverse effect on our results of operations and financial condition. As of today we have not entered into any hedging transactions in order to mitigate these risks.
 
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Moreover, as our revenues are currently denominated primarily in U.S. dollars, devaluation in the local currencies of our customers relative to the U.S. dollar could cause customers to default on payment. Also, as a portion of our revenues is denominated in BRL, devaluation in this currency may cause financial expenses related to our intercompany short term balances. In the future, additional revenues may be denominated in currencies other than U.S. dollars, thereby exposing us to gains and losses on non-U.S. currency transactions.

Any inability to comply with Section 404 of the Sarbanes-Oxley Act of 2002 regarding having effective internal control procedures may negatively impact the report on our financial statements to be provided by our independent auditors.
 
Rules of the U.S. Securities and Exchange Commission, or the SEC , adopted pursuant to Section 404, or Section 404, of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, require us to include a report of management on our internal control over financial reporting in our annual report, that contains an assessment by management of the effectiveness of our internal control over financial reporting. In addition, because the public float of our shares exceeded $75 million at June 30, 2016, our independent registered public accounting firm is required to attest to and report on the effectiveness of our internal control over financial reporting. Our management or our auditors may not conclude that our internal control over financial reporting is effective. Any of these possible outcomes could result in a loss of investor confidence in the reliability of our financial statements, which could negatively impact the market price of our shares. Further, our auditors or we may identify material weaknesses or significant deficiencies in our assessments of our internal control over financial reporting. Failure to maintain effective internal control over financial reporting could result in investigation or sanctions by regulatory authorities and could have an adverse effect on our business, financial condition and results of operations, and investor confidence in our reported financial information

If we determine that we are not in compliance with Section 404, we may be required to implement new internal controls and procedures and re-evaluate our financial reporting. We may experience higher than anticipated operating expenses as well as third party advisors fees during the implementation of these changes and thereafter. Further, we may need to hire additional qualified personnel in order for us to be compliant with Section 404. If we are unable to implement these changes effectively or efficiently, it could have a material adverse effect on our business, financial condition, results of operations, financial reporting or financial results and could result in our conclusion that our internal controls over financial reporting are not effective.

The market price of our ordinary shares has and may continue to fluctuate widely, which could adversely affect us and our shareholders.
 
From January 1, 2016 to March 24, 2017, our ordinary shares have traded on the NASDAQ Capital Market, or the NASDAQ, as high as $21.89 and as low as $11.29 per share. As of March 24, 2017, the closing price of our ordinary shares on NASDAQ was $21.20 per share. The market price of our ordinary shares has been and is likely to continue to be highly volatile and could be subject to wide fluctuations in response to numerous factors, including the following:
 
 
·
our results of operations;
 
·
market conditions or trends in our industry and the global economy as a whole;
  
·
political, economic and other developments in the State of Israel and worldwide;
  
·
actual or anticipated variations in our quarterly operating results;
  
·
announcements by us or our competitors of technological innovations or new and enhanced products;
  
·
announcements by us or our competitors of significant contracts or capital commitments;
  
·
actual or anticipated variations in our competitors quarterly operating results, and changes in the market valuations of our competitors;
  
·
introductions of new products or new pricing policies by us or our competitors;
  
·
trends in the communications or software industries, including industry consolidation;
 
24

 
  
·
regulatory changes that impact our pricing of products and services and competition in our markets;
  
·
acquisitions or strategic alliances by us or others in our industry;
  
·
changes in estimates of our performance or recommendations by financial analysts;
  
·
operating results that vary from the expectations of financial analysts and investors;
  
·
changes in our shareholder base;
  
·
changes in status of our intellectual property rights;
  
·
future sales of our ordinary shares;
  
·
fluctuations in the trading volume of our ordinary shares; and
  
·
addition or departure of key personnel.
 
In addition, the stock market in general, and the market for Israeli and technology companies in particular, has been highly volatile. Many of these factors are beyond our control and may materially adversely affect the market price of our ordinary shares, regardless of our performance. Shareholders may not be able to resell their ordinary shares following periods of volatility because of the market's adverse reaction to such volatility.
 
From time to time we may choose to raise financing.  If adequate funds are not available on terms favorable to us or to our shareholders, our operations and growth strategy may be affected.

From time to time we may choose to raise financing in connection with our operations and growth strategy. We do not know whether additional financing will be available when needed, or whether it will be available on terms favorable to us. If adequate funds are not available on terms favorable to us or to our shareholders, our operations and growth strategy may be affected.
  
The trading volume of our shares is relatively low and it may be low in the future.
 
Our shares have been traded at low volumes in the past and may be traded at low volumes in the future for reasons related or unrelated to our performance. This low trading volume may result in lesser liquidity and lower than expected market prices for our ordinary shares, and our shareholders may not be able to resell their shares for more than they paid for them.

Risks Related to Our Location in Israel
 
Conditions in Israel affect our operations and may limit our ability to produce and sell our products.
 
We are incorporated under Israeli law and our principal offices and research and development facilities are located in Israel. Accordingly, our operations and financial results could be adversely affected if political, economic and military events curtailed or interrupted trade between Israel and its present trading partners or if major hostilities involving Israel should occur in the Middle East.

Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring Arab countries, the Hamas militant group and the Hezbollah. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. Since October 2000, there have been increasing occurrences of terrorist violence. In 2006, a conflict between Israel and the Hezbollah in Lebanon resulted in thousands of rockets being fired from Lebanon into Israel. In 2008, Israel engaged in an armed conflict with Hamas in the Gaza Strip, which involved missile strikes against Israel and negatively affected business conditions in Israel. In 2012 and 2014, Israel experienced a similar armed conflict, resulting in hundreds of rockets being fired from the Gaza Strip. Ongoing and revived hostilities or other Israeli political or economic factors, such as, an interruption of operations at the Tel Aviv airport, could prevent or delay shipments of our components or products. If continued or resumed, these hostilities may negatively affect business conditions in Israel in general and our business in particular. In the event that hostilities disrupt the ongoing operation of our facilities or the airports and seaports on which we depend to import and export our supplies and product candidates, our operations may be materially adversely affected. 
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In addition, since 2010 political uprisings and conflicts in various countries in the Middle East, including Egypt and Syria, are affecting the political stability of those countries. It is not clear how this instability will develop and how it will affect the political and security situation in the Middle East. This instability has raised concerns regarding security in the region and the potential for armed conflict. Any potential future conflict could also include missile strikes against parts of Israel, including our offices and facilities. Such instability may lead to deterioration in the political and trade relationships that exist between the State of Israel and certain other countries. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may sometimes decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. Several countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continues or increases. Similarly, Israeli companies are limited in conducting business with entities from countries that are considered to be in a state of war with Israel, including Iran, Lebanon and Syria. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.
 
 Although the Israeli government has in the past covered the reinstatement value of certain damages that were caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred and the government may cease providing such coverage or the coverage might not suffice to cover potential damages. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions generally and could harm our results of operations.
 
Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial conditions or the expansion of our business.
 
We currently benefit from government programs that may be discontinued or reduced.
 
We currently receive grants under Government of Israel programs. In order to maintain our eligibility for these programs, we must continue to meet specific conditions and pay royalties with respect to grants received.  In addition, some of these programs restrict our ability to develop particular products outside of Israel or to transfer particular technology. If we fail to comply with these conditions in the future, the benefits received could be canceled and we could be required to refund any payments previously received under these programs. These programs may be discontinued or curtailed in the future.  If we do not receive these grants in the future, we will have to allocate funds to product development at the expense of other operational costs. If the Government of Israel discontinues or curtails these programs, our business, financial condition and results of operations could be materially adversely affected.  For more information, see "Item 4.B—Information on the Company—Business Overview—Israeli Innovation Authority."
 
Provisions of Israeli law may delay, prevent or make difficult a merger or acquisition of us, which could prevent a change of control and depress the market price of our shares.
 
The Israeli Companies Law, 5759-1999, or the Israeli Companies Law, generally requires that a merger be approved by a company's board of directors and by a majority of the shares voting on the proposed merger.  Unless a court rules otherwise, a statutory merger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting, and which are not held by the potential merger partner (or by any person who holds 25% or more of the shares of capital stock or the right to appoint 25% or more of the directors of the potential merger partner or its general manager), vote against the merger. Upon the request of any creditor of a party to the proposed merger, a court may delay or prevent the merger if it concludes that there is a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy its obligations. In addition, a merger may generally not be completed unless at least (i) 50 days have passed since the filing of the merger proposal with the Israeli Registrar of Companies by each of the merging companies, and (ii) 30 days have passed since the merger was approved by the shareholders of each of the parties to the merger.
 
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Also, in certain circumstances an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 25% or greater or 45% or greater shareholder of the company (unless there is already a 25% or greater or a 45% or greater shareholder of the company, respectively). If, as a result of an acquisition, the acquirer would hold more than 90% of a company's shares, the acquisition must be made by means of a tender offer for all of the shares. Shareholders may request an appraisal in connection with a tender offer for a period of six months following the consummation of the tender offer, but the purchaser is entitled to stipulate that any tendering shareholder surrender its appraisal rights.
 
Finally, Israeli tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably than do U.S. tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his ordinary shares for shares in another corporation to taxation prior to the sale of the shares received in such a stock-for-stock swap.
 
These provisions of Israeli corporate and tax law, and the uncertainties surrounding such law, may have the effect of delaying, preventing or making more difficult a merger with us or an acquisition of us. This could prevent a change of control over us and depress our ordinary shares' market price which otherwise might rise as a result of such a change of control.
 
Our results of operations may be negatively affected by the obligation of our personnel to perform military service.
 
All male adult citizens and permanent residents of Israel under the age of 45 are, unless exempt, obligated to perform military reserve duty annually. Additionally, these residents are subject to being called to active duty at any time under emergency circumstances.  Some of our officers and employees are currently obligated to perform military reserve duty from time to time. In the event of a military conflict, including the ongoing conflict with the Palestinians, these persons could be required to serve in the military for extended periods of time and on very short notice. The absence of a number of our officers and employees for significant periods could disrupt our operations and harm our business. Given these requirements, we believe that we have operated relatively efficiently since beginning our operations. However, we cannot assess what the full impact of these requirements on our workforce or business would be if the situation with the Palestinians or any other adversaries   changes, and we cannot predict the effect on our business operations of any expansion or reduction of these military reserve requirements.

It may be difficult to effect service of process, assert U.S. securities laws claims and enforce U.S. judgments in Israel against us or our directors, officers and auditors named in this Annual Report.
 
We were incorporated in Israel. All of our directors reside outside of the United States, and most of our assets are located outside of the United States. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not necessarily be enforced by an Israeli court. It also may be difficult for you to affect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to United States securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of United States securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not United States law is applicable to the claim. If United States law is found to be applicable, the content of applicable United States law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a United States or foreign court.
 
27


As a foreign private issuer whose shares are listed on the NASDAQ, we may follow certain home country corporate governance practices instead of certain NASDAQ requirements.

As a foreign private issuer whose shares are listed on the NASDAQ, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the NASDAQ Stock Market Rules. As a foreign private issuer listed on the NASDAQ, we may follow home country practice with regard to, among other things, the composition of the board of directors, compensation of officers, director nomination process and quorum at shareholders' meetings. In addition, we may follow home country practice instead of the NASDAQ requirement to obtain shareholder approval for certain dilutive events (such as for the establishment or amendment of certain equity-based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company).

Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ's corporate governance rules. For more information , see "Item 16G—   Corporate Governance" below.

The rights and responsibilities of our shareholders are governed by Israeli law and differ in some respects from those under Delaware law.

Because we are an Israeli company, the rights and responsibilities of our shareholders are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in a Delaware corporation. In particular, a shareholder of an Israeli company has a duty to act in good faith towards the company and other shareholders and to refrain from abusing his, her or its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters. Israeli law provides that these duties are applicable to shareholder votes on, among other things, amendments to a company's articles of association, increases in a company's authorized share capital, mergers and interested party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholders' vote or to appoint or prevent the appointment of a director or executive officer of the company has a duty of fairness towards the company. However, Israeli law does not define the substance of this duty of fairness. There is little case law available to assist in understanding the implications of these provisions that govern shareholder behavior.

ITEM 4.
INFORMATION ON THE COMPANY
 
   A.
HISTORY AND DEVELOPMENT OF THE COMPANY
 
Both our legal and commercial name is RADCOM Ltd., and we are an Israeli company. We were incorporated in 1985 under the laws of the State of Israel, and commenced operations in 1991. The principal legislation under which we operate is the Israeli Companies Law. Our principal executive offices are located at 24 Raoul Wallenberg Street, Tel Aviv 69719, Israel, and our telephone and fax numbers are 972-3-645-5055 and 972-3-647-4681, respectively. Our website is www.radcom.com. Information on our website and other information that can be accessed through it are not part of, or incorporated by reference into, this Annual Report.
 
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In 1993, we established a wholly-owned subsidiary in the United States, RADCOM US. In 1996, we incorporated a wholly-owned subsidiary in Israel, RADCOM Investments (96) Ltd., or RADCOM Investments, located at our office in Tel Aviv, Israel. In 2010, we established a wholly-owned subsidiary in Brazil, RADCOM do Brasil Comercio, Importacao e Exportacao Ltda., or RADCOM Brazil. In 2012, we incorporated a wholly-owned subsidiary in India, RADCOM Trading India Private Limited, or RADCOM India.

    In the years ended December 31, 2016, 2015 and 2014, our capital expenditures were $1,331,000, $97,000 and $65,000, respectively, and were spent primarily on computers and electronic equipment. We have no current significant commitments for capital expenditures.
 
   B.
BUSINESS OVERVIEW
 
Overview

We are a   leading provider of NFV-ready service assurance for CSPs. We have a strong track-record of innovation.

RADCOM’s solution - MaveriQ - continuously monitors network performance and quality of services, to optimize user experience for CSPs’ subscribers.

MaveriQ is the “first to market” software-based probe solution and is the first to support NFV networks.
 
In 2016, we have evolved our solution to meet the highest-level requirements of AT&T, the first CSP launching a full NFV eco-system. As new and existing customers seek to manage their existing networks while evaluating and deploying NFV-based architectures, we believe we are well positioned with both our advanced software-based solutions for service assurance and our growing industry track record. 
 
We specialize in solutions for next-generation mobile and fixed networks, including LTE, VoLTE, IMS, VoIP, WiFi, VoWiFi and mobile broadband, representing a market opportunity of over $1 billion.

MaveriQ enables CSPs to smoothly migrate their networks to NFV by monitoring and assuring both physical network and NFV-based network and consequentially, ‘hybrid’ networks.   With   the rate of transition between physical and virtualized networks taking place gradually, CSPs will need to manage ‘hybrid’ networks for the foreseeable future. As a result, service assurance solutions that provide service and network performance visibility in both physical and virtual environments, are expected to gain priority.

CSPs across the globe use our solutions to deliver high quality services, reduce churn, manage network performance, analyze traffic and enhance customer care. Our solutions incorporate cutting-edge technologies and a wealth of knowledge acquired by partnering with many of the industry’s leading CSPs for over two decades. Our carrier-grade solutions support both mobile and fixed networks and scale to terabit data bandwidths to enable big data analytics.

Our solutions deliver specialized capabilities for virtualized infrastructure and next-generation networks, such as LTE, LTE-A, VoLTE, IMS, VoIP, UMTS/GSM and mobile broadband and allow CSPs to monitor and proactively improve quality of experience for their subscribers. The key benefits of our solutions are:

·
advanced software-based architecture;
·
ease of deployment and management;
·
improved customer retention;
·
reduced subscriber churn rates;
·
improved service availability and quality;
 
29

 
·
unique ability to correlate session information and provide an end to end view;
·
greater ability to install the solution as a virtual network function for seamless integration into all NFV infrastructures;
·
scalability for next-generation services;
·
enhanced ability to collect all network packets for a complete and comprehensive view of the network and the customer experience;
·
increased operational efficiency and lower costs;
·
the inclusion of support for multiple protocols for end-to-end network coverage;
·
the existence of both network-wide views and drilldown to an individual subscriber level;
·
the support for terabyte networks;
·
accelerated deployment of new services and migration to NFV;
·
substantially quicker and smoother deployment of our solution;
·
real-time capabilities; and
·
end to end view of the customer experience.

Our software-based solutions enable CSPs to manage both existing physical networks and next-generation, NFV-based architectures. We recognized that CSPs would require a new approach for service assurance and CEM solutions in order to monitor huge volumes of data and support NFV-based network deployments. In February 2014, we launched our MaveriQ solution, which incorporates software-based probes, and which subsequently replaced our OmniQ hardware-based solution. During 2015 and 2016, we launched and substantially enhanced our NFV solution for service assurance and our CEM solution.

In December 2015, our MaveriQ solution was selected by AT&T for its next-generation virtualized network environment. AT&T’s deployment represents the first NFV networks of scale in the industry. We are now in the process of deploying our software-based NFV solution with AT&T, and we are leveraging this success in discussions with other CSPs that are looking to manage existing networks while evaluating their transformation to the next-generation NFV architectures.

Industry Background
 
Our Customers and the Markets for Our Solutions
 
We operate in a large market that is currently undergoing significant transformation with significant potential for growth. The customers in our market consist primarily of mobile and fixed CSPs who are responsible for providing mobile and fixed telecommunications services. Our solutions are used by multiple divisions within a CSP’s organization, including engineering, operations, marketing, management and customer care departments.

CSPs face many challenges in managing their network; from the rapid growth in mobile data traffic to complexities in managing services that are delivered across multiple vendor technologies. These challenges are intensifying with further traffic growth and the emergence of new technologies and services, such as M2M, the IoT and 5G. With the need to manage millions of various network elements and services from multiple vendors and technologies, deploying a service assurance and CEM solution is an essential part of a CSP’s network.

Similar to how virtualization has become widely deployed in many data centers and large enterprises, many CSPs are now looking to reduce costs and become more agile by transitioning from physical network elements to software-centric NFV architectures. NFV enables CSPs to replace dedicated physical network elements with software-based solutions that run-on standard, non-proprietary, third-party hardware. Although the pace of NFV transformation is uncertain, major CSPs are currently evaluating and/or moving parts of their network to support NFV. NFV and SDN are expected to play an important role in 5G networks. For instance, 5G will support diverse use cases optimized by dynamic network slicing using SDN and NFV architectures.

While NFV provides many benefits, transitioning infrastructure to NFV adds significant complexity when it comes to service assurance and CEM. Prior probe and management solutions were not designed for NFV. Whereas prior solutions focused on monitoring physical network devices, new solutions must broaden capabilities to monitor internal VM-to-VM communications between various virtualized network functions all hosted on the same server as well as communications between servers.
 
30


Our Strategy
 
Our objective is to be the market leader for service assurance solutions both for virtualized and hybrid networks. We plan to increase sales by leveraging our product leadership and innovation around software-based solutions and NFV, as well as take advantage of the experience gained from implementing the largest, most advanced NFV deployment to date (with AT&T). In addition, we also offer our solutions and expertise to new and existing tier 1 CSPs in our targeted geographical regions. We plan to maintain our technical advantage over competitors by further investing in our software-based solutions.

Key elements of our strategy include:
 
·
 
Targeting CSPs who are evaluating and/or migrating to NFV .   The majority of the industry’s largest   CSPs are either evaluating NFV or have started deploying virtualized solutions for their network functionality. We believe we are better positioned than competitors who offer service assurance and CEM solutions that do not support (or have not yet been deployed) in large-scale NFV environments. In order to transition to NFV, CSPs generally need to replace or upgrade their service assurance solution with a software that can support both existing networks as well as NFV-based architectures. Our solution, which monitors both existing networks and NFV, ensures a smooth migration and enables CSPs to future-proof their investment in a service assurance solution. Our selection in December 2015 by AT&T has been noted by many CSPs, as this CSP is well regarded in leading the industry. As a result, as other CSPs look for vendors to support their existing networks and NFV, we believe we are well positioned to leverage our vast experience in true software-based and fully virtualized service assurance in order to successfully expand our deployment base to other CSPs.
 
·
 
Investing in North America, Western Europe and developed markets . With our advanced deployment  and our growing reputation as a technology leader in the industry, we are expanding our presence in North America and Western   Europe and engaging with selected CSPs in developed markets, a segment of the overall geographical market where we expect to see a large share of investments taking place around NFV. Accordingly, we are focusing our sales and marketing activities on these regions. We are specifically engaging tier 1-2 CSPs in those territories for potential opportunities and cross-country implementation of our solutions.
 
·
Targeting service providers migrating to LTE, VoLTE and 5G. We have begun to benefit from the deployments by leading service providers of VoLTE and LTE networks. We are seeing increased deployments of multiple technology (3G, LTE, IMS and Next Generation Network) networks, which involve greater complexity and require more sophisticated service assurance and CEM solutions than legacy networks. We believe that our ability to secure customers with deployments of our solution in multiple types of networks positions us to benefit from this trend.
 
·
 
We view ourselves as market leaders introducing to the market optimized costing models. As a true software-based company we offer our existing and potential customers an appealing commercial model that combines both predictable spending on capital and operating expenditures with lower spending on service assurance and CEM solutions, in comparison to the appliance-based legacy solutions our competition continues to offer. With our optimized commercial model, we offer our customers several alternatives that enable them to grow their business and traffic on the network without impacting their spending with the Company.
 
·
 
As NFV market leaders, we participate in key industry programs such as Intel Network Builders, Amdocs Network Cloud Service, OpenNFV Partner Program. Open Source MANO (OSM) and ECOMP (Enhanced Control, Orchestration, Management & Policy). The ECOMP platform was created by AT&T, committed to open source in February 2017 and is now part of ONAP (Open Network Automation Platform) which is the merger of Open Source ECOMP and Open-O, two of the leading open source MANO initiatives.
 
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·
 
Drive business expansion and long term relationship with our install base. Our solutions are typically purchased initially for a specific purpose within a CSP. As other parts of a CSP’s organization seek to use our solution for other purposes, we benefit from additional sales. Furthermore, as CSPs upgrade and expand their networks, such as adding capacity or launching new services, our customers tend to purchase additional solutions from us assuring end-to-end monitoring of their subscribers' behavior.
 
·
Focus our analytics capabilities to enhance the business value of our solution. We aim to position our MaveriQ analytics as extending our business intelligence suite beyond standard reporting and dashboards to include advanced capabilities ranging from ad hoc querying, self-business intelligence (BI), multi-dimensional analyses, data mining, forecasting and optimization. We aim to have our MaveriQ analytics being used for improving core operations, customer experience management and marketing for discerning trends and creating forecasts, allowing the CSP to gain insights in real-time.
 
Products and Solutions
 
    The MaveriQ Solution for Service Assurance and CEM

The MaveriQ solution is a comprehensive, next-generation probe-based customer and service assurance solution designed to enable CSPs to carry out end-to-end voice and data quality monitoring and to manage their networks and services. The MaveriQ solution offers users a full array of analysis and troubleshooting tools, delivering a comprehensive, integrated network service view that facilitates performance monitoring, fault detection and network and service troubleshooting .

MaveriQ is a software-only solution, with an inherent capability to deploy the entire solution on virtualized and/or bare metal servers using the same software. This enables customers to use MaveriQ on their physical and cloud infrastructures as they transition from legacy hardware based networks to NFV based virtualized networks.

The MaveriQ solution consists of a powerful and user-friendly central management module and a broad range of passive software-based probes used to gather transmission quality data from various types of networks and services, including VoIP, UMTS, LTE, IMS data and others. Signaling and media attributes and quality measurement eDRs collected from the probes in the QManager (the central site-management software) are stored in the solution's embedded database. These can then be used by either the QExpert (the Web-based analysis and reporting module) or the Dashboard (the Web-based user interface) to perform service performance analysis, drilldown and troubleshooting on KPIs and KQIs.

The MaveriQ solution monitors multiple types of services such as voice, video and data, employing a comprehensive array of service and network performance and measurement methodologies to continuously analyze service performance and quality. With its enhanced correlation capabilities, the MaveriQ solution offers the service provider full end-to-end visibility of the network across technologies. The MaveriQ solution displays performance and quality measurements from both the signaling and the user planes, based on a broad range of passive software based probes, which are installed on standard, non-proprietary third-party hardware that function together with the MaveriQ solution to deliver essential functionality.

This service assurance solution presents a seamless integration between traditional network monitoring and troubleshooting solutions, and it provides an advanced set of service assurance monitoring applications: network troubleshooting, network quality monitoring, service quality monitoring, customer quality of service monitoring, and customer service level agreements monitoring.
 
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The MaveriQ solution is designed to enable CSPs to succeed in their efforts to address significant technology challenges, including:

 
·
deployment of next-generation networks such as LTE, high-speed downlink packet access and Triple Play ;
 
·
integration of new architectures such as HSPA, LTE, VoLTE and IMS;
 
·
migration of the network core to IP technology using IMS or SIGTRAN ;
 
·
successful delivery of advanced, complex services such as VoIP IMS and video conferencing; and
 
·
pro-active management of call quality on existing and next-generation service providers' production networks, along with maintenance of high-availability, high-quality voice services over packet telephony.
 
CSPs use the MaveriQ solution for a wide array of use cases, such as the following:

Customer and Service Assurance

 
·
Troubleshooting – the MaveriQ solution enables CSPs to "drill down" to identify the source of specific problems, using tools ranging from call or session tracing to a full decoding of the call flow.
 
·
Performance monitoring – CSPs use the MaveriQ solution to analyze the behavior of network components and customer network usage to understand trends and performance level and optimization, with the goal of identifying faults before they compromise the end-user experience
 
·
Fault detection – CSPs use the MaveriQ solution’s automatic fault detection and service KPIs to alert them to network problems as they arise.
 
·
Pre-Mediation – the MaveriQ solution generates CDRs (call detail records) needed to feed third-party OSSs or other solutions.

Roaming and Interconnect Analysis

The MaveriQ solution can be used by CSPs to monitor their roaming and interconnect traffic. By identifying problematic links, CSPs are able to avoid revenue loss, to detect problems with specific roaming partners, and to manage interconnection KPIs.

Customer Experience Management, or CEM

We have developed and are constantly enhancing our solution to provide CEM capabilities to our customers in line with their key business drivers: optimizing their customer experience, increase their revenue and reduce cost. Revenue-generating services require a well-managed network and mature service-delivery processes. Customers have high expectations of their communications services. CSPs need to know what customers are experiencing, even before the customers do, in order to retain their subscribers and maintain their profitability.

The MaveriQ solution provides the visibility and invaluable data for CSPs to manage both network and service performance and to ensure quality of service for its subscribers. The MaveriQ solution monitors a wide range of measurement sessions that are meaningful to the end user. By analyzing these measurements in real time and applying business intelligence, the MaveriQ solution provides insight not only into the end user quality of experience but also into the corresponding quality of the service provider's TCP/IP network.
 
The CEM solutions include the below:

·
Qinsight delivers rich, interactive dashboards and visualizations, with options to drill, sort, filter, and group the data on the fly with smart drag-and-drop capabilities. This lets the CSP filter through huge amounts of network and subscriber data to focus on specific areas for deep marketing insights. Qinsight also provides advanced data analytics: trending, forecasting, priority ranking, period over period, states and formulas as well as self-BI that provides the CSP a user-initiated, easy ad hoc dashboard creation and customization tool.
 
33

 
·
Marketing Analytics allows the CSP to understand usage patterns and data to build a plan and leverage the insight and data we provide from the network to build and update service profile, that better fits the needs of the customer, and to stay ahead of competitors. Marketing Analytics aggregates and correlates data from network, device, app and browsing usage, framing a comprehensive 360° view of the customer. This allows CSPs to deliver a truly personalized service, with adjusted subscriber plans, optimized device troubleshooting, enhanced upsell options, and more effectively marketed campaigns.

·
Customer Care Application, or QiCare, helps CSPs to reduce churn by monitoring and maintaining a high level of satisfaction for the individual subscriber, groups of subscribers, and the entire subscriber base. QiCare enables CSPs to view subscriber reports for individual subscribers and helps them to understand the subscriber's behavior and the quality of the different services being used online.

·
QVIP reports SLA for defined subscriber groups. In today's saturated telecom market, subscribers often abandon their CSP due to frustration over quality of service, with customer churn contributing to significant loss of revenue. RADCOM's QVIP application helps CSPs to monitor and maintain a high level of satisfaction for the individual subscriber, a group of subscribers and an entire network.

·
QRoam yields detailed roaming analysis, enabling service providers to continually verify the quality of service subscribers are receiving as they roam. Network issues are more rapidly resolved, and voice and data services are maintained at a high standard for all the CSP’s roaming subscribers as well as incoming roaming customers, increasing revenue rewards.

·
QMyHandset enables identification of problematic handsets, and provides analysis of the cause of the problem. By identifying problematic handsets, CSPs can quickly make the required adjustments to their network to provide support for more handset models, thus improving the customer experience and hopefully preventing customer churn .

·
QCell analyzes performance quality, and QoE, by geographical cell and cell sector. QCell identifies underutilized or congested cells by location and time frame, letting you know where to realign or redistribute cell traffic. QCell also shows location-based service utilization for marketing statistics purposes.

The following table shows the breakdown of our consolidated sales for the fiscal years 2016, 2015 and 2014 by product line:

    Year ended December 31,  
   
2016
   
2015
   
2014
 
    (In thousands of U.S. dollars)    
The MaveriQ (including OmniQ)  
 
$
28,841
   
$
18,498
   
$
23,023
 
Others  
 
$
669
   
$
175
   
$
613
 
Total  
 
$
29,510
   
$
18,673
   
$
23,636
 
 
34

 
Sales and Marketing Organization
 
We sell to customers throughout the world mainly via direct channels but also via indirect channels.
 
Direct channels: Most of our sales are made through a direct channel, whereby our customers (the end-users) can enter into an agreement directly with us. During 2016, this direct channel was used mainly in North America, South America and Asia.

In North America we operate through RADCOM US, which primarily sells our products to end-users directly. 

In Brazil we operate through RADCOM Brazil, which primarily sells our products to end-users in the Brazilian market directly.

In India, we operate through RADCOM India, which primarily provides marketing services and customer support worldwide. Our products are sold to the end-users directly by RADCOM Ltd.

We have regional sales support offices in China and Singapore. These offices support our distributors and direct sales in these regions. 

Indirect channels: In several markets we sell our products through independent distributors and resellers who market communications-related hardware and software products. 

We continue to search for new distributors and resellers to penetrate new geographical markets and new customers, and to better serve our target markets.
 
Our distributors, agents and resellers serve as a local representative in certain countries as part of our sales, marketing and support team. They help sell, deploy and service our solutions, offer technical support in the end-user's native language, and attend to customer needs during local business hours.
 
Geographic Markets : The table below indicates the approximate breakdown of our revenue by territory, based on the location of the end-customer:
 
   
Year ended December 31,
(in millions of U.S. dollars)
     Year ended December 31,
(in percentages)
 
   
2016
   
2015
   
2014
   
2016
   
2015
   
2014
 
North America
   
19.2
     
1.0
     
1.9
     
65.1
     
5.4
     
8.1
 
Europe
   
0.9
     
1.2
     
3.2
     
3.1
     
6.4
     
13.5
 
Asia (Excluding Philippines)
   
0.3
     
0.6
     
0.8
     
1.0
     
3.1
     
3.6
 
Philippines
   
5.0
     
8.1
     
3.5
     
16.9
     
43.2
     
15.0
 
South America (Excluding Brazil)
   
0.8
     
2.4
     
4.2
     
2.7
     
13.2
     
17.9
 
Brazil
   
2.5
     
3.5
     
6.5
     
8.5
     
18.7
     
27.3
 
Others
   
0.8
     
1.9
     
3.5
     
2.7
     
10.0
     
14.6
 
Total revenues
   
29.5
     
18.7
     
23.6
     
100
%
   
100
%
   
100
%
 
35

 
Competition

The markets for our products are competitive, and we expect that competition will continue in the future, both with respect to products that we are currently offering and products that we are developing. Our principal competitors include Anritsu, Astelia, Empirix, Ericsson, Exfo, Huawei, NetScout, Nokia, Polystar  and Viavi . In addition to these competitors, we expect competition from established and emerging communications, network management and test equipment companies. Many of our competitors have substantially greater resources than we have, including financial, technological, engineering, manufacturing, marketing and distribution capabilities, and some of them may enjoy greater market recognition than we do. Furthermore, the transition to NFV and software-based solutions could possibly open the market to new competitors or bring in competitors from adjacent markets. For more information, see "Item 3.D - Risks Related to Our Business and Our Industry."

In July 2015, NetScout Systems Inc. announced that it had completed the acquisition of Danaher Corporation's communications business, which includes Tektronix Communications. Each of NetScout and Tektronix have a significant share in the markets for our products, and the competitive landscape pursuant to this purchase where two significant players have combined into one player, may change significantly. We believe that this may also open new opportunities for us, mainly due to potential new prospects with their install base.
 
We believe that we are differentiated from our competitors in six main areas:

·
our leadership in providing full service assurance solutions for NFV networks;
·
the advanced technology (such as real-time processing, big data support and high capacity performance that underlies our solutions);
·
the multi-technology correlation capabilities that supports all major technologies – 3G, 4G, LTE, IMS, VoLTE and VoIP -  within the same solution;
·
our solution being full software-based providing cost-efficiency, rapid deployment times and agility in development;
·
Support for both physical and NFV networks to allow CSPs who have yet to transform to the NFV, to accelerate NFV deployments and smoothly transition from physical infrastructure whilst using the same solutions; and
·
proven flexibility and responsiveness in a dynamic customer and technology environment.

In addition, CSPs are facing strong competition both from other CSPs and from over-the-top, or  OTT, players who are offering more and more similar services. In order to fight for the end customers’ satisfaction, CSPs will need to gain deeper insight into customer behavior, enabling them to tailor processes based on customer preferences.

Following our strategic deployment with AT&T, we believe that we are considered the most advanced vendor in the market for Service Assurance solutions for NFV and Hybrid implementations. 

Customer Service and Support

We believe that providing a high level of customer service and support to end-users is essential to our success, and our strategic goal list to establish RADCOM as an industry leader in customer satisfaction. Investments that we are making to achieve this goal include:
 
 
·
Enhancement of support: We are dedicated to the provision of timely, effective and professional support for all our customers. On-call support is provided by our direct sales/support force as well as by our representatives, distributors, and Original Equipment Manufacturer, or OEM, partners. In addition, we routinely contact our customers to solicit feedback and promote full usage of our solutions. We may provide our customers with a free warranty period which includes bug-fixing and a hardware warranty on our products.  After the initial warranty period, we offer extended warranties which can be purchased for multi-year periods. Generally, the cost of the extended warranty is an annual maintenance fee based on a percentage of the overall cost of the product.
 
36

 
·
Customer-oriented product development: With the goal of continuously enhancing our customer relationships, we meet regularly with customers, and use the feedback from these discussions to improve our products and guide our R&D roadmap.
 
 
·
Regional technical support: As the sale of a system and solutions requires a high level of technical skill, we decided to enhance our support with local experts located in our regional offices. This strategy is advantageous in terms of the time zone, culture and language. For example, in our Brazil and India offices we established local support teams responsible for first level engagements with customers (tier 1).

 
·
Support of our representatives and distributors: We provide a high level of pre- and post-sale technical support to our distributors and representatives in the field. We use a broad range of channels to deliver this support, including help desks, technical training and others.

Seasonality of Our Business
 
In addition to general market and economic conditions, such as overall industry consolidation, the pace of adoption of new technologies, and the general state of the economy, our orders are affected by our customers' capital spending plans and patterns. Our orders, and to a lesser degree revenues, may be highest in a certain fiscal quarter when our customers have historically increased their spending to fully utilize their annual capital budgets. Consequently, our first quarter orders are usually lower compared to the last quarter of the previous year, and often are the lowest of the year.
 
Development   Facilities

Our corporate office and development facilities are located in Tel Aviv, Israel, and consist primarily of software development, testing, quality control and installation. 

Research and Development
 
In 2016, most of our research and development efforts focused on the development for the NFV. We expect to continue to invest significant efforts in research and development for the NFV in 2017.

The industry in which we compete is subject to rapid technological developments, evolving industry standards, changes in customer requirements, and new product introductions and enhancements.  
As a result, our success, in part, depends upon our ability, on a cost-effective and timely basis, to continue to enhance our existing products and to develop and introduce new products that improve performance and reduce total costs.  

We intend to continue developing products that meet key industry standards, to support important protocols as they emerge and maintain our technology leadership.
 
Our gross research and development costs were approximately $8.0 million in 2016, $6.1 million in 2015 and $5.8 million in 2014, representing 27.3%, 32.5% and 24.6% of our sales, respectively.  Aggregate research and development expenses funded by the Innovation Authority were approximately $1.7 million in 2016, $1.6 million in 2015 and $1.7 million in 2014. For more information on the Innovation Authority, see "Innovation Authority" below. We expect to continue to invest significant resources in research and development.
 
As of December 31, 2016, our research and development staff consisted of 72 employees in Israel and six employees in India   an increase of 27 employees compared to December 31, 2015. A significant part of our Research and development activities take place at our facilities in Tel Aviv.  We occasionally use independent subcontractors for portions of our development projects.
 
37


Innovation Authority
 
We have received royalty-bearing grants from the Innovation Authority for certain research and development activities pursuant an incentive program, which are subject to provisions of the R&D Law and the regulations promulgated thereunder.

In addition, we have filed numerous applications, and in the future may continue to file additional applications, for grants from the Innovation Authority pursuant to the R&D Law. Grants received under such programs are repaid through a mandatory royalty payments based on revenues generated from products developed pursuant to such programs or deriving therefrom. The receipt of such grants is contingent upon our ability to comply with certain applicable requirements and conditions specified in the R&D Law and under the applicable program. Generally, prior to Amendment No. 7, the R&D Law provided that grants from the Innovation Authority shall be at the rate of 20%, 30%, 40% or 50% of the research and development expenses, as prescribed by the research committee of the Innovation Authority . In addition, as of December 31,2016 a royalty of 3.5% is due on revenues from sales of products and related services that incorporate know-how developed, in whole or in part, within the framework of projects funded by the Innovation Authority.
 
The R&D Law provides that the Innovation Authority is authorized to determine the ownership requirements of know-how developed under an approved research and development program and/or rights associated with such know-how including intellectual property, which is not the product that was developed under such program, or the Funded Know-How. Among others, the Innovation Authority may determine that certain Funded Know-How can be transferred to third parties in Israel only if such transferee company will also be subject to the same terms and conditions that were levied upon the transferor company under the R&D Law prior to the transfer of such know-how.

The R&D Law, further provides that Funded Know-How may not be transferred to any third parties outside of Israel, unless certain requirements are met, as determined in each project separately. The Innovation Authority may approve the transfer of Funded Know-How from Israel abroad, generally, in the following cases: (a) the grant recipient pays to the Innovation Authority  up to 600% of the total amount of the grants in consideration for such Funded Know-How, and an additional payment of annual interest and linkage differences ; (b) if the grant recipient receives an alternative know-how from a third party in exchange for its Funded Know-How, subject to certain requirements, among which the alternative know-how will generate higher revenues than the Funded Know-How for the company; (c) if such transfer of Funded Know-How arises in connection with certain types of cooperation in research and development activities; or  (d) if such transfer of know-how arises in connection with a liquidation by reason of insolvency or receivership of the grant recipient and the Funded Know-How is sold for a lower price than the amount of funds invested in it, in which case the payment set forth in (a) may be reduced.

The R&D Law generally determines that in determining whether a specific program is eligible to receive an approval under the R&D Law, a significant weight will be given to the fact that the manufacture of the related products is executed in Israel.. Upon prior written notification to the Innovation Authority and provided that the Innovation Authority did not object within 30 days, a portion of up to 10% of the manufacturing volume of a company, subject to the R&D Law, may be performed outside of Israel. Upon Innovation Authority approval, a greater portion of the manufacturing volume may be performed abroad, subject to certain requirements detailed in the R&D Law. According to the regulations under the R&D Law, such approval shall be conditioned upon acceleration of the rate of royalties and an increase in the total amount to be repaid to the Innovation Authority of between 120% to 300% of the grants, depending on the portion of the total manufacturing volume that will be performed abroad.

The R&D Law generally imposes reporting requirements with respect to certain changes in the ownership of a grant recipient. The R&D Law requires the grant recipient and its controlling shareholders or the foreign interested party of such grant recipient to notify the Innovation Authority of any change in control of the recipient or a change in the holdings of the means of control of the grant recipient that results in a non-Israeli citizen or non-Israeli resident or corporation incorporated in Israel becoming an interested party directly in the grant recipient, and requires the new interested party to undertake to the Innovation Authority to comply with the R&D Law. In addition, the Innovation Authority may require additional information or representations in respect of such events.  For R&D Law purposes, "control" is defined as the ability to direct the activities of a corporation except the ability that stems from serving as an officer or director of the company. A person is presumed to have control if such person holds 50% or more of the means of control of a company. "Means of control" generally refers to voting rights in a company's shareholders meeting or the right to appoint directors or the chief executive officer. An "interested party" of a company includes a holder of 5% or more of its outstanding share capital or voting rights, its chief executive officer and directors, someone who has the right to appoint its chief executive officer or at least one director, and a company with respect to which any of the foregoing interested parties owns 25% or more of the outstanding share capital or voting rights or has the right to appoint 25% or more of the directors.  Accordingly, any non-Israeli who acquires 5% or more of our ordinary shares will be required to notify the Innovation Authority that it has become an interested party and to sign an undertaking to comply with the R&D Law.
 
38

 
Amendment No. 7 to the R&D Law became effective on January 1, 2016 and established the formation of the Innovation Authority in place of the Office of the Chief Scientist.  Accordingly, pursuant to Amendment No. 7, it is expected that the Innovation Authority may establish new guidelines and/or amend the existing guidelines regarding the R&D Law and/or regulations thereunder. Consequently, Amendment No. 7 creates uncertainty with respect to the terms of our existing and/or future Innovation Authority programs and incentives as we do not know what guidelines will be adopted by the Innovation Authority or will be amended by it.

In each of the last ten fiscal years, we have received such royalty-bearing grants from the Innovation Authority. As of December 31, 2016, our total contingent liability to the Innovation Authority in respect of grants received including accumulated interest and accumulated royalties paid was approximately $43.6 million.
 
In May 2010, we received a notice from the Innovation Authority regarding alleged miscalculations in the amount of royalties paid by us to the Innovation Authority for the years 1992 through 2009. See "Item 3.D. Risk Factors – Risks related to our Business and Our Industry" - because we received grants from the Innovation Authority, we are subject to ongoing restrictions as detailed above.
 
Binational Industrial Research and Development Foundation
 
We received from the Israel-U.S. Binational Industrial Research and Development Foundation, or the BIRD Foundation, funding for the research and development of products. We are obligated to pay royalties to the BIRD Foundation, with respect to sales of products based on technology resulting from research and development funded by the BIRD Foundation. Royalties to the BIRD Foundation are payable at the rate of 5% based on the sales of such products, up to 150% of the grant received, linked to the United States Consumer Price Index. As of December 31, 2016, our contingent liability to the BIRD Foundation for funding received was approximately $366,000. We have not received grants from the BIRD Foundation since 1996. Since 2003, we have not generated sales of products developed with the funds provided by the BIRD Foundation, and we have therefore not been required to pay royalties since such time.

Indian Subsidiary and China Office Funding

In April 2012 and in April 2014, the MoE approved our application for funding to help set up our Indian subsidiary and China office, respectively, as part of a designated grant plan for the purpose of setting up and establishing a marketing agency in India and China. The grant is intended to cover up to 50% of the costs of the office establishment, logistics, expenses and hiring of employees and consultants in India and China, based on the approved budget for the plan for a period of three years.

We are obligated to pay to the MoE, over a period of five years commencing as of the lapse of the third year anniversary of the grant, royalties of 3% of increased sales in the target market, with respect to the year during which the grant was approved (2012 for India, and 2014 for China), over a period of five years but not more than the total linked amount of the grant received.

The total amount of marketing grants that the Company has received from the MoE as of December 31, 2016, with respect to our offices in China and our subsidiary in India, is $619,000. As of December 31, 2016, no liability had been accrued.
 
39

 
Proprietary Rights
 
To protect our rights to our intellectual property, we rely upon a combination of trademarks, contractual rights, trade secret law, copyrights, non-disclosure agreements and technical measures to establish and protect our proprietary rights in our products and technologies. We own a registered trademark for the name Omni-Q ® . We currently have two pending patent applications in the United States, and we are in the process of filing additional patent applications.  In addition, we usually enter into non-disclosure and confidentiality agreements with our employees, distributors, sales representatives and with suppliers and sub-contractors who have access to sensitive information.
 
Employees
 
As of December 31, 2016, we have a total of 192 employees, out of which 133 employees are located in Israel, 8 employees of Radcom US are located in the United States, 11 employees of RADCOM Brazil are located in Brazil, 28 employees of RADCOM India are located in India and 12 employees in total are located in Germany, Spain, Singapore, China and UK, collectively. Of the 133 employees located in Israel, 72 were employed in research and development, 3 in operations (including assembly), 44 in sales and marketing and customer support, and 14 in administration and management. Of the 8 employees located in the United States, 7 were employed in sales, marketing and customer support and 1 was employed in administration and management. Of the 11 employees located in the Brazil, 9 were employed in sales, marketing and customer support and 2 were employed in administration and management. Of the 28 employees located in India, 6 were employed in research and development, and 20 sales, marketing, product and customer support and 2 were employed in administration. Of the 12 employees located in Germany, Spain, Singapore, China and UK, 11 were employed in sales, marketing and customer support and 1 was employed in administration and management. We consider our relations with our employees to be good and we have never experienced a strike or work stoppage. All of our employees have employment agreements and, with the exception of Brazil, none of them are represented by labor unions.

Although we are not a party to a collective bargaining agreement in Israel, we are subject to certain provisions of collective bargaining agreements among the Histadrut (General Federation of Labor in Israel), or the Histadrut, and the Coordinating Bureau of Economic Organizations (including the Industrialists' Association), or the CBEO, that are applicable to our Israeli employees by virtue of expansion orders of the Israeli Ministry of Economy (formerly known as the Ministry of Industry, Trade and Labor), including transportation allowance, annual recreation allowance, the lengths of the workday and workweek and mandatory general insurance pension. In addition, we may be subject to the provisions of the extension order applicable to the Metal, Electricity, Electronics and Software Industry. Israeli labor laws are applicable to all of our employees in Israel.  These provisions and laws principally concern the length of the work day, minimum wages for workers, procedures for dismissing employees, determination of severance pay, leaves of absence (such as annual vacation or maternity leave), sick pay and other conditions of employment.
 
In Israel, we follow a general practice, which is the contribution of funds on behalf of most of our employees to an individual insurance policy known as "Managers' Insurance" or a pension fund.  The contribution rates towards such Managers' Insurance are above and beyond the legal requirement. This policy provides a combination of savings plan, disability insurance and severance pay benefits to the insured employee.  It provides for payments to the employee upon retirement or death and accumulates funds on account of severance pay, if any, to which the employee may be legally entitled upon termination of employment. Each participating employee contributes an amount equal to up to 8% of such employee's base salary, and we contribute between 13.3% and 15.8% of the employee's base salary. Pursuant to a recent change to Israeli law as well as the recent collective bargaining agreement entered into by the Histadrut and the CBEO, the amounts that we are required to contribute may increase.
 
Effective January 1, 2012, our employment agreements with new employees in Israel are in accordance with Section 14 of the Israeli Severance Pay Law – 1963, which provide that our contributions to severance pay fund shall cover our entire severance obligation. Upon termination, the release of the contributed amounts from the fund to the employee shall relieve us from any further severance obligation and no additional payments shall be made by us to the employee. As a result, the related obligation and amounts deposited on behalf of such obligation are not stated on the balance sheet, as we are legally released from severance obligation to employees once the amounts have been deposited, and we have no further legal ownership on the amounts deposited.  Consequently, effective from January 1, 2012, we increased our contribution to the deposited funds to cover the full amount of the employees' salaries.
 
40


We also provide employees of RADCOM with an Education Fund, to which each participating employee contributes an amount equal to 2.5% of such employee's base salary and we contribute an amount equal to 7.5% of the employee's base salary (generally up to a certain ceiling provided in the Israeli Income Tax Regulations).  In the United States, we provide benefits in the form of health, dental, vision and disability coverage, in an amount equal to 17.3% of the employee's base salary.  Israeli employees and employers also are required to pay pre-determined sums which include a contribution to national health insurance to the Israel National Insurance Institute, which provides a range of social security benefits.
 
In Brazil, we provide benefits in the form of health coverage, including health, vision and dental coverage, in an amount that varies from 3% - 58% of the employee's base salary.

In India, we provide benefits in form of health coverage, education fund, house rent allowance and life insurance fund, in an amount equal to 25% of the employee’s salary.

   C.
ORGANIZATIONAL STRUCTURE
 
In January 1993, we established RADCOM US, which conducts the sales, marketing, and customer support of our products in North America.  In July 1996, we incorporated a wholly-owned subsidiary in Israel, RADCOM Investments, for the purpose of making various investments, including the purchase of securities. In 2010, we established RADCOM Brazil, our wholly-owned subsidiary in Brazil, which conducts the sales, marketing and customer support of our products in Brazil. In 2012, we established RADCOM India, our wholly-owned subsidiary in India, which conducts the sales, marketing and customer support of our products in India. The following is a list of our subsidiaries, each of which is wholly-owned:
 
Name of Subsidiary
Jurisdiction of Incorporation
RADCOM US
New Jersey
RADCOM Investments
Israel
RADCOM Brazil
Brazil
RADCOM India
India

For more information, see "Item 7.B—Major Shareholders and Related Party Transactions—Related Party Transactions" below.
 
   D.
PROPERTY, PLANTS AND EQUIPMENT
 
We currently lease an aggregate of approximately 22,830 square feet of office space in Tel Aviv, Israel, from affiliates of our principal shareholders.
 
This space includes our development facilities, which consist primarily of programming, documenting, quality control, testing and bug fixing, as well as from time to time, installation of software components on third party hardware.
 
In 2016, we extended our lease agreement and expanded the square feet we lease, and the aggregate annual lease and maintenance payments for the Tel Aviv premises were approximately $588,000 of which approximately $571,000 was paid to affiliates of our principal shareholders. In the extension to the lease agreement we entered in 2016, the lessor committed to participate and reimburse renovation expenses of up to $730,000.   In 2016, we subleased approximately 646 square feet of our Tel Aviv premises, to unrelated parties, and our aggregate annual lease payments for such premises were approximately $3,000. We may, in the future, lease additional space from affiliated parties.  

We also lease an aggregate of approximately 2,850 square feet of office space in Paramus, New Jersey, from an affiliate of our principal shareholders, and subleased approximately 1,260 square feet of such space to a related party. In 2016, our aggregate annual lease payments for such premises were approximately $57,000, and we received approximately $24,000 from the related party for the sub-lease.
 
41


We also lease an aggregate of approximately 1,480 square feet of office space in Brazil, 785 square feet in India, 400 square feet in Singapore, and 100 square feet in China. The aggregate annual lease payments for those premises in 2016 were approximately $49,000, $89,000, $11,000 and $4,000 respectively.

 We believe that our offices and facilities are adequate for our current needs and that suitable additional or substitute space will be available when needed.

  ITEM 4A.  
UNRESOLVED STAFF COMMENTS
 
Not applicable.

ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Annual Report.
 
Overview
 
We provide Service Assurance solutions for CSPs. Our world leading, innovative solutions are uniquely positioned to fulfill the CSPs’ ongoing needs to monitor their networks (fixed and mobile) and assure the delivery of a quality service to their subscribers; both on NFV networks and non-virtual networks.
 
General
 
Our discussion and analysis of our financial condition and results of operation are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Our operating and financial review and prospects should be read in conjunction with our financial statements, accompanying notes thereto and other financial information appearing elsewhere in this Annual Report.
 
We commenced operations in 1991. Since then, we have focused on developing and enhancing our products, building our worldwide direct and indirect distribution network and establishing and expanding our sales, marketing, and customer support infrastructures.
 
Most of our revenues are generated in U.S. dollars and the financing activities are made in U.S. dollars. Accordingly, we consider the U.S. dollar to be our functional currency and our consolidated financial statements are prepared in dollars.

As we evaluate our growth prospects and manage our operations for the future, we believe that the adoption of NFV by leading CSPs will be a major engine of our growth. 
We continue to believe that a main part of our growth will be the continue deployment of LTE, VoLTE, Triple Play and 3G networks.

    We followed the below sales strategy in 2016 in order to expand our sales pipeline and revenues:
 
 
·
 
We focused on leveraging our AT&T NFV implementation and our value proposition to leading tier 1 and other carriers in North America, Western Europe and selected carriers from other developed markets;
 
·
In parallel, in developing markets, including South America, Eastern Europe and Asia, we targeted customers rolling out  LTE, IMS, 3G and VoIP services; this included expanding our business with our key existing customers and other carries in those territories;
 
 
·
We pursued strategic partnerships, including OEM partnerships, and teaming agreements; and
 
 
·
We took part and continue to take part in leading technology programs for NFV, including Open Source Mano (OSM) and AT&T’s Enhanced Control, Orchestration, Management, and Policy (ECOMP) platform (now ONAP - Open Network Automation Platform due to consolidation with Open-O initiative).
 
   
 
42


 
In February 2014, we officially launched and started selling MaveriQ, our new software-based solutions. The MaveriQ solutions replaced our OmniQ solutions, which was our hardware-based solutions. Our transition from hardware-based solutions to software-based solutions and the NFV solution has contributed to our 2016 results. We believe that our leading NFV-ready solutions will be the leading factor of our revenues in 2017.

Revenues . In general, our revenues are derived from sales of our products and solutions, projects of fixed price contracts, to a lesser extent, from sales of extended warranty and support services. Revenues consist of gross sales, less discounts and refunds, when applicable.
 
Cost of revenues .  Cost of revenues consists of labor and related costs, including costs incurred in the developments and customizations for projects, bill of materials, purchase of hardware and royalties for software components from third parties, deployment costs, support, warranty expenses, packaging, import taxes, allocation of overhead expenses, recurring and non-recurring write-off of inventory and others, impairment of indirect taxes, subcontractors’ expenses, shipping and handling costs, license fees paid to third parties and royalties to the Innovation Authority and share-based compensation. As part of our plan to reduce product cost and improve flexibility, we shifted during the last two years to a model whereby we install our software-based solutions on standard, non-proprietary third-party hardware that functions together with our software to deliver the product's essential functionality.

The cost of revenues increased mainly due to cost of projects, that comprised mainly of employees' salaries and related costs incurred in the development and customization of the Company’s solution as well as cost of third party hardware related to the products and related services revenue.
 
Our gross profit is affected by several factors, including the introduction of new products, price erosion due to increasing competition, the number of people that we have in operations, deployment and in customer support, the bargaining power of larger clients, product mix and integration of third parties’ solutions into our own.  Following an initial purchase of a product, a customer can add additional functions by purchasing software packages.  These packages may add functions to the product such as retrieving additional reports and related information.  Most of our solutions consist of a software installed on standard off the shelf hardware, that function together to deliver the product's essential functionality. Since in most cases there are no incremental hardware costs associated with the sale of the add-on software, the gross margins on these sales are higher.
 
Research and Development   expenses, Net .  Research and development expenses, net consist primarily of salaries and related expenses, including share-based compensation, and, to a lesser extent, payments to subcontractors and for materials and overhead expenses. The allocation of overhead expenses consists of a variety of costs, including rent, office and associated expenses (including telecommunications expenses). The methodology for allocating these expenses depends on the nature of the expense.  Costs of rent and associated costs are based on the square meters used by the R&D department while the other expenses are allocated based on headcount.  There has been no change in methodology from year to year. The R&D expenses have been partially offset by royalty-bearing grants from the Innovation Authority.
 
Sales and Marketing   expenses, Net .  Sales and marketing expenses, net consist primarily of salaries and related expenses, including share-based compensation, commissions to representatives, advertising, trade shows, promotional expenses, domestic and international travels, web site maintenance, write-offs and overhead expenses, net of grants received from the MoE.
 
43

 
General and Administrative Expenses . General and administrative expenses consist primarily of salaries and related expenses including share-based compensation, and related personnel expenses for executives, accounting and administrative personnel, professional fees (which include legal, audit and additional consulting fees), bad debt expenses, other general corporate expenses and overhead expenses.
 
Financial Income (Expenses), Net .   Financial income (expenses), net, in 2016 and 2015, consist primarily of interest earned on bank deposits, bank charges, and gains and losses from the exchange rate differences, including of monetary balance sheet items denominated in non-U.S. dollar currencies.
 
Summary of Our Financial Performance for the Fiscal Year Ended 2016 Compared to the Fiscal Year Ended 2015
 
 For the year   ended December 31, 2016, our revenues were $29.5 million, compared with $18.7 million in 2015, reflecting an increase of approximately 58.0%. On an operating basis, the Company provided $9.5 million in cash from operating activities during 2016, compared to $1.9 million provided during 2015. The Company's net income for the year ended December 31, 2016 was $1.9 million, compared with a net loss of $0.9 million for 2015. In 2016, the Company increased revenues by approximately 58% compared to 2015, increased its cost of revenues by approximately 108%, and increased its operating expenses by approximately 32%, compared to 2015.

As of December 31, 2016, our cash and cash equivalents totaled $42.9 million, compared with $8.7 million as of December 31, 2015. The improvement in our cash and cash equivalents in 2016 was mainly due to the payments of approximately $19.2 million received from   Amdocs Software Systems Limited, or Amdocs, under   the AT&T engagement and the net proceeds of $21.3 million received from our follow-on public offering completed in 2016.

Our 2016 net income includes non-cash expenses due to share-based compensation that totaled $2.5 million.
 
Our cost of revenues increased relatively more than our revenues, which resulted in a decrease of our gross margin to 70% in 2016 compared with 77% in 2015. The increase in our cost of revenues was due to cost of  developments and customizations incurred in  projects, mainly salaries, costs of third party hardware and inventory write-offs.

Reportable Segments
 
Management receives sales information by customers and by geographical regions. Research and development, sales and marketing, and general and administrative expenses are reported on a combined basis only (i.e., they are not allocated to product groups or geographical regions). Because a measure of operating profit or loss by product groups or geographical regions is not presented to management due to shared resources, we have concluded that we operate in one reportable segment.
 
44

 
   A.
OPERATING RESULTS

Financial Data for Year Ended December 31, 2016 compared with Year Ended December 31, 2015

The following table sets forth, for the periods indicated, certain financial data expressed as a percentage of revenues:
 
     Year ended December 31,  
 
 
2016
   
2015
 
Revenues
   
100
%
   
100
%
Cost of revenues
   
30.4
     
23.2
 
Gross profit
   
69.6
     
76.8
 
Operating expenses:
               
Research and development
   
27.3
     
32.5
 
Less royalty-bearing participation
   
5.7
     
8.5
 
Research and development, net
   
21.6
     
24.0
 
Sales and marketing ,net
   
28.9
     
42.0
 
General and administrative
   
15.3
     
12.8
 
Total operating expenses
   
65.8
     
78.8
 
Operating income (loss)
   
3.8
     
(2.0
)
Financial income (expenses), net
   
2.8
     
(2.3
)
Income (loss) before taxes on income
   
6.6
     
(4.3
)
Taxes on income
   
(0.1
)
   
(0.7
)
Net income (loss)
   
6.5
     
(5.0
)
 
Revenues .  In 2016, our revenues increased by approximately 58% compared to 2015 as follows: a decrease of $6.9 million in the product and related services, an increase of $16.9 million in the projects and increase of $0.8 million in the warranty and support. The increase in the projects and the decrease in revenues from product and related services reflect the execution of the deal with Amdocs software, in connection with AT&T engagement.
 
For more information, see "Item 7.B—Major Shareholders and Related Party Transactions—Related Party Transactions".
 
Revenues by product line                  
   
Year ended December 31,
(In millions of U.S. dollars)
    % Change  
   
2016
   
2015
   
2014
   
2016 vs. 2015
   
2015 vs. 2014
 
The MaveriQ (including the Omni-Q family)
   
28.8
     
18.5
     
23.0
     
56
     
(20
)
Others  
   
0.7
     
0.2
     
0.6
     
250
     
(67
)
Total revenues
   
29.5
     
18.7
     
23.6
     
58
     
(21
)
 
Revenues per geographic region, based on the location of the end-customer
 
   
 Year Ended December 31,
(in millions of U.S. dollars)
    Year Ended December 31,
(as percentages) 
 
   
2016
   
2015
   
2014
   
2016
   
2015
   
2014
 
North America
   
19.2
     
1.0
     
1.9
     
65.1
     
5.4
     
8.1
 
Europe
   
0.9
     
1.2
     
3.2
     
3.1
     
6.4
     
13.5
 
Asia (Excluding Philippines)
   
0.3
     
0.6
     
0.8
     
1.0
     
3.1
     
3.6
 
Philippines
   
5.0
     
8.1
     
3.5
     
16.9
     
43.2
     
15.0
 
South America (Excluding Brazil)
   
0.8
     
2.4
     
4.2
     
2.7
     
13.2
     
17.9
 
Brazil
   
2.5
     
3.5
     
6.5
     
8.5
     
18.7
     
27.3
 
Other
   
0.8
     
1.9
     
3.5
     
2.7
     
10.0
     
14.6
 
Total revenues
   
29.5
     
18.7
     
23.6
     
100
%
   
100
%
   
100
%
45

 
In 2016, the Company had two customers in the United States and the Philippines that amounted to $18.3 million and $5 million, respectively, of the total consolidated revenues. In 2015, the Company had two customers, one in the Philippines and one in Brazil, which amounted to $8.1 million and $ 2.7 million, respectively, of the total consolidated revenues.
 
Cost of Revenues and Gross Profit
                 
   
Year Ended December 31,
(in millions of U.S. dollars)
 
   
2016
   
2015
   
2014
 
Cost of revenues – Products and related services
   
5.6
     
3.9
     
7.9
 
Cost of revenues - Projects
   
2.9
     
0.1
     
0.5
 
Cost of revenues – Warranty and support
   
0.5
     
0.3
     
0.3
 
Total Cost of revenues
   
9.0
     
4.3
     
8.7
 
Gross profit
   
20.5
     
14.3
     
14.9
 

 Cost of Revenues .  During 2016, our gross profit as a percentage of revenues, calculated to include variable costs, which include purchasing, packaging, royalties to the Innovation Authority, license fees paid to third parties recurring, warranty expenses and non-recurring write-off of inventory and import taxes, was 70% compared to 78% in 2015, which reflected the increase in our cost of revenues , mainly salaries cost relating to the developments and customizations for projects, costs of third party hardware and inventory write-offs.
 
The cost of products and related services as part of our cost of revenues also include employees' salaries and related costs and overhead expenses of approximately $2 million for 2016, and $1.5 million for 2015.  Our cost of revenues included an expense of $118,000 for share-based compensation in 2016, and $33,000 for share-based compensation in 2015.  

The following table provides the operating costs and expenses of the Company in 2016, 2015 and 2014, as well as the percentage change of such expenses in 2016 compared to 2015.
   
 
Year ended December 31,
(in millions of U.S. dollars)
   
 
% Change
2016 vs 2015
   
 
% Change
2015 vs. 2014
 
   
2016
   
2015
   
2014
             
Research and development
   
8.0
     
6.1
     
5.8
     
31.1
     
5.2
 
Less royalty-bearing participation
   
1.7
     
1.6
     
1.7
     
6.3
     
(5.9
)
Research and development, net
   
6.4
     
4.5
     
4.1
     
42.2
     
9.8
 
Sales and marketing, net
   
8.5
     
7.8
     
7.3
     
9.0
     
6.8
 
General and administrative
   
4.5
     
2.4
     
2.3
     
87.5
     
4.3
 
Total operating expenses
   
19.4
     
14.7
     
13.7
     
32.0
     
7.3
 
 
Research and Development   Expenses . Research and development expenses, gross, increased from $6.1 million in 2015 to $8.0 million in 2016. As a percentage of total revenues, research and development expenses, gross, decreased from 32.5% in 2015 to 27.3% in 2016. The increase in our gross research and development expenses from $6.1 million in 2015 to $8 million in 2016 is attributable mostly to the increase in the number of employees, sub-contractors and related expenses. As of December 31, 2016, we employed 78 research and development engineers, compared to 51 as of December 31, 2015.Our research and development costs included an expense of $625,000 for share-based compensation in 2016 and $529,000 for share-based compensation in 2015.
 
46

 
We believe that our research and development efforts are a key element of our strategy and are essential to our success. An increase or a decrease in our total revenue would not necessarily result in a proportional increase or decrease in the levels of our research and development expenditures, which could affect our operating margin
 
                Sales and Marketing Expenses, Net.   Sales and marketing expenses increased from approximately $7.8 million in 2015 to approximately $8.5 million in 2016. The increase in our sales and marketing expenses from 2015 to 2016 is mainly attributable to an increase in the number of employees (includes recruitment fees) and subcontractors. As a percentage of total revenues, sales and marketing expenses in 2016 and 2015 were 28.9% and 42%, respectively. Our sales and marketing expenses included an expense of $199,000 for share-based compensation in 2016 and $380,000 for share-based compensation in 2015
 
General and Administrative Expenses .  General and administrative expenses increased from approximately $2.4 million in 2015 to approximately $4.5 million in 2016. The increase in our general and administrative expenses from 2015 to 2016 is mainly attributable to an increase in the share-based compensation and increase in salary and related expenses.  As a percentage of total revenues, general and administrative expenses in 2016 and 2015 were 15.3% and 12.8%, respectively. Our general and administrative expenses included approximately $1.5 million for share-based compensation in 2016 and $467,000 for share-based compensation in 2015.  
 
 Financial Income (Expenses), Net . In 2016, the financial income, net, was approximately $816,000 compared to financial expenses, net, of approximately $433,000 in 2015. The change in our financial expenses, net from 2015 to 2016 is attributable to an increase in foreign currency translation income of $989,000 and an increase of $260,000 in interest income due to higher cash balances in 2016.
 
Taxes on Income .  During 2016, we recorded tax expenses of $24,000, compared to $121,000 in 2015, reflecting withholding taxes that were due on payments from certain customers in Central America and Asia, as well as tax expenses of the Company’s subsidiary in India.
 
Financial Data for Year Ended December 31, 2015 compared with Year Ended December 31, 2014

The following table sets forth, for the periods indicated, certain financial data expressed as a percentage of revenues:

    Year ended December 31,  
 
 
2015
   
2014
 
Revenues
   
100
%
   
100
%
Cost of Revenues
   
23.2
     
36.8
 
Gross profit
   
76.8
     
63.2
 
Operating expenses:
               
Research and development
   
32.5
     
24.6
 
Less royalty-bearing participation
   
8.5
     
7.1
 
Research and development, net
   
24.0
     
17.5
 
Sales and marketing ,net
   
42.0
     
30.9
 
General and administrative
   
12.8
     
9.6
 
Total operating expenses
   
78.8
     
58.0
 
Operating income (loss)
   
(2.0
)
   
5.2
 
Financial income (expenses), net
   
(2.3
)
   
(1.4
)
Income (loss) before taxes on income
   
(4.3
)
   
3.8
 
Taxes on income
   
(0.7
)
   
(0.8
)
Net income (loss)
   
(5.0
)
   
3.0
 

 
47


Revenues .  In 2015, our revenues decreased by 20.7% compared to 2014: decrease of $2.8 million in the products and related services, decrease of $1.6 million in projects and decrease of $0.5 million in the warranty and support. The decrease in revenues reflects the major effort made by the Company during 2015, focusing on winning the deal with Amdocs Software in connection with AT&T.
 
For more information, see "Item 7.B—Major Shareholders and Related Party Transactions—Related Party Transactions".
 
    Year Ended December 31,
(in millions of U.S. dollars)
    Year Ended December 31,
(as percentages)
 
   
2015
   
2014
   
2015
   
2014
 
Europe
   
1.2
     
3.2
     
6.4
     
13.5
 
North America
   
1.0
     
1.9
     
5.4
     
8.1
 
Asia (Excluding Philippines)
   
0.6
     
0.8
     
3.1
     
3.6
 
Philippines
   
8.1
     
3.5
     
43.2
     
15.0
 
South America (Excluding Brazil)
   
2.4
     
4.2
     
13.2
     
17.9
 
Brazil
   
3.5
     
6.5
     
18.7
     
27.3
 
Other
   
1.9
     
3.5
     
10.0
     
14.6
 
Total revenues
   
18.7
     
23.6
     
100
%
   
100
%
 
In 2015, the Company had two customers, one in the Philippines and one in Brazil, that amounted to $8.1 million and $2.7 million, respectively, of the total consolidated revenues. During 2014, the Company had three customers, one in each of Brazil, the Philippines and Israel, that amounted to $5.2 million, $3.5 million and $2.8 million, respectively, of the total consolidated revenues.
 
Cost of Revenues and Gross Profit.
 
During 2015, our gross profit as a percentage of revenues, calculated to include variable costs, which include purchasing, packaging, royalties to the Innovation Authority, license fees paid to third parties recurring and non-recurring write-off of inventory and import taxes, was 77% compared to 63% in 2014.
 
The fixed costs of our cost of revenues also include employees' salaries and related costs and overhead expenses of approximately $1.5 million for 2015 and $2.1 million for 2014.  Our cost of revenues included an expense of $33,000 for share-based compensation in 2015 and $12,000 for share-based compensation in 2014.
 
Our gross profit in 2015 and 2014 was 77% and 63%, respectively, which reflected the decrease in our cost of revenues due to our transition to a software based probe and the usage of third party hardware.
 
48

 
Operating Costs and Expenses
 
Research and Development   expenses . Research and development expenses, gross, increased from $5.8 million in 2014 to $6.1 million in 2015. As a percentage of total revenues, research and development expenses, gross, increased from 24.6% in 2014 to 32.5% in 2015. The increase in our gross research and development expenses from $5.8 million in 2014 to $6.1 million in 2015 is attributable partially to the increase in the number of employees and related expenses. As of December 31, 2015, we employed 51 research and development engineers, compared to 46 as of December 31, 2014. We believe that our research and development efforts are a key element of our strategy and are essential to our success. An increase or a decrease in our total revenue would not necessarily result in a proportional increase or decrease in the levels of our research and development expenditures, which could affect our operating margin. Our research and development costs included an expense of $529,000 for share-based compensation in 2015 and $178,000 for share-based compensation in 2014.
 
 Sales and Marketing expenses, net.   Sales and marketing expenses increased from approximately $7.3 million in 2014 to approximately $7.8 million in 2015. The increase in our sales and marketing expenses from 2014 to 2015 is mainly attributable to an increase in commissions to third parties. As a percentage of total revenues, sales and marketing expenses in 2015 and 2014 were 42% and 30.9%, respectively. Our sales and marketing expenses included an expense of $380,000 for share-based compensation in 2015 and $146,000 for share-based compensation in 2014.  
 
    General and Administrative   expenses .  General and administrative expenses increased from approximately $2.3 million in 2014 to approximately $2.4 million in 2015. As a percentage of total revenues, general and administrative expenses in 2015 and 2014 were 12.8% and 9.6%, respectively. Our general and administrative expenses included $467,000 for share-based compensation in 2015 and $243,000 for share-based compensation in 2014.  
 
 Financial Expenses, Net . Financial expenses, net, increased to approximately $433,000 in 2015 compared to approximately $332,000 in 2014. The increase in our financial expenses, net from 2014 to 2015 is attributable to an increase in foreign currency translation expenses of $101,000.

Taxes on Income .  During 2015, we recorded tax expenses of $121,000, compared to $180,000 in 2014, reflecting withholding taxes that were due on payments from certain customers in Central America and Asia.

Impact of Inflation and Foreign Currency Fluctuations
 
Most of our revenues are generated in U.S. dollars and the financing activities are made in U.S. dollars. We also generate revenues in BRLs, Euros and other currencies; however, we consider the U.S. dollar to be our functional currency. A portion of our revenues is denominated in BRLs, and in the future additional revenues may be denominated in currencies other than U.S. dollars.

Since a significant portion of our expenses is in NIS, as we pay our Israeli employees' salaries in NIS, the dollar cost of our operations is influenced by the exchange rates between the NIS and the dollar. Fluctuations in exchange rates between the U.S. dollar, the BRL, Euro, and other currencies in which we generate revenue, and the U.S. dollar, may also have an effect on our results of operations. With respect to our Brazilian subsidiary, the functional currency has been determined to be their local currency. Assets and liabilities are translated at year-end exchange rates and statements of income items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded as a separate component of accumulated other comprehensive loss in shareholders' equity.
 
Because exchange rates between the NIS and the U.S. dollar fluctuate continuously, exchange rate fluctuations will have an impact on our profitability and period-to-period comparisons of our results.  The effects of foreign currency re-measurements are reported in our financial statements as financial income or expense. Based on our budget for 2017, we expect that an increase of NIS 0.10 to the exchange rate of the NIS to U.S. dollar will decrease our expenses expressed in dollar terms by $383,000 per fiscal year and vice versa.
49

 
Effective Corporate Tax Rate
 
As of January 1, 2016, Israeli resident companies were generally subject to corporate tax at the rate of 25%. In January 1, 2017, the corporate tax rate was reduced to 24% and as of January 1, 2018, the corporate tax rate will be further reduced to 23%. Israeli resident companies are generally subject to capital gains tax at the corporate tax rate. We do not generate taxable income in Israel, as we have historically incurred operating losses resulting in carry forward losses for tax purposes totaling approximately $32.3 million as of December 31, 2016. We believe that we will be able to carry forward these tax losses to future tax years. We do not expect to pay taxes in Israel, on our incomes from operations, until we utilize our carry forward tax losses. We may be required to pay taxes on our passive income, if any. For more information on taxation, see "Item 10.E – Taxation.
 
Our effective corporate tax rate may exceed the Israeli tax rate. Our U.S. and Brazilian subsidiaries will generally be subject to applicable federal, state, local and foreign taxation, and we may also be subject to taxation in the other foreign jurisdictions in which we own assets, have employees or conduct business activities.
 
We recorded a valuation allowance of $13.2 million at December 31, 2016 for all of our deferred tax assets. Based on the weight of available evidence, we believe it is more likely than not that all of our deferred tax assets will not be realized.
 
                 In 2016, taxes on income included tax expenses which reflects withholding taxes that were due on payments from certain customers in Central and South America as well as tax expenses of the Company’s subsidiary in India. In 2015, taxes on income included tax expenses which reflect withholding taxes that were due on payments from certain customers in Central and South America.
 
   B.
LIQUIDITY AND CAPITAL RESOURCES
 
In 2016, we received payments of approximately $19.2 million from Amdocs Software in connection with the AT&T agreement. We have financed our operations through cash generated from operations, the proceeds of our 1997 initial public offering, and various private placements of our ordinary shares, proceeds from exercise of options and warrants and receiving royalty-bearing participation from the Innovation Authority and others. Cash and cash equivalents at December 31, 2016, 2015 and 2014 were approximately $42.9, $8.7 million and $6.8 million, respectively.
 
In previous years, we generated losses attributable to our operations , excluding 2014 where we generated gains.  We have managed our liquidity during this time through a series of cost reduction initiatives, expansion of our sales into new markets, private placement transactions, a venture capital loan, a bank credit facility and a loan from a major shareholder all of which are no longer relevant. We believe that our existing capital resources and cash flows from operations will be adequate to satisfy our expected liquidity requirements through the next twelve months. Our foregoing estimate is based on, among other things, our current backlog and the pipeline for 2017. Without derogating from the foregoing estimate regarding our existing capital resources and cash flows from operations, we may decide to raise additional funds in 2017.  We believe that, if required, we will be able to raise additional capital or reduce discretionary spending to provide the required liquidity beyond the next twelve months.
 
Net Cash provided by Operating Activities .   Net cash provided by (used in) operating activities was approximately $9.5 million in 2016, $1.9 million in 2015 and $3.4 million in 2014. The positive net cash flow in 2016 was primarily due to net income of $1.9 million, share-based compensation and restricted shares of approximately $2.5 million, a decrease in inventory of $0.8 million, an increase in the trade payables of $1.3 million, an increase in deferred revenue and advances from customers of $1.2 million and an increase in employees and payroll accrued of $1 million. The positive net cash flow in 2015 was primarily due to a decrease in trade receivables of $1.1 million, share-based compensation and restricted shares of approximately $1.4 million and an increase in deferred revenue and advances from customers of $0.7 million. This was partially offset by an increase of approximately $1.3 million in other accounts receivable and prepaid expenses and net loss of $0.9 million.
 
50


The trade receivables and days of sales outstanding, or DSO, are primarily impacted by payment terms, the variations in the levels of shipment in the quarter, and collections performance.  Trade receivables for 2016 increased to $4.4 million from $3.7 million in 2015, reflecting mainly new projects. We believe that continued expansion of our business, may require continued investments in working capital as many customers require commercial terms which result in longer payment terms.

The decrease in inventories in 2016 was mainly due to the decrease in inventory delivered to customers for which revenue criteria have been met and recognized, and due to non-cash write off due to old inventory that became obsolete, of approximately $498,000.
 
Net Cash Used in Investing Activities.   Our investing activities generally consist of the purchase of equipment; In 2014, certain short-term deposits matured and provided $1.5 million of cash. In 2016 and 2015, we invested $1.3 million and $97,000, respectively, for the purchase of equipment. The increase is attributed mainly to the buildup of our product lab.  Net cash provided by (used in) investing activities in 2016, 2015 and 2014 totaled approximately $(1.3 million),   $(97,000) and $1.4 million, respectively.  
 
Net Cash Provided by Financing Activities.  In 2016, net cash provided by financing activities totaled approximately $25.7 million, including net proceeds received from follow-on public offering completed in May 2016 of $21.3 million, exercise of options of $3.3 million and exercise of warrants of approximately $1.1. In 2015, net cash provided by financing activities totaled approximately $813,000, including exercise of options of $733,000 and exercise of warrants of $80,000. In 2014, net cash provided by financing activities totaled approximately $1.1 million, including exercise of options of $1.7 million, repayment of short term bank credit, net of $0.6 million and exercise of warrants of $21,000. 

Public offering

During May 2016, we raised a net amount of $21.3 million in a public offering after deducting underwriters' discounts, commissions and other offering expenses, or the “2016 Public Offering”, by issuance of ordinary shares. Under the 2016 Public Offering we issued 2,090,909 ordinary shares for an aggregate purchase price of $23 million, or $11.00 per ordinary share (this price per share is the public offering price of the 2016 Public Offering). The investors in the 2016 Public Offering included our controlling shareholder and our former Chairman of our Board of Directors, Mr. Zohar Zisapel, who purchased 200,000 ordinary shares at the public offering price. We have an effective registration statement on Form F-3 and may use it in the future to raise additional funds.

Investments
 
We may in the future undertake hedging or other similar transactions or invest in market risk-sensitive instruments, if our management determines that it is necessary to offset risks such as foreign currency and interest rate fluctuations.
 
Impact of Related Party Transactions
 
We have entered into a number of agreements with the RAD-BYNET Group (as described under Item 7.B).  The pricing of the transactions with respect to such leases was determined based on negotiations between the parties. Members of our audit committee of the Board of Directors, or the Audit Committee, Board of Directors and management reviewed the pricing of the leases and confirmed that these leases were not different from terms that could have been obtained from unaffiliated third parties. We believe, however, that due to the affiliation between us and the RAD-BYNET Group, we have greater flexibility on certain issues than what may be available from unaffiliated third parties. In the event that the transactions with members of the RAD-BYNET Group are terminated and we enter into similar transactions with unaffiliated third parties, that flexibility may no longer be available to us.
 
51


For more information, see "Item 7.B—Major Shareholders and Related Party Transactions—Related Party Transactions" below.

Please see "Item 5.F—Operating and Financial Review and Prospects—Tabular Disclosure of Contractual Obligations" below for a discussion of our material commitments for capital expenditures.
 
Government Grants and Related Royalties
 
The Government of Israel, through the Innovation Authority, encourages research and development projects pursuant to the R&D Law and the regulations promulgated thereunder. We may receive grants from the Innovation Authority at the rate of 20%, 30%, 40% or 50% of the research and development expenses, as prescribed by the research committee of the Innovation Authority in accordance with the R&D Law. We recorded such grants from the Innovation Authority in the total amount of approximately $1.7 million in 2016, $1.6 million in 2015 and $1.7 million in 2014. Pursuant to the specific terms of these grants, we are obligated to pay royalties at the rate of 3.5% of the revenues generated by sales of products (and certain related services) funded with these grants. In the event that a project funded by the Innovation Authority does not result in the development of a product which generates revenues, we would not be obligated to repay the grants we received for the product's development.  Royalty expenses relating to the Innovation Authority grants included in the cost of revenues for years ended December 31, 2016, 2015 and 2014 were $1,033,000, $655,000, and $827,000, respectively. The total grants regarding projects that we have received from the Innovation Authority as of December 31, 2016 were $40.1 million. For projects authorized as a research and development program under the R&D Law since January 1, 1999, the repayment interest rate is LIBOR. As of December 31, 2016, the accumulated interest was $15.5 million, the accumulated royalties paid to the Innovation Authority were $12 million and our total amount of contingent liability to the Innovation Authority in respect of grants received was, according to our records, approximately $43.6 million. For additional information, see "Item 4.B—Information on the Company—Business Overview—Israeli Innovation Authority."
 
We are also obligated to pay royalties to the BIRD Foundation, with respect to sales of products based on technology resulting from research and development funded by the BIRD Foundation. Royalties to the BIRD Foundation are generally payable at the rate of 5% of the sales of such products, up to 150% of the grant received, linked to the United States Consumer Price Index. As of December 31, 2016, we had a contingent obligation to pay the BIRD Foundation aggregate royalties in the amount of approximately $366,000. For additional information, see "Item 4.B—Information on the Company—Business Overview—Binational Industrial Research and Development Foundation."
 
In April 2012 and in April 2014, the MoE approved our application for funding to help set up our Indian subsidiary and China office respectively as part of a designated grant plan for the purpose of setting up and establishing a marketing agency in India and China.  The grant is intended to cover up to 50% of the costs of the office establishment, logistics, expenses and hiring of employees and consultants in India and China, based on the approved budget for the plan for a period of three years.

We are obligated to pay to the MoE, royalties of 3% on the increased sales in the target market, with respect to the year during which the grant was approved (2012 for India, and 2014 for China), over a period of five years but not more than the total linked amount of the grant received. As of December 31, 2016, we have no contingent obligation to pay the MoE any royalties. For additional information, see "Item 4.B—Information on the Company—Business Overview—Israeli Ministry of Economy."

Critical Accounting Policies and Estimates

The preparation of Consolidated Financial Statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note 2 to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The accounting policies described below are significantly affected by critical accounting estimates. Such accounting policies require significant judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements, and actual results could differ materially from the amounts reported based on these policies.
 
52

 
Revenue recognition . Revenues from sales of products and related services are recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectability is reasonably assured. Our products contain software components and non-software components that function together to deliver the product's essential functionality.
 
Products are typically considered delivered upon shipment. In instances where final acceptance of the product is specified by the customer, and the acceptance is deemed substantive, revenue is deferred until all acceptance criteria have been met. Our arrangements generally do not include any provisions for cancellation, termination or refunds that would significantly impact recognized revenue. Large-sized deals usually include acceptance criteria and since the delivery of such projects can take on average between six to18 months revenue recognition for such projects is delayed.
 
Our revenues are generated from sales to direct customers, resellers and to lesser extent independent distributors. Sales through resellers considered final per revenue recognition criteria. Sales to distributors are recognized on a "sale through" basis and therefore, revenues from these distributors are deferred until all revenue recognition criteria of the sale to the end customer are met.
 
We also generate sales through independent representatives. These representatives do not hold any of the Company's inventories, and they do not buy products from us. We invoice the end-user customers directly, collect payment directly, and then pay commissions to the representative for the sales in their territory.

Revenues from fixed price contracts (Projects) that require significant customization, integration and installation are recognized based on ASC 605-35, "Construction-Type and Production-Type Contracts", using the percentage-of-completion method of accounting based on a percentage that incurred labor effort to date bears, to total projected labor effort. The amount of revenue recognized is based on the total fees under the arrangement and the percentage of completion achieved. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are first determined, in the amount of the estimated loss on the entire contact. During the year ended December 31, 2016, 2015 and 2014, the Company recognized revenues of $17.5 million, $622,000 and $2.2 million from such contracts.
 
Revenues in arrangements with multiple deliverables are allocated using the relative selling price method. The selling price for each deliverable is based on vendor-specific objective evidence, or VSOE, if available, or third party evidence, or TPE, if VSOE is not available, or estimated selling price, or ESP, if neither VSOE or TPE is available. The Company determines the ESP based on management estimated selling price by considering several external and internal factors including, but not limited to, pricing practices including discounting, margin objectives, and competition
 
Under our selling arrangements, we usually provide a one-year warranty, which includes bug fixing and a hardware warranty, or the Warranty, for our products. After the Warranty period initially provided with our products, we may sell extended warranty contracts on a standalone basis, which include bug fixing and a hardware warranty. Revenue related to extended warranty contracts is recognized pursuant to ASC 605-20-25, "Separately Priced Extended Warranty and Product Maintenance Contracts." Pursuant to this provision, revenue related to separately priced product maintenance contracts is deferred and recognized over the term of the maintenance period.  

Inventories .  Inventory is written down based on excess and obsolete inventories determined primarily by future demand forecasts. Inventory write-downs are measured as the difference between the cost of the inventory and market, based upon assumptions about future demand, and are charged to the provision for inventory, which is a component of our cost of revenues. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
 
53

 
If there were to be a sudden and significant decrease in demand for our products, or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements, we could be required to increase our inventory write-downs and our gross margin could be adversely affected. Inventory and supply chain management remain areas of focus as we balance the need to maintain supply chain flexibility, to help ensure competitive lead times with the risk of inventory obsolescence.
 
Inventory also includes amounts with respect to inventory delivered to customers for certain projects but for which revenue criteria have not been met yet.
 
Share-based compensation . Our accounts for share-based compensation are in accordance with ASC 718 “Compensation – Stock-based Compensation”, or ASC 718, which requires us to estimate the fair value of share-based payment awards on the grant date using an option-pricing model.

We recognize compensation expenses for the value of the awards granted based on the accelerated attribution method over the requisite service period of each of the awards.

Forfeitures recorded per occurrence . ASC 718 allows entities to make an accounting policy election to either estimate forfeitures or recognize forfeitures as they occur. We elected an accounting policy of recording forfeitures as they occur.

We selected the Black-Scholes option-pricing model as the most appropriate fair value method for our stock options awards. This option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon actual historical stock price movements over the most recent periods ending on the grant date, equal to the expected option term, as management believes that this is the best indicator of future volatility. The expected term was generated by running the Monte Carlo model pursuant to which historical post-vesting forfeitures and suboptimal exercise factor is estimated by using historical option exercise information. The suboptimal exercise factor is the ratio by which the stock price must increase over the exercise price before employees are expected to exercise their stock options. The expected term of the options granted is derived from the output of the options valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term to the expected life of the options. Historically the Company has not paid dividends and in addition has no plans in the foreseeable future to pay dividends, and therefore use an expected dividend yield of zero in the option pricing model.

Determining the fair value of share-based awards at the grant date requires the exercise of judgment.
 
   C.
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
 
See "Item 4.B—Information on the Company—Business Overview—Research and Development," "Item 4.B—Information on the Company—Business Overview—Proprietary Rights", and "Item 5—Operating and Financial Review and Prospects—Research and Development" and "Item 5.A—Operating and Financial Review and Prospects—Operating Results". 
   
   D.
TREND INFORMATION
 
During 2016, we saw an increased interest in NFV capable service assurance solutions and in parallel to continued demand for traditional service assurance solutions. We also saw an increased interest in wider CEM systems.
 
54


We expect that the NFV market will continue to gain momentum during 2017 and beyond. Key benefits that CSPs will derive from NFV include faster time-to-market, enablement of new services, automatic scaling of resources up and down to fit the network’s dynamic nature, and significantly lower costs (both capital expenditures and operating expenses).
 
Many leading CSPs have commercial LTE offerings. Mobile data services are becoming a significant revenue source for CSP.

Customer experience is a major driver for CSPs to invest in solutions that enable to them to better monitor and proactively offer resolution and upgrade of quality of service.

The competition in the CSPs’ market drives increased spending on the marketing of next-generation services, and therefore increased usage, which itself increases the potential need for service assurance solutions. As services become more technologically complex and their volumes increase, service quality becomes an issue that must be addressed.
 
     E.
OFF–BALANCE SHEET ARRANGEMENTS
 
None.
 
     F.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
 
The following table of our material contractual obligations as of December 31, 2016, summarizes the aggregate effect that these obligations are expected to have on our cash flows in the periods indicated:
 
 
 
Payments due by period
 
 
Contractual Obligations
 
Total
   
Less than
1 year
   
1-3
years
   
4-5
Years
   
More than
5 years
 
 
       
(in thousands of U.S. dollars)
 
Operating leases obligation (1)
 
$
2,992
   
$
847
     
1,430
     
715
     
--
 
Open purchase orders (2)
   
123
     
123
     
--
     
--
     
--
 
Other long-term commitments (3)
   
479
     
--
     
--
     
--
     
--
 
Total                                  
 
$
3,594
   
$
970
     
1,430
     
715
     
--
 

             (1) Represents operating lease costs, consisting of leases for facilities and vehicles.
 
(2) We purchase components from a variety of suppliers and vendors, in connection with the development and sales our products. 
 
(3) In addition to the obligations noted above, we have potential liability for severance pay for Israeli employees, which is calculated pursuant to Israeli Severance Pay Law, based on the most recent monthly salary of the employees multiplied by the number of years of employment as of the balance sheet date.  After completing one full year of employment, our Israeli employees are entitled to one month's salary for each year of employment or a portion thereof. Our obligation for accrued severance pay under Israel's Severance Pay Law as of December 31, 2016, was approximately $3,267,000, of which approximately $2,788,000 was funded through deposits in severance pay funds, leaving a net obligation of approximately $479,000 .   The timing of payment of this liability is dependent on timing of the departure of the employees and whether they leave of their own will, or are dismissed.

In addition, we are required to pay royalties of 3.5% and 5% of the revenues derived from products incorporating know-how developed from research and development grants from the Innovation Authority and BIRD Foundation, respectively. As of December 31, 2016, our contingent liability to the Innovation Authority in respect of grants received was according to our records approximately $43.6 million, and our contingent liability to the BIRD Foundation in respect of funding received was approximately $366,000. If we do not generate revenues from products incorporating know-how developed within the framework of these programs, we will not be obligated to pay royalties under these programs.
 
55


For additional information, see "Item 4.B—Information on the Company—Business Overview—Israeli Innovation Authority", and "Item 4.B—Information on the Company—Business Overview—Binational Industrial Research and Development Foundation."

We are also obligated to pay to the MoE royalties of 3% on the increased sales in the target market derived in India, with respect to the year during which the grant was approved (2012), over a period of five years but not more than the total linked amount of the grant received by us. As of December 31, 2016, no liability was accrued.

Effect of Recent Accounting Pronouncements

See note 2, Significant Accounting policies, in Notes to the Consolidated Financial Statements in Item 18 of part II of this Report, for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial condition and results of operations.
 
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
   A.
DIRECTORS AND SENIOR MANAGEMENT
 
The following table lists our current directors and executive officers:

Name
 
Age
 
Position
Rachel ( Heli) Bennun    
 
63
 
Executive Chairman of our Board of Directors
Uri Har (1)(2)(3)(4)(5)               
 
80
 
Director
Irit Hillel (1)(2)(4)(5)      
 
54
 
Director
Matty Karp (2)(4)(5)            
 
67
 
Director
Zohar Zisapel         
 
68
 
Director
Yaron Ravkaie
 
48
 
Chief Executive Officer
Eyal Harari                                         
 
40
 
Chief Executive Officer of RADCOM US*
Ran Vered
 
38
 
Chief Financial Officer**
Hilik Itman                                          
 
44
 
Vice President, Research and Development
Harel Givon
 
44
 
Chief Business Officer***
Rami Amit
 
51
 
Chief Technology Officer and Head of Product****
Keren Rubanenko
 
40
 
Vice President Professional Services ****

(1) External Director, pursuant to the Israeli Companies Law.
(2) Independent Director, under NASDAQ Stock Market Rules, or the NASDAQ Listing Rules.
(3) Chairman of Audit and Compensation Committees.
(4) Audit Committee Member.
(5) Compensation Committee Member.

(*) Eyal Harari, who was our Chief Operating Officer, was appointed as our Chief Executive Officer of RADCOM US effective as of December 14, 2016.

(**) Effective June 5, 2016, Ran Vered was appointed and acted as our Chief Financial Officer replacing Mr. Uri Birenberg who resigned from his role as Chief Financial Officer effective as of August 31, 2016.

(***) Effective June 15, 2016, Harel Givon was appointed as our Chief Business Officer.

(****) Effective February 1, 2017, Rami Amit was appointed as our Chief Technology Officer and Head of Product.

(*****) Effective April 3, 2016, Keren Rubanenko was appointed as our Vice President Professional Services.
 
56


Ms. Rachel (Heli) Bennun has served as a director since December 2012 and was appointed as our   Executive Chairman   of our Board of Directors in September  2015. In addition, Ms. Bennun served as a consultant to the Company’s management for almost four years, beginning January 2012. Ms. Bennun has over 25 years of professional experience in hi-tech companies. In 1988, Ms. Bennun co-founded Arel Communications & Software Ltd. (formerly NASDAQ:ARLC), or Arel, a company focused on offering integrated video, audio and data-enabled conferencing solutions, including real time Interactive Distance Learning. Ms. Bennun served as Arel's CEO and CFO from 1988 until 1998, during which time Arel went public on the NASDAQ (1994). In addition, Ms. Bennun served as a director of Arel from 1988 until 1998 and as the vice-chairman of Arel's board of directors from 1998 until 2001. In 1996, Ms. Bennun co-founded ArelNet Ltd. (formerly TASE: ARNT), or ArelNet, a pioneer in the field of Voice over IP. Ms. Bennun served as ArelNet's CEO from 1998 until 2001, during which time ArelNet went public on the TASE. In 2004, Ms. Bennun resumed her position as ArelNet's CEO and a director, until ArelNet was acquired by Airspan Network Inc. in 2005.  From 2006 until 2009, Ms. Bennun served as the CEO and director of OrganiTech USA, Inc. (PINK: ORGT), a pioneer in the Cleantech industry. Ms. Bennun holds an M.Sc. and B.Sc. degree in Industrial and Management Engineering from Ben-Gurion University.

Mr. Uri Har has served as a director since September 2006. He was the Director General of the Electronics and Software Industries Association of Israel from 1984 until 2006. Prior to that, Mr. Har served for 26 years in engineering and managerial positions in the Israeli Navy where his last assignment was the Israeli Naval Attache in the United States and Canada. Among his various positions in the Israeli Navy, he served for three years (1977 - 1980) as Head of the Budget and Comptroller Department. He holds a B.Sc. degree and a M.Sc. degree in Mechanical Engineering from the Technion - Israel Institute of Technology.

Ms. Irit Hillel has served as a director since October 2007. She has spent the last 20 years as an entrepreneur and senior executive in digital media, technology and investment firms. She currently serves as Venture Partner at HP Tech Ventures, the corporate venture arm of HP Inc. (Nasdaq: HPQ), leading partnerships and strategic investments in early stage technology startups. She is also a board member of Imagesat NV. From 2005 until 2008 she was Managing Director at Magnolia Capital Partners, managing the operations in Israel of Thomas Weisel Partners and Nomura, providing investment banking services to Israeli high tech and healthcare companies. In 2008 to 2009 she served as Head of Interactive at Animation Lab, a JVP 3D feature animation company. Ms. Hillel served as Head of Mattel Interactive Europe, bringing to market some of Europe’s best-selling computer game titles.  Previously, Ms. Hillel founded and served as EVP business development and board director for PrintPaks, acquired by Mattel Inc. (NYSE: MAT) in 1997. Prior experience also includes VP at Power Paper Ltd., Advisor to Hewlett Packard Co. (NYSE: HPQ), and Investment Manager at Columbia Savings in Beverly Hills, California. Ms. Hillel has an M.B.A. degree from the Anderson Graduate School of Business at UCLA, and a B.Sc. in Mathematics and Computer Science from Tel Aviv University.
 
Mr. Matty Karp   has served as a director since December 2009. From1996 to 2015, he was the managing partner of Concord Ventures, an Israeli venture capital fund focused on Israeli early stage technology companies, which he co-founded in 1997. From 2007 to 2008, he served as the Chairman of Israel Growth Partners Acquisition Corp.  From 1994 to 1999, he served as the Chief Executive Officer of Kardan Technologies, a technology investment company, and continued to serve as a director until October 2001. From 1994 to 1997, he served as the President of Nitzanim Venture Fund, an Israeli venture capital fund focused on early-stage high technology companies. From 1987 to 1994, he served in numerous positions at Elbit Systems Ltd. (NASDAQ and TASE: ESLT). Mr. Karp is a director of Elta Ltd. He has served as a director of a number of companies, including: Galileo Technology, which was acquired by Marvell Technology Group (NASDAQ: MRVL); Accord Networks which was acquired by Polycom (NASDAQ: PLCM); Saifun Semiconductors, which merged with Spansion, and El Al Israel Airlines (TASE: ELAL). Mr. Karp received a B.Sc., cum laude, in Electrical Engineering from the Technion - Israel Institute of Technology and is a graduate of the Harvard Business School Advanced Management Program.
 
57

 
Mr. Zohar Zisapel, a co-founder of our Company, has served as our Chairman of the Board from inception in 1985 until September, 2015. Mr. Zisapel co-founded RAD Data Communications Ltd., a privately-held voice and data communications company and part of the RAD Group, a family of independent networking and telecommunications companies, and was its CEO from 1982 until 1998 and Chairman from 1998 until 2012. Mr. Zisapel is the Chairman of Ceragon Networks Ltd. (NASDAQ: CRNT), and director of Amdocs Ltd (NASDAQ: DOX) and as chairman or director of several private companies.  Mr. Zisapel has a B.Sc. degree and an M.Sc. degree in Electrical Engineering from the Technion - Israel Institute of Technology and an M.B.A. degree from Tel-Aviv University.

Mr. Yaron Ravkaie , has been our Chief Executive Officer since January 2016. Prior to joining our company, Mr. Ravkaie served during 2015 as the Chief Business Officer of RR Media Ltd. (NASDAQ: RRM). Prior to serving at RR Media Ltd., Mr. Ravkaie served as the President of the Mobile Financial Services Division in Amdocs Ltd. (NASDAQ: DOX) for two years executing an M&A and a successful post-merger integration with a global organization offering mobile payments and mobile commerce. From 2008 through 2012, Mr. Ravkaie served as President of the AT&T division, the largest in Amdocs., running sales, client management, strategy, projects, programs, long-term outsourcing and managed services activities. Mr. Ravkaie joined Amdocs. in 1998 and, after a brief stint in the Israel Development Center he relocated to the U.S., where he performed various director and vice president roles. Mr. Ravkaie served for nine years in information systems, industrial engineering and logistics with the Israeli Air Force as a Major. Mr. Ravkaie holds an M.B.A. from the University of Beersheba and a B.Sc. in Industrial Engineering & Management from the Technion, Haifa.
 
Mr . Eyal Harari, CEO of RADCOM US has been with us since 2000. Mr. Harari began in the Development side of RADCOM in 2000 as a software R&D group manager, later becoming the Director of Product Management for VoIP Monitoring Solutions, then the Senior Director of RADCOM's Product Management department, the Vice President of Products and Marketing, then Chief Operating Officer and finally in his current position since the end of 2016. Before joining us, Mr. Harari served from 1995 in the Communication, Computers & Electronics Corps of the Israel Defense Forces, managing large-scale software projects. Mr. Harari received a B.A. in Computer Science from the Open University of Tel Aviv, and also holds an M.B.A. from Tel-Aviv University and an LL.M in Business Law from Bar Ilan University.

Mr. Ran Vered , our Chief Financial Officer, joined us in June 2016. Prior to joining our Company, Ran was Director of Finance for the Amdocs EMEA Division, from 2011 to 2016. Before 2011, Ran held various financial roles at Amdocs, was co-founder and CFO of an investment fund, deputy corporate controller at Nur Macroprinters and served as an auditor for KPMG. Ran received an M.B.A in Finance from Tel Aviv University and a B.A. in Business Administration and Accounting from the College of Management, and is certified in Israel as a CPA.
 
Mr. Hilik Itman , our Vice President of Research and Development joined us in 1997 as a software engineer, and was appointed to his current position in 2014. Mr. Itman led the R70S software development, and also led the MaveriQ development during the company’s transition from hardware based products, to software based probe products. Mr. Itman holds a B.A. in Mathematics and Computer Science from the Open University.

Harel Givon, our Chief Business Officer, joined us in June 2016. Prior to joining our Company, Harel served as Head of Sales for Amdocs’ EMEA Division and before that held several senior customer business executive roles within Amdocs. Within his 13 year tenure at Amdocs, Mr. Givon held several senior finance and corporate development roles and spent several years in Canada and The Netherlands. Mr. Givon received an M.B.A. in Finance from Tel Aviv University and Bachelor of Laws (LL.B.) from the Bar Ilan University.
 
58


Rami Amit, our   Chief Technology Officer and Head of Product, joined us in February 1, 2017. Prior to joining our Company and from 2013 to 2017, Mr. Amit served as director engineering in the Cisco NFV BU, which included worldwide deployments by many tier1 customers. Mr. Amit was a major contributor to the vision of the evolution to virtualization in that space. Prior to that Mr. Amit held several chief technology officer positions, he was the Chief Technology Officer for Jungo, a leading software  provider, founded Surf&Call Solutions, which was later acquired by CosmoCom and was the first employee of the VoIP industry pioneer, VocalTec, in which he is considered as one of the early inventors of VoIP, building the first ever VoIP gateway shown in public in the mid 1990s and leading many of the VoIP technologies we all use today on a daily basis.   Mr. Amit received an electrical engineering degree from the Tel Aviv University.

Keren Rubanenko, our VP Professional Services, joined us in April, 2016. Prior to joining our Company, Mrs. Rubanenko was VP Operation and R&D – Surveillance Division at NICE Systems from November 2011 to March 2015. Before 2011, Keren was Associate Vice President, Voice Domain Product Unit at Comverse Network Systems. Mrs. Rubanenko received a B.A. in Business Administration from the College of Management in Rishon LeZion.
 
Ms. Bennun is the life partner of Mr. Zohar Zisapel. Otherwise, there are no family relationships between any of the directors or executive officers named above.
 
   B.
COMPENSATION
 
Name and
 Principal
Position
 
 
 
Year
 
 
 
Salary ($)
   
 
 
Bonus ($)
   
Equity-Based
Compensation
($)*
   
All Other
Compensation
($)**
   
 
 
Total ($)
 
Yaron Ravkaie
CEO
 
 
2016
   
265,966
     
242,945
     
592,153
     
55,000
     
1,156,064
 
Eyal Harari
CEO of RADCOM US***
 
 
2016
   
255,593
     
113,544
     
303,096
     
92,831
     
765,064
 
Heli Bennun  
Executive Chairman of the Board of Directors
 
 
2016
   
78,296
     
80,000
     
400,854
     
21,895
     
581,045
 
Ronen Hovav,
Director of Sales
 
 
2016
   
173,641
     
84,000
     
17,338
     
49,000
     
323,979
 
Hilik Itman
VP R&D
 
 
2016
   
150,519
     
32,723
     
76,039
     
41,000
     
300,281
 
 
* Equity based compensation includes the cost of non-cash share-based compensation of the Company in 2016. The grants awarded during 2016, were for a vesting term of 3 or 4 years.
** All other compensation includes social benefits and car leasing costs.
*** Eyal Harari's salary and all other compensation include costs related to his shift to RADCOM US.
 
59


The bonus paid to our CEO is based on a formula, that includes the aggregation of three independent components, both measurable and non-measurable, and which was approved for our CEO for 2016, by our shareholders on August 16, 2016.

The bonus and commission payments made to our other officers, are based on the achievements of goals and objectives that are set and communicated at the beginning of each year, and which are made in accordance with our compensation policy, as approved by our shareholders from time to time.
 
The aggregate direct remuneration paid to all our directors and executive officers as a group (13 persons) for the year ended December 31, 2016 was approximately $2.4 million in salaries, bonus, commissions and directors' fees. This amount includes approximately $293,000 that was set aside or accrued to provide pension, retirement or similar benefits. These amounts do not include the expense of share-based compensation as per ASC 718.

During 2016, our directors and officers received, in the aggregate, options to purchase 137,000 ordinary shares and 147,000 restricted share units, or RSUs under our 2013 Share Option Plan, or the 2013 Plan. The options have an average exercise price of $12.01 per share and expire five years from the grant date. The RSUs have a vesting schedule of four years over equal yearly installments for Officers, and three years over equal yearly installments for Directors, commencing as of the date of the grant. Further information regarding the options and RSU grants to our directors is detailed below.
 
As of December 31, 2016, our current directors and officers, as a group, held options to purchase an aggregate of 313,687 ordinary shares of the Company and 125,000 RSUs. Options to purchase an aggregate of 21,400 ordinary shares of the Company were granted under our 2003 Share Option Plan, or the 2003 Plan, and options to purchase an aggregate of 292,287 ordinary shares of the Company and 125,000 RSUs were granted under our 2013 Plan. The directors are reimbursed for expenses and receive cash and equity compensation, which terms are detailed below.
 
The cash compensation paid to our independent directors and external directors (other than to our Executive Chairman, as of September 10, 2015), is an annual fee of NIS 21,127 (currently equivalent to approximately $5,800) and a per meeting attendance fee of NIS 1,223 (currently equivalent to approximately $340), which amounts are subject to adjustment for changes in the Israeli CPI and changes in the amounts payable pursuant to Israeli law from time to time.

On October 18, and October 26, 2015, our compensation committee and our Board of Directors approved, and on December 30 2015, our shareholders approved, a monthly salary of NIS 25,000   to be paid to our Executive Chairman, for the scope of the services that she provides to our company as the Executive Chairman.
 
On July 10, 2016 , our compensation committee of our Board of Directors, or the Compensation Committee, and Board of Directors, and on August 16, 2016, our shareholders, approved an annual grant of options, under the 2013 Plan, to purchase a total of 6,000 options and 9,000 RSUs for each year of service to the Executive Chairman of our Board of Directors, and 2,000 options and 3,000 RSUs for each year of service to all our other directors. The options will be fully vested in three years over three equal annual installments, commencing on July 1, 2016, and will expire on the earlier of (i) five years following the date of grant or (ii) 180 days from the date of such director’s termination or resignation from office. The exercise price per share of the options is $11.69, which is equal to the price per share of our ordinary shares on the NASDAQ Capital Market on the applicable date of grant, which for all the directors was July 1, 2016. The exercise price per RSU is equal to the nominal value of the shares.
 
On June 7, 2016, our Compensation Committee and Board of Directors, and on August 16, 2016 our shareholders approved a cash bonus of $80,000 to Ms. Rachel (Heli) Bennun, the Executive Chairman of our Board of Director for her special contribution to the success of the Company’s recent equity offering and the Company’s material management restructuring process.
 
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In addition, on December 13, 2015, our Compensation Committee, on December 16, 2015, our Board of Directors and on August 16, 2016, our shareholders approved annual grant of options of 15,000 options and 10,000 RSUs per each year of service out of a total of four years, to Mr. Ravkaie, in his capacity as Chief Executive Officer. The options and RSUs will be fully vested in four years over four equal annual installments, commencing on the date of Mr. Ravkaie’s commencement of employment. The exercise price per share of all of the options was $12.65 which is equal to the closing price per share of the ordinary shares on the NASDAQ Capital Market at the time of the execution of Mr. Ravkaie’s employment agreement. The exercise price per RSU was equal to the par value of the underlying shares.
 
Share Option Plans
 
On April 3, 2013, our Board of Directors adopted the 2013 Plan following the expiration of the 2003 Plan. The 2013 Plan expires on April 2, 2023. Under the 2013 Plan, we may grant options to purchase our ordinary shares, restricted shares and RSUs to our employees, directors, consultants and contractors.   As of March 24, 2017, we have granted 1,124,802 options under the 2013 Plan, and 276,729 RSUs. Options granted under our option plans generally vest over a period of between one and four years, and generally expire five to seven years from the date of grant, subject to the discretion of our Board of Directors, which has the authority to deviate from such parameters in respect of specific grants. The share option plans are administered either by our Board of Directors or, subject to applicable law, by our Compensation Committee, which has the discretion to make all decisions relating to the interpretation and operation of the options plans, including determining who will receive an option award and the terms and conditions of the option awards. On October 30, 2016, the Company's Board of Directors resolved to increase the number of outstanding shares reserved under the 2013 Plan , from 1,250,000 to 2,450,000.
The Company measures the compensation expense for all share-based payments (including employee stock options) at fair value, in accordance with ASC 718. We recorded an expense of $2.5 million for share-based compensation plans during 2016. During 2016, we granted options to purchase a total of 281,800 ordinary shares, and 216,300 RSUs, which will result in ongoing accounting charges that will significantly reduce our net income. See Notes 2(l) and 9(b) of the Notes to the Consolidated Financial Statements for further information.

As of March 24, 2017, we have under the 2003 Plan and the 2013 Plan a total of 652,539 outstanding options to purchase ordinary shares and 207,578 unvested RSUs.
 
Pursuant to Rule 5615(a)(3) of the NASDAQ Listing Rules, we follow our home country practice in lieu of the NASDAQ Listing Rules with respect to the approvals required for the establishment and for material amendments to our share option plans. Consequently, we have adopted share option plans and material amendments thereto by action of our Board of Directors, without shareholder approval. See also "Item 16G—Corporate Governance."

Compensation Policy
 
On July 10 , 2016, our Compensation Committee and Board of Directors approved our compensation policy for our Executive Officers and Directors, and our shareholders approved the compensation policy on August 16, 2016.   See "Item 6.C—Directors, Senior Management and Employees—Board Practices—Compensation Committee."
 
   C.
BOARD PRACTICES
 
Terms of Office
 
Our current Board of Directors is comprised of Rachel (Heli) Bennun ( Executive Chairman ), Uri Har, Irit Hillel, Matty Karp and Zohar Zisapel. Our directors are elected by the shareholders at the annual general meeting of the shareholders, except in certain cases where directors are appointed by the Board of Directors and their appointment is later ratified at the first meeting of the shareholders thereafter.  Our non-external directors will serve until the third annual general meeting following the annual general meeting that took place in August 2016 . Our external directors serve for three year periods. The three-year term of office for our external directors, Mr. Har and Ms. Hillel, expires in 2019. None of our directors have service contracts with the Company relating to their service as a director, and none of the directors will receive benefits upon termination of their position as a director. For a description of our compensation of directors see "Item 6.B—Directors, Senior Management and Employees—Compensation."
 
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External Directors
 
We are subject to the provisions of the Israeli Companies Law.

Under the Israeli Companies Law and the regulations promulgated pursuant thereto, Israeli public companies, namely companies whose shares have been offered to the public or are publicly traded, are required to appoint at least two natural persons as "external directors".  
 
Pursuant to the Israeli Companies Law, (1) an external director must have either "accounting and financial expertise" or "professional qualifications" (as such terms are defined in regulations promulgated under the Israeli Companies Law) and (2) at least one of the external directors must have "accounting and financial expertise." Our external directors are Mr. Uri Har and Ms. Irit Hillel. We have determined that Ms. Hillel has the requisite "accounting and financial expertise" and that Mr. Har has the requisite "professional qualifications."

 External directors are to be elected by a majority vote at a shareholders meeting, provided that either:

·
a majority of the shares of non-controlling shareholders and shareholders who do not have a personal interest in the election of the candidate (other than a personal interest that is unrelated to a relationship with the controlling shareholders) voted at the meeting, voted in favor of the external director's election; or
·
the total number of shares of non-controlling shareholders and shareholders who do not have a personal interest in the election of the candidate (other than a personal interest that is unrelated to a relationship with the controlling shareholders) that voted against the election of the external director, does not exceed two percent of the aggregate number of voting rights in the company.

The initial term of an external director is three years and may be extended subject to the shareholders’ approval, for up to two additional three year terms. In certain special situations, the term may be extended beyond these periods. Each committee of a company's board of directors is required to include at least one external director except for the audit committee and the compensation committee, of which all the external directors are to be members. At our 2016 annual general meeting, held on August 16, 2016, our shareholders approved the re-election of Mr. Uri Har and Ms. Irit Hillel as our external directors, each for a fourth three-year term.  Both Mr. Uri Har and Ms. Irit Hillel qualify as external directors under the Israeli Companies Law, and both are members of the Company's Audit Committee and Compensation Committee.
 
Audit Committee
 
                NASDAQ Requirements
 
Our ordinary shares are listed on NASDAQ, and we are subject to the NASDAQ Listing Rules applicable to listed companies. Under the current NASDAQ Listing Rules, a listed company is required to have an audit committee consisting of at least three independent directors, all of whom are financially literate and one of whom has accounting or related financial management expertise. Uri Har, Irit Hillel and Matty Karp qualify as independent directors under the current NASDAQ requirements, and each is a member of the Audit Committee. Irit Hillel is our "audit committee financial expert." In addition, we have adopted an Audit Committee charter, which sets forth the Audit Committee's responsibilities.
 
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As stated in our Audit Committee charter, the Audit Committee assists our Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing and financial reporting practices and financial statements, and the "independence" requirements and performance of our independent auditors.  The Audit Committee also has the authority and responsibility to oversee our independent auditors, to recommend for shareholder approval the appointment and, where appropriate, the replacement of our independent auditors, and to pre-approve audit engagement fees and all permitted non-audit services and fees.

                Israeli Companies Law Requirements
 
Under the Israeli Companies Law, the board of directors of a public company is required to appoint an audit committee, which must be comprised of at least three directors and include all of the external directors.  The majority of the members of the audit committee are required to be "independent" (as such term is defined in the Israeli Companies Law) and the chairman of the audit committee is required to be an external director.  Our independent directors are Irit Hillel, Uri Har and Matty Karp.
   
In addition: (1)  all audit committee decisions must be made by a majority of the committee members, of which the majority of members present are independent and external directors, and (2) any person who is not eligible to serve on the audit committee is further restricted from participating in its meetings and votes, unless the chairman of the audit committee determines that such person's presence is necessary in order to present a certain matter, provided however, that company employees who are not controlling shareholders or relatives of such shareholders may be present in the meetings but not in the actual votes and likewise, company counsel and secretary who are not controlling shareholders or relatives of such shareholders may be present in meetings and decisions if such presence is requested by the audit committee.
 
The function of the audit committee is to determine if there are any irregularities in the management of our business and if there are any, to recommend remedial measures. The audit committee is also required, under the Israeli Companies Law, to approve certain related party transactions. In addition, the responsibilities of the audit committee shall also include classifying company transactions as extraordinary transactions or non-extraordinary transactions and as material or non-material transactions, in which an officer has an interest (which will have the effect of determining the kind of corporate approvals required for such transaction); assessing the proper function of the company's internal audit regime, overseeing the activities of the internal auditor, determining whether the internal auditor has the requisite tools and resources required to perform his role, and reviewing his work plan; and to regulate the company's rules on employee complaints, reviewing the scope of work of the company's independent accountants and their fees, and implementing a whistleblower protection plan with respect to employee complaints of business irregularities.
 
An audit committee of a public company may not approve a related-party transaction under the Israeli Companies Law unless at the time of such approval, the external directors are serving as members of the audit committee and at least one of them is present at the meeting at which such approval is granted.  All related party transactions have been approved in accordance with this requirement.
 
Compensation Committee
 
NASDAQ Requirements
 
Under the NASDAQ Listing Rules, a listed company is required to have a compensation committee comprised solely of independent directors. Our Compensation Committee consists of Uri Har (Chairman), Irit Hillel and Matty Karp, each of whom satisfies the independence requirements under the current NASDAQ Listing Rules. The Company has adopted a Compensation Committee charter, which sets forth the responsibilities of the Compensation Committee. The Compensation Committee is responsible for, among other things, assisting the Board of Directors in the reviewing and approving the compensation structure and policy, including all forms of compensation relating to our directors and executive officers.
 
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As stated in our Compensation Committee Charter, the purpose of the Compensation Committee is to review and approve, or, where required under the Israeli Companies Law or appropriate at the Compensation Committee's discretion, recommend to the Audit Committee of the Board of Directors (the "Audit Committee") and/or the Board of Directors for approval, the compensation policy for "office holders" (office holder is defined in the Israeli Companies Law as  a director, the chief executive officer, the chief financial officer and any manager who is directly subordinate to the chief executive officer) of the Company, the compensation policy for executive officers of the Company (including renewal and reassessment thereof) who are not "office holders" of the Company within the meaning of the Israeli Companies Law, but who are defined as such according to the NASDAQ Listing Rules (as defined below), the compensation (including exculpation, indemnification and insurance) of such office holders, and the administration of the Company's equity-based plans.

Israeli Companies Law Requirements
 
Under the Israeli Companies Law, the board of directors of a public company must establish a compensation committee. The compensation committee must consist of at least three directors who satisfy certain independence qualifications. Under the Israeli Companies Law, the role of the compensation committee is to recommend to the board of directors, for ultimate shareholder approval by a special majority, a policy governing the compensation of office holders based on specified criteria, to review modifications to the compensation policy from time to time, to review its implementation, and to approve the actual compensation terms of office holders prior to approval by the board of directors.
 
The Israeli Companies Law provides that our compensation policy must serve as the basis for the decisions concerning the financial terms of employment or engagement of executives and directors, including exculpation, insurance, indemnification or any monetary payment or obligation of payment in respect of employment or engagement. The compensation policy must be approved (or reapproved) not longer than every three years, and relate to certain factors, including advancement of the company’s objective, business plan and its long term strategy and creation of appropriate incentives for office holders. It must also consider, among other things, the company’s risk management, size and nature of its operations. The compensation policy must furthermore consider the following additional factors:
 
 
·
the knowledge, skills, expertise and accomplishments of the relevant office holder;
 
·
the office holder’s roles and responsibilities and prior compensation agreements with him or her;
 
·
the relationship between the terms offered and the average compensation of the other employees of the company, including those employed through human resource companies;
 
·
the impact of disparities in salary upon work relationships in the company;
 
·
the possibility of reducing variable compensation at the discretion of the Board of Directors or the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and
 
·
as to severance compensation, the period of service of the office holder, the terms of his or her compensation during such service period, the company’s performance during that period of service, the person’s contributions towards the company’s achievement of its goals and the maximization of its profits and the circumstances under which the person is leaving the company.

The compensation policy must also include the following principles:

 
·
the link between variable compensation and long-term performance and measurable criteria ;
 
·
the relationship between variable and fixed compensation, and the ceiling for the value of variable compensation;
 
·
the conditions under which a director or executive would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based was inaccurate and was required to be restated in the company’s financial statements;
 
·
the minimum holding or vesting period for variable, equity-based compensation; and
 
·
maximum limits for severance compensation.

On July 11, 2016, our Compensation Committee and Board of Directors approved an amended compensation policy for Executive Officers and Directors, and our shareholders approved such compensation policy on August 16, 2016.
 
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Internal auditor

Under the Israeli Companies Law, the board of directors of a public company must also appoint an internal auditor proposed by the audit committee. The duty of the internal auditor is to examine, among other things, whether the company's conduct complies with applicable law and orderly business procedure. Under the Israeli Companies Law, the internal auditor may not be an interested party, an office holder or an affiliate, or a relative of an interested party, an office holder or affiliate, nor may the internal auditor be the company's independent accountant or its representative. An interested party is defined in the Israeli Companies Law as a 5% or greater shareholder, any person or entity that has the right to designate at least one director or the general manager of the company and any person who serves as a director or as a general manager.
 
Mr. Yisrael Gewirtz, who is a partner of Fahn Kanne & Co., a member of Grant Thornton, serves as our internal auditor.

Exculpation, Indemnification and Insurance of Directors and Officers
 
We have agreed to exculpate and indemnify our office holders to the fullest extent permitted under the Israeli Companies Law. We have also purchased a directors and officers liability insurance policy.  For information regarding exculpation, indemnification and insurance of directors and officers under applicable law and our articles of association, see "Item 10.B—Additional Information—Memorandum and Articles of Association."
 
Management Employment Agreements
 
We maintain written employment agreements with all of our employees.  These agreements provide, among other matters, for monthly salaries, our contributions to Managers' Insurance and an Education Fund and severance benefits.  Most of our agreements with our key employees are subject to termination by either party upon the delivery of notice of termination as provided therein.
 
Nominating Committee
 
Our Board of Directors does not currently have a nominating committee. However, independent directors do retain oversight over director nominations, and in accordance with the requirements of the NASDAQ Listing Rules, our director nominees will either be selected for or recommended to the Board of Directors' by a majority of the independent directors of the Board of Directors.

   D.
EMPLOYEES
 
As of December 31, 2016, we had a total of 192 employees, out of which 133 employees are located in Israel, 8 employees of RADCOM US located in the United States, 11 employees of RADCOM Brazil located in Brazil, 28 employees of RADCOM India located in India, and 12 employees in total located in Germany, Spain, Singapore, China, and UK collectively. Of the 133 employees located in Israel, 72 were employed in research and development, 3 in operations (including assembly), 44 in sales and marketing and customer support, and 14 in administration and management. Of the 8 employees located in the United States, 7 were employed in sales, marketing and customer support and 1 was employed in administration and management. Of the 11 employees located in the Brazil, 9 were employed in sales, marketing, and customer support and 2 were employed in administration and management. Of the 28 employees located in India, 26 were employed in R&D, sales, marketing, product and customer support and 2 were employed in administration . Of the 12 employees located in Germany, Spain, Singapore, China, and UK, 11 were employed in sales, marketing, and customer support and 1 was employed in administration and management. We consider our relations with our employees to be good and we have never experienced a strike or work stoppage. As of December 31, 2016, all of our 192 employees located worldwide were permanent employees. All of our permanent employees have employment agreements and, with the exception of Brazil, none of them are represented by labor unions.
 
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For more information, see "Item 4.B—Information on the Company—Business Overview—Employees."
 
   E.
SHARE OWNERSHIP
 
The following table sets forth certain information regarding the beneficial ownership of our ordinary shares by our directors and officers as of March 24, 2017. The percentage of outstanding ordinary shares is based on 11,671,660 ordinary shares outstanding as of March 24, 2017. Except for Mr. Zohar Zisapel, none of our executive officers or directors beneficially owns 1% or more of our outstanding ordinary shares.
 
Name
 
Number of Ordinary
Shares Beneficially
Owned (1)
       
Percentage of
Outstanding Ordinary
Shares Beneficially
Owned (2)(3)
 
Zohar Zisapel
   
3,003,383
(4)        
25.7
%
All directors and executive officers as a group, except Zohar Zisapel (10 persons)
   
175,187
(5)        
1.5
%

(1)
Except as otherwise noted and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to all ordinary shares listed as owned by such person.  Shares beneficially owned include shares that may be acquired pursuant to options to purchase ordinary shares that are exercisable within 60 days of March 24, 2017.
 
(2)
In determining the percentage owned by each person or group, ordinary shares for each person or group includes ordinary shares that may be acquired by such person or group pursuant to options to purchase ordinary shares that are exercisable within 60 days of March 24, 2017.
 
(3)
The number of outstanding ordinary shares does not include 5,189 shares held by RADCOM US, a wholly owned subsidiary, and 30,843 shares that were repurchased by us.
 
(4)
Includes (i) 2,381,472 ordinary shares held by Mr. Zohar Zisapel, (ii) 13,625 ordinary shares held by Klil & Michael Ltd., an Israeli company wholly owned by Mr. Zohar Zisapel, (iii) 299,416 ordinary shares held by Michael & Klil Holdings (93) Ltd or Klil, an Israeli company, wholly owned by Mr. Zohar Zisapel, (iv) 298,870 ordinary shares held by Lomsha Ltd. or Lomsha, an Israeli company wholly owned by Mr. Zohar Zisapel, and (v) 10,000 ordinary shares issuable upon exercise of options, with an average exercise price per share of $14.52, expiring in 2020. The options listed above are exercisable currently or within 60 days of March 24, 2016. Mr. Zohar Zisapel is a principal shareholder and our former Chairman of the Board of Directors of RAD Data Communication, or RDC. Mr. Zohar Zisapel and his brother, Mr. Yehuda Zisapel, have shared voting and dispositive power with respect to the shares held by RDC. Mr. Zisapel disclaims beneficial ownership of these ordinary shares except to the extent of his pecuniary interest therein. This information is based on information provided to the Company by Mr. Zohar Zisapel.
(5)
 
Each of the directors and executive officers not separately identified in the above table beneficially owns less than 1% of our outstanding ordinary shares , including options or warrants held by each such party, which are vested or shall become vested within 60 days of March 24, 2017 and have, therefore, not been separately disclosed. The amount of shares is comprised of 175,187 ordinary shares issuable upon exercise of options exercisable within 60 days March 24, 2017.
 
For a description of our share option plans for the granting of options to our employees see "Item 6.B—Directors, Senior Management and Employees—Compensation—Share Option Plans."

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ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 
   A.
MAJOR SHAREHOLDERS
 
The following table sets forth certain information regarding the beneficial ownership of our ordinary shares as of March 24, 2017, by each person or entity known to own beneficially 5%   or more   of our outstanding ordinary shares, based on information provided to us by the shareholders or disclosed in public filings with the SEC. The voting rights of our major shareholders do not differ from the voting rights of other holders of our ordinary shares. As of March 24, 2017, our ordinary shares had a total of 26 holders of record, of which 11 were registered with addresses in the United States. We believe that the number of beneficial owners of our shares is substantially greater than the number of record holders, because a large portion of our ordinary shares is held of record in broker "street name". As of March 24, 2017, U.S. holders of record held approximately 82% of our outstanding ordinary shares.
 
Name
 
Number of Ordinary
Shares (1)
       
Percentage of
Outstanding Ordinary
Shares (2)
 
Zohar Zisapel
   
3,003,383
(3)  
 
   
25.7
%
                     
Yelin Lapidot Holdings Management Ltd.
   
1,164,838
(4)  
 
   
10.0
%
(1)
Except as otherwise noted and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to all ordinary shares listed as owned by such person.  Shares beneficially owned include shares that may be acquired pursuant to options to purchase ordinary shares that are exercisable within 60 days of March 24, 2016.
 
(2)
The percentage of outstanding ordinary shares is based on 11,671,660 ordinary shares outstanding as of March 24, 2017. In determining the percentage owned by each person, ordinary shares for each person includes ordinary shares that may be acquired by such person pursuant to options to purchase ordinary shares that are exercisable within 60 days of March 24, 2017. The number of outstanding ordinary shares does not include 5,189 ordinary shares held by RADCOM US, a wholly owned subsidiary and 30,843 ordinary shares that were repurchased by us.
 
(3)
 
 
 
Includes (i) 2,381,472 ordinary shares held by Mr. Zohar Zisapel, (ii) 13,625 ordinary shares held by Klil &Michael Ltd., (iii) 299,416 ordinary shares held by Klil, (iv) 298,870 ordinary shares held by Lomsha, (v) 10,000 ordinary shares issuable upon exercise of options, with an average exercise price per share of $14.52, expiring in 2020.  The options listed above are exercisable currently or within 60 days of March 24, 2017. Mr. Zohar Zisapel and his brother, Mr. Yehuda Zisapel, have shared voting and dispositive power with respect to the shares held by RDC.  Mr. Zohar Zisapel is a principal shareholder and former Chairman of the Board of Directors of RDC and, as such, Mr. Zisapel may be deemed to have voting and dispositive power over the ordinary shares held by RDC.  Mr. Zisapel disclaims beneficial ownership of these ordinary shares except to the extent of his pecuniary interest therein. This information is based on information provided to the Company by Mr. Zohar Zisapel.
   
(4)
 
The information with respect to the holdings of Yelin Lapidot Holdings Management, Ltd. is based on a Schedule 13G/A filed with the SEC by Dov Yelin, Yair Lapidot, Yelin Lapidot Holdings Management Ltd. Yelin Lapidot Mutual Funds Management Ltd. and Yelin Lapidot Provident Funds Management Ltd. on February 8, 2017.
 
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   B.
RELATED PARTY TRANSACTIONS
 
The Amdocs/AT&T engagements

In 2015, we entered into a number of material contracts with subsidiaries of Amdocs Ltd., a company with limited liability under the laws of the Island of Guernsey, or Amdocs. Mr. Zohar Zisapel, the Company’s controlling shareholder and director, also serves as a director of Amdocs. 
 
On March 23, 2015, RADCOM US, entered into a Master Subcontractor Agreement, or MSA, with Amdocs, Inc., a Delaware corporation and a significant subsidiary of Amdocs, or Amdocs US, which MSA was subsequently assigned to us by RADCOM US. At the time the MSA was entered into, there were no business commitments pursuant to such agreement.
 
On December 30, 2015, we entered into a multi-year supplemental agreement, or the Supplemental Agreement, and together with the MSA, the Subcontractor Agreement with Amdocs Software Systems Limited, a company formed under the laws of Ireland and a significant subsidiary of Amdocs Software.   
 
On December 30, 2015, we entered into a value added reseller agreement with Amdocs Software, or the VAR Agreement, as amended by the addendum to the VAR Agreement, dated December 30, 2015, or the Addendum. Pursuant to the VAR Agreement and the Addendum, Amdocs Software is authorized to resell our products to various end user customers as may be agreed upon from time to time by the parties.
 
On December 28, 2015, we entered into an End User License Agreement with AT&T, pursuant to which we granted a license to use our products’ software. As per the Supplemental Agreement, and in addition to the licenses to our MaveriQ solutions which we granted under the End User License Agreement and in connection with the Supplemental Agreement, we provide related services in our capacity as a subcontractor of Amdocs US in accordance with the Subcontractor Agreement.

During year 2016, we expanded our above engagement, including multi-year maintenance agreements.
 
The pricing and other terms of the abovementioned agreements were determined based on negotiations between the applicable parties.
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Zohar Zisapel, the Company's controlling shareholder and a director, is the Chairman of the board of Ceragon Networks Ltd., RADWIN Ltd., RADIFLOW Ltd., ARGUS Cyber Security Ltd. and Innoviz Ltd. and director in the following companies: Amdocs Ltd., RADHEAR Ltd.,RAD Data Communications Ltd., RAD-Bynet Properties and Assets (1981) Ltd., Packetlight Networks Ltd., CyberInt Technologies Ltd., TopSpin Security Ltd., Armis Security Ltd., Satixfy Ltd., Nucleix Ltd. and several other private holdings, real estate and medical devices  companies. The above list does not constitute a complete list of Zohar Zisapel’s holdings.  In some of these companies his brother, Yehuda Zisapel is also a director.

Yehuda Zisapel (brother of Zohar Zisapel) serves also as director in additional companies, including: RADWARE Ltd., Bynet Data Communications Ltd., Bynet Electronics Ltd., Bynet Semech (Outsourcing) Ltd., Bynet Systems Applications Ltd., Ab-Net Communications Ltd., BYNET Software Systems Ltd., Internet Binat Ltd., SecurityDam Ltd., Binat Business Ltd and several other private holdings, real estate and medical devices  companies. The above list does not constitute a complete list of Yehuda Zisapel’s holdings.

Some of the above companies may be suppliers/distributors/consumers of RADCOM products, or may render additional services by arm’s length transactions or share logistical arrangements with the Company. Some of the above companies are known as the “RAD-BYNET Group.”

Ms. Rachel (Heli) Bennun, who is the Executive Chairman of our Board of Directors, is Zohar Zisapel’s life partner.

We and other members of the RAD-BYNET Group also market certain of our products through the same distribution channels.  Certain products of members of the RAD-BYNET Group are complementary to, and may be used in connection with, products of ours, and others of such products may be used in place of (and thus may be deemed to be competitive with) our products.  
 
Supplier and Service Provider Arrangements

We purchase certain products and services from members of the RAD-BYNET group, on terms that are either beneficial to us or are no less favorable than terms that might be available to us from unrelated third parties, based on quotes we received from unrelated third parties.  In some cases, the RAD-BYNET Group obtains volume discounts for services from unrelated parties, and we pay our pro rata cost of such services. Based on our experience, the volume discounts provide better terms than we would be able to obtain on our own. The aggregate amounts of such purchases were approximately $208,000 in 2016.
 
Each of RAD and BYNET may provide legal, personnel and administrative services to us and lease space to us, for which we pay on market terms and rates. The aggregate amounts of such payments were approximately $13,000 in 2016.

Office Leases

We currently lease office premises in Tel Aviv, Israel and in Paramus, New Jersey, from private companies controlled by Yehuda Zisapel and his wife, Nava Zisapel, and Zohar Zisapel. When these agreements were signed, the lease payments were at fair market prices based on quotes we received from third parties for similar space.  Historically, we have had some additional flexibility to change the leased space, which we might not have had with unrelated third parties.  The aggregate amounts of lease payments were approximately $604,000   in 2016. We also sublet approximately 1,260 square feet of the New Jersey premises to a related party, and received aggregate rental payments of approximately $24,000 in 2016.

We believe that the terms of the transactions in which we have entered and are currently engaged with other members of the RAD-BYNET Group are beneficial to us and no less favorable to us than terms that might be available to us from unaffiliated third parties. All future transactions and arrangements (or modifications of existing ones) with members of the RAD-BYNET Group in which our office holders have a personal interest or which raise issues of such office holders' fiduciary duties will require approval by our Board of Directors and, in certain circumstances, approval of our Audit Committee and shareholders under the Israeli Companies Law.

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Allot Communications

In December 2016, we received a purchase order from Allot Communications Ltd., or Allot, under the reseller agreement we entered in August 2012 with Allot, pursuant to which we granted an additional license to use our software. Mr. Zohar Zisapel, our controlling shareholder and director, is a substantial shareholder in Allot.

Public Offering of Securities

In May 2016, we entered into an underwriting agreement with William Blair & Company, L.L.C., as representative of the underwriters named therein, for a firm commitment public offering of ordinary shares. The price to the public was $11.00 per ordinary share for issuance of 2,090,909 ordinary shares, and aggregate gross proceeds of the offering were approximately $23 million. Zohar Zisapel purchased 200,000 ordinary shares offered in this offering from the underwriters at the public offering price.
 
   C.
INTERESTS OF EXPERTS AND COUNSEL
 
Not applicable.
 
ITEM 8.
FINANCIAL INFORMATION
 
   A.
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
 
Our consolidated financial statements and other financial information, which can be found at the end of this Annual Report beginning on page F-1, are incorporated herein by reference.
 
Export Sales
 
In 2016 and 2015, the amount of our export sales was approximately $28.9 million and $17.3 million respectively, which represented 98% and 93% of our total sales.

Legal Proceedings
 
None.
 
Dividend Policy
 
We have never declared or paid any cash dividends on our ordinary shares.  We currently intend to retain any future earnings to finance operations and to expand our business and, therefore, do not expect to pay any cash dividends in the foreseeable future.
 
   B.
SIGNIFICANT CHANGES
 
Except as otherwise disclosed below and/or in this Annual Report, there has been no significant change affecting our financial statements since December 31, 2016.
 
ITEM 9.
THE OFFER AND LISTING
 
   A.
OFFER AND LISTING DETAILS
 
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NASDAQ Capital Market
 
The following table sets forth the high and low market prices of our ordinary shares as reported on NASDAQ for the periods indicated.

 
Annual
 
High
   
Low
 
2016
 
$
21.89
   
$
11.29
 
2015
 
$
14.93
   
$
9.59
 
2014
 
$
13.23
   
$
4.65
 
2013
 
$
7.35
   
$
2.21
 
2012
 
$
5.69
   
$
2.08
 
 
Quarterly 2017
               
First Quarter (Through March 24)
 
$
21.20
   
$
17.00
 
 
Quarterly 2016
               
Fourth Quarter
 
$
21.89
   
$
17.65
 
Third Quarter
 
$
20.49
   
$
11.69
 
Second Quarter
 
$
14.35
   
$
11.29
 
First Quarter
 
$
16.63
   
$
11.72
 
 
Quarterly 2015
               
Fourth Quarter
 
$
14.93
   
$
9.60
 
Third Quarter
 
$
11.65
   
$
9.67
 
Second Quarter
 
$
10.93
   
$
9.59
 
First Quarter
 
$
11.97
   
$
9.62
 
                 
Most recent six months                
March 2017 (Through March 24)
 
$
21.20
   
$
18.10
 
February 2017
 
$
19.15
   
$
17.00
 
January 2017
 
$
18.85
   
$
17.10
 
December 2016
 
$
18.95
   
$
17.65
 
November 2016
 
$
19.95
   
$
17.65
 
October 2016
 
$
21.89
   
$
19.70
 
September 2016
 
$
20.49
   
$
18.72
 
                 
On March 24, 2017, the closing price of our ordinary shares on the NASDAQ was $21.20 per share.
 
   B.
PLAN OF DISTRIBUTION
 
Not applicable.
 
   C.
MARKETS
 
From the date of our initial public offering on September 24, 1997 until September 30, 2007 our ordinary shares were traded on the NASDAQ Global Market under the symbol "RDCM", and since October 1, 2007 our shares have been traded on the NASDAQ Capital Market.
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   D.
SELLING SHAREHOLDERS
 
Not applicable.
 
   E.
DILUTION
 
Not applicable.
 
   F.
EXPENSES OF THE ISSUE
 
Not applicable.
 
ITEM 10.
ADDITIONAL INFORMATION
 
   A.
SHARE CAPITAL
 
Not applicable.
 
   B.
MEMORANDUM AND ARTICLES OF ASSOCIATION
 
Our memorandum of association was last amended on December 30, 2015, and our articles of association were last amended on August 16, 2016. The following is a summary description of certain provisions of our memorandum of association and articles of association, in each case as is currently in effect, and certain relevant provisions of the Israeli Companies Law (as currently in effect) which apply to us.  This description is only a summary and does not purport to be complete and is qualified by reference to the full text of the memorandum and articles, which are incorporated by reference and/or filed as exhibits to this Annual Report, and to the Israeli Companies Law.

Objectives and Purposes
 
We were first registered by the Israeli Registrar of Companies on July 5, 1985, as a private company. We later became a public company, registered by the Israeli Registrar of Companies on October 1, 1997 with the company number 52-004345-6.
 
    The full details of all of our objectives and purposes can be found in Section 2 of our memorandum of association, as filed with the Israeli Registrar of Companies and amended from time to time by resolutions of our shareholders. One of our objectives is to manufacture, market and deal – in all ways – with computer equipment, including communications equipment and all other equipment related in any way to such equipment.  Some additional objectives of our listing include: having business relationships with representatives and agents; engaging in research and development; acquiring intellectual property; engaging in business actions with other business owners; lending money when we deem it proper to do so; dealing in any form of business (e.g., import, export, marketing, etc.); and many other general business activities, whether in Israel or in any other country.
 
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Directors
 
According to our articles of association, our Board of Directors is to consist of not less than three and not more than nine directors, the exact number to be determined from time to time by resolutions of our shareholders. On December 9, 2009, at our annual general meeting, our shareholders determined that the number of directors on our Board of Directors would be five. Our non-external directors do not stand for reelection at staggered intervals, and they serve until the next annual general meeting (in 2017). The three-year term of office for our external directors, Mr. Har and Ms. Hillel, expires in 2019.
 
Election of Directors
 
Directors, other than external directors, are elected by the shareholders at the annual general meeting of the shareholders, or appointed by the board of directors. In the event that any directors are appointed by the board of directors, their appointment is required to be ratified by the shareholders at the next shareholders' meeting following such appointment. Our shareholders may remove a director from office in certain circumstances. There is no requirement that a director own any of our capital shares. Directors may appoint alternative directors in their place, with the exception of external directors, who may appoint an alternate director only in very limited circumstances. See Item 6C.
 
Remuneration of Directors
 
Directors' remuneration is subject to our compensation policy and to shareholder approval. Monetary compensation to external directors is mandated by Israeli regulations, which is subject to approval by the board of directors only in certain circumstances.
 
Powers of the Board of Directors
 
Our Board of Directors may resolve to take action at a meeting when a quorum is present, and resolutions must be passed by a vote of at least a majority of the directors present at the meeting who are entitled to participate in the meeting.  A quorum of directors requires at least a majority of the directors then in office who are lawfully entitled to participate in the meeting, but shall not be less than two

Our Board of Directors may elect one director to serve as Chairman of the Board to preside at the meetings of our Board of Directors, and may also remove such director.
 
Our Board of Directors retains all power in running the Company that is not specifically granted to the shareholders. Our Board of Directors may, at its discretion, cause us to borrow or secure the payment of any sum or sums of money for our purposes at such times and upon such terms and conditions in all respects as it deems fit, and, in particular, through the issuance of bonds, perpetual or redeemable debentures, debenture stock, or any mortgages, charges, or other securities on the undertaking or the whole or any part of our property, both present and future, including our uncalled or called but unpaid capital for the time being.

Subject to the provisions of the Israeli Companies Law, the Company may enter into any contract or otherwise transact any business with any director in which contract or business such director has a personal interest, directly or indirectly; and may enter into any contract of otherwise transact any business with any third party in which contract or business a director has a personal interest, directly or indirectly.

No person shall be disqualified to serve as a director by reason of his not holding shares in the Company.
 
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Dividends
 
Our Board of Directors may declare dividends as it deems justified.  Dividends may be paid in assets or shares of capital stock, debentures or debenture stock of us or of other companies. Our Board of Directors may decide to distribute our profits among the shareholders. Dividends that remain unclaimed after seven years will be forfeited and returned to us.  Unless there are shareholders with special dividend rights, any dividend declared will be distributed among the shareholders in proportion to their respective holdings of our shares for which the dividend is being declared.
 
Neither our memorandum of association or our articles of association nor the laws of the State of Israel restrict in any way, the ownership or voting of ordinary shares by non-residents of Israel, except with regard to subjects of countries which are in a state of war with Israel who may not be recognized as owners of ordinary shares. If we are wound up, then aside from any special rights of shareholders our remaining assets will be distributed among the shareholders in proportion to their respective holdings.
 
Our articles of association allow us to create redeemable shares, although at the present time we do not have any such redeemable shares.
 
External Directors
 
See "Item 6.C—Directors, Senior Management and Employees—Board Practices—External Directors."
 
Fiduciary Duties of Office Holders
 
The Israeli Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company.
 
The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care of an office holder includes a duty to utilize reasonable means to obtain:
 
 
·
information regarding the advisability of a given action submitted for his or her approval or performed by him or her by virtue of his position; and
 
·
all other important information pertaining to such actions.
 
The duty of loyalty of an office holder includes a duty to:
 
 
·
refrain from any conflict of interest between the performance of his or her duties for the company and the performance of his or her other duties or personal affairs;
 
·
refrain from any activity that is competitive with the company;
  
·
refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself, or for others; and
  
·
disclose to the company any information or documents relating to the company's affairs which the office holder has received due to his or her position as an office holder.
 
Each person listed in the table above under "Item 6.A—Directors, Senior Management and Employees—Directors and Senior Management" above is an office holder.  Under the Israeli Companies Law, all arrangements as to compensation of office holders who are not directors, or controlling parties, require approval of the compensation committee to the extent that it complies with the statutory requirements which apply to the compensation committee, and the Board of Directors. Arrangements regarding the terms of employment and compensation of directors also require approval by the compensation committee, the Board of Directors and the shareholders.
 
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Approval of Officeholder Compensation
 
The Israeli Companies Law imposes approval requirements for the compensation of office holders. Every Israeli public company must adopt a compensation policy, recommended by the compensation committee, and approved by the board of directors and the shareholders, in that order. The shareholder approval requires a majority of the votes cast by shareholders, excluding any controlling shareholder and those who have a personal interest in the matter (similar to the threshold described below under " – Duties of Shareholders"). In general, all office holders' terms of compensation – including fixed remuneration, bonuses, equity compensation, retirement or termination payments, indemnification, liability insurance and the grant of an exemption from liability – must comply with the company's compensation policy. In addition, any arrangement between a company and one of the company's office holders must be approved by the company's compensation committee and the board of directors. The approval of the company's shareholders is required with respect to the compensation of a company's directors (including a director that also serves as an executive officer) and the chief executive officer.

Additionally, a special majority of the shareholders is required for the approval of the compensation of the chief executive officer, and in the event that the compensation to an office holder is not consistent with the company's compensation policy.

Conflict of Interest

The Israeli Companies Law requires that an office holder of a company disclose to the company, promptly and in any event no later than the board of directors meeting in which the transaction is first discussed, any personal interest that he or she may have and all related material information known to him or her in connection with any existing or proposed transaction by the company.  A personal interest of an office holder includes an interest of a company in which the office holder is a 5% or greater shareholder, director or general manager or in which the office holder has the right to appoint at least one director or the general manager.

Extraordinary Transactions

In addition, if the transaction is an extraordinary transaction as defined under Israeli law, the office holder must also disclose any personal interest held by the office holder's spouse, siblings, parents, grandparents, descendants, spouse's descendants, as well as the siblings and parents of the office holder's spouse and the spouses of any of the foregoing. Under Israeli law, an extraordinary transaction is a transaction which is:
 
 
·
not in the ordinary course of business;
  
·
not on market terms; or
 
·
is likely to have a material impact of the Company's profitability, assets or liabilities.
 
Under the Israeli Companies Law, the board of directors may approve a transaction between the company and an office holder or a third party in which an office holder has a personal interest, but only if the transaction is in the best interests of the company. If the transaction is an extraordinary transaction, the transaction requires the approval of the audit committee and the board of directors, in that order.  In certain circumstances, shareholder approval may also be required. An office holder who has a personal interest in a matter that is considered at a meeting of the board of directors or the audit committee may not be present at the deliberations or vote on this matter, however, with respect to an office holder, he/she may be present at the meeting discussions if the chairman determines that the office holder has to present the matter or a majority of the members of the board of directors or the audit committee, as the case may be, also have a personal interest. If a majority of the members of the board of directors or the audit committee, as the case may be, also have a personal interest, shareholder approval is also required.
 
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Amending the Rights of Shareholders
 
Pursuant to the Israeli Companies Law and the Company's articles of association, the Company may change the rights of owners of shares of a class of capital stock only with the approval of a majority of the holders of such class of stock present and voting at a separate general meeting called for such class of stock. An enlargement of a class of stock is not considered changing the rights of such class of stock.
 
Shareholder Meetings
 
The Company has two types of general shareholder meetings:  the annual general meeting and the extraordinary general meeting.  An annual general meeting must be held once in every calendar year, but not more than 15 months after the last annual general meeting.  We are required to give notice of general meetings (annual or extraordinary) no less than seven days before the general meetings.  We may provide notice of our general meetings by publishing such notice, either (1) on our website and/or (2) in one international wire service and/or (3) in any other common form of electronic dissemination. A quorum in a general meeting consists of two or more holders of ordinary shares (present in person or by proxy), who together hold at least one-third (1/3) of the voting power of the company.  If there is no quorum within an hour of the time set, the meeting is postponed until the following week (or any other time upon which the Chairman of the Board and the majority of the voting power represented at the meeting agree).  Every ordinary share has one vote. A shareholder may only vote the shares for which all calls have been paid, except in separate general meetings of a particular class. A shareholder may vote in person or by proxy, or, if the shareholder is a corporate body, by its representative. We are exempted by the NASDAQ Listing Rules from the requirement to distribute our annual report to our shareholders, but we have undertaken to post a copy of it on our website, www.radcom.com, after filing it with the SEC. See also "Item 16G—Corporate Governance."
 
Duties of Shareholders; Extraordinary Transactions with Controlling Shareholders
 
Under the Israeli Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. A controlling shareholder is a shareholder who has the ability to direct the activities of a company, including a shareholder that holds 25% or more of the voting power of a company if no other shareholder owns more than 50% of the voting power of the company, but excluding a shareholder whose power derives solely from his or her position as a director of the company or any other position with the company. Extraordinary transactions of a public company with a controlling shareholder or with a third party in which a controlling shareholder has a personal interest, and the terms of engagement of a controlling shareholder as an office holder or employee, require the approval of the audit committee, the board of directors and the shareholders of the company, in such order.  The shareholder approval must be by a majority vote, provided that either:
 
 
·
a majority of the shares of shareholders who have no personal interest in the transaction and are present and voting, in person, by proxy or by written ballot, at the meeting, vote in favor of the transaction; or
 
·
the shareholders who have no personal interest in the transaction who vote against the transaction do not represent more than two percent of the voting power of the company.
 
It is the responsibility of the audit committee to determine whether or not a transaction is extraordinary.  In addition, the audit committee must also establish: (i) procedures for the consideration of any transaction with a controlling shareholder, even if it is not extraordinary, such as a competitive process with third parties or negotiation by independent directors; and (ii) approval requirements for controlling shareholder transactions that are not material. 

Agreements and extraordinary transactions with a duration exceeding three years are subject to re-approval once every three years by the audit committee (or compensation committee, in certain circumstances under applicable law), board of directors and the shareholders of the company. Extraordinary transactions may be approved in advance for a period exceeding three years if the audit committee determines such approval is reasonable under the circumstances.
  
76

 
For information concerning the direct and indirect personal interests of certain of our office holders and principal shareholders in certain transactions with us, see "Item 7—Major Shareholders and Related Party Transactions."
 
In addition, under the Israeli Companies Law each shareholder has a duty to act in good faith in exercising his or her rights and fulfilling his or her obligations toward the company and other shareholders and to refrain from abusing any power he or she has in the company, such as in shareholder votes.  In addition, certain shareholders have a duty of fairness toward the company, although such duty is not defined in the Israeli Companies Law. These shareholders include any controlling shareholder, any shareholder who knows that he or she possesses the power to determine the outcome of a shareholder vote and any shareholder who, pursuant to the provisions of the articles of association, has the power to appoint or to prevent the appointment of an office holder or any other power in regard to the company.
 
Exculpation of Office Holders

Under the Israeli Companies Law, an Israeli company may not exculpate an office holder from liability with respect to a breach of his duty of loyalty, but may exculpate in advance an office holder from his liability to the company, in whole or in part, with respect to a breach of his duty of care (except in connection with distributions), provided that the articles of association of the company permit it to do so.  Our articles of association allow us , subject to the provisions of the Israeli Companies Law, to prospectively exculpate an office holder from all or some of the office holder's responsibility for damage resulting from the office holder's breach of the office holder's duty of care to the Company.

Insurance of Office Holders

Our articles of association further provide that, subject to the provisions of the Israeli Companies Law, we may enter into a contract for the insurance of the liability of any of our office holders with respect to an act performed by such individual in his or her capacity as an office holder, in respect of each of the following:

 
·
a breach of an office holder's duty of care to us or to another person;
 
·
a breach of an office holder's duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume that his or her act would not prejudice our interests;
 
·
a financial obligation imposed on him in favor of another person; and
 
·
reasonable litigation expenses, including attorneys' fees, incurred by the office holder as a result of administrative enforcement proceedings instituted against him. Without derogating from the generality of the foregoing, such expenses will include a payment imposed on the office holder in favor of an injured party as set forth in Section 52(54)(a)(1)(a) of the Israeli Securities Law, 5728-1968, as amended (the "Israeli Securities Law")  and expenses that the office holder incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Israeli Securities Law, including reasonable legal expenses, which term includes attorneys' fees.
 
Indemnification of Office Holders
 
Our articles of association also provide that we may indemnify an office holder in respect of an obligation or expense imposed on the office holder in respect of an act performed in his or her capacity as an office holder, as follows:

 
·
a financial obligation imposed on him in favor of another person by a court judgment, including a compromise judgment or an arbitrator's award approved by court ;
 
·
reasonable litigation expenses, including attorneys' fees, expended by the office holder as a result of an investigation or proceeding instituted against him by a competent authority, provided that such investigation or proceeding was concluded without the filing of an indictment against him and either (A) concluded without the imposition of any financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent; or in connection with an administrative enforcement proceeding or a  financial sanction. Without derogating from the generality of the foregoing, such expenses will include a payment imposed on the office holder in favor of an injured party as set forth in Section 52(54)(a)(1)(a) of the Israeli Securities Law, and expenses that the office holder incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Israeli Securities Law, including reasonable legal expenses, which term includes attorney fees; and
 
·
reasonable litigation expenses, including attorneys' fees, expended by an office holder or charged to the office holder by a court, in a proceeding instituted against the office holder by the Company or on its behalf or by another person, or in a criminal charge from which the office holder was acquitted, or in a criminal proceeding in which the office holder was convicted of an offense that does not require proof of criminal intent.
 
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Our articles of association also include provisions allowing us to undertake to indemnify an office holder as aforesaid:

 
·
in advance, provided that in respect of bullet number 1 above, the undertaking is restricted to events which our Board of Directors deems to be foreseeable in light of our actual operations at the time of the undertaking and limited to an amount or criteria determined by our Board of Directors to be reasonable under the circumstances, and further provided that such events and amounts or criteria are set forth in the undertaking to indemnify; and
 
·
retroactively.

Limitations on Exculpation, Indemnification and Insurance
 
The Israeli Companies Law provides that a company may not exempt or indemnify an office holder, or enter into an insurance contract, which would provide coverage for any monetary liability incurred as a result of any of the following:
 
 
·
a breach by the office holder of his duty of loyalty unless, with respect to insurance coverage or indemnification, the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
 
·
a breach by the office holder of his duty of care if the breach was done intentionally or recklessly (other than if solely done in negligence);
 
·
any act or omission done with the intent to derive an illegal personal benefit
 
·
a fine, civil fine or ransom levied on an office holder, or a financial sanction imposed upon an office holder under Israeli Law.
 
Required Approvals
 
In addition, under the Israeli Companies Law, any exculpation of, indemnification of, or procurement of insurance coverage for, the Company's office holders must be approved by the Company's compensation committee and the Company's board of directors and, if the beneficiary is a director or the chief executive officer, by the Company's shareholders.  The Company's audit committee, board of directors and shareholders resolved to indemnify and exculpate the Company's office holders by providing them with indemnification agreements, and approving the purchase of a directors and officers liability insurance policy. We currently maintain directors and officers’ liability insurance policy limited to $40 million, at an annual premium of approximately $ 91,000.

Anti-Takeover Provisions; Mergers and Acquisitions
 
The Israeli Companies Law prohibits the purchase of our shares if the purchaser's holding following such purchase increases above certain percentages without conducting a tender offer or obtaining shareholder approval. See "Item 3.D. Risk Factors - Risks Related to Our Location in Israel - Provisions of Israeli law may delay, prevent or make difficult a merger or acquisition of us, which could prevent a change of control and depress the market price of our shares" above.
 
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Delivery of Financial Statements

Our articles of association also provide that we will only mail out copies of our annual financial statements to those shareholders that submit a written request for such statements.  In accordance with applicable law, our annual financial statements are filed with the SEC and are available at the SEC's website, www.sec.gov, and on our website, www.radcom.com.
   
   C.
MATERIAL CONTRACTS
 
For a summary of (i) the lease agreement for our Tel Aviv premises,   see "Item 4.D—Information on the Company—Property, Plants and Equipment," and (ii) the agreements with Amdocs, see “Item 7.B- Related Party Transactions.”

   D. 
EXCHANGE CONTROLS
 
There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of our ordinary shares, except for the obligation upon Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time and from time to time.
 
   E. 
TAXATION
 
Israeli Tax Considerations
 
The following is a summary of the current tax structure applicable to companies incorporated in Israel, with special reference to its effect on us. The following also contains a discussion of the material Israeli consequences to purchasers of our ordinary shares and Israeli government programs that benefit us.
 
This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, we cannot assure you that the views expressed in the discussion will be accepted by the appropriate tax authorities or the courts. The discussion is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.
 
Holders of our ordinary shares should consult their own tax advisors as to the United States, Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any foreign state or local taxes.
 
                General Corporate Tax Structure

As of January 1, 2016, Israeli resident companies were generally subject to corporate tax at the rate of 25%. In December 2016, the government of Israel approved the Economic Efficiency Law Legislative Amendments for Implementing the Economic Policy for the 2017 and 2018 Budget Years which includes Amendment 234 to the Israeli Income Tax Ordinance [New Version], 1961, or the Income Tax Ordinance, that reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018. Israeli resident companies are generally subject to capital gains tax at the corporate tax rate.
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Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ,or the Encouragement of Capital Investments Law :

In July 2013, the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 which includes Amendment 71 to the Encouragement of Capital Investments Law, or Amendment 71, was enacted. According to Amendment 71, the tax rate on preferred income from a preferred enterprise in 2014 and thereafter will be 9% in certain areas in Israel (Development area A) and 16% in other areas.
 
                We may claim the tax benefits offered by Amendment 71, provided that our facilities meet the criteria for tax benefits set out by Amendment 71. A company is also granted a right to approach the Israeli Tax Authorities for a pre-ruling regarding their eligibility for benefits under Amendment 71 .

In December 2016, the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Encouragement of Capital Investments Law, Amendment 73, was published. According to Amendment 73, a preferred enterprise located in Development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).

Amendment 73 also prescribes special tax tracks for technological enterprises, which are subject to rules that are to be issued by the Minister of Finance by March 31, 2017.

The new tax tracks under Amendment 73 are as follows:

Technological preferred enterprise - an enterprise for which total consolidated revenues of its parent company and all subsidiaries are less than NIS 10 billion. A technological preferred enterprise, as defined in the Law, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in Development area A - a tax rate of 7.5%).
Special technological preferred enterprise - an enterprise for which total consolidated revenues of its parent company and all subsidiaries exceed NIS 10 billion. Such enterprise will be subject to tax at a rate of 6% on profits deriving from intellectual property, regardless of the enterprise's geographical location.

Any dividends distributed to "foreign companies", as defined in the Capital Investments Law , deriving from income from the technological enterprises will be subject to tax at a rate of 4%.

As of December 31, 2016, definitive criteria to determine the tax benefits had not yet been established, and it cannot be concluded that the legislation in respect of technological enterprises had been enacted or substantively enacted as of that date. Accordingly, the above changes in the tax rates relating to technological enterprises were not taken into account in the computation of deferred taxes as of December 31, 2016.
 
                Capital Gains Tax on Sales of Our Ordinary Shares
 
               Generally, as to Israeli residents, the Israeli tax law imposes a capital gains tax on the gain from the sale of any capital assets by Israeli residents, whether such gain was sourced in Israel or abroad. As to non-Israeli residents, the Israeli tax law generally imposes a capital gains tax the on the sale of assets, including shares, by non-Israeli residents, if those assets are either (a) located in Israel; (b) located outside of Israel and are a direct or indirect right to an asset or inventory located in Israel; (c) are shares or rights to shares in an Israeli resident corporation; or (d) are rights in a foreign resident corporation (non-Israeli corporation) that holds, directly or indirectly, assets located in Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder's country of residence provides otherwise. Under the Israeli Income Tax Ordinance [New Version], 1961, there is a distinction between a real gain and inflationary surplus. The inflationary surplus is equal to the increase in the purchase price of the relevant asset attributable to the increase in the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of sale.  The real gain is the excess of the total capital gain over the inflationary surplus.
 
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The income tax rate applicable to real gain derived by an Israeli individual from the sale of shares which had been purchased after January 1, 2012, whether listed on a stock exchange or not, is 25%. However, if such shareholder is considered a “Substantial Shareholder” (a person who holds 10% or more of the company's issued share capital or of voting rights in it) at the time of sale or at any time during the preceding 12-month period, such gain will be taxed at the rate of 30%. As of January 1, 2016, an additional tax at a rate of 2% will be imposed on high earners whose annual income or gains exceed NIS 803,520. As of January 1, 2017, an additional income tax at a rate of 3% will be imposed on high earners whose annual taxable income or gain exceeds NIS 640,000.

Moreover, capital gains derived by a shareholder who is a dealer or trader in securities, or to whom such income is otherwise taxable as ordinary business income, are taxed in Israel at ordinary income rates (for fiscal year 2016 and 2017, up to 50% for individuals and for Israeli resident corporations, the corporate tax rate is 25% and 24%, respectively) .

Non-Israeli resident shareholders are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange or disposition of our ordinary shares, provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel. However, non-Israeli corporations shareholders will not be entitled to the foregoing exemptions if an Israeli resident (i) has a controlling interest of more than 25% in such non-Israeli corporation or (ii) is the beneficiary of or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.

Regardless of whether shareholders may be liable for Israeli income tax on the sale of our ordinary shares, the payment of the consideration may be subject to withholding of Israeli tax at the source. Accordingly, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale.
 
U.S.-Israel Tax Treaty
 
Pursuant to the Convention between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, as amended (the " U.S. - Israel Tax Treaty"), the sale, exchange or disposition of ordinary shares by a person who (i) holds the ordinary shares as a capital asset, (ii) qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty and (iii) is entitled to claim the benefits afforded to such resident by the U.S.-Israel Tax Treaty, generally will not be subject to Israeli capital gains tax unless either (a) such resident holds, directly or indirectly, shares representing 10% or more of the voting power of a company during any part of the 12-month period preceding such sale, exchange or disposition, subject to certain conditions, or (b) the capital gains from such sale, exchange or disposition can be allocated to a permanent establishment in Israel.  In the event that the exemption shall not be available, the sale, exchange or disposition of ordinary shares would be subject to such Israeli capital gains tax to the extent applicable; however, under the U.S.-Israel Tax Treaty, such residents may be permitted to claim a credit for such taxes against U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits.  The U.S.-Israel Tax Treaty does not relate to state or local taxes.
 
In some instances where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at source.
 
               Taxation of Non-Residents on Dividends
 
Non-Israeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our Shares at the rate of 25% (or 30% for individuals, if such individual is a Substantial Shareholder at the time receiving the dividend or on any date in the 12 months preceding such date), which tax will be withheld at source, unless a tax certificate is obtained from the Israeli Tax Authority authorizing withholding-exempt remittances or a reduced rate of tax pursuant to an applicable tax treaty.
 
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A non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the duty to file tax returns in Israel in respect of such income.

For example, under the U.S.-Israel Tax Treaty, Israeli withholding tax on dividends paid to a U.S. resident for treaty purposes may not, in general, exceed 25%, or 15% in the case of dividends paid out of the profits of an Approved Enterprise, subject to certain conditions. Where the recipient is a U.S. corporation owning 10% or more of the outstanding shares of the voting stock of the paying corporation during the part of the paying corporation’s taxable year, which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any) and not more than 25% of the gross income of the paying corporation  for such prior taxable year (if any) consists certain interest or dividends, the Israeli tax withheld may not exceed 12.5%, subject to certain conditions.

Israeli Transfer Pricing Regulations
 
Section 85A and the regulations thereunder contain elaborate transfer pricing provisions which include the arm’s-length principle, that apply to any international transaction in which there is a special relationship between the parties to the transaction and for which a price was settled on for property, a right, a service, or credit.
 
 According to the arm’s length, such international transaction shall be reported in accordance with the market price and conditions and tax shall be due accordingly. The assessment of whether a transaction falls under the aforementioned definition shall be implemented in accordance with one of the procedures mentioned in the regulations and is based, among others, on comparisons of characteristics which portray similar transactions in ordinary market conditions, such as the field of activity, the type of the asset or service, the contractual conditions of the international transaction, the risks taken by each party and according to additional terms and conditions specified in the regulations.

United States Federal Income Tax Considerations
 
Subject to the limitations described herein, the following discussion summarizes certain U.S. federal income tax consequences to a U.S. Holder of our ordinary shares. A "U.S. Holder" means a holder of our ordinary shares who is:
 
 
• an individual who is a citizen or resident of the United States for U.S. federal income tax purposes;
 
• a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States or any political subdivision thereof or the District of Columbia;
 
• an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
 
• a trust (i) if, in general, a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (ii) that has in effect a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person.
 
Unless otherwise specifically indicated, this discussion does not consider the U.S. tax consequences to a person that is not a U.S. Holder, or a Non-U.S. Holder. This discussion considers only U.S. Holders that will own our ordinary shares as capital assets (generally, for investment) and does not purport to be a comprehensive description of all of the tax considerations that may be relevant to each U.S. Holder's decision to purchase our ordinary shares.
 
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This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, or the Code, current and proposed Treasury Regulations promulgated thereunder, and administrative and judicial decisions as of the date hereof, all of which are subject to change, possibly on a retroactive basis. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular U.S. Holder in light of such holder's individual circumstances. In particular, this discussion does not address the potential application of the alternative minimum tax or U.S. federal income tax consequences to U.S. Holders that are subject to special treatment, including U.S. Holders that:
 
 
• are broker-dealers or insurance companies;
  
• have elected mark-to-market accounting;
 
• are tax-exempt organizations or retirement plans;
 
• are financial institutions;
 
• hold our ordinary shares as part of a straddle, "hedge" or "conversion transaction" with other investments;
 
• acquired our ordinary shares upon the exercise of employee stock options or otherwise as compensation;
 
• own directly, indirectly or by attribution at least 10% of our voting power;
 
• own our warrants;
 
• have a functional currency that is not the U.S. dollar;
 
• are grantor trusts;
 
• are S corporations;
 
• are certain former citizens or long-term residents of the United States; or
 
• are real estate investment trusts or regulated investment companies.
  
If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our ordinary shares, the tax treatment of the partnership and a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its own tax advisor as to its tax consequences.
 
In addition, this discussion does not address any aspect of state, local or non-United States laws or the possible application of United States federal gift or estate tax.
 
Each holder of our ordinary shares is advised to consult such person's own tax advisor with respect to the specific tax consequences to such person of purchasing, holding or disposing of our ordinary shares, including the applicability and effect of federal, state, local and foreign income tax and other tax laws to such person's particular circumstances.
 
Taxation of U.S. Holders of Ordinary Shares

Taxation of Distributions Paid on Ordinary Shares.   Subject to the discussion below under "Passive Foreign Investment Company Status," a U.S. Holder will be required to include in gross income as ordinary dividend income the amount of any distribution paid on our ordinary shares, including any non-U.S. taxes withheld from the amount paid, to the extent the distribution is paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Distributions in excess of such earnings and profits will be applied against and will reduce the U.S. Holder's basis in our ordinary shares and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of our ordinary shares.  The dividend portion of such distributions generally will not qualify for the dividends received deduction available to corporations.
 
Subject to the discussions below under "Passive Foreign Investment Company Status," and “Medicare Tax” dividends that are received by U.S. Holders that are individuals, estates or trusts will be taxed at the rate applicable to long-term capital gains (a maximum rate of 20% for taxable years beginning after December 31, 2012), provided that such dividends meet the requirements of "qualified dividend income."  For this purpose, qualified dividend income generally includes dividends paid by a non-U.S. corporation if certain holding period and other requirements are met and either (i) the stock of the non-U.S. corporation with respect to which the dividends are paid is readily tradable on an established securities market in the U.S. (e.g., NASDAQ) or (ii) the non-U.S. corporation is eligible for benefits of a comprehensive income tax treaty with the United States, which includes an information exchange program and is determined to be satisfactory by the U.S. Secretary of the Treasury. The IRS has determined that the U.S.-Israel income tax treaty is satisfactory for this purpose.  Dividends that fail to meet such requirements, and dividends received by corporate U.S. Holders, are taxed at ordinary income rates.  No dividend received by a U.S. Holder will be a qualified dividend (i) if the U.S. Holder held the ordinary share with respect to which the dividend was paid for less than 61 days during the 121-day period beginning on the date that is 60 days before the ex-dividend date with respect to such dividend, excluding for this purpose, under the rules of Code Section 246(c), any period during which the U.S. Holder has an option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such ordinary share (or substantially identical securities); or (ii) to the extent that the U.S. Holder is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in property substantially similar or related to the ordinary share with respect to which the dividend is paid.  If we were to be a "passive foreign investment company" (as such term is defined in the Code) for any taxable year, dividends paid on our ordinary shares in such year or in the following taxable year would not be qualified dividends.  In addition, a non-corporate U.S. Holder will be able to take a qualified dividend into account in determining its deductible investment interest (which is generally limited to its net investment income) only if it elects to do so; in such case the dividend will be taxed at ordinary income rates.
 
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    Distributions of current or accumulated earnings and profits paid in foreign currency to a U.S. Holder (including any non-U.S. taxes withheld therefrom) will generally be includible in the income of a U.S. Holder in a U.S. dollar amount calculated by reference to the exchange rate on the day the distribution is received.  A U.S. Holder that receives a foreign currency distribution and converts the foreign currency into U.S. dollars subsequent to receipt may have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss.
 
U.S. Holders may have the option of claiming the amount of any non-U.S. income taxes withheld at source either as a deduction from gross income or as a dollar-for-dollar credit against their U.S. federal income tax liability.  Individuals who do not claim itemized deductions, but instead utilize the standard deduction, may not claim a deduction for the amount of the non-U.S. income taxes withheld, but such amount may be claimed as a credit against the individual's U.S. federal income tax liability.  The amount of non-U.S. income taxes which may be claimed as a credit in any taxable year is subject to complex limitations and restrictions, which must be determined on an individual basis by each shareholder.  These limitations include, among others, rules which limit foreign tax credits allowable with respect to specific classes of income to the U.S. federal income taxes otherwise payable with respect to each such class of income.  A U.S. Holder will be denied a foreign tax credit with respect to non-U.S. income tax withheld from a dividend received on the ordinary shares if such U.S. Holder has not held the ordinary shares for at least 16 days of the 31-day period beginning on the date which is 15 days before the ex-dividend date with respect to such dividend, or to the extent such U.S. Holder is under an obligation to make related payments with respect to substantially similar or related property.  Any days during which a U.S. Holder has substantially diminished its risk of loss on the ordinary shares are not counted toward meeting the required 16 - day holding period.  Distributions of current or accumulated earnings and profits generally will be foreign source passive income for United States foreign tax credit purposes.
 
Taxation of the Disposition of Ordinary Shares.   Subject to the discussion below under "Passive Foreign Investment Company Status," upon the sale, exchange or other disposition of our ordinary shares, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder's basis in such ordinary shares, which is usually the cost of such shares, and the amount realized on the disposition.  A U.S. Holder that uses the cash method of accounting calculates the U.S. dollar value of the proceeds received on the sale as of the date that the sale settles, while a U.S. Holder that uses the accrual method of accounting is required to calculate the value of the proceeds of the sale as of the "trade date," unless such U.S. Holder has elected to use the settlement date to determine its proceeds of sale.  Subject to the discussion below under “Medicare Tax,” capital gain from the sale, exchange or other disposition of ordinary shares held more than one year is long-term capital gain, and is eligible for a reduced rate of taxation for individuals (currently a maximum rate of 20% for taxable years beginning after December 31, 2012).  Gains recognized by a U.S. Holder on a sale, exchange or other disposition of ordinary shares generally will be treated as United States source income for U.S. foreign tax credit purposes. A loss recognized by a U.S. Holder on the sale, exchange or other disposition of ordinary shares generally is allocated to U.S. source income.  The deductibility of a capital loss recognized on the sale, exchange or other disposition of ordinary shares is subject to limitations.  A U.S. Holder that receives foreign currency upon disposition of ordinary shares and converts the foreign currency into U.S. dollars subsequent to the settlement date or trade date (whichever date the taxpayer was required to use to calculate the value of the proceeds of sale) may have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss.
 
Medicare Tax .  With respect to taxable years beginning after December 31, 2012, certain non-corporate U.S. holders will be subject to an additional 3.8% Medicare tax on all or a portion of their "net investment income," which may include dividends on, or capital gains recognized from the disposition of, our ordinary shares.  U.S. Holders are urged to consult their own tax advisors regarding the implications of the additional Medicare tax on their investment in our ordinary shares.
 
                Taxation for Non-U.S. Holders of Ordinary Shares

Except as described in "—Information Reporting and Backup Withholding" below, a Non-U.S. Holder of our ordinary shares will not be subject to U.S. federal income or withholding tax on the payment of dividends on, and/or the proceeds from the disposition of, our ordinary shares, unless, in the case of U.S. federal income taxes:
 
 
·
such item is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States and, in the case of a resident of a country which has a treaty with the United States, such item is attributable to a permanent establishment or, in the case of an individual, a fixed place of business, in the United States; or

 
·
the Non-U.S. Holder is an individual who holds the ordinary shares as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are met.
 
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                Information Reporting and Backup Withholding
 
U.S. Holders (other than exempt recipients, such as corporations) generally are subject to information reporting requirements with respect to dividends paid on, or proceeds from the disposition of, our ordinary shares. U.S. Holders are also generally subject to backup withholding (currently at a rate of 28%) on dividends paid on, or proceeds from the disposition of, our ordinary shares unless the U.S. Holder provides IRS Form W-9 or otherwise establishes an exemption.
 
Non-U.S. Holders generally are not subject to information reporting or backup withholding with respect to dividends paid on, or upon the proceeds from the disposition of, our ordinary shares, provided that such Non-U.S. Holder provides its taxpayer identification number, certifies to its foreign status, or otherwise establishes an exemption.
 
The amount of any backup withholding may be allowed as a credit against a U.S. or Non-U.S. Holder's U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is furnished to the IRS.

Certain individuals who are U.S. Holders may be required to file a Form 8938 to report their ownership of specified foreign financial assets, which may include our ordinary shares, if the total value of those assets exceed certain thresholds. U.S. Holders are urged to consult their tax advisors regarding their tax reporting obligations, including the requirement to file a Form 8938.
 
Brazilian Tax Considerations

Income Tax

    Current taxes
 
In Brazil, current tax assets and liabilities of last and prior years are measured at the estimated amount recoverable from or payable to the tax authorities. The tax rates and laws used in calculating the taxes are those in effect at year end, which were 34% for both 2015 and 2016.
 
Deferred taxes
 
Deferred taxes arise from temporary differences at the balance sheet date between the tax bases of assets and liabilities and their book value, and from losses incurred during the year. Tax losses have no expiration period, but are limited to be compensated based on 30% of taxable income per year.
 
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Derecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. During the years ended December 31, 2015 and 2016, a full valuation allowance was recognized over the deferred tax arisen from losses carryforwards related to our subsidiary in Brazil, due to the low expectation of future taxable income generation in the next future.
 
   F. 
DIVIDENDS AND PAYING AGENTS
 
Not applicable.
 
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     G. 
STATEMENT BY EXPERTS
 
Not applicable.
 
     H. 
DOCUMENTS ON DISPLAY
 
We are required to file reports and other information with the SEC under the Exchange Act and the regulations thereunder applicable to foreign private issuers. We are subject to the informational requirements of the Exchange Act applicable to foreign private issuers and fulfill the obligation with respect to such requirements by filing reports with the SEC. You may read and copy any document we file with the SEC without charge at the SEC's public reference room, located at 100 F Street, N.E., Washington, D.C.  20549. Copies of such material may be obtained by mail from the Public Reference Branch of the SEC at such address, at prescribed rates. Please call the SEC at l-800-SEC-0330 for further information on the public reference room. In addition, some of our filings are available to the public on the SEC's website (www.sec.gov). We also generally make available on our own website (www.radcom.com) our annual reports as well as other information. However, as an Israeli publicly traded company, we do not send copies of our annual reports to our shareholders. We will mail out copies of our annual financial statements only to those shareholders that submit a written request for such statements.  See also "Item 10.B—Additional Information—Memorandum and Articles of Association" and "Item 16G—Corporate Governance." Information contained on our website is not a part of this Annual Report.
 
Any statement contained in this Annual Report about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to this Annual Report, the contract or document is deemed to modify the description contained in this Annual Report. We urge you to review the exhibits themselves for a complete description of the contract or document.
 
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from reporting and "short-swing" profit recovery provisions contained in Section 16 of the Exchange Act.  In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.  A copy of each report submitted in accordance with applicable United States law is available for public review at our principal executive offices.
 
     I. 
SUBSIDIARY INFORMATION

Not applicable.
 
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of risks, including changes in interest rates affecting primarily the interest received on short-term deposits and foreign currency fluctuations. We may in the future undertake hedging or other similar transactions or invest in market, risk-sensitive instruments if our management determines that it is necessary to offset these risks.
 
Interest Rate Risk
 
Our exposure to market risks regarding changes in interest rates relates primarily to our cash and cash equivalents and to loans we may take that are based on a floating/fixed interest rate. Our cash and cash equivalents are held mainly in U.S. dollars with financial banks and bear annual average interest range of approximately 0.5-0.7%. For the purposes of specific risk analysis, we use a sensitivity analysis to determine the impact that market risk exposure may have on the financial income derived from our cash and cash equivalents. The potential loss to us over one year that would result from a hypothetical change in our annual average range interest rates of 10% is not material.
 
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Foreign Currency Exchange Risk
 
Our financial results may be negatively impacted by foreign currency fluctuations. Our foreign operations are generally transacted through our U.S. and Brazil subsidiaries and through our representatives and distributors. Typically, these sales and related expenses are denominated in U.S. dollars, BRLs or in Euros for European countries, while a significant portion of our expenses are denominated in NIS. Because our financial results are reported in U.S. dollars, our results of operations may be adversely impacted by fluctuations in the rates of exchange between the U.S. dollar and other currencies, mainly the NIS and BRL. Based on our budget for 2017, we expect that (i) an increase of ten percent (10%) in the exchange rate of the NIS to U.S. dollar will decrease our operating expenses expressed in dollar terms by approximately $1.4 million per year and vice versa and (ii) an increase of ten percent (10%) in the exchange rate of the BRL to U.S. dollar will decrease our operating expenses expressed in dollar terms by approximately $105,000 per year and vice versa.
 
See also "Item 5.A—Operating and Financial Review and Prospects—Operating Results—Impact of Inflation and Currency Fluctuations."
 
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 
Not applicable.

PART II

ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
 
None.
 
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 
None. 

ITEM 15.
CONTROLS AND PROCEDURES
 
a.             Disclosure Controls and Procedures
 
The Company's management, together with the chief executive officer and chief financial officer, evaluated the effectiveness of the Company's disclosure controls and procedures of our financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), as of December 31, 2016. Based on this evaluation, the Company's chief executive officer and chief financial officer concluded that, as of December 31, 2016, the Company's disclosure controls and procedures were: (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is accumulated and communicated to the Company's management, including the Company's chief executive officer and chief financial officer, and by others within those entities, as appropriate, to allow timely decisions regarding the required disclosure, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms.

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b.             Management's Annual Report on Internal Control over Financial Reporting
 
The Company's management, under the supervision of the Company's principal executive and principal financial officers, is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) of the Exchange Act as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers, and effected by the Company's Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP, and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transaction and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP; (3) provide reasonable assurance that our receipts and expenditures are made only in accordance with authorizations of our management and Board of Directors (as appropriate); and (4) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Under the supervision and with the participation of the Company's management, including its principal executive and financial officers, the Company conducted an evaluation, and assessed the effectiveness of, our internal control over financial reporting as of December 31, 2016, based on the 2013 framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control —Integrated Framework .
 
Based on our assessment under that framework and the criteria established therein, our management concluded that, as of December 31, 2016, the Company's internal control over financial reporting was effective.
 
c.             Attestation Report of the Registered Public Accounting Firm
 
 Our independent registered public accounting firm, Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young Global independently assessed the effectiveness of our internal control over financial reporting and has issued an attestation report, which is included elsewhere in this Annual Report.  
 
d.             Changes in Internal Control over Financial Reporting
 
There were no changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the year ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
 
Our Board of Directors has determined that Irit Hillel is our "audit committee financial expert" (as defined in paragraph (b) of Item 16A of Form 20-F) serving on our Audit Committee.  For information on Ms. Hillel's professional and educational background, see "Item 6.A—Directors, Senior Management and Employees—Directors and Senior Management." Ms. Hillel qualifies as an "independent" director under the NASDAQ Listing Rules.
 
ITEM 16B.
CODE OF ETHICS
 
On February 1, 2004, our Board of Directors adopted our Code of Ethics and Business Conduct, a code that applies to all of our directors, officers and employees, including our Chief Executive Officer and our Chief Financial Officer. A copy of the Code of Ethics and Business Conduct was filed as Exhibit 11 to our annual report on Form 20-F filed with the SEC on May 6, 2004.
 
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Our Code of Ethics, as may be amended from time to time, is also publicly available on our website at www.radcom.com . Future amendments to our Code of Ethics will be posted on our website.
 
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
Kost Forer Gabbay & Kasierer, a member of Ernst and Young Global, is our independent registered public accounting firm. Fees for professional services in 2016 and 2015 were, respectively:
 
 
 
2016
   
2015
 
Audit Fees
 
$
224,500
   
$
149,500
 
Audit Related Fees
 
$
3,000
   
$
3,000
 
Tax Fees
 
$
15,500
   
$
15,500
 
All Other Fees
 
$
95,000
     
0
 
Total
 
$
338,000
   
$
168,000
 
 
Audit fees included fees associated with the annual audit, the reviews of our quarterly financial statements, audit fees related to our internal control over financial reporting , statutory audits required internationally, consents and assistance with and review of documents filed with the SEC.
 
Audit related fees included fees associated with the annual report for the Innovation Authority.

Tax fees included tax compliance, including the preparation of tax returns, tax planning and tax advice, including assistance with tax audits and appeals, advice related to acquisitions, transactions, transfer pricing and assistance with respect to requests for rulings from tax authorities.

All other fees included fees related to the 2016 Public Offering and other services.

                Audit Committee's Pre-Approval Policies and Procedures
 
Our Audit Committee oversees our independent auditors.  See also the description under the heading "Board Practices" in "Item 6—Directors, Senior Management and Employees." Our Audit Committee's policy is to approve any audit or permitted non-audit services proposed to be provided by our independent auditors, before engaging our independent auditors to provide such services. Pursuant to this policy, which is designed to ensure that such engagements do not impair the independence of our auditors, the Chairperson of our Audit Committee is authorized to approve any such services between the meetings of our Audit Committee, subject to ratification by the Audit Committee, and to report any such approvals to the Audit Committee at its next meeting. All of the fees set forth above were approved by the Audit Committee.

ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
 
Not applicable.

ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 
Not applicable.

ITEM 16F.
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
 
Not applicable.
 
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ITEM 16G.
CORPORATE GOVERNANCE
 
We are a foreign private issuer whose Ordinary Shares are listed on the NASDAQ. As such, we are required to comply with U.S. federal securities laws, including the Sarbanes-Oxley Act, and the NASDAQ Listing Rules, including the NASDAQ's corporate governance requirements.  The NASDAQ Listing Rules provide that foreign private issuers may follow their home country practice in lieu of certain qualitative listing requirements subject to certain exceptions and except to the extent that such exemptions would be contrary to U.S. federal securities laws, so long as the foreign issuer submits to NASDAQ in advance a written statement from an independent counsel in such issuer's home country certifying that the issuer's practices are not prohibited by the home country's laws and discloses that it does not follow such listing requirement and describes the home country practice followed in its reports filed with the SEC.  In addition, a foreign private issuer must disclose in its annual reports filed with the SEC each such requirement that it does not follow and describe the home county practice followed by the issuer instead of any such requirement.  Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ's corporate governance rules.
 
In accordance with Israeli law and practice and subject to the exemption set forth in Rule 5615 of the NASDAQ Listing Rules, we have elected to follow the provisions of the Israeli Companies Law, rather than the NASDAQ Listing Rules, with respect to the following requirements:

 
·
Distribution of periodic reports to shareholders;   proxy solicitation . As opposed to the NASDAQ Listing Rules, which require listed issuers to make such reports available to shareholders in one of a number of specific manners, Israeli law does not require us to distribute periodic reports directly to shareholders, and the generally accepted business practice in Israel is not to distribute such reports to shareholders but to make such reports available through a public website. In addition to making such reports available on a public website, we currently make our audited financial statements available to our shareholders at our offices and will only mail such reports to shareholders upon request. As a foreign private issuer, we are generally exempt from the SEC's proxy solicitation rules.
 
 
·
Compensation of officers.  Israeli law and our amended and restated articles of association do not require that the independent members of our Board of Directors (or a compensation committee composed solely of independent members of our Board of Directors) determine an executive officer’s compensation, as is generally required under the NASDAQ Listing Rules with respect to the Chief Executive Officer and all other executive officers. Instead, compensation of executive officers is determined and approved by our Compensation Committee and our Board of Directors, and in certain circumstances by our shareholders, either in consistency with our office holder compensation policy or, in special circumstances in deviation therefrom, taking into account certain considerations stated in the Israeli Companies Law.
 
Shareholder approval is generally required for executive officer compensation in the event (i) approval by our Board of Directors and our Compensation Committee is not consistent with our office holders compensation policy, or (ii) compensation required to be approved is that of our chief executive officer who is not a director or an executive officer who is also the controlling shareholder of our company (including an affiliate thereof). Such shareholder approval shall require a majority vote of the shares present and voting at a shareholders meeting, provided either (i) such majority includes a majority of the shares held by non-controlling shareholders who do not otherwise have a personal interest in the compensation arrangement that are voted on at the meeting, excluding for such purpose any abstentions of disinterested shareholders, or (ii) the total shares held by non-controlling and disinterested shareholders voted against the arrangement does not exceed 2% of the voting rights in our company.
 
Additionally, approval of the compensation of an executive officer, who is also a director, shall generally require a simple majority vote of the shares present and voting at a shareholders meeting, if consistent with our office holders compensation policy. Our Compensation Committee and Board of Directors may, in special circumstances, approve the compensation of an executive officer (other than a director, a chief executive officer or a controlling shareholder) or approve the compensation policy despite shareholders’ objection, based on specified arguments and taking shareholders’ objections into account. Our Compensation Committee may further exempt an engagement with a nominee for the position of chief executive officer, who meets the non-affiliation requirements set forth for an external director, from requiring shareholders’ approval, if such engagement is consistent with our office holders compensation policy and our Compensation Committee determines based on specified arguments that presentation of such engagement to shareholders’ approval is likely to prevent such engagement. To the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval is required once every three years.
 
A director or executive officer may not be present when the board of directors of a company discusses or votes upon the terms of his or her compensation, unless the chairman of the board of directors determines that he or she should be present to present the transaction that is subject to approval.
 
90

 
 
 
·
Shareholder approval.  We will seek shareholder approval for all corporate actions requiring such approval under the requirements of the Israeli Companies Law, rather than seeking approval for corporation actions in accordance with NASDAQ Listing Rule 5635. In particular, under this NASDAQ rule, shareholder approval is generally required for: (i) an acquisition of shares/assets of another company that involves the issuance of 20% or more of the acquirer's shares or voting rights or if a director, officer or 5% shareholder has greater than a 5% interest in the target company or the consideration to be received; (ii) the issuance of shares leading to a change of control; (iii) adoption/amendment of equity compensation arrangements; and (iv) issuances of 20% or more of the shares or voting rights (including securities convertible into, or exercisable for, equity) of a listed company via a private placement (and/or via sales by directors/officers/5% shareholders) if such equity is issued (or sold) at below the greater of the book or market value of shares. By contrast, under the Israeli Companies Law, shareholder approval is required for, among other things: (i) transactions with directors concerning the terms of their service or indemnification, exemption and insurance for their service (or for any other position that they may hold at a company), for which approvals of the compensation committee, board of directors and shareholders are all required, (ii) extraordinary transactions with controlling shareholders of publicly held companies, which require the special approval described below under “Approval of Related Party Transactions under Israeli Law  –  Disclosure of personal interests of controlling shareholders,” and (iii) terms of employment or other engagement of the controlling shareholder of the Company or such controlling shareholder's relative, which require the special approval described below under “Approval of Related Party Transactions under Israeli Law   Disclosure of personal interests of a controlling shareholder and approval of transactions.” In addition, under the Israeli Companies Law, a merger requires approval of the shareholders of each of the merging companies.
 
Approval of Related Party Transactions under Israeli Law
 
Disclosure of personal interests of a controlling shareholder and approval of transactions
 
The Israeli Companies Law also requires that a controlling shareholder promptly disclose to the company any personal interest that he or she may have and all related material information or documents relating to any existing or proposed transaction by the company. A controlling shareholder’s disclosure must be made promptly and in any event no later than the first meeting of the board of directors at which the transaction is considered. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, including a private placement in which a controlling shareholder has a personal interest, and the terms of engagement of the company, directly or indirectly, with a controlling shareholder or a controlling shareholder’s relative (including through a corporation controlled by a controlling shareholder), regarding the company’s receipt of services from the controlling shareholder, and if such controlling shareholder is also an office holder of the company, regarding his or her terms of employment, require the approval of each of (i) the audit committee or the compensation committee with respect to the terms of the engagement of the company, (ii) the board of directors and (iii) the shareholders, in that order. In addition, the shareholder approval must fulfill one of the following requirements:

 
·
 
a majority of the shares held by shareholders who have no personal interest in the transaction and are voting at the meeting must be voted in favor of approving the transaction, excluding abstentions; or
 
·
 
the shares voted by shareholders who have no personal interest in the transaction who vote against the transaction represent no more than 2% of the voting rights in the company.
 
91

In addition, any extraordinary transaction with a controlling shareholder or in which a controlling shareholder has a personal interest with a term of more than three years requires the abovementioned approval every three years; however, such transactions not involving the receipt of services or compensation can be approved for a longer term, provided that the audit committee determines that such longer term is reasonable under the circumstances.
 
The Israeli Companies Law requires that every shareholder that participates, in person, by proxy or by voting instrument, in a vote regarding a transaction with a controlling shareholder, must indicate in advance or in the ballot whether or not that shareholder has a personal interest in the vote in question. Failure to so indicate will result in the invalidation of that shareholder’s vote.
 
ITEM 16H.
MINE SAFETY DISCLOSURE

Not applicable.
 
PART III
 
ITEM 17.
FINANCIAL STATEMENTS
 
We have responded to Item 18 in lieu of this item.

ITEM 18.
FINANCIAL STATEMENTS
 
Our consolidated financial statements and the report of independent registered public accounting firm in connection therewith are filed as part of this Annual Report, as noted below:
 
Index to the Consolidated Financial Statements
Page
   
F-2 - F-3
   
F-4 - F-5
   
F-6
   
F-7
   
F-8
   
F-9 - F-10
   
F-11 - F-46

 
92


ITEM 19.
EXHIBITS
 
The exhibits filed with or incorporated into this Annual Report are listed below.
 
Exhibit No.
Description
 
1.1
Memorandum of Association, as amended (1) .
 
1.2
Amended and Restated Articles of Association, as amended (2) .
 
2.1
Form of ordinary share certificate (3)
   
4.1
 
4.2
2003 Share Option Plan (3)
 
2013 Share Option Plan, as amended (4)  
   
4.3
Share and Warrant Purchase Agreement, dated as of April 23, 2013, by and between RADCOM Ltd. and the purchasers listed therein (5) .
 
4.4
 
Master Subcontract Agreement, dated March 23, 2015, by and between Amdocs Inc. and RADCOM US (2)* .
 
4.5
 
Value Added Reseller Agreement, dated December 30, 2015, by and between Amdocs Software Systems Limited and the Company (2)* .
 
4.6
 
Addendum to the Value Added Reseller Agreement, dated December 30, 2015, by and between Amdocs Software Systems Limited and the Company (2)* .
 
4.7
 
4.8
 
Supplemental Agreement, dated December 30, 2015, by and between Amdocs Software Systems Limited and the Company (2)* .
 
Radcom Compensation Policy for Executive Officers and Directors, as amended on August 16, 2016. (7)
   
8.1
List of Subsidiaries (6) .  
   
11.1
Code of Ethics (8)
 
12.1
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2) .
 
93

 
 
12.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (2) .
 
13.1
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (9) .
 
13.2
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (9) .
 
15.1
Consent of Kost Forer Gabbay & Kasierer, a member of Ernst and Young Global, dated March 30, 2017 (2) .
 
101
The following financial information from RADCOM Ltd.'s Annual Report on Form 20-F for the year ended December 31, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014; (ii) Consolidated Statement of Comprehensive Income (Loss) for the years ended December 31, 2016, 2015 and 2014 (iii) Consolidated Balance Sheets at December 31, 2015 and 2014; (iv) Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2016, 2015 and 2014; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014; and (vi) Notes to Consolidated Financial Statements (2) .
 
_________________
 
(1)   Incorporated herein by reference to the (i) Registration Statement on Form F-1 of RADCOM Ltd. (File No. 333-05022), filed with the SEC on June 12, 1996, (ii) Form 6-K of RADCOM Ltd., filed with the SEC on April 1, 2008 and (iii) Exhibit 99.2 to Form 6-K of RADCOM Ltd., filed with the SEC on November 23, 2015.
 
(2)   Filed herewith.
 
(3)   Incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2012, filed with the SEC on April 22, 2013.
 
(4)    Incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2014, filed with the SEC on March 26, 2015.
 
(5)   Incorporated herein by reference to the Form F-3/A of RADCOM Ltd., filed with the SEC on July 3, 2013.
 
(6)   Incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2015, filed with the SEC on March 29, 2016.
 
(7)    Incorporated herein by reference to the Form 6-K of RADCOM Ltd., filed with the SEC on July 12, 2016.
 
(8)    Incorporated herein by reference to the Form 20-F of RADCOM Ltd. for the fiscal year ended December 31, 2003, filed with the SEC on May 6, 2004.
 
(9)   Furnished herewith.
 
* Confidential treatment was requested with respect to certain portions of this exhibit pursuant to 17.C.F.R. §240.24b-2. Omitted portions were filed separately with the SEC.
 
94

 
SIGNATURE
 
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

 
RADCOM LTD.
 
 
 
 
 
 
By:
/s/  Yaron Ravkaie
 
 
Name:    Yaron Ravkaie
 
 
Title:      Chief Executive Officer
 
 
 Date:     March 30, 2017
 

95


 
RADCOM LTD. AND ITS SUBSIDIARIES
 
CONSOLIDATED FINANCIAL STATEMENTS
 
AS OF DECEMBER 31, 2016

INDEX
 
 
Page
   
F-2 - F-3
   
F-4 - F-5
   
F-6
   
F-7
   
F-8
   
F-9 - F-10
   
F-11 - F-46




 
Tel:   972 (3)6232525
Fax: 972 (3)5622555
www. ey.com/il
 
Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 6706703, Israel
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

RADCOM LTD.
 
We have audited the accompanying consolidated balance sheets of Radcom Ltd. and its subsidiaries (the "Company") as of December 31, 2016 and 2015 and the related consolidated statements of comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Radcom Ltd. and its subsidiaries at December 31, 2016 and 2015 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)   and our report dated March 30, 2017 expressed an unqualified opinion thereon.
 
Tel-Aviv, Israel
/s/ KOST FORER GABBAY & KASIERER
March 30, 2017
A Member of Ernst & Young Global

F - 2


 
Tel:   972 (3)6232525
Fax: 972 (3)5622555
www.ey.com/il
 
Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 6706703, Israel
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

RADCOM LTD.

We have audited the Company's internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2016 consolidated financial statements of the Company and our report dated March 30, 2017 expressed an unqualified opinion thereon.

Tel-Aviv, Israel
/s/ KOST FORER GABBAY & KASIERER
March 30, 2017
A Member of Ernst & Young Global
   
 
F - 3

R ADCOM LTD. AND ITS SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
 
   
December 31,
 
   
2016
   
2015
 
             
ASSETS
           
             
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
42,886
   
$
8,727
 
Restricted bank deposit
   
32
     
32
 
Trade receivables (net of allowances for doubtful accounts amounted to $9 and $0 as of December 31, 2016, and 2015, respectively)
   
4,388
     
3,684
 
Inventories
   
623
     
1,532
 
Other accounts receivable and prepaid expenses
   
1,960
     
2,087
 
                 
Total current assets
   
49,889
     
16,062
 
                 
SEVERANCE PAY FUND
   
2,788
     
3,181
 
                 
OTHER LONG - TERM RECEIVABLES
   
375
     
508
 
                 
PROPERTY AND EQUIPMENT, NET
   
1,516
     
384
 
                 
Total assets
 
$
54,568
   
$
20,135
 
 
The accompanying notes are an integral part of the consolidated financial statements .

F - 4

RADCOM LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
 
   
December 31,
 
   
2016
   
2015
 
             
LIABILITIES AND SHAREHOLDERS' EQUITY
           
             
CURRENT LIABILITIES:
           
Trade payables
 
$
2,820
   
$
1,465
 
Employees and payroll accruals
   
3,541
     
2,533
 
Deferred revenues and advances from customers
   
2,593
     
931
 
Other accounts payable and accrued expenses
   
2,081
     
1,490
 
                 
Total current liabilities
   
11,035
     
6,419
 
                 
NON- CURRENT LIABILITIES:
               
Deferred revenues
   
123
     
197
 
Accrued severance pay
   
3,267
     
3,656
 
                 
Total non-current liabilities
   
3,390
     
3,853
 
                 
Total liabilities
 
$
14,425
   
$
10,272
 
                 
COMMITMENTS AND CONTINGENCIES
               
                 
SHAREHOLDERS' EQUITY:
               
Share capital:
               
Ordinary Shares of NIS 0.20 par value: Authorized: 20,000,000 shares at December 31, 2016 and 2015; 11,622,260 and 8,674,717 shares issued and 11,586,228 and 8,638,685 shares outstanding at December 31, 2016 and 2015, respectively
 
$
523
   
$
372
 
Additional paid-in capital
   
98,283
     
70,270
 
Accumulated other comprehensive loss
   
(2,559
)
   
(2,760
)
Accumulated deficit
   
(56,104
)
   
(58,019
)
                 
Total shareholders' equity
   
40,143
     
9,863
 
                 
Total liabilities and shareholders' equity
 
$
54,568
   
$
20,135
 
 
The accompanying notes are an integral part of the consolidated financial statements .

F - 5

R ADCOM LTD. AND ITS SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands, except share and per share data

   
Year ended December 31,
 
   
2016
   
2015
   
2014
 
                   
Revenues:
                 
Products and related services
 
$
8,642
   
$
15,500
   
$
18,342
 
Projects
   
17,534
     
622
     
2,205
 
Warranty and Support
   
3,334
     
2,551
     
3,089
 
                         
     
29,510
     
18,673
     
23,636
 
                         
Cost of revenues:
                       
Products and related services
   
5,603
     
3,924
     
7,863
 
Projects
   
2,902
     
117
     
487
 
Warranty and Support
   
477
     
285
     
343
 
                         
     
8,982
     
4,326
     
8,693
 
                         
Gross profit
   
20,528
     
14,347
     
14,943
 
                         
Operating expenses:
                       
Research and development
   
8,047
     
6,071
     
5,812
 
Less - royalty-bearing participation
   
1,693
     
1,582
     
1,664
 
                         
Research and development, net
   
6,354
     
4,489
     
4,148
 
                         
Selling and marketing, net
   
8,528
     
7,834
     
7,295
 
General and administrative
   
4,523
     
2,393
     
2,262
 
                         
Total operating expenses
   
19,405
     
14,716
     
13,705
 
                         
Operating income (loss)
   
1,123
     
(369
)
   
1,238
 
                         
Financial income (expenses), net
   
816
     
(433
)
   
(332
)
                         
Income (loss) before taxes on income
   
1,939
     
(802
)
   
906
 
                         
Taxes on income
   
(24
)
   
(121
)
   
(180
)
                         
Net income (loss)
 
$
1,915
   
$
(923
)
 
$
726
 
                         
Basic net income (loss) per Ordinary Share
 
$
0.18
   
$
(0.11
)
 
$
0.09
 
                         
    Diluted net income (loss) per Ordinary Share
 
$
0.18
   
$
(0.11
)
 
$
0.08
 
                         
Weighted average number of Ordinary Share used in computing basic net income (loss) per share
   
10,406,897
     
8,572,681
     
8,088,974
 
                         
Weighted average number of Ordinary Share used in computing diluted net income (loss) per share
   
10,779,547
     
8,572,681
     
8,592,387
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F - 6

RAD COM LTD. AND ITS SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
U.S. dollars in thousands
 
   
Year ended
December 31,
 
   
2016
   
2015
   
2014
 
                   
Net income ( loss)
 
$
1,915
   
$
(923
)
 
$
726
 
                         
Other comprehensive income (loss):
                       
Foreign currency translation adjustments
   
201
     
(1,698
)
   
(257
)
                         
Total other comprehensive income (loss)
   
2,116
     
(1,698
)
   
(257
)
                         
Comprehensive income (loss)
 
$
2,116
   
$
(2,621
)
 
$
469
 
 
The accompanying notes are an integral part of the consolidated financial statements.

F - 7

 
RADCO M LTD. AND ITS SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands, except share and per share data
 
   
Number of
shares
   
Share capital amount
   
Additional
paid-in capital
   
Accumulated other comprehensive loss
   
Accumulated deficit
   
Total shareholders' equity
 
                                     
Balance as of January 1, 2014
   
7,911,308
   
$
335
   
$
65,791
   
$
(805
)
 
$
(57,822
)
 
$
7,499
 
                                                 
Share-based compensation
   
-
     
-
     
579
     
-
     
-
     
579
 
Exercise of warrants into Ordinary Shares
   
5,974
     
*
)
   
21
     
-
     
-
     
21
 
Exercise of options into Ordinary Shares
   
493,993
     
26
     
1,668
     
-
     
-
     
1,694
 
Net income
   
-
     
-
     
-
     
-
     
726
     
726
 
Other comprehensive loss
   
-
     
-
     
-
     
(257
)
   
-
     
(257
)
                                                 
Balance as of December 31, 2014
   
8,411,275
   
$
361
   
$
68,059
   
$
(1,062
)
 
$
(57,096
)
 
$
10,262
 
                                                 
Share-based compensation and RSUs
   
-
     
-
     
1,409
     
-
     
-
     
1,409
 
Exercise of warrants into Ordinary Shares
   
22,921
     
1
     
79
     
-
     
-
     
80
 
Exercise of options into Ordinary Shares
   
185,989
     
9
     
724
     
-
     
-
     
733
 
RSUs vested
   
18,500
     
1
     
(1
)
   
-
     
-
     
-
 
Net loss
   
-
     
-
     
-
     
-
     
(923
)
   
(923
)
Other comprehensive loss
   
-
     
-
     
-
     
(1,698
)
   
-
     
(1,698
)
                                                 
Balance as of December 31, 2015
   
8,638,685
   
$
372
   
$
70,270
   
$
(2,760
)
 
$
(58,019
)
 
$
9,863
 
                                                 
Issuance of Ordinary Shares, net of issuance costs of $1,721, upon follow-on public offering
   
2,090,909
     
108
     
21,171
     
-
     
-
     
21,279
 
Share-based compensation and RSUs
   
-
     
-
     
2,471
     
-
     
-
     
2,471
 
Exercise of warrants into Ordinary Shares
   
310,985
     
16
     
1,069
     
-
     
-
     
1,085
 
Exercise of options into Ordinary Shares
   
508,149
     
25
     
3,304
     
-
     
-
     
3,329
 
RSUs vested
   
37,500
     
2
     
(2
)
   
-
     
-
     
-
 
Net income
   
-
     
-
     
-
     
-
     
1,915
     
1,915
 
Other comprehensive income
   
-
     
-
     
-
     
201
     
-
     
201
 
                                                 
Balance as of December 31, 2016
   
11,586,228
   
$
523
   
$
98,283
   
$
(2,559
)
 
$
(56,104
)
 
$
40,143
 
 
*)
Represents an amount lower than $1.
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F - 8

RADCOM LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
 
   
Year ended December 31,
 
   
2016
   
2015
   
2014
 
Cash flows from operating activities:
                 
                   
Net income (loss)
 
$
1,915
   
$
(923
)
 
$
726
 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
                       
Depreciation
   
286
     
123
     
87
 
Share-based compensation and RSUs
   
2,471
     
1,409
     
579
 
Change in:
                       
    Severance pay, net
   
4
     
73
     
(7
)
    Trade receivables, net
   
(329
)
   
1,053
     
61
 
    Other account receivables and prepaid expenses
   
524
     
(1,266
)
   
800
 
    Inventories
   
794
     
311
     
1,379
 
    Trade payables
   
1,273
     
(278
)
   
(705
)
    Employees and payroll accruals
   
999
     
174
     
276
 
    Other accounts payable and accrued expenses
   
266
     
531
     
584
 
    Deferred revenue and advances from customers
   
1,248
     
677
     
(394
)
                         
Net cash provided by operating activities
   
9,451
     
1,884
     
3,386
 
                         
Cash flows from investing activities:
                       
                         
Maturity of restricted bank deposits
   
-
     
-
     
1,477
 
Purchase of property and equipment
   
(1,331
)
   
(97
)
   
(65
)
                         
Net cash provided by (used in) investing activities
   
(1,331
)
   
(97
)
   
1,412
 
                         
Cash flows from financing activities:
                       
                         
Repayment of short-term bank credit, net
   
-
     
-
     
(629
)
Proceeds from issuance of Ordinary Shares, net of issuance costs upon follow-on public offering
   
21,279
     
-
     
-
 
Exercise of warrants into Ordinary Shares
   
1,085
     
80
     
21
 
Exercise of options into Ordinary Shares
   
3,329
     
733
     
1,694
 
                         
Net cash provided by financing activities
   
25,693
     
813
     
1,086
 
                         

F - 9

RADCOM LTD. AND ITS SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
 
   
Year ended December 31,
 
   
2016
   
2015
   
2014
 
                   
Foreign currency translation adjustments on cash and cash equivalents
   
346
     
(721
)
   
(221
)
                         
Increase in cash and cash equivalents
   
34,159
     
1,879
     
5,663
 
Cash and cash equivalents at beginning of year
   
8,727
     
6,848
     
1,185
 
                         
Cash and cash equivalents at end of year
 
$
42,886
   
$
8,727
   
$
6,848
 
                     
(a)
Non-cash investing activities:
                 
                     
 
Purchase of property and equipment
 
$
81
   
$
21
   
$
4
 
                           
(b) 
Cash paid during the year for:
                       
                           
 
Interest
 
$
-
   
$
-
   
$
13
 
                           
 
Taxes on income
 
$
24
   
$
121
   
$
180
 
 
The accompanying notes are an integral part of the consolidated financial statements.

F - 10

RAD COM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 1: -
GENERAL

a.
RADCOM Ltd. (the "Company") is an Israeli corporation which provides service assurance and customer experience management solutions for Communication Service Providers ("CSP"). The Company's solutions support the CSPs ongoing needs to monitor their networks (fixed and mobile) and assure the delivery of a quality service to their subscribers; both on virtual ("NFV") networks and non-virtual networks. The Company specializes in solutions for next- mobile and fixed networks, including LTE, VoLTE, IMS, VoIP, WiFi, VoWiFi and mobile broadband. The Company's comprehensive, carrier-grade solutions, are designed for big data analytics on terabit networks, and are used to enhance customer care management, network operations, engineering capabilities, network service management, network planning and marketing. The Company's shares   (the "Ordinary Shares") are listed on the NASDAQ Capital Market under the symbol RDCM.

In February 2014, the Company's MaveriQ solution, a software probe based solution, which replaced the OmniQ solution, a hardware-based solution, officially launched and sales commenced. Since 2015, the Company enhanced its research and development efforts in developing solutions to support NFV and remove dependencies from proprietary hardware-based devices.
 
The Company has wholly-owned subsidiaries in the United States and Brazil, that are primarily engaged in the sales, marketing, deployment and customer support of the Company's products in North America and Brazil, respectively. The Company has also a wholly owned subsidiary in India, which primarily provides marketing services and customer support services worldwide.

b.
The Company has an accumulated deficit of $56,104 as of December 31, 2016. In addition, in 2016 the Company generated positive cash flow of $9,451 from its operating activities. The Company believes that its existing capital resources and expected cash flows from operations will be adequate to satisfy its expected liquidity requirements at least for the next 12 months.

c.
In December 2015, the Company entered to a multi-year sales agreement with Amdocs Software Systems Limited (“Amdocs”) for the resale of MaveriQ to AT&T, a leading North American Tier-1 telecom operator (the “AT&T Engagement”). During 2016 , the Company signed expansion agreements, as well as multi-year maintenance agreements with Amdocs in connection with the AT&T Engagement. As of December 31, 2016, the Company recognized $18,310 pursuant to the AT&T Engagement and its related agreements, which represents 62% of the total consolidated revenues of the Company (see also Note 11d).

The Company depends on a limited number of contract customers for selling its solution. If these customers become unable or unwilling to continue to buy the Company's solution, it could adversely affect the Company's results of operations and financial position (see also Note 10b3).

F - 11

RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 1: -
GENERAL (Cont.)

The loss of any significant customer, a significant decrease in business from any such customer or a reduction in customer revenue due to adverse changes in the market, economic or competitive conditions or other factors could have a material adverse effect on the company’s business, results of operations and financial condition.

   d.       Follow-on Public Offering:

On May 4, 2016, a "shelf" registration statement covering the public sale of up to $50,000 of the Company’s Ordinary Shares was declared effective by the U.S. Securities and Exchange Commission ("SEC").

On May 25, 2016, the Company closed its follow-on public offering (as further described in Note 9b) at a price of $11.00 per share. Upon the closing of the follow-on public offering, the Company issued 2,090,909 Ordinary Shares, which included 272,727 Ordinary Shares sold pursuant to the underwriters’ exercise of the overallotment option to purchase additional Ordinary Shares, for a total consideration of approximately $21,279, net of underwriting discounts, commissions and other offering expenses of $1,721 payable by the Company.

F - 12


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2: -
 SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are prepared according to United States generally accepted accounting principles ("U. S. GAAP").

a.
Use of estimates:

The preparation of the consolidated financial statements in conformity with U.S. GAAP (generally accepted accounting principles) requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

b.
Financial statements in U.S. dollars (“$” "dollar" or "dollars"):

Most of the revenues of the Company and its subsidiaries, other than its Brazilian subsidiary, are denominated in U.S. dollars. Financing activities are made in U.S. dollars. Therefore, the Company's management believes that the currency of the primary economic environment in which the operations of the Company and these subsidiaries are conducted is the dollar, which is used as the functional currency.

Transactions and balances originally denominated in dollars are presented at their original amounts. Transactions and balances in other currencies are re-measured into dollars in accordance with the principles set forth in Statement of Accounting Standards Codification ("ASC") 830, "Foreign Currency Matters".

Other than in the Company's subsidiary in Brazil, all exchange gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the consolidated statement of operations when they arise.

Amounts in the financial statements representing the dollar equivalent of balances denominated in other currencies do not necessarily represent their real or economic value and such amounts may not necessarily be exchangeable for dollars.

For the Company's subsidiary in Brazil, whose functional currency has been determined to be its local currency, assets and liabilities are translated at year-end exchange rates and statements of income items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded as a separate component of accumulated other comprehensive loss in the shareholders' equity.

F - 13


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2: -
 SIGNIFICANT ACCOUNTING POLICIES (Cont.)

c.
Principles of consolidation:

The consolidated financial statements include the financial statements of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

d.
Cash and cash equivalents:

The Company considers all highly liquid deposit instruments with an original maturity of three months or less at the date of purchase to be cash equivalents.

e.
Restricted bank deposit:

Restricted bank deposits represent restricted cash which is pledged in favor of the bank that provides guarantees to the Company.

f.
Concentration of credit risk:

Financial instruments that may subject the Company to significant concentration of credit risk consist mainly of cash and cash equivalents, severance pay fund and trade receivables.

Cash and cash equivalents are maintained with major financial institutions mainly in Israel. Assets held for severance benefits are maintained with major insurance companies and financial institutions in Israel. Such deposits are not insured. However, management believes that such financial institutions are financially sound and, accordingly, low credit risk exists with respect to these investments.

The Company grants credit to customers without generally requiring collateral or security. The risk of collection associated with trade receivables is reduced by geographical dispersion of the Company's customer base. The Company establishes an allowance for doubtful accounts based on historical experience, credit quality, the age of the accounts receivable balances and current economic conditions that may affect a customer's ability to pay. During the year ended December 31, 2016, the Company recorded allowance for doubtful accounts of $9. No allowances for doubtful accounts were recorded as of December 31, 2015   and 2014. Actual collection experience may not meet expectations and may result in future bad debt expense. No bad debt expenses were recorded during the years ended December 31, 2016, 2015 and 2014.

F - 14


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2: -
 SIGNIFICANT ACCOUNTING POLICIES (Cont.)

g.
Inventories:

Inventories are stated at the lower of cost or market value. Cost is determined on a "moving average" basis. Inventory write-offs are provided to cover technological obsolescence, excess inventories and discontinued products.

Inventory write-off is measured as the difference between the cost of the inventory and market based upon assumptions about future demand, and is charged to the cost of revenues. At the point of the loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Total inventory write-offs during the years ended December 31, 2016, 2015 and 2014 amounted to $498, $346 and $187, respectively. In addition, following the termination of the agreement that is disclosed in Note 7d, during the year ended December 31, 2014, the Company recorded additional inventory write-off that amounted to $1,005.

h.
Property and equipment:

Property and equipment are stated at cost less accumulated depreciation. Maintenance and repairs are charged to operations as incurred.

Depreciation is calculated on the straight-line method over the estimated useful lives of the assets.

Annual rates of depreciation are as follows:

   
%
     
Computers and electronic equipment
 
15 - 33
Office furniture and equipment
 
6 - 33
Leasehold improvements
 
At the shorter of the lease period or
useful life of the leasehold improvement


F - 15

RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2: -
 SIGNIFICANT ACCOUNTING POLICIES (Cont.)

i.
Impairment of long-lived assets:

The Company's long-lived assets are reviewed for impairment in accordance with ASC 360 "Property, plants and equipment"; whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of an asset to be held and used is assessed by a comparison of the carrying amount of the asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of the asset exceeds its fair value. During the years ended December 31, 2016, 2015 and 2014, no impairment losses were identified.

j.
Revenue recognition:

The Company's revenues are generated mainly from fixed price contracts and from sales of its product solution. The Company's products and solution are sold to customers directly, through resellers and to lesser extent through distributors. Sales through resellers considered final sell per revenue recognition criteria. The Company recognizes its revenue through distributers on a "sale through" basis and therefore revenues from its distributors are deferred until all revenue recognition criteria of the sale to the end customer are met.

Product and related services revenues contains software components and non-software components that function together to deliver the product's essential functionality as well as related professional services. As such, revenues from sales of products and related services are recognized in accordance with ASC No. 605, "Revenue Recognition" when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable and collectability is reasonably assured.

Products are typically considered delivered upon shipment. In instances where final acceptance of the product is specified by the customer, and the acceptance is deemed substantive, revenue is deferred until all acceptance criteria have been met. The Company's arrangements generally do not include any provisions for cancellation, termination, or refunds.

The Company also generates sales through independent representatives. These representatives do not hold any of the Company's inventories, and they do not buy products from the Company. The Company invoices the end-user customers directly, collects payment directly and then pays commissions to the representative for the sales in its territory.

F - 16


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2: -
 SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Revenues in arrangements with multiple deliverables are allocated using the relative selling price method. The selling price for each deliverable is based on vendor-specific objective evidence ("VSOE") if available, third-party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE or TPE is available. The Company determines the ESP by considering several external and internal factors including, but not limited to, pricing history and practices, discounting, margin objectives, and competition.

Revenues from fixed price contracts (projects) contains mainly software product which is sold as part of an overall solution offered to the customers that combines the sale of software licenses with services which includes significant customization, modification, implementation and integration. Those services are deemed essential to the software. Thus, revenue is generally recognized over the course of these long-term projects based on ASC 605-35, "Construction-Type and Production-Type Contracts", using the percentage-of-completion method, based on a percentage that incurred labor effort to date bears to total projected labor effort. The amount of revenue recognized is based on the total fees under the arrangement and the percentage of completion achieved. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are first determined, in the amount of the estimated loss on the entire contact.

Under the Company's selling arrangements, the Company generally provides a one-year warranty, which includes bug fixing and a hardware warranty ("Warranty") for all its products. After the Warranty period initially provided with the Company's products ends, the Company may sell extended warranty contracts on a standalone basis, which includes bug fixing and a hardware warranty.

Revenues from warranty and support include revenue related to extended warranty contracts which are recognized pursuant to ASC 605-20-25, "Separately Priced Extended Warranty and Product Maintenance Contracts." Pursuant to this provision, revenue related to separately priced product maintenance contracts is deferred and recognized over the term of the maintenance period. 

Deferred revenues represent unrecognized fees collected for extended warranty services as well as other advances and payments received from customers, for which revenue has not yet been recognized.

F - 17

RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2: -
 SIGNIFICANT ACCOUNTING POLICIES (Cont.)

k.
Cost of revenues:

Cost of revenues are comprised of cost of third party hardware and software license fees maintenance fees related to such third party hardware and software, employees' salaries and related costs, shipping and handling costs, sub-contractors costs, inventory write-off, indirect taxes, packaging, importation taxes as well as non-recurring importation tax write-off and royalties to the Israel Innovation Authority (the "IIA").
 
l.
Share-based compensation:

The Company accounts for share-based compensation in accordance with ASC 718 "Compensation — Stock Compensation", which requires companies to estimate the fair value of share-based payment awards on the grant date using an option-pricing model.

The Company recognizes compensation expenses for the value of its awards granted based on the accelerated attribution method over the requisite service period of each of the awards, net of estimated forfeitures. The Company elected to early adopt Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting (ASU 2016-09) issued by the Financial Accounting Standards Board (FASB), which among other items, provides an accounting policy election to account for forfeitures as they occur, rather than to account for them based on an estimate of expected forfeitures. The Company elected to account for forfeitures as they occur and therefore, share-based compensation expense for the year ended December 31, 2016 has been calculated based on actual forfeitures in the Company’s consolidated statements of income. The net cumulative effect of this change is immaterial.

F - 18


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2: -
 SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company selected the Black-Scholes option-pricing model as the most appropriate fair value method for its share-options awards. The option-pricing model requires a number of assumptions, of which the most significant are the expected share price volatility and the expected option term. Expected volatility was calculated based upon actual historical share price movements over the most recent periods ending on the grant date, equal to the expected option term. The expected term was generated by running the Monte Carlo model pursuant to which historical post-vesting forfeitures and suboptimal exercise factor are estimated by using historical option exercise information. The suboptimal exercise factor is the ratio by which the share price must increase over the exercise price before employees are expected to exercise their share options. The expected term of the options granted is derived from the output of the options valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term to the expected term of the options. Historically the Company has not paid dividends and in addition has no foreseeable plans to pay dividends, and therefore uses an expected dividend yield of zero in the option pricing model.

The fair value for options granted in 2016, 2015 and 2014 is estimated at the date of grant with the following weighted average assumptions:

   
2016
 
2015
 
2014
             
Dividend yield
 
0%
 
0%
 
0%
Expected volatility
 
50.7%-59.4%
 
51.4%-62%
 
70%-74%
Risk-free interest
 
0.8%-1.4%
 
0.6%-1.7%
 
0.6%-0.8%
Expected life (in years)
 
2.79-4.99
 
2.39-4.58
 
2.81

F - 19

RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2: -
 SIGNIFICANT ACCOUNTING POLICIES (Cont.)

m.
Research and development costs:

Research and development costs are charged to the statement of operations as incurred except royalty-bearing participation from the IIA as described in Note 2n.

ASC 985-20, "Software - Costs of Computer Software to be Sold, Leased or Otherwise Marketed", requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company's product development process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working models and the point at which the products are ready for general release has been insignificant. Therefore, all research and development costs have been expensed.

n.
Government grants:

The Company receives royalty-bearing grants, which represents participation of the IIA in approved programs for research and development. These amounts are recognized on the accrual basis as a reduction of research and development costs as such costs are incurred. Royalties to the IIA are recorded under cost of revenues, when the related sales are recognized (see also Note 7a).

The Company also receives grants from the Israeli Ministry of Economy, Commerce and Labor (the "MOE"), which are grants of up to 50% of relevant marketing expenses. These grants are presented as a reduction of marketing expenses and amounted to $75, $215 and $55 for the years ended December 31, 2016, 2015 and 2014, respectively (see also Note 7a).

o.
Income (loss) per share:

Basic and diluted income (loss) per Ordinary Share is presented in conformity with ASC 260 "Earnings Per Share", for all years presented. Basic income (loss) per Ordinary Share is computed by dividing net income (loss) for each reporting period by the weighted average number of Ordinary Shares outstanding during the period. Diluted income (loss) per Ordinary Share is computed by dividing net income (loss) for each reporting period by the weighted average number of Ordinary Shares outstanding during the period plus any additional Ordinary Shares that would have been outstanding if potentially dilutive securities had been exercised during the period, calculated under the treasury stock method.

Certain securities were not included in the computation of diluted income (loss) per share since they were anti-dilutive. The total weighted average number of shares related to the outstanding options, Restricted Share Units ("RSUs”) and warrants excluded from the calculation of diluted net income (loss) per share were, 1,349,414 and 1,368,220 as of 2015 and 2014, respectively. As of December 31, 2016, there were no anti-dilutive securities.

F - 20

RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2: -
 SIGNIFICANT ACCOUNTING POLICIES (Cont.)

p.
Income taxes:

The Company accounts for income taxes in accordance with ASC 740 "Income Taxes". Deferred tax asset and liability account balances are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statement of operations in the period that includes the enactment date. The Company provides a full valuation allowance to reduce deferred tax assets to the extent it believes it is more likely than not that such benefits will be realized.

q.
Income tax uncertainties:

In accordance with ASC 740, "Income Taxes", the Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% of the amount likely to be realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. When applicable, the Company accounts for interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2016, and 2015, no liability for unrecognized tax benefits was recorded.

r.
Severance pay:

The Company's liability for severance pay for its Israeli employees is calculated pursuant to Israeli 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. After completing one full year of employment, the Company's Israeli employees are entitled to one month's salary for each year of employment or a portion thereof. The Company's liability is partially provided by monthly deposits with severance pay funds, insurance policies and by an accrual. The liability for employee severance pay benefits included on the balance sheet represents the total liability for such severance benefits, while the assets held for severance benefits included on the balance sheet represent the current redemption value of the Company's contributions made to severance pay funds and to insurance policies.

F - 21


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2: -
 SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The carrying value of deposited funds includes profits (losses) accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli severance pay law or labor agreements.

Effective January 1, 2012, the Company's agreements with new employees in Israel are in accordance with section 14 of the Severance Pay Law - 1963 which provides that the Company's contributions to the severance pay fund shall cover its entire severance obligation. Upon termination, the release of the contributed amounts from the fund to the employee shall relieve the Company from any further severance obligation and no additional payments shall be made by the Company to the employee. As a result, the related obligation and amounts deposited on behalf of such obligation are not recorded as part of the balance sheet, as the Company is legally released from its severance obligation to employees once the amounts have been deposited, and the Company has no further legal ownership of the amounts deposited.

Severance expenses for the years ended December 31, 2016, 2015 and 2014 amounted to $905, $485 and $527, respectively.

s.
Fair value of financial instruments:

The financial instruments of the Company consist mainly of cash and cash equivalents, restricted bank deposits, trade receivables, trade payables and other accounts payable and accrued expenses. Due to the short-term nature of such financial instruments, their fair value approximates their carrying value.

t.
Legal contingencies:

The Company is currently involved in a potential claim (See Note 7d). Generally, the Company reviews the status of such matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.

F - 22


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2: -
 SIGNIFICANT ACCOUNTING POLICIES (Cont.)

u.     Comprehensive loss:

The Company accounts for comprehensive loss in accordance with ASC 220, "Comprehensive Income" which establishes standards for the reporting and displays of comprehensive loss and its components in a full set of general purpose financial statements. Comprehensive loss generally represents all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to shareholders. The Company determined that its only item of other comprehensive loss relates to foreign currency translation adjustment and gains or losses on intercompany foreign currency transactions that are of a long-term investment nature in connection with its subsidiary in Brazil.

v.    Recently issued accounting standards:

1.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued several amendments to the standard, including clarification on identifying performance obligations.

The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company currently anticipates adopting the standard using the modified retrospective method rather than full retrospective method.

The new standard will be effective for the Company beginning January 1, 2018, and adoption as of the original effective date of January 1, 2017 is permitted. The Company will adopt the new standard as of January 1, 2018.

F - 23


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2: -
 SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The Company has made progress toward completing its evaluation of the potential changes from adopting this new standard on its financial reporting and disclosures.  The Company has evaluated the impact of the standard on majority of its revenue streams. Under the new standard, an entity recognizes revenue when or as it satisfies a performance obligation by transferring a good or service to the customer, either at a point in time or over time. Based on its current analysis, the Company expects to continue to recognize most of its product solution revenue at a point in time upon delivery or obtaining acceptance, when such acceptance is deemed substantive, in addition, the Company may identify additional performance obligations. For fixed price contracts, which includes significant customization, that is currently recognized using the percentage-of-completion method based on labor effort, the Company does not expect significant changes. The Company is still evaluating the total impact of the new revenue standard and expects to complete the evaluations and validate the impact of the accounting and disclosure changes on its business processes, controls and systems, design any changes to such business processes, controls and systems, and implement the changes during 2017.
 
2.
In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory." Under this accounting guidance, inventory will be measured at the lower of cost and net realizable value and other options that currently exist for market value will be eliminated. ASU 2015-11 defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

F - 24


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 2: -
 SIGNIFICANT ACCOUNTING POLICIES (Cont.)

3.
In February 2016, the FASB issued ASU 2016-02 - Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The ASU is expected to impact the Company’s consolidated financial statements as it has certain operating lease arrangements. ASU 2016-02supersedes the previous leases standard, ASC 840, “Leases”. The standard will be effective on January 1, 2019, with early adoption permitted. The ASU has not yet been adopted and the Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its financial statements.

NOTE 3: -
 INVENTORY

   
December 31,
 
   
2016
   
2015
 
             
Raw materials
 
$
57
   
$
126
 
Finished products (*)
   
566
     
1,406
 
                 
   
$
623
   
$
1,532
 

(*)
Includes amounts of $176 and $373 for 2016 and 2015, respectively, with respect to inventory delivered to customers but for which revenue criteria have not been met yet.

F - 25


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 4: -      OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

   
December 31,
 
   
2016
   
2015
 
             
Indirect taxes
 
$
58
   
$
54
 
Government of Israel – grants to receive
   
46
     
622
 
Prepaid expenses
   
692
     
701
 
Advances to suppliers
   
16
     
10
 
Related party (see note 11a(5))
   
585
     
-
 
Tax balance to receive from customers
   
461
     
613
 
Others
   
102
     
87
 
                 
   
$
1,960
   
$
2,087
 
 
NOTE 5: -
 PROPERTY AND EQUIPMENT, NET

Composition of assets, grouped by major classification, is as follows:

   
December 31,
 
   
2016
   
2015
 
             
Cost:
           
Computers and electronic equipment
 
$
1,885
   
$
649
 
Office furniture and equipment
   
615
     
499
 
Leasehold improvements
   
442
     
424
 
                 
     
2,942
     
1,572
 
Accumulated depreciation:
               
Computers and electronic equipment
   
603
     
373
 
Office furniture and equipment
   
410
     
408
 
Leasehold improvements
   
413
     
407
 
                 
     
1,426
     
1,188
 
                 
   
$
1,516
   
$
384
 

Depreciation expenses for the years ended December 31, 2016, 2015 and 2014 amounted to $286, $123 and $ 87, respectively.

F - 26


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 6: -
 OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

   
December 31,
 
   
2016
   
2015
 
             
Royalties - IIA payable
 
$
938
   
$
655
 
Commissions to distributors
   
333
     
395
 
Accrued expenses
   
810
     
440
 
                 
   
$
2,081
   
$
1,490
 
 
NOTE 7: -
 COMMITMENTS AND CONTINGENCIES

a.
Royalty commitments:

1.
The Company receives research and development grants from the IIA. In consideration for the research and development grants received from the IIA, the Company has undertaken to pay royalties as a percentage of revenues from products developed from research and development projects financed. If the Company does not generate sales of products developed with funds provided by the IIA, the Company is not obligated to pay royalties or repay the grants.

Royalties are payable at the rate of 3.5% from the time of commencement of sales of all of the Company’s products until the cumulative amount of the royalties paid equals 100% of the dollar-linked amounts of the grants received, plus interest at LIBOR.

As of December 31, 2016, the Company's total commitment with respect to royalty-bearing participation received or accrued, net of royalties paid or accrued, amounted to $43,563. The total research and development grants that the Company has received from the IIA as of December 31, 2016, were $40,085. The accumulated interest as of December 31, 2016, was $15,491 and the accumulated royalties paid to the IIA were $12,013.

Royalty expenses relating to the IIA grants included in cost of revenues during the years ended December 31, 2016, 2015 and 2014 were $1,033, $655 and $827, respectively.

In May 2010, the Company received a notice from the IIA regarding alleged miscalculations of the amount of royalties paid by the Company to the IIA for the years 1992-2009 and the revenues basis on which the Company had to pay royalties. The Company believes that all royalties due to the IIA from the sale of products developed with funding provided by the IIA during such years were properly paid or were otherwise accrued. During 2011, the Company reviewed with the IIA the alleged miscalculations. The Company assessed the merits of the aforesaid arguments raised by the IIA and recorded a liability for an estimated loss respectively.

F - 27

RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 7: -
 COMMITMENTS AND CONTINGENCIES (Cont.)

2.
In April 2012 and in April 2014, the MOE approved the Company's application for participation in funding the setting up of the Company’s India subsidiary and China branch as part of a designated grants plan for setting up and establishing a marketing agency in India and China. The grant is intended to cover up to 50% from the costs of the office establishment, logistics expenses and hiring employees and consultants in India and China, respectively, based on the approved budget for the plan over a period of three years.

The Company is obligated to pay to the MOE royalties of 3% on the increased sales in the target market, with respect to the year during which the grant was approved over a period of five years but not more than the total linked amount of the grant received.

The total marketing grants that the Company has received from the MOE as of December 31, 2016, were in the amount of $619. As of December 31, 2016, no liability was accrued.

3.
According to the Company's agreements with the Israel-U.S Bi-National Industrial Research and Development Foundation ("BIRD-F"), the Company is required to pay royalties at a rate of 5% of sales of products developed with funds provided by the BIRD-F, up to an amount equal to 150% of BIRD-F's grant, linked to the United States Consumer Price Index (“CPI”) relating to such products. The last funds from the BIRD-F were received in 1996. In the event the Company does not generate sales of products developed with funds provided by BIRD-F, the Company is not obligated to pay royalties or repay the grants.

The total research and development funds that the Company has received from the BIRD-F were $340. As of December 31, 2016, the Company is required to pay royalties up to an amount of $815, including linkage to the CPI.

As of December 31, 2016, the accumulated royalties paid to the BIRD-F including linkage to the CPI were $449. Accordingly, the Company's total commitment with respect to royalty-bearing participation received, net of royalties paid, amounted to $366 as of December 31, 2016.

Since 2003, the Company has not generated sales of products developed with the funds provided by BIRD-F. Therefore, the Company is not obligated to pay royalties or repay the grant since such date.

F - 28

RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 7: -
 COMMITMENTS AND CONTINGENCIES (Cont.)

b.
Operating leases:

Premises occupied by the Company and its subsidiaries are rented under various rental agreements, part of which are with related parties (see also Note 11). In 2016, the Company signed an expansion to the rental agreement related to its Israeli located offices, which includes additional office space.
 
The rental agreements for the premises of the Company and its subsidiaries expire up to December 31, 2020. The Company also has several motor vehicle lease agreements, each for a period of 36 months. As of December 31, 2016, the Company maintains 30 leased cars.

As of December 31, 2016, the future minimum aggregate lease commitments under non-cancelable operating lease agreements are as follows:

As of the year ended December 31,
 
Premises
   
Motor
vehicles
   
Total
 
                   
2017
 
$
782
   
$
65
   
$
847
 
2018
 
$
715
     
-
   
$
715
 
2019
 
$
715
     
-
   
$
715
 
2020
 
$
715
     
-
   
$
715
 
                         
   
$
2,927
   
$
65
   
$
2,992
 

Total lease expenses (net of sublease income from premises under sublease agreements amounted to $27 in 2016) amounted to $1,023, $801 and $883 for the years ended December 31, 2016, 2015 and 2014, respectively.

c.
Bank guarantee:

As of December 31, 2016, the Company established a bank guarantee to the Israeli Customs Authority that amounted to $32, which expires on April 30, 2017, and a guarantee related to one of its projects that amounted to $76, which expires on December 12, 2017.

F - 29

RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 7: -
 COMMITMENTS AND CONTINGENCIES (Cont.)
 
d.
In December 2014, one of the Company's customers (the "Customer") in Latin America sent a termination notice with respect to the agreement between the parties, claiming for refund of all amounts previously paid and damages. On August 30, 2015, the Company sent a counter notice to the Customer and rejected completely all the Customer's claims. Currently, the Company concludes that no potential loss with respect to the claim to refund or damages is considered probable.

In addition, with respect to this termination letter the Company took an inventory and related costs write-off charge of approximately $1,815 thousand during the year ended December 31, 2014. Such costs are related to equipment that was shipped to this customer for which revenue criteria have not been met. The write-off was charged to costs of revenue and selling and marketing, net expenses in a total amount of $1,639 and $176, respectively, during the year ended December 31, 2014.
 
NOTE 8: -
 TAXES ON INCOME

a.
Israeli taxation:

Taxable income of the Company is subject to the Israeli corporate tax at the rate as follows: 2014 and 2015 - 26.5% and 2016 – 25%.

On January 5, 2016, the Israeli Parliament officially published the Law for the Amendment of the Israeli Tax Ordinance (Amendment 216), that reduces the standard corporate income tax rate from 26.5% to 25%.

In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018.

Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ("the Law"):
 
In August 2013, the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 which includes Amendment 71 to the Law ("the Amendment") was enacted. Per the Amendment, the tax rate on preferred income from a preferred enterprise in 2014 and thereafter will be 9% in certain areas in Israel (Development area A) and 16% in other areas.

F - 30

RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 8: -
 TAXES ON INCOME (Cont.)

The Company may claim the tax benefits offered by the Amendment in its tax returns, provided that its facilities meet the criteria for tax benefits set out by the   Amendment. A company is also granted a right to approach the Israeli Tax Authorities for a pre-ruling regarding their eligibility for benefits under the Amendment. The Company has yet to claim the above-mentioned tax benefits offered by the Amendment and accordingly such reduced taxes were not considered in the computation of the deferred taxes and valuation allowance as of December 31, 2016.

In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Law ("the Amendment") was published. According to the Amendment, a preferred enterprise located in Development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2017 and thereafter (the tax rate applicable to preferred enterprises located in other areas remains at 16%).

The Amendment also prescribes special tax tracks for technological enterprises, which are subject to rules that are to be issued by the Minister of Finance by March 31, 2017.

The new tax tracks under the Amendment are as follows:

Technological preferred enterprise - an enterprise for which total consolidated revenues of its parent company and all subsidiaries are less than NIS 10 billion. A technological preferred enterprise, as defined in the Law, which is located in the center of Israel will be subject to tax at a rate of 12% on profits deriving from intellectual property (in Development area A - a tax rate of 7.5%).

Special technological preferred enterprise - an enterprise for which total consolidated revenues of its parent company and all subsidiaries exceed NIS 10 billion. Such enterprise will be subject to tax at a rate of 6% on profits deriving from intellectual property, regardless of the enterprise's geographical location.

Any dividends distributed to "foreign companies", as defined in the Law, deriving from income from the technological enterprises will be subject to tax at a rate of 4%.

As of December 31, 2016 definitive criteria to determine the tax benefits had not yet been established, it cannot be concluded that the legislation in respect of technological enterprises had been enacted or substantively enacted as of that date.
F - 31


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 8: -
 TAXES ON INCOME (Cont.)
 
In accordance with the tax laws, tax returns submitted up to and including the 2011 tax year can be regarded as final. As of December 31, 2016, no final tax assessments have been received for such years.

Tax loss carryforward:

As of December 31, 2016, the Company's tax loss carryforward and capital loss were $32,282 and $642, respectively. Such losses can be carried forward indefinitely to offset any future taxable income of the Company.

b.
Foreign subsidiaries:

U.S subsidiary:
 
1.
The U.S subsidiary is taxed under United States federal and state tax rules. Income tax is calculated based on a 40% rate.
 
2.
The U.S subsidiary's tax loss carryforward amounted to $8,448 and $274 for federal and state tax purposes, respectively, as of December 31, 2016. Such losses are available to offset any future U.S taxable income of the U.S subsidiary and will expire in the years 2017-2026 for federal tax purposes and in the years 2017-2024 for state tax purposes.

3.
The U.S subsidiary has not received final tax assessments since incorporation. In accordance with the tax laws, tax returns submitted up to and including the 2012 tax year can be regarded as final.

F - 32


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 8: -
TAXES ON INCOME (Cont.)

Brazilian subsidiary:

1.
The Brazilian subsidiary is taxed under Brazilian tax rules. Income tax is calculated based on a 34% rate.

2.
The Brazilian subsidiary's tax loss carryforward amounted to $2,670 as of December 31, 2016, for tax purposes. Tax losses may be carried forward indefinitely, but can only be offset up to 30% of the subsidiary's taxable income for a tax period.

3.
The Brazilian subsidiary has not received final tax assessments since incorporation. In accordance with the tax laws, tax returns submitted up to and including the 2011 tax year can be regarded as final.

Indian subsidiary:

1.
The Indian subsidiary is taxed under Indian tax rules. Income tax is calculated based on a 30% rate.

2.
The Indian subsidiary has not received final tax assessments since incorporation. In accordance with the tax laws, tax returns submitted up to and including the 2009 tax year can be regarded as final

c.
Deferred taxes:

Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:

   
December 31
 
   
2016
   
2015
 
Deferred tax assets:
           
Carryforward tax losses
 
$
11,892
   
$
14,205
 
Research and development credit
   
601
     
396
 
Accrued social benefits and other
   
683
     
791
 
                 
     
13,176
     
15,392
 
Less - valuation allowance
   
(13,176
)
   
(15,392
)
                 
Net deferred tax assets
 
$
-
   
$
-
 

F - 33


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 8: -
 TAXES ON INCOME (Cont.)

The net change in the total valuation allowance for the year ended December 31, 2016 was a decrease of $2,216. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences and tax loss carryforward are deductible. Management considers the projected taxable income and tax-planning strategies in making this assessment. In consideration of the Company's accumulated losses and the uncertainty of its ability to utilize its deferred tax assets in the future, management currently believes that it is more likely than not that the Company will not realize its deferred tax assets and accordingly recorded a valuation allowance to fully offset all the deferred tax assets.

d.
Taxes on income are comprised from withholding taxes that were deducted by the Company's customers as well as tax expenses of the Company’s subsidiary in India.

e.
The components of income (loss) before income taxes are as follows:

   
Year ended December 31,
 
   
2016
   
2015
   
2014
 
                   
Domestic
 
$
3,018
   
$
(755
)
 
$
3,350
 
Foreign
   
(1,079
)
   
(47
)
   
(2,444
)
                         
Income (loss) before income taxes
 
$
1,939
   
$
(802
)
 
$
906
 

F - 34

RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 8: -
 TAXES ON INCOME (Cont.)

f.
Reconciliation of the theoretical tax benefit and the actual tax expense:

   
Year ended December 31,
 
   
2016
   
2015
   
2014
 
                   
Income (loss) before income taxes, as reported in the statements of operations
 
$
1,939
   
$
(802
)
 
$
906
 
                         
Statutory tax rate in Israel
   
25
%
   
26.5
%
   
26.5
%
                         
Theoretical tax benefit
 
$
485
   
$
(213
)
 
$
240
 
                         
Increase (decrease) in income taxes resulting from:
                       
   Tax rate differential on foreign subsidiaries
   
(98
)
   
(2
)
   
(176
)
   Non-deductible expenses and other permanent differences
   
683
     
446
     
222
 
   Differences in taxes arising from foreign currency exchange, net
   
(324
)
   
641
     
1,715
 
   Losses and timing differences for which valuation allowance was provided, net
   
(1,102
)
   
(451
)
   
(2,326
)
   Withholding taxes that were deducted by the Company's customers
   
6
     
121
     
180
 
   Other
   
374
     
(421
)
   
325
 
                         
Income taxes
 
$
24
   
$
121
   
$
180
 
 
g.
Accounting for uncertainty in income taxes:

For the years ended December 31, 2016, 2015 and 2014, the Company did not have any unrecognized tax benefits and no interest and penalties related to unrecognized tax benefits have been accrued. The Company does not expect that its position related to unrecognized tax benefits will change significantly within the next 12 months.

F - 35


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 9: -
 SHAREHOLDERS' EQUITY

a.
The number of Ordinary Shares outstanding at December 31, 2016 and 2015 does not include 5,189 Ordinary Shares issued, which are held by a subsidiary, and 30,843 Ordinary Shares issued which are held by the Company.

1.
Ordinary Shares confer all rights to their holders, e.g. voting, equity and receipt of dividends.

 
2.
On December 30, 2015, the annual general meeting of the Company's shareholders approved an increase the number of the Company's authorized share capital to $ 1,026 and the number of authorized Ordinary Shares to 20,000,000.

  b.       Follow-on public offering:

On May 19, 2016 ("the Effective Date"), the Company entered an underwriting agreement ("the Agreement") related to a follow-on public offering of 1,818,182 Ordinary Shares, at an offering price of $11.00 per share for gross proceeds that amounted to $20,000, before underwriting discounts and commissions and other offering expenses amounted to $1,455 ("the Offering").

Under the Agreement, the Company granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 272,727 Ordinary Shares at the same price per share as of the Effective Date.

On May 25, 2016, upon the closing of the Offering, the Company issued 2,090,909 Ordinary Shares, including 272,727 shares sold pursuant to full exercise of the underwriters' option to purchase additional shares, for a total consideration of approximately $21,279, net of issuance costs of $1,721. (See also Note 1d) .

c.
Share option plan:

1.
The Company has granted options under option plan as follows:

Under the following plan, options are granted for periods not to exceed seven years. Options vest over a period of up to four years from date of grant. Any options that are cancelled or forfeited before expiration become available for future grants.

F - 36


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 9: -
 SHAREHOLDERS' EQUITY (Cont.)

a)
The 2013 Share Option Plan:

On April 3, 2013, the Company approved a new Share Option Plan (the "2013 Share Option Plan"). The 2013 Share Option Plan provides for the grant of options to purchase Ordinary Shares. These options are granted pursuant to the 2013 Share Option Plan for providing incentives to employees, directors, consultants and contractors of the Company. In accordance with Section 102 of the Income Tax Ordinance (New Version) - 1961, the Company's Board of Directors (the "Board") elected the "Capital Gains Route".

On March 3 2016, the Board resolved to increase the number of shares reserved under the 2013 Share Option Plan, from 750,000 to 1,250,000.

On October 30, 2016, the Company's Board of Directors resolved to increase the number of shares reserved under the 2013 Share Option Plan, from 1,250,000 to 2,450,000.

b)
On February 19, 2015, the Company's Board of Directors adopted an amendment to the 2013 Share Option Plan pursuant to which the Company may grant options to purchase its Ordinary Shares, restricted shares and RSUs to its employees, directors, consultants and contractors. The 2013 Share Option Plan expires on April 2, 2023.

c)
During the year ended December 31, 2016, the Company's Board of Directors approved the grant of 281,800 options and 216,300 RSUs to certain employees, officers and directors of the Company. The options were granted at an exercise price range between $11.29 to $14.51 per share, which was equal to the market value of the Company’s Ordinary Shares at the date of grant. Such options and RSUs   have vesting schedules of between three to four years, commencing as of the date of grant.

The total number of Ordinary Shares available for future grants under the 2013 Share Option Plan as of December 31, 2016, was 1,172,400.

2.
Grants of options in 2016, 2015 and 2014 were at exercise prices equal to the market value of the Ordinary Shares at the date of grant.

F - 37


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 9: -
 SHAREHOLDERS' EQUITY (Cont.)

3.          Stock options for the year ended December 31, 2016 under the Company’s plans are as follows:

   
Number of options
   
Weighted average exercise price
   
Weighted average remaining contractual term
(in years)
   
Aggregate intrinsic value
 
                         
Outstanding at January 1, 2016
   
856,986
     
7.75
     
3.28
   
$
6,157
 
Granted
   
281,800
     
11.68
                 
Exercised
   
(508,149
)
   
6.55
                 
Expired and forfeited
   
(6,200
)
   
10.33
                 
                                 
Outstanding at December 31, 2016
   
624,437
     
10.47
     
3.55
   
$
4,576
 
                                 
Vested and expected to vest at December 31, 2016
   
624,437
     
10.47
     
3.55
   
$
4,576
 
                                 
Exercisable at December 31, 2016
   
330,337
     
9.41
     
2.75
   
$
2,771
 

The aggregate intrinsic value of options outstanding and exercisable at December 31, 2016 represents the intrinsic value of 624,437 and 330,337 outstanding options that are in-the-money as of December 31, 2016, respectively.
 
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the deemed fair value of the Company's Ordinary Shares on the last day of fiscal 2016 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2016. This amount is impacted by the changes in the fair market value of the Company's Ordinary Shares.

 
F - 38


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 9: -
 SHAREHOLDERS' EQUITY (Cont.)

4.
As of December 31, 2016, stock options under the 2013 Share Option Plan, as amended are as follows for the year ended December 31, 2016:

     
Options outstanding
at December 31, 2016
   
Options exercisable
at December 31, 2016
 
Exercise price
   
Number
outstanding
   
Weighted
average exercise
price
   
Weighted average remaining contractual life
   
Number
exercisable
   
Weighted average exercise price
   
Weighted
average remaining contractual life
 
$
         
$
   
In years
         
$
   
In years
 
                                       
2.56 - 4.86
     
50,587
     
3.28
     
1.76
     
50,587
     
3.28
     
1.76
 
5.17 - 8.60
     
70,750
     
6.49
     
2.16
     
70,750
     
6.49
     
2.16
 
10.49 – 14.52
     
503,100
     
11.75
     
3.93
     
209,000
     
11.88
     
3.19
 
                                                   
       
624,437
                     
330,337
                 

5.
RSUs for the year ended December 31, 2016 under the Company’s 2013 Share Option Plan are as follows:

   
Number of RSUs
   
Weighted average remaining contractual term
(in years)
   
Aggregate intrinsic value
 
                   
Outstanding at January 1, 2016
   
15,500
     
0.1
   
$
231
 
Granted
   
216,300
                 
Vested
   
(37,500
)
               
Cancelled   and forfeited
   
(1,150
)
               
                         
Outstanding at December 31, 2016
   
193,150
     
2.02
   
$
3,438
 
                         
Vested and expected to vest at December 31, 2016
   
193,150
     
2.02
   
$
3,438
 
 
6.
The weighted average fair values of options granted during the years ended December 31, 2016, 2015 and 2014 were $6.68, and $4.90 and $2.70, respectively.

7.
The weighted average fair value of RSUs granted during the year ended December 31, 2016 and 2015 was $14.69 and $10.60 per share, respectively. No RSUs were granted during 2014.

F - 39



RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 9: -
 SHAREHOLDERS' EQUITY (Cont.)

8.
The following table summarizes the departmental allocation of the Company's share-based compensation charges:

   
Year ended December 31,
 
   
2016 (*)
   
2015 (*)
   
2014
 
                   
Cost of revenues
 
$
118
   
$
33
   
$
12
 
Research and development, net
   
625
     
529
     
178
 
Selling and marketing, net
   
199
     
380
     
146
 
General and administrative
   
1,529
     
467
     
243
 
                         
   
$
2,471
   
$
1,409
   
$
579
 

(*)
Including $1,331 and $342 of compensation cost related to RSUs for the year ended December 31, 2016 and 2015, respectively.

9.
Share-based compensation:

As of December 31, 2016, there are $3,120 of total unrecognized costs related to non-vested share-based compensation and RSUs that are expected to be recognized over a weighted average period of 1.13 years.

d.
Warrants:

During the year ended December 31, 2016, 310,985 warrants were exercised into 310,985 Ordinary Shares.

As of December 31, 2016, there were no remaining outstanding warrants.

F - 40



 
RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data

NOTE 10: -
 SELECTED STATEMENTS OF OPERATIONS DATA

a.
The Company applies ASC 280, "Segment Reporting". The Company operates in one reportable segment (see also Note 1 for a brief description of the Company's business).

b.
The following table presents total revenues for the years ended December 31, 2016, 2015 and 2014 and long-lived assets as of December 31, 2016, 2015 and 2014:
 
1.
Revenues from sales to unaffiliated customers:
 
   
Year ended December 31,
 
   
2016
   
2015
   
2014
 
                   
North America
 
$
19,167
   
$
1,018
   
$
1,922
 
Europe
   
946
     
1,204
     
3,189
 
Asia (Excluding Philippines)
   
355
     
576
     
847
 
Philippines
   
4,959
     
8,071
     
3,544
 
South America (Excluding Brazil)
   
785
     
2,456
     
4,235
 
Brazil
   
2,496
     
3,487
     
6,448
 
Other (Including Israel)
   
802
     
1,861
     
3,451
 
                         
   
$
29,510
   
$
18,673
   
$
23,636
 
 
Total revenues are attributed to geographic areas based on the location of the end-customer.
 
2.
Property and equipment, net, by geographic areas:

   
Year ended December 31,
 
   
2016
   
2015
 
             
Israel
 
$
1,422
   
$
339
 
Other
   
94
     
45
 
                 
   
$
1,516
   
$
384
 

F - 41



 
RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 10: -
 SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)
 
3.
Major customer data as a percentage of total revenues:
 
In 2016, the Company had two customers in the United States and the Philippines that amounted 62% and 17%, respectively, of the total consolidated revenues. In 2015, the Company had two customers in the Philippines and Brazil that amounted to 43% and 14%, respectively, of the total consolidated revenues. In 2014, the Company had three customers in Brazil, the Philippines and Israel that amounted to 22%, 15% and 12%, respectively, of the total consolidated revenues.
 
c.
Financial expenses, net:
 
   
Years ended December 31,
 
   
2016
   
2015
   
2014
 
                   
 Financial Income:
                 
Interest income
 
$
489
   
$
229
   
$
170
 
Foreign currency exchange gain
   
424
     
36
     
193
 
                         
     
913
     
265
     
363
 
                         
Financial expenses:
                       
Interest and bank charges
   
(23
)
   
(23
)
   
(40
)
Foreign currency exchange loss
   
(74
)
   
(675
)
   
(655
)
                         
     
(97
)
   
(698
)
   
(695
)
                         
   
$
816
   
$
(433
)
 
$
(332
)

F - 42



 
RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 10: -
 SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)

d.
Net income (loss) per share:

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

   
Years ended December 31,
 
   
2016
   
2015
   
2014
 
                   
Numerator:
                 
                   
Numerator for basic net income (loss) per share
 
$
1,915
   
$
(923
)
 
$
726
 
                         
Effect of dilutive securities:
                       
   Options and warrants issued to grantees and investors, respectively
   
-
     
-
     
-
 
                         
Numerator for dilutive net income (loss) per share
 
$
1,915
   
$
(923
)
 
$
726
 
                         
Denominator:
                       
                         
   Denominator for dilutive net income (loss) per share - weighted average number of Ordinary Shares
   
10,406,897
     
8,572,681
     
8,088,974
 
                         
Effect of dilutive securities:
                       
   Options and warrants issued to grantees and investors, respectively
   
372,650
     
-
     
503,413
 
                         
   Denominator for diluted net income (loss) per share - adjusted weighted average number of Ordinary Shares
   
10,779,547
     
8,572,681
     
8,592,387
 


F - 43

 
RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 11: -
 RELATED PARTY BALANCES AND TRANSACTIONS

a.
The Company carries out transactions with related parties as detailed below. Certain principal shareholders of the Company, which as of December 31, 2016, have joint ownership of approximately 29% in the Company's equity, are also principal shareholders of affiliates known as the RAD-BYNET Group.

1.
The Company was a party to a distribution agreement with Bynet Electronics Ltd. ("BYNET"), a related party, giving BYNET the exclusive right to distribute the Company's products in Israel.
 
Revenues related to this distribution agreement are included in Note 11g below as "revenues". No revenues from such distribution agreement were recorded during the year ended December 31, 2016. For the year ended December 31, 2015 and 2014, revenues aggregated for a total amount of $62 and $19, respectively.
 
2.
The Company is a party to a reseller agreement with Allot Communications Inc, or Allot, a company where Company’s controlling shareholder is an interested party of, giving Allot the right to distribute Company's products.
 
Revenues related to this reseller agreement are included in Note 11g below as "revenues". For the year ended December 31, 2016, 2015 and 2014, revenues aggregated for a total amount of $139, $107 and $53, respectively.
 
3.
Certain premises occupied by the Company and its U.S. subsidiary are rented from related parties (see also Note 7b). The U.S. subsidiary also sub-leases certain premises to a related party. The aggregate net amounts of lease and maintenance expenses were $604, $411 and $417 in 2016, 2015 and 2014, respectively.

4.
Certain entities within the RAD-BYNET Group provide the Company with administrative and IT services. Such amounts expensed by the Company are disclosed in Note 11g below as part of “Expenses”   and “capital expenses”.

5.
During 2016 the Company renovated its Israeli located offices. The lessor, which is considered a related party (see Note 11a3), committed to participate in the renovation and reimburse expenses of up to $730. As of December 31, 2016, there is a balance to receive related to such renovation and reimburse expenses of $585 which disclosed in Note 11f below as part of the “Other accounts receivable and prepaid expenses”.


F - 44


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 11: -
 RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)

b.
In January 2012, the Company entered a consulting agreement ("Consulting Agreement") with a consultant which is also the spouse of one of the Company's controlling shareholders and the Company's former Chairman of the Board of Directors. Based on the key terms of the Consulting Agreement, the consultant provided advisory services to the management with respect to business operations for a monthly amount which equaled the average monthly salary of employees in Israel, plus Israeli Value Added Tax. The Consulting Agreement expired in January 2013 but was extended through September 10, 2015. During the years ended December 31, 2015 and 2014, the Company recorded expenses incurred under this Consulting Agreement in the amount of $24 and $39, respectively. No expenses have been recorded during the year ended December 31, 2016 (see also Note 11c).
 
c.
On December 30, 2015, the Company's shareholders approved the replacement of the Company's Chairman of the Board of Directors with one of the Company's directors which is also the spouse of the former Chairman and controlling shareholder to assume the position of Active Chairwoman as of September 10, 2015, for a fixed monthly salary. During the year ended December 31, 2016 and the period since September 10, 2015 until December 31, 2015, the Company recorded salary expenses for acting as an Active Chairwoman in the amount of $180 and $30, respectively.
 
d.
In 2015 and 2016, the Company entered several agreements with Amdocs, to sell its solution, pursuant to which the Company recorded revenues in the amount of $18,322 during the year ended December 31, 2016, out of which, amount of $18,310 related to the AT&T Engagement and its related agreements (See also Note 1c). The Company’s controlling shareholder and director, serves as a director in Amdocs.

e .
As described in Note 9b, on May 25, 2016, the Company closed its follow-on public offering at a price of $11.00 per share, where pursuant to which an aggregate net amount of $21,279 have been raised. The Company’s controlling shareholder and director invested $2,200 for the issuance of 200,000 Ordinary Shares.

F - 45


RADCOM LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share and per share data
 
NOTE 11: -
 RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)
 
f.
Balances with related parties:
 
   
December 31,
 
   
2016
   
2015
 
Assets:
           
             
Trade receivables, net
 
$
952
   
$
2
 
Other accounts receivable and prepaid expenses
 
$
588
   
$
-
 
                 
Liabilities:
               
                 
Trade payables
 
$
169
   
$
184
 
Other accounts payables and accrued expenses
 
$
92
   
$
16
 
Advances from customers
 
$
1,880
   
$
-
 

g.
Transactions with related parties:

   
Year ended December 31,
 
   
2016
   
2015
   
2014
 
                   
Revenues
 
$
18,461
   
$
169
   
$
72
 
                         
Expenses:
                       
                         
Cost of revenues
 
$
210
   
$
42
   
$
56
 
                         
Operating expenses:
                       
                         
Research and development, net
 
$
224
   
$
244
   
$
249
 
Sales and marketing, net
 
$
142
   
$
118
   
$
125
 
General and administrative
 
$
250
   
$
93
   
$
60
 
                         
Capital expenses
 
$
21
   
$
-
   
$
-
 
                         
 
F - 46

 


EXHIBIT 1.2
 
THE COMPANIES LAW

A COMPANY LIMITED BY SHARES

AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
OF

RADCOM LTD.
____________________


GENERAL PROVISIONS


1.             Object and Purpose of the Company

(a)   The object and purpose of the Company shall be as set forth in the Company’s Memorandum of Association, as the same shall be amended from time to time in accordance with applicable law.

(b)   In accordance with Section 11(a) of the Companies Law 5759 - 1999 (the “Companies Law”), the Company may contribute a reasonable amount to a worthy cause.

2.             Limitation of Liability

The liability of the shareholders is limited to the payment of the nominal value of the shares in the Company allotted to them and which remains unpaid, and only to that amount.  If the Company’s share capital shall   include at any time shares without a nominal value, the shareholders’ liability in respect of such shares shall be limited to the payment of up to NIS 0.05 for each such share allotted to them and which remains unpaid, and only to that amount.

3.             Interpretation

(a)   Unless the subject or the context otherwise requires: words and expressions used herein which are defined in the Memorandum of Association of the Company shall have the meanings therein defined, and words and expressions defined in the Companies Law in force on the date when these Articles or any amendment thereto, as the case may be, first became effective shall have the same meanings herein; words and expressions importing the singular shall include the plural and vice versa; words and expressions importing the masculine gender shall  include the feminine gender; and words and expressions importing persons shall include bodies corporate.

(b)   The captions in these Articles are for convenience only and shall not be deemed a part hereof   or   affect the construction of any provision hereof.
 
3A           Amendment

The approval of a resolution adopted in a General Meeting approved by a simple majority of the voting power represented at the meeting in person or by proxy and voting thereon (a “Shareholders’ Resolution”) is required to approve any amendment to these Articles of Association.



SHARE CAPITAL

4.             Share Capital

The share capital of the Company is four million, four hundred and sixty six New Israeli Shekel (NIS 4,000,466) divided into twenty million (20,000,000)   Ordinary Shares, par value NIS 0.20 each, and two thousand three hundred and thirty (2,330) Deferred Shares, par value NIS 0.20 each.
The Ordinary Shares confer upon their holders the rights described n these Articles. Notwithstanding any other provision of these Articles, the Deferred Shares confer upon their holders no rights other than the right to their par value upon liquidation of the Company.
 
5.             Increase of Share Capital

(a)   The Company may, from time to time, by a Shareholders Resolution, whether or not all the shares then authorized have been issued, and whether or not all the shares theretofore issued have been called up for payment, increase its share capital by the creation of new shares.  Any such increase shall be in such amount and shall be divided into shares of such nominal amounts, and such shares shall confer such rights and preferences, and shall be subject to such restrictions, as such resolution shall provide.

(b)   Except to the extent otherwise provided in such resolution, such new shares shall be subject to all the provisions applicable to the shares of the original capital.

6.             Special Rights; Modifications of Rights

(a)   Without prejudice to any special rights previously conferred upon the holders of existing shares in the Company, the Company may, from time to time, by Shareholders Resolution, provide for shares with such preferred or deferred rights or rights of redemption or other special rights and/or such restrictions, whether in regard to dividends, voting, repayment of share capital or otherwise, as may be stipulated in such resolution.

(b)   (i)   If at any time the share capital is divided into different classes of shares, the rights attached to any class, unless otherwise provided by these Articles, may be modified or abrogated by the Company, by Shareholders Resolution, subject to the sanction of a resolution passed by a majority of the holders of a majority of the shares of such class present and voting at a separate General Meeting of the holders of the shares of such class.
 
   (ii)              The provisions of these Articles relating to General Meetings shall, mutatis mutandis, apply to any separate General Meeting of the holders of the shares of a particular class.

    (iii)               Unless otherwise provided by these Articles, the enlargement of an existing class of shares, or the issuance of additional shares thereof, shall not be deemed, for purposes of this Article   6(b), to modify or abrogate the rights attached to the previously issued shares of such class or of any other class.

7.
Consolidation, Subdivision, Cancellation and Reduction of Share Capital

(a)   The Company may, from time to time, by Shareholders Resolution (subject, however, to the provisions of Article 6(b) hereof and to applicable law):

      (i)                consolidate and divide all or any of its issued or unissued share capital into shares of larger nominal value than its existing shares,

      (ii)                subdivide its shares (issued or unissued) or any of them, into shares of smaller   nominal value than is fixed by these Articles of Association (subject, however, to the provisions of the Companies Law), and the Shareholders Resolution whereby any share is subdivided may determine that, as among the holders of the shares resulting from such subdivision, one or more of the shares may, as compared with the others, have any such preferred or deferred rights or rights of redemption or other special rights, or be subject to any such restrictions, as the Company has power to attach to unissued or new shares,

      (iii)              cancel any shares which, at the date of the adoption of such resolution, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so canceled, or
 

 
      (iv)              reduce its share capital in any manner, and with and subject to any incident authorized, and consent required, by law.

(b)   With respect to any consolidation of issued shares into shares of larger nominal value, and with respect to any other action which may result in fractional shares, the Board of Directors may settle any difficulty which may arise with regard thereto, as it deems fit, including, inter alia , resort to one or more of the following actions:

      (i)                determine, as to the holder of shares so consolidated,  which issued shares shall be consolidated into each share of larger nominal value;

      (ii)             allot, in contemplation of or subsequent to such consolidation or other action, such shares or fractional shares sufficient to preclude or remove fractional share holdings;
 
      (iii)             redeem, in the case of redeemable preference shares, and subject to applicable law, such shares or fractional shares sufficient to preclude or remove fractional share holdings;

     (iv)              cause the transfer of fractional shares by certain shareholders of the Company to other shareholders thereof so as to most expediently preclude or remove any fractional shareholdings, and cause the transferees to pay the transferors the fair value of fractional shares so transferred, and the Board of Directors is hereby authorized to act as agent for the transferors and transferees with power of substitution for purposes of implementing the provisions of this sub-Article 7(b)(iv).
 
SHARES

8.             Issuance of Shares; Replacement of Lost Certificates
 
(a)   The Company may, if so determined by the Board of Directors from time to time, issue share certificates, in which case such certificates shall be issued under the seal or stamp of the Company and shall bear the signature of one Director, or of any other person or persons authorized thereto by the Board of Directors. The Board of Directors may also determine, from time to time, to issue shares in uncertificated form (or solely in uncertificated form),
 
(b)   If the Board of Directors determines to issue share certificates, each holder of shares shall be entitled to one numbered certificate for all the shares of any class registered in his name, and if reasonably requested by such member, to several certificates, each for one or more of such shares.
 
(c)   If the Board of Directors determines to issue share certificates, a share certificate registered in the names of two or more persons shall be delivered to the person first named in the Registrar of Members in respect of such co-ownership.
 
(d)   If a share certificate is defaced, lost or destroyed, it may be replaced, upon payment of such fee, and upon the furnishing of such evidence of ownership and such indemnity, as Board of Directors may think fit; provided, however, that the Company shall not be required to issue a replacement share certificate if the Board of Directors has then determined that shares shall be issued solely in uncertificated form.
 
(e)   The Company may issue bearer shares.
 
9.            Registered Holder

Except as otherwise provided in these Articles, the Company shall be entitled to treat the registered holder of any share as the absolute owner thereof, and, accordingly, shall not, except as ordered by a court of competent jurisdiction, or as required by statute, be bound to recognize any equitable or other claim to, or interest in such share on the part of any other person.

10.           Allotment of Shares

The unissued shares from time to time shall be under the control of the Board of Directors, who shall have the power to allot shares or otherwise dispose of them to such persons, on such terms and conditions (including inter alia terms relating to calls as set forth in Article 12(f) hereof), and either at par or at a premium, or, subject to the provisions of the Companies Law, at a discount, and at such times, as the Board of Directors may think fit, and the power to give to any person the option to acquire from the Company any shares, either at par or at a premium, or, subject as aforesaid, at a discount, during such time and for such consideration as the Board of Directors may think fit.
 


11.          Payment in Installments

If by the terms of allotment of any share, the whole or any part of the price thereof shall be payable in installments, every such installment shall, when due, be paid to the Company by the then registered holder(s) of the share of the person(s) entitled thereto.

12.           Calls on Shares

(a)   The Board of Directors may, from time to time, make such calls as it may think fit upon holders of shares in respect of any sum unpaid in respect of shares held by such holders which is not, by the terms of allotment   thereof or otherwise, payable at a fixed time, and each such holder shall pay the amount of every call so made upon him (and of each installment thereof if the same is payable in installments), to the person(s) and at the time(s) and place(s) designated by the Board of Directors, as any such time(s) may be thereafter extended and/or such person(s) or place(s) changed.  Unless otherwise stipulated in the resolution of the Board of Directors (and in the notice hereafter referred to), each payment in response to a call shall be deemed to constitute a pro rata payment on account of all shares in respect of which such call was made.

(b)   Notice of any call shall be given in writing to the holder(s) in question not less than fourteen (14) days prior to the time of payment, specifying the time and place of payment, and designating the person to whom such payment shall be made, provided, however, that before the time for any such payment, the Board of Directors may, by notice in writing to such holder(s), revoke such   call in whole or in part, extend such time, or alter such person and/or place.  In the event of a call payable in installments, only one notice thereof need be given.

(c)   If, by the terms of allotment of any share or otherwise, any amount is made payable at any fixed time, every such amount shall be payable at such time as if it were a call duly made by the Board of Directors and of which due notice had been given, and all the provisions herein contained with respect to such calls shall apply to each such amount.

(d)   The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof and all interest payable thereon.

(e)   Any amount unpaid in respect of a call shall bear interest from the date on which it is payable until actual payment thereof, at such rate (not exceeding the then prevailing debitory rate charged by leading commercial banks in Israel), and at such time(s) as the Board of Directors may prescribe.

(f)   Upon the allotment of shares, the Board of Directors may provide for differences among the allottees of such shares as to the amount of calls and/or the times of payment thereof.

13.          Prepayment

With the approval of the Board of Directors, any holder of shares may pay to the Company any amount not yet payable in respect of his shares, and the Board of Directors may approve the payment of interest on any such amount until the same would be payable if it had not been paid in advance, at such rate and time(s) as may be approved by the Board of Directors.  The Board of Directors may at any time cause the Company to repay all or any part of the money so advanced, without premium or penalty.  Nothing in this Article 13 shall derogate from the right of the Board of Directors to make any call before or after receipt by the Company of any such advance.

14.          Forfeiture and Surrender

(a)   If any holder fails to pay any amount payable in respect of a call, or interest thereon as provided for herein, on or before the day fixed for payment of the same, the Company, by resolution of the Board of Directors, may at any time thereafter, so long as the said amount or interest remains unpaid, forfeit all or any of the shares in respect of which said call had been made.  Any expense incurred by the Company in attempting to collect any such amount or interest, including, inter alia, attorneys' fees and costs of suit, shall be added to, and shall, for all purposes (including the accrual of interest thereon), constitute a part of the amount payable to the Company in respect of such call.
 


(b)   Upon the adoption of a resolution of forfeiture, the Board of Directors shall cause notice thereof to be given to such holder, which notice shall state that, in the event of the failure to pay the entire amount so payable within a period stipulated in the notice (which period shall not be less than fourteen (14) days and which may be extended by the Board of Directors), such shares shall be ipso facto forfeited, provided, however, that, prior to the expiration of such period, the Board of Directors may nullify such resolution of forfeiture, but no such nullification shall estop the Board of Directors from adopting a further resolution of forfeiture in respect of the   non-payment of the same amount.

(c)   Whenever shares are forfeited as herein provided, all dividends theretofore declared in respect thereof and not actually paid shall be deemed to have been forfeited at the same time.

(d)   The Company, by resolution of the Board of Directors, may accept the voluntary surrender of any share.

(e)   Any share forfeited or surrendered as provided herein shall become the property of the Company, and the same, subject to the provisions of these Articles, may be sold,    re-allotted or otherwise disposed  of as the Board of Directors thinks fit.

(f)   Any holder whose shares have been forfeited or surrendered shall cease to be a holder in respect of the forfeited or surrendered shares, but shall, notwithstanding, be liable to pay, and shall forthwith pay, to the Company, all calls, interest and expenses owing upon or in respect of such shares at the time of forfeiture or surrender, together with interest thereon from the time of forfeiture or surrender until actual payment, at the rate prescribed in Article   12(e) above, and the Board of Directors, in its discretion, may enforce the payment of such moneys, or any part thereof, but shall not be under any obligation to do so.  In the event of such forfeiture or surrender, the Company, by resolution of the Board of Directors, may accelerate the date(s) of payment of any or all amounts then owing by the holder in question (but not yet due) in respect of all shares owned by such holder, solely or jointly with another, and in respect of any other matter or transaction whatsoever.

(g)   The Board of Directors may at any time, before any share so forfeited or surrendered shall have been sold, re-allotted or otherwise disposed of, nullify the forfeiture or surrender on such conditions as it thinks fit, but no such nullification shall estop the Board of Directors from re-exercising its powers of forfeiture pursuant to this Article   14.

15.          Lien

(a)   Except to the extent the same may be waived or subordinated in writing, the Company shall have a first and paramount lien upon all the shares registered in the name of each holder (without regard to any equitable or other claim or interest in such shares on the part of any other person), and upon the proceeds of the sale thereof, for his debts, liabilities and engagements arising from any cause whatsoever, solely or jointly with another, to or with the Company, whether the period for the payment, fulfillment or discharge thereof shall have actually arrived or not.  Such lien shall extend to all dividends from time to time declared in respect of such share.  Unless otherwise provided, the registration by the Company of a transfer of shares shall be deemed to be a waiver on the part of the Company of the lien (if any) existing on such shares immediately prior to such transfer.

(b)   The Board of Directors may cause the Company to sell any shares subject to such lien when any such debt, liability or engagement has matured, in such manner as the Board of Directors may think fit, but no such sale shall be made unless such debt, liability or engagement has not been satisfied within fourteen   (14) days after written notice of the intention to sell shall have been served on such holder, his executors or administrators.

(c)   The net proceeds of any such sale, after payment of the costs thereof, shall be applied in or toward satisfaction of the debts, liabilities or engagements of such holder (whether or not the same have matured), or any specific part of the same (as the Company may determine), and the residue (if any) shall be paid to the holder, his executors, administrators or assigns.
 

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

Upon any sale of shares after forfeiture or surrender or for enforcing a lien, the Board of Directors may appoint some person to execute an instrument of transfer of the shares so sold and cause the purchaser's name to be entered in the Register of Members in respect of such shares, and the purchaser shall not be bound to see to the regularity of the proceedings, or to the application of the purchase money, and after his name has been entered   in the   Register of Members in respect of such shares, the validity of the sale shall not be impeached by any person, and the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively.

17.           Redeemable Shares

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

18.           [reserved]

TRANSFER OF SHARES

19.           Effectiveness and Registration

No transfer of shares shall be registered unless a proper instrument of transfer (in form and   substance satisfactory to the Board of Directors) has been submitted to the Company or its agent, together with any share certificate(s) and such other evidence of title as the Board of Directors may reasonably require.  Until the transferee has been registered in the Register of Members in respect of the shares so transferred, the Company may continue to regard the transferor as the owner thereof.  The Board of Directors, may, from time to time, prescribe a fee for the registration of a transfer.

20.           Record Date for General Meetings

Notwithstanding any provision to the contrary in these Articles, for the determination of the holders entitled to receive notice of and to participate in and vote at a General Meeting, or to express consent to or dissent from any corporate action in writing, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of shares of the Company, the Board of Directors may fix, in advance, a record date, which, subject to applicable law, shall not be earlier than ninety (90) days prior to the General Meeting or other action, as the case may be.  No persons other than holders of record of Ordinary Shares as of such record date shall be entitled to notice of and to  participate in and vote at such General Meeting, or to exercise such other right, as the case may be. A determination of holders of record with respect to a General Meeting shall apply to any adjournment of such meeting, provided that the Board of Directors may fix a new record date for an adjourned meeting.

TRANSMISSION OF SHARES

21.          Decedents' Shares

(a)
In case of a share registered in the names of two or more holders, the Company may recognize the survivor(s) as the sole owner(s) thereof unless and until the provisions of Article
 
(b)           21(b) have been effectively invoked.

(b)   Any person becoming entitled to a share in consequence of the death of any person, upon producing evidence of the grant of probate or letters of administration or declaration of succession (or such other evidence as the Board of Directors may reasonably deem sufficient that he sustains the character in respect of which he proposes to act under this Article or of his title), shall be registered as a holder in respect of such share, or may, subject to the regulations as to transfer herein contained, transfer such share.

22.          Receivers and Liquidators

(a)   The Company may recognize the receiver or liquidator of any corporate shareholder in winding-up or dissolution, or the receiver or trustee in bankruptcy of any shareholder, as being entitled to the shares registered in the name of such shareholder.

(b)   The receiver or liquidator of a corporate shareholder in winding-up or dissolution, or the receiver or trustee in bankruptcy of any shareholder, upon producing such evidence as the Board of Directors may deem sufficient that he sustains the character in respect of which he proposes to act under this Article or of his title, shall with the consent of the Board of Directors (which the Board of Directors may grant or refuse in its absolute discretion), be registered as a shareholder in respect of such shares, or may, subject to the regulations as to transfer herein contained, transfer such shares.



GENERAL MEETINGS

23.           Annual General Meeting

An Annual General Meeting shall be held once in every calendar year at such time (within a period of not more than fifteen (15) months after the last preceding Annual General Meeting) and at such place either within or without the State of Israel as may be determined by the Board of Directors.

24.           Extraordinary General Meetings

All General Meetings other than Annual General Meetings shall be called "Extraordinary General Meetings."  The Board of Directors may, whenever it thinks fit, convene an Extraordinary General Meeting at such time and place, within or without the State of Israel, as may be determined by the Board of Directors, and shall be obliged to do so upon a requisition in writing in accordance with Sections 63(b)(1) or (2) and 63(c) of the Companies Law.

25.           Notice of General Meetings

The Company is not required to give notice under Section 69(b) of the Companies Law.  The Company is required to such give prior notice of a General Meeting as required by law or applicable stock exchange rules, but in any event not less than seven (7) days.  The accidental omission to give notice of a meeting to any shareholder or the non-receipt of notice by one of the shareholders shall not invalidate the proceedings at any meeting.

PROCEEDINGS AT GENERAL MEETINGS

26.          Quorum

(a)   Two or more holders of Ordinary Shares (not in default in payment of any sum referred to in Article 32(a) hereof), present in person or by proxy and holding shares conferring in the aggregate at least 33 1/3% of the voting power of the Company (subject to rules and regulations, if any, applicable to the Company), shall constitute a quorum at General Meetings.  No business shall be transacted at a General Meeting, or at any adjournment thereof, unless the requisite quorum is present when the meeting proceeds to business.

(b)   If within an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon requisition under Sections 63(b)(1) or (2), 64 or 65 of the Companies Law, shall be dissolved, but in any other case it shall stand adjourned to the same day in the next week, at the same time and place, or to such day and at such time and place as the Chairman may determine with the consent of the holders of a majority of the voting power represented at the meeting in person by proxy and voting on the question of adjournment.  No business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called.  At such adjourned meeting, any two (2) holders of Ordinary Shares (not in default as aforesaid) present in person or by proxy, shall constitute a quorum (subject to rules and regulations, if any, applicable to the Company).

(c)   The Board of Directors may determine, in its discretion, the matters that may be voted upon at the meeting by proxy in addition to the matters listed in Section 87(a) to the Companies Law.

27.           Chairman

The Chairman, if any, of the Board of Directors shall preside as Chairman at every General Meeting of the Company.  If there is no such Chairman, or if at any meeting he is not present within fifteen (15) minutes after the time fixed for holding the meeting or is unwilling to act as Chairman, the holders of Ordinary Shares present shall choose someone of their number to be Chairman.  The office of Chairman shall not, by itself, entitle the holder thereof to vote at any General Meeting nor shall it entitle such holder to a second or casting vote (without derogating, however, from the rights of such Chairman to vote as a holder of Ordinary Shares or proxy of a shareholder if, in fact, he is also a shareholder or such proxy).
 


28.           Adoption of Resolutions at General Meetings

(a)   Unless otherwise indicated herein, a Shareholders Resolution shall be deemed adopted if approved by the holders of a majority of the voting power represented at the meeting in person or by proxy and voting thereon.

(b)   A Shareholders Resolution approving a merger (as defined in the Companies Law) of the Company shall be deemed adopted if approved by the holders of a majority of the voting power represented at the meeting in person or by proxy and voting thereon.

(c)   Every question submitted to a General Meeting shall be decided by a show of hands, but if a written ballot is demanded by any holder of Ordinary Shares present in person or by proxy and entitled to vote at the meeting, the same shall be decided by such ballot.  A written ballot may be demanded before the proposed resolution is voted upon or immediately after the declaration by the Chairman of the results of the vote by a show of hands.  If a vote by written ballot is taken after such declaration, the results of the vote by a show of hands shall be of no effect, and the proposed resolution shall be decided by such written ballot.  The demand for a written ballot may be withdrawn at any time before the same is conducted, in which event another holder of Ordinary Shares may then demand such written ballot.  The demand for a written ballot shall not prevent the continuance of the meeting for the transaction of business other than the question on which the written ballot has been demanded.

(d)   A declaration by the Chairman of the meeting that a resolution has been carried unanimously, or carried by a particular majority, or lost, and an entry to that effect in the minute book of the Company, shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favor of or against such resolution.

29.          Resolutions in Writing

A resolution in writing signed by all holders of Ordinary Shares of the Company then entitled to attend and vote at General Meetings or to which all such holders of Ordinary Shares have given their written consent (by letter, facsimile telecopier, telegram, telex or otherwise), or their oral consent by telephone (provided that a written summary thereof has been approved and signed by the Chairman of the Board of Directors of the Company) shall be deemed to have been unanimously adopted by a General Meeting duly convened and held.

30.           Power to Adjourn

(a)   The Chairman of a General Meeting at which a quorum is present may, with the consent of the holders of a majority of the voting power represented in person or by proxy and voting on the question of adjournment (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called.

(b)   It shall not be necessary to give any notice of an adjournment, whether pursuant to Article 26(b) or Article 30(a), unless the meeting is adjourned for thirty (30) days or more in which event notice thereof shall be given in the manner required for the meeting as originally called.

31.          Voting Power

Subject to the provisions of Article 32(a) and subject to any provision hereof conferring special rights as to voting, or restricting the right to vote, every holder of Ordinary Shares shall have one vote for each share held by him of record, on every resolution, without regard to whether the vote hereon is conducted by a show of hands, by written ballot or by any other means.

32.          Voting Rights

(a)   No holder of Ordinary Shares shall be entitled to vote at any General Meeting (or be counted as a part of the quorum thereat), unless all calls and other sums then payable by him in respect of his shares in the Company have been paid, but this Article shall not apply to separate General Meetings of the holders of a particular class of shares pursuant to Article 6(b).
 


(b)   A company or other corporate body being a holder of Ordinary Shares of the Company may, by resolution of its directors or any other managing body thereof, authorize any person to be its representative at any meeting of the Company.  Any person so authorized shall be entitled to exercise on behalf of such holder all the power which the latter could have exercised if it were an individual shareholder.  Upon the request of the Chairman of the meeting, written evidence of such authorization (in form acceptable to the Chairman) shall be delivered to him.

(c)   Any holder of Ordinary Shares entitled to vote may vote either personally or by proxy (who need not be a holder of the Company), or, if the holder is a company or other corporate body, by a representative authorized pursuant to Article 32(b).

(d)   If two or more persons are registered as joint holders of any Ordinary Share, the vote of the senior who tenders a vote, in person or by proxy, shall be accepted to the exclusion of the vote(s) of the other joint holder(s); and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members.

PROXIES

33.          Instrument of Appointment

(a)   The instrument appointing a proxy shall be in writing and shall be substantially in the following form:

"I _____________________ of __________________________________
    (Name of Shareholder)                       (Address of Shareholder)
being a member of ___________________________ hereby appoint
                         (Name of the Company)
________________________of _____________________________
  (Name of Proxy) (Address of Proxy)
as my proxy to vote for me and on my behalf at the General Meeting of the Company to be held on the _____ day of ___________, 20__ and at any adjournment(s) thereof.

Signed this ______ day of ____________, 20__.

_________________________
(Signature of Appointer)"

or in any usual or common form or in such other form as may be approved by the Board of Directors.  It shall be duly signed by the appointer or his duly authorized attorney or, if such appointer is a company or other corporate body, under its common seal or stamp or the hand of its duly authorized agent(s) or attorney(s).

(b)   The instrument appointing a proxy (and the power of attorney or other authority, if any, under which such instrument has been signed) shall either be delivered to the Company (at its Registered Office, or at its principal place of business or at the offices of its registrar and/or transfer agent or at such place as the Board of Directors may specify) not less than forty-eight (48) hours (or not less than seventy-two (72) hours with respect to a meeting to be held outside of Israel) before the time fixed for the meeting which the person named in the instrument proposes to vote.

34.          Effect of Death of Appointor or Revocation of Appointment

A vote cast pursuant to an instrument appointing a proxy shall be valid notwithstanding the previous death of the appointing holder (or of his attorney-in-fact, if any, who signed such instrument), or the revocation of the appointment or the transfer of the share in respect of which the vote is cast, provided no written intimation of such death, revocation or transfer shall have been received by the Company or by the Chairman of the meeting before such vote is cast and provided, further, that the appointing holder, if present in person at said meeting, may revoke the appointment by means of a writing, oral notification to the Chairman, or otherwise.
 


BOARD OF DIRECTORS

35.          Powers of Board of Directors

(a)           In General

The management of the business of the Company shall be vested in the Board of Directors, which may exercise all such powers and do all such acts and things as the Company is authorized to exercise and do, and are not hereby or by law required to be exercised or done by the Company in General Meeting.  The authority conferred on the Board of Directors by this Article 35 shall be subject to the provisions of the Companies Law, of these Articles and any regulation or resolution consistent with these Articles adopted from time to time by the Company in General Meeting, provided, however, that no such regulation or resolution shall invalidate any prior act done by or pursuant to a decision of the Board of Directors which would have been valid if such regulation or resolution had not been adopted.

(b)            Borrowing Power

The Board of Directors may from time to time, in its discretion, cause the Company to borrow or secure the payment of any sum or sums of money for the purposes of the Company, and may secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions in all respects as it thinks fit, and, in particular, by the issuance of bonds, perpetual or redeemable debentures, debenture stock, or any mortgages, charges, or other securities on the undertaking or the whole or any part of the property of the Company, both present and future, including its uncalled or called but unpaid capital for the time being.

(c)           Reserves

The Board of Directors may, from time to time, set aside any amount(s) out of the profits of the Company as a reserve or reserves for any purpose(s) which the Board of Directors, in its absolute discretion, shall think fit, and may invest any sum so set aside in any manner and from time to time deal with and vary such investments, and dispose of all or any part thereof, and employ any such reserve or any part thereof in the business of the Company without being bound to keep the same separate from other assets of the Company, and may subdivide or redesignate any reserve or cancel the same or apply the funds therein for another purpose, all as the Board of Directors may from time to time think fit.

36.          Exercise of Powers of Directors

(a)   A meeting of the Board of Directors at which a quorum is present (in person, by means of a conference call or any other device allowing each director participating in such meeting to hear all the other directors participating in such meeting) shall be competent to exercise all the authorities, powers and discretions vested in or exercisable by the Board of Directors.

(b)   A resolution proposed at any meeting of the Board of Directors shall be deemed adopted if approved by a majority of the Directors present when such resolution is put to a vote and voting thereon.

(c)   A resolution in writing signed by all Directors then in office and lawfully entitled to vote thereon (as conclusively determined by the Chairman of the Audit Committee, and in the absence of such determination - by the Chairman of the Board of Directors) or to which all such Directors have given their consent (by letter, telegram, telex, facsimile telecopier or otherwise), or their oral consent by telephone (provided that a written summary thereof has been approved and signed by the Chairman of the Board of Directors of the Company) shall be deemed to have been unanimously adopted by a meeting of the Board of Directors duly convened and held.

37.           Delegation of Powers

(a)   The Board of Directors may, subject to the provisions of the Companies Law and these Articles, delegate any or all of its powers to committees, each consisting of two or more persons (all of whose members must be Directors), and it may from time to time revoke such delegation or alter the composition of any such committee.  Any Committee so formed (in these Articles referred to as a "Committee of the Board of Directors"), shall, in the exercise of the powers so delegated, conform to any regulations imposed on it by the Board of Directors.  The meetings and proceedings of any such Committee of the Board of Directors shall, mutatis mutandis, be governed by the provisions herein contained for regulating the meetings of the Board of Directors, so far as not superseded by the Companies Law or any regulations adopted by the Board of Directors under this Article.  Unless otherwise expressly provided by the Board of Directors in delegating powers to a Committee of the Board of Directors, such Committee shall not be empowered to further delegate such powers.
 


(b)   Without derogating from the provisions of Article 50, the Board of Directors may, subject to the provisions of the Companies Law, from time to time appoint a Secretary to the Company, as well as officers, agents, employees and independent contractors, as the Board of Directors may think fit, and may terminate the service of any such person.  The Board of Directors may, subject to the provisions of the Companies Law, determine the powers and duties, as well as the salaries and emoluments, of all such persons, and may require security in such cases and in such amounts as it thinks fit.

(c)   The Board of Directors may from time to time, by power of attorney or otherwise, appoint any person, company, firm or body of persons to be the attorney or attorneys of the Company at law or in fact for such purpose(s) and with such powers, authorities and discretions, and for such period and subject to such conditions, as it thinks fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board of Directors may think fit, and may also authorize any such attorney to delegate all or any of the powers, authorities and discretions vested in him.

38.           Number of Directors

The Board of Directors shall consist of such number of Directors (not less than three (3) nor more than nine (9)) as may be determined by Shareholder Resolution of the Company.

39.          Election and Removal of Directors

(a)   If at any time, the Company shall be required to appoint independent or external directors such as a public director or directors of any other type as may be required by law (“External Directors”) such directors shall serve on the Board according to the number required by law.  External Directors will be appointed and removed pursuant to and shall be governed by the relevant provisions of the law which applies to External Directors.  If permitted by applicable law, External Directors will be appointed by the Board.

(b)   The members of the Board of Directors shall be called Directors, and other than External Directors (who will be chosen and appointed, and whose term will expire, in accordance with applicable law,) they shall be appointed in accordance with the provisions of this Article.

(c)   Directors (other than External Directors) shall be elected at the Annual General Meeting by the vote of the holders of a majority of the voting power represented at such meeting in person or by proxy and voting on the election of directors, or by the Board of Directors.  In the event that Directors are appointed by the Board of Directors, such Directors shall be adopted by Shareholders’ Resolution at the first extraordinary or annual general meeting of the shareholders following the date upon which the Director was appointed by the Board of Directors.  Each Director shall serve, subject to Article 42 hereof, and with respect to a Director appointed pursuant to Article 41 hereof, subject to such Article, until up to the third Annual General Meeting following the Annual General Meeting at which such Director was appointed, or his earlier removal pursuant to this Article 39.  The shareholders shall be entitled to remove any Director(s) from office, all subject to applicable law.

(d)   Notwithstanding anything to the contrary herein, the term of a Director may commence at a date later than the date of the shareholders resolution electing such Director, if so specified in such shareholder resolution .

40.          Qualification of Directors

No person shall be disqualified to serve as a Director by reason of his not holding shares in the Company or by reason of his having served as a Director in the past.

41.           Continuing Directors in the Event of Vacancies

In the event of one or more vacancies in the Board of Directors, the continuing Directors may continue to act in every matter, and may temporarily fill any such vacancy until the next Annual General Meeting, provided, however, that if they number less than the minimum number provided for pursuant to Article 38 hereof, they may only act in an emergency, and may call a General Meeting of the Company for the purpose of electing Directors to fill any or all vacancies, so that at least a majority of the number of Directors provided for pursuant to Article 38 hereof are in office as a result of said meeting.
 


42.           Vacation of Office

(a)   The office of a Director shall be vacated, ipso facto, upon his death, or if he  be found lunatic or become of unsound mind, or if he becomes bankrupt, or, if the Director is a company, upon its winding-up.

(b)   The office of a Director shall be vacated by his written resignation.  Such resignation shall become effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later.

43.           Remuneration of Directors

No Director shall be paid any remuneration by the Company for his services as Director except as may be approved by the Company in a General Meeting (including, but not limited to, the grant of options for the Company’s shares) and except for reimbursement  of reasonable expenses incurred in connection with carrying out his duties as a Director.
.
44.            Conflict of Interests

Subject to the provisions of the Companies Law, the Company may enter into any contract or otherwise transact any business with any Director in which contract or business such Director has a personal interest, directly or indirectly; and may enter into any contract of otherwise transact any business with any third party in which contract or business a Director has a personal interest, directly or indirectly.

45.           Alternate Directors

(a)   A Director may, by written notice to the Company, appoint a natural person who is not a Director as an alternate for himself (in these Articles referred to as "Alternate Director"), remove such Alternate Director and appoint another Alternate Director in place of any Alternate Director appointed by him whose office has been vacated for any reason whatsoever.  Unless the appointing Director, by the instrument appointing an Alternate Director or by written notice to the Company, limits such appointment to a specified period of time or restricts it to a specified meeting or action of the Board of Directors, or otherwise restricts its scope, the appointment shall be for an indefinite period, but will expire upon the expiration of the appointing Director’s term, and shall be for all purposes.

(b)   Any notice given to the Company pursuant to Article 45(a) shall become effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later.

(c)   An Alternate Director shall have all the rights and obligations of the Director who appointed him, provided,  however, that he may not in turn appoint an alternate for himself (unless the instrument appointing him otherwise expressly provides), and provided further that an Alternate Director shall have no standing at any meeting of the Board of Directors or any committee thereof while the Director who appointed him is present.

(d)   An Alternate Director shall alone be responsible for his own acts and defaults, and he shall not be deemed the agent of the Director(s) who appointed him.

(e)   The office of an Alternate Director shall be vacated under the circumstances, mutatis mutandis, set forth in Article 42, and such office shall ipso facto be vacated if the Director who appointed such Alternate Director ceases to be a Director.
 
PROCEEDINGS OF THE BOARD OF DIRECTORS

46.          Meetings

(a)   The Board of Directors may meet and adjourn its meetings and otherwise regulate such meetings and proceedings as the Board of Directors think fit. Notice of the meetings of the Board of Directors shall be sent to each Director at the last address that the Director provided to the Company, or via telephone, facsimile or e-mail message.
 


(b)   Any Director may at any time, and the Secretary, upon the request of such Director, shall, convene a meeting of the Board of Directors, but not less than four (4) days' notice (oral or written) shall be given of any meeting so convened.  The failure to give notice to a Director in the manner required hereby may be waived by such Director. In urgent situations, a meeting of the Board of Directors can be convened without any prior notice with the consent of a majority of the Directors, including a majority of those who are lawfully entitled to participate in and vote at such meeting (as conclusively determined by the Secretary, and in the absence of such determination, by the Chairman of the Board of Directors).

47.            Quorum

Until otherwise unanimously decided by the Board of Directors, a quorum at a meeting of the Board of Directors shall be constituted by the presence of a majority of the Directors then in office who are lawfully entitled to participate in the meeting (as conclusively determined by the Chairman of the Audit Committee and in the absence of such determination - by the Chairman of the Board of Directors), but shall not be less than two.

48.           Chairman of the Board of Directors

The Board of Directors may from time to time elect one of its members to be the Chairman of the Board of Directors, remove such Chairman from office and appoint another in its place.  The Chairman of the Board of Directors shall preside at every meeting of the Board of Directors, but if there is no such Chairman, or if at any meeting he is not present within fifteen (15) minutes of the time fixed for the meeting, or if he is unwilling to take the chair, the Directors present shall choose one of their number to be the chairman of such meeting.

49.          Validity of Acts Despite Defects

Subject to the provisions of the Companies Law, all acts done bona fide at any meeting of the Board of Directors, or of a Committee of the Board of Directors, or by any person(s) acting as Director(s), shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of the participants in such meetings or any of them or any person(s) acting as aforesaid, or that they or any of them were disqualified, be as valid as if there were no such defect or disqualification.

GENERAL MANAGER

50.           General Manager

The Board of Directors may from time to time appoint one or more persons, whether or not Directors, as General Manager(s) of the Company and may confer upon such person(s), and from time to time modify or revoke, such title(s) (including Managing Director, President, Director General or any similar or dissimilar title) and such duties and authorities of the Board of Directors as the Board of Directors may deem fit, subject to such limitations and restrictions as the Board of Directors may from time to time prescribe.  Such appointment(s) may be either for a fixed term or without any limitation of time, and the Board of Directors may from time to time (subject to the provisions of the Companies Law and of any contract between any such person and the Company) fix his or their salaries and emoluments, remove or dismiss him or them from office and appoint another or others in his or their place or places.

MINUTES

51.          Minutes

(a)   Minutes of each General Meeting and of each meeting of the Board of Directors shall be recorded and duly entered in books provided for that purpose.  Such minutes shall, in all events, set forth the names of the persons present at the meeting and all resolutions adopted thereat.

(b)   Any minutes as aforesaid, if purporting to be by the chairman of the meeting or by the chairman of the next succeeding meeting, shall constitute prima facia evidence of the matters recorded therein.


 
DIVIDENDS

52.          Declaration and Payment of Dividends

The Board of Directors may from time to time declare, and cause the Company to pay, such dividend as may appear to the Board of Directors to be justified.  The Board of Directors shall determine the time for payment of such dividends, and the record date for determining the shareholders entitled thereto.

53.           [Reserved]

54.           Amount Payable by Way of Dividends

Subject to the rights of the holders of shares with special rights as to dividends, any dividend paid by the Company shall be allocated among the members entitled thereto in proportion to their respective holdings of the shares in respect of which such dividend is being paid.

55.          Interest

No dividend shall carry interest as against the Company.

56.           Payment in Specie

Upon the declaration of the Board of Directors, a dividend may be paid, wholly or partly, by the distribution of specific assets of the Company or by distribution of paid up shares, debentures or debenture stock of the Company or of any other companies, or in any one or more of such ways.

57.           Capitalization of Profits, Reserves etc.

Upon the resolution of the Board of Directors, the Company -

(a)   may cause any moneys, investments, or other assets forming part of the undivided profits of the Company, standing to the credit of a reserve fund, or to the credit of a reserve fund for the redemption of capital, or in the hands of the Company and available for dividends, or representing premiums received on the issuance of shares and standing to the credit of the share premium account, to be capitalized and distributed among such of the shareholders as would be entitled to receive the same if distributed by way of dividend and in the same proportion, on the footing that they become entitled thereto as capital, or may cause any part of such capitalized fund to be applied on behalf of such shareholders in paying up in full, either at par or at such premium as the resolution may provide, any unissued shares or debentures or debenture stock of the Company which shall be distributed accordingly, in payment, in full or in part, of the uncalled liability on any issued shares or debentures or debenture stock; and

(b)   may cause such distribution or payment to be accepted by such shareholders in full satisfaction of their interest in the said capitalized sum.

58.           Implementation of Powers under Articles 56 and 57

For the purpose of giving full effect to any resolution under Articles 56 or 57, and without derogating from the provisions of Article 7(b) hereof, and subject to applicable law, the Board of Directors may settle any difficulty which may arise in regard to the distribution as it thinks expedient, and, in particular, may issue fractional certificates, and may fix the value for distribution of any specific assets, and may determine that cash payments shall be made to any members upon the footing of the value so fixed, or that fractions of less value than the nominal value of one share may be disregarded in order to adjust the rights of all parties, and may vest any such cash, shares, debentures, debenture stock or specific assets in trustees upon such trusts for the persons entitled to the dividend or capitalized fund as may seem expedient to the Board of Directors.

59.           Deductions from Dividends

The Board of Directors may deduct from any dividend or other moneys payable to any member in respect of a share any and all sums of money then payable by him to the Company on account of calls or otherwise in respect of shares of the Company and/or on account of any other matter of transaction whatsoever.
 


60.           Retention of Dividends

(a)   The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share on which the Company has a lien, and may apply the same in or toward satisfaction of the debts, liabilities, or engagements in respect of which the lien exists.

(b)   The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share in respect of which any person is, under Articles 21 or 22, entitled to become a member, or which any person is, under said Articles, entitled to transfer, until such person shall become a member in respect of such share or shall transfer the same.

61.            Unclaimed Dividends

All unclaimed dividends or other moneys payable in respect of a share may be invested or otherwise made use of by the Board of Directors for the benefit of the Company until claimed.  The payment by the Directors of any unclaimed dividend or such other moneys into a separate account shall not constitute the Company a trustee in respect thereof, and any dividend unclaimed after a period of seven (7) years from the date of declaration of such dividend, and any such other moneys unclaimed after a like period from the date the same were payable, shall be forfeited and shall revert to the Company, provided, however, that the Board of Directors may, at its discretion, cause the Company to pay any such dividend or such other moneys, or any part thereof, to a person who would have been entitled thereto had the same not reverted to the Company.

62.           Mechanics of Payment

Any dividend or other moneys payable in cash in respect of a share may be paid by check or warrant sent through the post to, or left at, the registered address of the person entitled thereto or by transfer to a bank account specified by such person (or, if two or more persons are registered as joint holders of such share or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, to any one of such persons or to his bank account), or to such person and at such address as the person entitled thereto may by writing direct.  Every such check or warrant shall be made payable to the order of the person to whom it is sent, or to such person as the person entitled thereto as aforesaid may direct, and payment of the check or warrant by the banker upon whom it is drawn shall be a good discharge to the Company.  Every such check or warrant shall be sent at the risk of the person entitled to the money represented thereby.

63.          Receipt from a Joint Holder

If two or more persons are registered as joint holders of any share, or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, any one of them may give effectual receipts for any dividend or other moneys payable or property distributable in respect of such share.
 
ACCOUNTS

64.          Books of Account

The Board of Directors shall cause accurate books of account to be kept in accordance with the provisions of the Companies Law and of any other applicable law.  Such books of account shall be kept at the Registered Office of the Company, or at such other place or places as the Board of Directors may think fit, and they shall always be open to inspection by all Directors.  No member, not being a Director, shall have any right to inspect any account or book or other similar document of the Company, except as conferred by law or authorized by the Board of Directors or by a Shareholders Resolution. The Company shall make copies of its annual financial statements available for inspection by the shareholders at the principal offices of the Company. The Company shall not be required to send copies of its annual financial statements to shareholders, except upon written request to the principal office of the Company.

65.           Audit

At least once in every fiscal year the accounts of the Company shall be audited and the correctness of the profit and loss account and balance sheet certified by one or more duly qualified auditors.
 

 
66.            Auditors

The appointment, authorities, rights and duties of the auditor(s) of the Company, shall be regulated by applicable law.  The Audit Committee of the Company shall have the authority to fix, in its discretion, the remuneration of the auditor(s) for the auditing services.
 
BRANCH REGISTERS

67.            Branch Registers
 
Subject to and in accordance with the provisions of the Companies Law and to all orders and regulations issued thereunder, the Company may cause branch registers to be kept in any place outside Israel as the Board of Directors may think fit, and, subject to all applicable requirements of law, the Board of Directors may from time to time adopt such rules and procedures as it may think fit in connection with the keeping of such branch registers.
 
RIGHTS OF SIGNATURE, STAMP AND SEAL

68.           Rights of Signature, Stamp and Seal

(a)   The Board of Directors shall be entitled to authorize any person or persons (who need not be Directors) to act and sign on behalf of the Company, and the acts and signature of such person(s) on behalf of the Company shall bind the Company insofar as such person(s) acted and signed within the scope of his or their authority.

(b)   The Company shall have at least one official stamp.

(c)   The Board of Directors may provide for a seal.  If the Board of Directors so provides, it shall also provide for the safe custody thereof.  Such seal shall not be used except by the authority of the Board of Directors and in the presence of the person(s) authorized to sign on behalf of the Company, who shall sign every instrument to which such seal is affixed.

NOTICES

69.          Notices

(a)   Any written notice or other document may be served by the Company upon any shareholder either personally, or by facsimile transmission, or by sending it by prepaid mail (airmail or overnight air courier if sent to an address on a different continent from the place of mailing) addressed to such shareholder at his address as described in the Register of Members or such other address as he may have designated in writing for the receipt of notices and other documents.  Any written notice or other document may be served by any shareholder upon the Company by tendering the same in person to the Secretary or the General Manager of the Company at the principal office of the Company, or by facsimile transmission, or by sending it by prepaid registered mail (airmail or overnight air courier if posted outside Israel) to the Company at its Registered Address.  Any such notice or other document shall be deemed to have been served (i) in the case of mailing, two (2) business days after it has been posted (seven (7) business days if sent internationally), or when actually received by the addressee if sooner than two (2) days or seven (7)  days, as the case may be, after it has been posted; (ii) in the case of overnight air courier, on the third (3 rd ) business day following the day sent, with receipt confirmed by the courier, or when actually received by the addressee if sooner than three (3) business days after it has been sent; (iii) in the case of personal delivery, on the date such notice was actually tendered in person to such shareholder (or to the Secretary or the General Manager); (iv) in the case of facsimile transmission, on the date on which the sender receives automatic electronic confirmation by the recipient’s facsimile machine that such notice was received by the addressee. The mailing or publication date and the date of the meeting shall be counted as part of the days comprising any notice period.   If a notice is, in fact, received by the addressee, it shall be deemed to have been duly served, when received, notwithstanding that it was defectively addressed or failed, in some respect, to comply with the provisions of this Article 69(a).
 


(b)   All notices to be given to the shareholders shall, with respect to any share to which persons are jointly entitled, be given to whichever of such persons is named first in the Register of Members, and any notice so given shall be sufficient notice to the holders of such share.

(c)   Any shareholder whose address is not described in the Register of Members, and who shall not have designated in writing an address for the receipt of notices, shall not be entitled to receive any notice from the Company.

(d)   Notwithstanding anything to the contrary herein, notice by the Company of a General Meeting which is published either (1) on the Company’s website and/or (2) in one international wire service and/or (3) in any other common form of electronic dissemination, shall be deemed to have been duly given on the date of such publication to any shareholder of the Company.

EXCULPATION, INSURANCE AND INDEMNITY

70.          Exculpation, Indemnity and Insurance

(a)   For purposes of these Articles, the term "Office Holder" shall mean every Director and every officer of the Company, including, without limitation, each of the persons defined as "Nosei Misra" in the Companies Law.

(b)   Subject to the provisions of the Companies Law, the Company may prospectively exculpate an Office Holder from all or some of the Office Holder’s responsibility for damage resulting from the Office Holder’s breach of the Office Holder’s duty of care to the Company.

(c)   Subject to the provisions of the Companies Law, the Company may indemnify an Office Holder in respect of an obligation or expense specified below imposed on the Office Holder in respect of an act performed in his capacity as an Office Holder, as follows:

      (i)   a financial obligation imposed on him in favor of another person by a court judgment, including a compromise judgment or an arbitrator's award approved by court;

      (ii)   reasonable litigation expenses, including attorneys' fees, expended by the Office Holder as a result of an investigation or proceeding instituted against him by a competent authority, provided that such investigation or proceeding was concluded without the filing of an indictment against him and either (A) concluded without the imposition of any financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent; or in connection with an administrative enforcement proceeding or a  financial sanction. Without derogating from the generality of the foregoing, such expenses will include a payment imposed on the Office Holder in favor of an injured party as set forth in Section 52(54)(a)(1)(a) of the Israeli Securities Law, 1968, as amended (the "Securities Law"), and expenses that the Office Holder incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Securities Law, including reasonable legal expenses, which term includes attorney fees; and
 
      (iii)   reasonable litigation expenses, including attorneys’ fees, expended by an Office Holder or charged to the Office Holder by a court, in a proceeding instituted against the Office Holder by the Company or on its behalf or by another person, or in a criminal charge from which the Office Holder was acquitted, or in a criminal proceeding in which the Office Holder was convicted of an offense that does not require proof of criminal intent.

The Company may undertake to indemnify an Office Holder as aforesaid, (aa) prospectively, provided that  in respect of Article 70(c)(i), the undertaking is limited to events which in the opinion of the Board of Directors are foreseeable in light of the Company’s actual operations when the undertaking to indemnify is given, and to an amount or criteria set by the Board of Directors as reasonable under the circumstances, and further provided that such events and amounts or criteria are set forth in the undertaking to indemnify, and (bb) retroactively.

(d)   Subject to the provisions of the Companies Law, the Company may enter into a contract for the insurance of all or part of the liability of any Office Holder imposed on the Office Holder in respect of an act performed in his capacity as an Office Holder, in respect of each of the following:

      (i)   a breach of his duty of care to the Company or to another person;
 


      (ii)   a breach of his duty of loyalty to the Company, provided that the Office Holder acted in good faith and had reasonable cause to assume that such act would not prejudice the interests of the Company;

      (iii)   a financial obligation imposed on him in favor of another person; or

      (iv)   reasonable litigation expenses, including attorney fees, incurred by the Office Holder as a result of an administrative enforcement proceeding instituted against him. Without derogating from the generality of the foregoing, such expenses will include a payment imposed on the Office Holder in favor of an injured party as set forth in Section 52(54)(a)(1)(a) of the Securities Law and expenses that the Office Holder incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Securities Law, including reasonable legal expenses, which term includes attorney fees.

(e)   The provisions of Articles 70 are not intended, and shall not be interpreted, to restrict the Company in any manner in respect of the procurement of insurance and/or in respect of indemnification (i) in connection with any person who is not an Office Holder, including, without limitation, any employee, agent, consultant or contractor of the Company who is not an Office Holder, and/or (ii) in connection with any Office Holder to the extent that such insurance and/or indemnification is not specifically prohibited under law; provided that the procurement of any such insurance and/or the provision of any such indemnification shall be approved by the Audit Committee of the Company.

               Any amendment to the Companies Law, the Securities Law or any other applicable law adversely affecting the right of any Office Holder to be indemnified or insured pursuant to this Article 61 shall be prospective in effect, and shall not affect the Company’s obligation or ability to indemnify or insure an Office Holder for any act or omission occurring prior to such amendment, unless otherwise provided by the Companies Law, the Securities Law or such other applicable law.WINDING UP

71.            Winding Up

(a)   A resolution adopted in a General Meeting approved by 75% of the voting shares represented at such meeting in person or by proxy is required to approve the winding up of the Company.

(b)   If the Company be wound up, then, subject to applicable law and to the rights of the holders of shares with special rights upon winding up, the assets of the Company available for distribution among the members shall be distributed to them in proportion to the nominal value of their respective holdings of the shares in respect of which such distribution is being made.
 





EXHIBIT 4.4

PORTIONS OF THIS AGREEMENT WERE OMITTED AND HAVE BEEN FILED
 SEPARATELY WITH THE SECRETARY OF THE COMMISSION PURSUANT TO AN
APPLICATION FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE
 SECURITIES EXCHANGE ACT OF 1934; [**] DENOTES OMISSIONS
 
MASTER SUBCONTRACT AGREEMENT
 
Between
 
AMDOCS INC.
 
And
 
Radcom, Inc.
 

 
Table of Contents
 
1.
DEFINITIONS
3
2.
THE PRIME CONTRACT AND ORDERS
8
3.
SCOPE OF WORK
8
4.
REPORTS AND RECORDS
9
5.
LOCATION OF SERVICES; ACCESS TO AT&T FACILITIES
9
7.
SUBCONTRACTOR PERSONNEL
11
8.
TESTING AND ACCEPTANCE TEST PROCEDURES
12
9.
RECORDS AND AUDIT RIGHTS
12
10.
WARRANTIES
14
11.
FEES, RATES AND EXPENSES
20
12.
SERVICE LEVELS AND LIQUIDATED DAMAGES
20
13.
CHANGE MANAGEMENT
21
14.
OWNERSHIP OF MATERIALS
21
15.
AT&T DATA AND OTHER PROPRIETARY INFORMATION
23
16.
INDEPENDENT CONTRACTOR
26
17.
ASSIGNMENT
26
18.
INSURANCE
26
19.
INDEMNITY
27
20.
LIMITATION OF LIABILITY
29
21.
TERM
30
22.
TERMINATION
30
23.
GOVERNING LAW AND DISPUTE RESOLUTION
32
24.
FORCE MAJEURE
33
25.
GENERAL TERMS AND CONDITIONS
34

 
2

 
MASTER SUBCONTRACT AGREEMENT
 
THIS MASTER SUBCONTRACT AGREEMENT (“Agreement”) is made as of March 23 rd , 2015 (“Effective Date”) by and between
 
AMDOCS INC. , a corporation organized and existing under the laws of the State of Delaware, having its principal offices at 1390 Timberlake Manor Parkway, Chesterfield, MO 63017-6041 ( “Amdocs”);
 
And
 
Radcom, Inc._, a corporation organized and existing under the laws of the State of   New Jersey , having its principal offices at 6 Forest Avenue, Paramus, NJ 07652   ( “Subcontractor”);
 
(Subcontractor and Amdocs are each hereinafter referred to as a “Party” and jointly referred to as the “Parties”).
 
WHEREAS:
 
(A)   Amdocs has entered into a services agreement with AT&T Services, Inc. (“AT&T”) relating to the provision of software and services to AT&T, as specified in work orders with AT&T (referred to hereinafter as the “Prime Contract”); and
 
(B)   Amdocs and Subcontractor agree to cooperate and consult with respect to each order executed under the Prime Contract and in the performance of such Prime Contract (the performance of each such order is referred to hereinafter as a “Project”) on the terms and conditions set out in this Agreement, whereby Amdocs will be the Amdocs for each Project and will have the right to issue orders (“Orders”) hereunder to Subcontractor for Services and Deliverables in connection with the applicable Project; and
 
(C)   The Parties wish to define the terms and conditions under which Subcontractor will act as a subcontractor to Amdocs in connection with any Project that is the subject of an Order.
 
NOW, THEREFORE, in consideration of the premises and of the promises exchanged herein, Amdocs and Subcontractor agree as follows:
 
1.
DEFINITIONS
 
For purposes of this Agreement, the following terms shall have the following meanings (in addition to the terms defined elsewhere in this Agreement):
 
1.1
“Accept” and “Acceptance” means the determination, in Amdocs’s and AT&T’s reasonable discretion, following implementation, installation, and Testing (which may include testing in a production environment), that Deliverable(s) and Services are in Compliance.
 
1.2
“Acceptance Date” means the date on which Amdocs Accepts the Deliverables and/or Services.
 
1.3
“Acceptance Test Period” means the length of time specified in an Order during which the Acceptance Tests are performed.
 
1.4
“Acceptance Tests” means the system and user acceptance tests (and/or such other performance and reliability demonstrations and tests) that may be carried out in respect of Deliverables and Services to satisfy Amdocs that there are no inconsistencies with the Specifications or Errors during the Acceptance Test Period.
 
1.5
“Affiliate” means, generally, with respect to any Entity, any other Entity Controlling, Controlled by or under common Control with such Entity.
 
3

 
1.6
“Antivirus Software” means software programs and programming (and modifications, replacements, upgrades, enhancements, documentation, materials and media related thereto) that are used to monitor for, filter and detect the presence of Malicious Code and repair or remediate the effects of Malicious Code.  Antivirus Software also shall include all such programs or programming selected by or for AT&T on or after the Effective Date.
 
1.7
“Application Software” means software application programs (and all modifications, replacements, upgrades, enhancements, documentation, materials and media related thereto) used to support day-to-day business operations and accomplish specific business objectives.
 
1.8
“Application” means a cohesive collection of automated procedures and data supporting a business objective.  It consists of one or more components, modules, or subsystems.
 
1.9
“AT&T Data” means any data or information (i) of AT&T or its customers, that is disclosed or provided to Subcontractor by, or otherwise obtained by Subcontractor from, AT&T or its customers, including Customer Information and customer proprietary network information (as that term is defined in Section 222 of the Communications Act of 1934, as amended, 47 U.S.C. §222), as well as data and information with respect to the businesses, customers, operations, networks, systems, facilities, products, rates, regulatory compliance, competitors, consumer markets, assets, expenditures, mergers, acquisitions, divestitures, billings, collections, revenues and finances of AT&T; and (ii) not supplied by AT&T or its customers, but created, generated, collected or harvested by Subcontractor either (a) in furtherance of this Agreement or an Order hereunder (b) as a result of Subcontractor having access to AT&T infrastructure, systems, data, hardware, software or processes (for example, through data processing input and output, service level measurements, or  ascertainment of network and system information).  Notwithstanding the foregoing, the Parties agree that “AT&T Data” shall (1) not be deemed to include material or software (A)(I) created or owned by Amdocs prior to execution of the Prime Contract (II) provided under license from third parties by Amdocs prior to execution of the Amdocs (III) created by Amdocs or third parties after execution of the Prime Contract for a client other than AT&T or (B) that Amdocs owns in accordance with the Prime Contractor as agreed by Amdocs and AT&T in a Work Order, and (2) be deemed to include material or software that is derived from the performance and operation of AT&T Data or AT&T Proprietary Information.
 
1.10
“AT&T Derived Data” means any data or information that is a result of or modification of, adaption, revision, translation, abridgement, condensation, compilation, evaluation, expansion, or any other recasting or processing of the AT&T Data, for example, as a result of Subcontractor’s observation, analysis, or visualization of AT&T Data arising out of the performance of Subcontractor’s obligations.  Notwithstanding the foregoing, the Parties agree that “AT&T Derived Data” shall not be deemed to include Subcontractor’s material or software that does not constitute AT&T Data as set forth in Subsection 1.9 above.
 
1.11
. “AT&T Personal Data” means that portion of AT&T Data that is subject to any Privacy Laws and includes CPI (for example, under 47 U.S.C. § 222(b)) and CPNI.
 
1.12
“Business Day means Monday through Friday excluding national holidays and official AT&T holidays.
 
1.1
“Compliance” and “Comply” mean, with respect to Software, Equipment, Systems or other contract deliverables to be implemented, designed, developed, delivered, integrated, installed and/or tested by AT&T or Amdocs, compliance in all respects with the applicable Specifications.
 
1.14
“Control” and its derivatives mean: (a) the legal, beneficial, or equitable ownership, directly or indirectly, of (i) at least 50% of the aggregate of all voting equity interests in an Entity or (ii) equity interests having the right to at least 50% of the profits of an Entity or, in the event of dissolution, to at least 50% of the assets of an Entity; (b) the right to appoint, directly or indirectly, a majority of the board of directors; (c) the right to control, directly or indirectly, the management or direction of the Entity by contract or corporate governance document; or (d) in the case of a partnership, the holding by an Entity (or one of its Affiliates) of the position of sole general partner.
 
4

 
1.15
“CPI” means customer proprietary information.
 
1.16
“CPNI” means “customer proprietary network information” as defined under the Communications Act of 1934, as amended, including by the Telecommunications Act of 1996, and applicable Federal Communications Commission orders and regulations; (ii) any of the following information of any customer of AT&T, or any customer of any such customer, whether individual or aggregate, whether or not including identifying information: names, addresses, phone numbers, calling patterns, quantity, nature, technical configurations, locations, types, destinations or amount of use of telecommunications services received or calls received or made; (iii)  information contained on the telephone bills of AT&T’s customers (including the customers of such customers) pertaining to telephone exchange service or telephone toll service received by a customer of AT&T or of any customer; (iv) unlisted customer numbers; (v) aggregate customer data with individual identifying information deleted; or (vi) information available to AT&T by virtue of AT&T’s relationship with its customers as a provider of telecommunications service, or by virtue of their customers’ relationships with their own customers as a provider(s) of telecommunications services
 
1.17
“Customer Information” means that portion of the AT&T Data consisting of information of or about a customer of AT&T, including customer name, address, e-mail address, and/or phone number (listed or unlisted); personal information such as birth date, social security number, driver’s license, credit card information, bank account, account number or personal identification numbers; information concerning calling patterns, call details, records of incoming or outgoing calls, or minutes of use or other use of AT&T’s services; information related to payments, credit status, and transactions with AT&T; demographic information; or aggregate customer data including aggregate data with individual identifying information deleted and CPNI.
 
1.18
“Custom Software” means the unique or specialized programs, routines or subroutines, which are listed as Custom Software in, and developed by Subcontractor under, a specific Order.  Unless otherwise stated in the Order, Custom Software also includes source code in both machine and human readable form and all associated Program Material.
 
1.19
“Data” means numbers, characters, images, or other information recorded in a form that can be input into a CPU/processor, stored and processed there, or transmitted on some digital or analog channel.
 
1.20
“Deliverables” means any Materials, Software, Custom Software, Program Materials or Documentation (including third party Material) purchased hereunder by Amdocs from Subcontractor pursuant to an Order.
 
1.21
“Delivery” means delivery of the Deliverables via (i) electronic transfer; (ii) hand delivery of the media in which the Software is contained; (iii) carrier selected by Subcontractor; or (iv) the manner described in the applicable Order.
 
1.22
“Delivery Date” means the date on which the Parties agree Subcontractor is scheduled in this Agreement or an Order to complete its Delivery of the applicable Deliverables or Services.
 
1.23
“Developed Materials”   means any Materials (including Software), or any modifications, enhancements or derivative works thereof, developed by or on behalf of Subcontractor for Amdocs and/or AT&T in connection with or as part of the Services.
 
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1.24
“Disabling Code” means computer instructions, features or functions that may permit Amdocs or a third party to, or may automatically: (a) alter, destroy or inhibit Software and/or a processing environment; (b) erase, destroy, corrupt or modify any data, programs, materials or information used by AT&T or store any data, programs, materials or information on AT&T’s computers without the consent of AT&T; (c) discontinue AT&T’s effective use of the Software; or (d) bypass any internal or external software security measure to obtain access to any hardware or software of AT&T without the consent or knowledge of AT&T, including, but not limited to, other programs’ data storage and computer libraries.  Disabling Code includes programs that self-replicate without manual intervention, instructions programmed to activate at a predetermined time or upon a specified event, and/or programs purporting to do a meaningful function but designed for a different function.
 
1.25
“Entity” means a corporation, partnership, joint venture, trust, limited liability company, association or other organization.
 
1.26
“Equipment” means all computing, networking and communications equipment or Hardware procured, provided, operated, supported, or used by Subcontractor in connection with the Services, including (i) mainframe, midrange, server and distributed computing equipment and associated attachments, features, accessories, peripheral devices, and cabling, (ii) personal computers, laptop computers and workstations and associated attachments, features, accessories, peripheral devices, and cabling, and (iii) voice/video telecommunications and network equipment and associated attachments, features, accessories, peripheral devices, and cabling.
 
1.27
“Extension” shall have the meaning set forth in Section 21.1.
 
1.28
“FCPA” means the Foreign Corrupt Practices Act.
 
1.29
“Hardware” or “Hardware Assets” means the computers and related equipment used in connection with the provision of the Services, including central processing units and other processors, controllers, modems, communications and telecommunications equipment (voice, data and video), cables, storage devices, printers, terminals, other peripherals and input and output devices, and other tangible mechanical and electronic equipment intended for the processing, input, output, storage, manipulation, communication, transmission and retrieval of information and data.
 
1.30
“Information” means all ideas, discoveries, concepts, know-how, trade secrets, techniques, designs, Specifications, drawings, sketches, models, manuals, samples, tools, computer programs, technical information, and other confidential business, customer or personnel information or data, whether provided orally, in writing, or through electronic or other means.
 
1.31
“Initial Term” shall have the meaning set forth in Section 21.1.
 
1.32
“Laws” means all applicable national, federal, intergovernmental, regional, common, state and local laws, statutes, regulations, rules, executive orders, supervisory requirements, directives, circulars, opinions, orders, interpretive letters and other official releases of or by any government or quasi‑governmental authority, or any authority, department or agency thereof, or any self‑regulatory organization, anywhere in the world, including Privacy Laws.
 
1.33
“Liability” means all legal or contractual responsibility for losses, damages, expenses, costs, penalties, fines, Liquidated Damages and fees, including reasonable attorneys’ fees, arising from a claim or cause of action related to performance or omission of acts under this Agreement or any Order, including, but not limited to, claims or causes of actions brought by third parties.
 
1.34
“Losses” means all liabilities, damages, fines, penalties and claims (including taxes), and all related costs and expenses (including reasonable legal fees and disbursements and costs of investigation, litigation, settlement, judgment, interest and penalties).
 
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1.35
“Liquidated Damages” means pre-defined damages as referred to in this Agreement and in any Order.
 
1.36
“Malicious Code” means (i) any code, program, or sub-program whose knowing or intended purpose is to damage or interfere with the operation of the computer system containing the code, program or sub-program, or to halt, disable or interfere with the operation of the Software, code, program, or sub-program, itself, or (ii) any device, method, or token that permits any person to circumvent the normal security of the Software or the system containing the code.
 
1.37
“Materials” means, collectively, Software, literary works, other works of authorship, specifications, design documents and analyses, processes, methodologies, programs, program listings, documentation, reports, drawings, databases and similar work product.
 
1.38
“Noncompliance” means noncompliance in any material respect with the applicable Specifications.
 
1.39
“Order”. “Statement of Work” or “SOW” means such orders as may be delivered to Subcontractor for the purpose of ordering Deliverables and Services pursuant to Section 2.2 hereunder.
 
1.40
“Privacy Laws” means Laws relating to data privacy, trans-border data flow or data protection such as the implementing legislation and regulations of the European Union member states under the European Union Directive 95/46/EC.
 
1.41
“Program Material” or “Documentation” for purposes of this Agreement and Orders hereunder always includes in relation to Custom Software the source code for the software (including programs, routines, subroutines, and error correction) and programmers’ comments (in all such software).  The Program Material or Documentation required in relation to Custom Software shall be as described in the applicable Order, but may include Detailed Functional Specifications, flow charts, logic diagrams, programming manuals, modification manuals, maintenance tools (including test programs, test cases, and the printed output from same), data file listings, and input and output formats, descriptions and locations of programs related to, but not provided with, the Software, and any design session deliverables, user instructions and system manuals, user manuals, and training materials in machine readable or printed form associated with Software.
 
1.42
“Project” shall have the meaning set out in Recital B above.
 
1.43
“Project Manager” means each party’s manager responsible for a Project and as may be identified on an Order.
 
1.44
“Root Cause Analysis” means the formal process conducted by Subcontractor, to be used by Subcontractor to determine the primary or “root” cause of problems and to diagnose problems at the lowest reasonable level so that corrective action can be taken that will eliminate repeat failures.
 
1.45
“Service(s)” means any and all labor or service provided by Subcontractor in connection with an Order, including, but not limited to, consultation, engineering, installation, removal, maintenance, training, technical support, repair, programming, IT professional services, and Software maintenance.
 
1.46
“Software” means computer programs, together with input and output formats, the applicable source or object codes, programming tools, data models, flow charts, outlines, narrative descriptions, operating instructions, software manufacturing instructions and scripts, test specifications and test scripts and supporting documentation, and shall include the tangible media upon which such programs and documentation are recorded, including all authorized reproductions, corrections, updates, new releases, and new versions of such Software and shall further include all enhancements, translations, modifications, updates, upgrades, new releases, substitutions, replacements, and other changes to such computer programs.
 
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1.47
“Specifications” means (i) Subcontractor’s applicable specifications and descriptions and (ii) Amdocs’s requirements, specifications or descriptions; each as they may relate to the Services or Deliverables and as specified or referenced in, or attached to, this Agreement or an applicable Order.
 
1.48
“Subcontractor Personnel” or “Personnel” means each employee, officer or temporary worker of (i) Subcontractor, (ii) any permitted subcontractor of Subcontractor, (iii) Subcontractor’s Affiliates and (iv) any agent or other representative of Subcontractor that may be engaged in the provision of Services in connection with this Agreement.
 
1.49
“System” means one or more of the following items, as identified in an Order: the operating environment for Software and includes the hardware on which the Software resides, and the operating software, Application Software, databases which interact with such Software, and the software and hardware interfaces among such hardware and software.
 
1.50
“Term” shall have the meaning set forth in Section 21.1.
 
1.51
“Testing” with respect to the Subcontractor’s Deliverables (and any associated Software, Equipment, or Systems) means the performance of the applicable tests and procedures set forth in the applicable Order, as well as any other tests and procedures which the Parties may agree upon in determining whether such Deliverables are in Compliance.
 
1.52
“Use” or “use” means any lawful operation or use of the Deliverables permitted or reasonably contemplated in this Agreement or an applicable Order, including compilation, copying, modifying, linking, licensing, sublicensing, displaying, permitting access to, and executing all or part of the Software.
 
2.
THE PRIME CONTRACT AND ORDERS
 
2.1.
The Prime Contract contains the terms and conditions under which Amdocs is required to provide products and services to AT&T.  If agreed between the Parties in an Order, Subcontractor shall act as a subcontractor to Amdocs to perform certain obligations of Amdocs arising under the Prime Contract and specified in an Order.  This Agreement includes provisions based on the Prime Contract.  In the event that Amdocs wishes to subject Subcontractor to additional provisions of the Prime Contract, such provisions will be detailed in an Order or in an amendment to this Agreement and will require the consent of each of the Parties hereto.  Such additional provisions may, without limitation, include service level agreements and provisions for payment of Liquidated Damages.
 
2.2.
The procurement by Amdocs of Deliverables and Services from Subcontractor will be made by placement of Orders by Amdocs to Subcontractor hereunder.  Each Order will reference this Agreement and incorporate this Agreement’s terms and conditions.  Following their execution by both Parties this Agreement and each Order will constitute the entire agreement between the Parties relating to that particular Order.  However, in case of any inconsistency or contradiction between the provisions of this Agreement and the provisions of an Order, the provisions of the Order will prevail, but only as to the subject matter of such inconsistency.
 
2.3.
The Parties acknowledge and agree that this Agreement does not obligate either Party to enter into any specific types or amounts of Orders, or to procure or provide specific types or amounts of Services.  Each Order will be binding only when signed by both Parties.
 
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3.
SCOPE OF WORK
 
3.1.
The scope of the Deliverables and Services to be provided in connection with a Project shall be set forth in the applicable Order(s). Subcontractor will perform all Services in such manner to ensure that it meets the applicable timetable and milestones for performance provided under the Order.  Any changes to the Order will be subject to the change control procedures set out in this Agreement or an applicable Order.
 
3.2.
Save as may be otherwise expressly stated in an Order, the prices set forth in an Order shall include (i) the provision by Subcontractor of all activities and assistance requested by Amdocs relating to the performance of the Services, and (ii) Subcontractor’s compliance with any applicable Service Levels and diligent correction of any Noncompliance or other deficiencies, as notified by Amdocs to Subcontractor.
 
3.3.
Amdocs and Subcontractor agree to coordinate and to work with each other, to help confirm an appropriate interaction between the work of Subcontractor and Amdocs. Amdocs’s and Subcontractor’s respective Project Managers shall be named in the applicable Order.  Subcontractor shall report to and work under the direction of Amdocs’s Project Manager (the “Amdocs Project Manager”), unless otherwise set forth in the Order.
 
3.4.
Amdocs acknowledges and agrees that Subcontractor will discuss all issues, recommendations and decisions related to this Agreement and the Services, (including without limitation the performance, status, or any major issue affecting the Services) with the Amdocs Project Manager.
 
3.5.
If any services, functions or responsibilities not specifically described in this Agreement or the applicable Order are an inherent part of the Services and are required for proper performance or provision of the Services in accordance with this Agreement and such Order, they shall be deemed to be included within the scope of the Services to be delivered, as if such services, functions or responsibilities were specifically described in this Agreement.
 
4.
REPORTS AND RECORDS
 
4.1.
At all times during the performance of the Services, Amdocs shall have the right but not the obligation to inspect the work performed by Subcontractor upon reasonable advance verbal, email or written notice to Subcontractor.
 
4.2.
As part of the Services, Subcontractor shall provide Amdocs and AT&T with such documentation and other information available to Subcontractor as may be reasonably requested by Amdocs or AT&T from time to time in order to verify the accuracy of the reports provided by Subcontractor.
 
4.3.
As part of the Services and at [**], and upon reasonable notice from Amdocs, Subcontractor shall promptly correct any errors or inaccuracies in or with respect to the reports, or the information or data contained in such reports, caused by Subcontractor or its agents, or its third party product or service providers.
 
4.4.
Subcontractor shall provide reasonable supporting documentation to Amdocs concerning any disputed invoice within [**] calendar days after receipt of written notification of such dispute.
 
5.
LOCATION OF SERVICES; ACCESS TO AT&T FACILITIES
 
5.1.
The Services shall be provided at the locations specified in the applicable Order (“Approved Location”).
 
a.
Subcontractor shall not perform any Services under this Agreement, at a location other than the Approved Location

b.
Amdocs shall have the right to withdraw its consent to the performance of work at an Approved Location at any time in Amdocs’ sole discretion for any reason, in which event the Parties shall assess cost impacts, timing, methodology and amend the applicable Order to reflect any changes reasonably required to permit Subcontractor to continue to perform such work at a different location and the Parties shall amend the Order accordingly.
 
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c.
If Subcontractor without intending to circumvent the requirements of this Section, provides any Services under this Agreement in a location that is not an Approved Location, without Amdocs and AT&T’s prior written consent and fails to cease providing such Services within [**] days after written notice from Amdocs and/or AT&T such inadvertent provisioning and failure to timely cure within said [**] days shall be a material breach of this Agreement and, in addition to any other legal rights or remedies available to Amdocs or AT&T in law or in equity, Amdocs may immediately Cancel and/or Terminate this Agreement without cost, liability or penalty to Amdocs.  Notwithstanding the foregoing, Amdocs agrees that Subcontractor’s provision of the Services in non Approved Location without Amdocs’ prior written consent on a transient basis (e.g., a Subcontractor’s employee’s provision of Services from an airport while in travel status) shall be permitted and shall not be deemed to be a material breach of this Agreement.

d.
When Amdocs has granted consent for Services to be performed in an Approved Location,, Subcontractor shall remain fully responsible for compliance with any foreign, federal, state or local law applicable to the Subcontractor’s provision of such Services regardless of whether the Service is being performed by Subcontractor or a Subcontractor.  Nothing contained within this Agreement is intended to extend, nor does it extend, any rights or benefits to any Subcontractor, and no third party beneficiary right is intended or granted to any third party hereby .
 
5.2.
Access to AT&T Facilities
 
5.2.1.
Subcontractor will not have access to AT&T’s premises and facilities without Amdocs’ prior written approval.
 
5.2.2.
Subcontractor shall ensure that its Personnel while on or off AT&T’s or Amdocs’ premises (i) will perform work in a manner which protects AT&T’s and Amdocs’ material, buildings and structures, (ii) do not interfere with AT&T’s and Amdocs’ business operations, and (iii) perform such Services with care and due regard for the safety, convenience and protection of AT&T, Amdocs, their employees, and property and in full conformance with the policies specified in the AT&T Code of Conduct specified in Exhibit B , which prohibits the possession of a weapon or an implement which can be used as a weapon.
 
5.2.3.
Subcontractor shall ensure that all Personnel furnished by Subcontractor work harmoniously with all others when on AT&T’s or Amdocs’ premises.
 
5.3.
Online Access
 
Subcontractor’s employees include “foreign persons” within the meaning of the U.S. export control laws, and foreign persons employed by Subcontractor may, subject to Section 6.2.1, have access to AT&T computer or electronic data storage systems or networks in order to provide Services under this Agreement, unless otherwise specifically set forth in an Order.  If Subcontractor is given access, whether at AT&T’s premises or through remote facilities, to any AT&T computer or electronic data storage system in order for Subcontractor to perform the Services, Subcontractor shall limit such access and use solely to perform Services and will not attempt to access any AT&T computer system, electronic file, Software or other electronic services other than those specifically required to perform the Services.  Subcontractor shall (i) limit such access to those Subcontractor Personnel with an express requirement to have such access in connection with this Agreement and/or any Order and, in doing so, shall comply with Section 6.2.1, (ii) advise Amdocs in writing of the name of each individual who will be granted such access and (iii) to the extent applicable to any Services and Materials to be provided by Subcontractor, strictly follow all AT&T security rules and procedures specified in Exhibit B to this Agreement, and such other security rules and procedures to be provided to Subcontractor, for use of AT&T’s electronic resources provided to Subcontractor from time to time.  Upon Amdocs’s request, Subcontractor shall provide the social security number or other personal identification of each of its representatives, including Subcontractor’s employees and subcontractors’ employees, who will need access to any AT&T system to perform Subcontractor’s obligations under this Agreement.  All user identification numbers and passwords disclosed to Subcontractor and any information obtained by Subcontractor as a result of Subcontractor’s access to, and use of, AT&T’s computer and electronic storage systems shall be deemed to be, and shall be treated as, Proprietary Information of AT&T pursuant to this Agreement.  Subcontractor shall cooperate with AT&T (and Amdocs shall cooperate with Subcontractor) in the investigation of any apparent unauthorized access by Subcontractor to AT&T’s computer or electronic data storage systems or unauthorized release of proprietary information of AT&T by Subcontractor or any Subcontractor Personnel.
 
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5.4.
Software and Hardware provided by Amdocs to Subcontractor Personnel
 
Unless agreed and specified in Order, Amdocs will not be required to provide to Subcontractor any Software or Hardware.
 
6.
SECURITY
 
6.1.
Without prejudice to any other terms contained herein or in an Order, Subcontractor Personnel will comply with all of Amdocs’ and AT&T’s applicable security and conduct regulations provided to Subcontractor in writing or otherwise made available by Amdocs or AT&T to Subcontractor, including any procedure which Amdocs’ and/or AT&T’s employees are asked to follow. Unless otherwise agreed to by the Parties, Subcontractor Personnel shall observe the working hours, working rules, holiday schedules and policies of Amdocs and/or AT&T while working on Amdocs’ or AT&T’s premises, as applicable. Subcontractor agrees to cooperate fully and to provide any assistance necessary to Amdocs and AT&T in lawful investigation of any security breaches which may involve Subcontractor or Subcontractor Personnel.
 
6.2.
Without limitation to the generality of the foregoing, Subcontractor shall comply with:
 
6.2.1.
AT&T’s requirements as to background checks/ drug screening for Subcontractor Personnel, as set out in Exhibit A .
 
6.2.2.
In performing the Services and using the AT&T sites, Subcontractor shall observe and comply with all AT&T policies, rules and regulations applicable to the AT&T sites or the provision of the Services, including those set forth on Exhibit B  Supplier Information Security Requirements (SISR) and Limited Offshore Remote Access (LORA), to the extent applicable to any Services and Materials to be provided by Subcontractor , and those applicable to specific AT&T sites, all as have been or may be provided to Subcontractor in writing (collectively, “AT&T Rules”).
 
7.
SUBCONTRACTOR PERSONNEL
 
7.1.
In addition to any other remedies that Amdocs may have in the event of substandard performance by Subcontractor, in the event that any Subcontractor Personnel is found to be unacceptable to Amdocs, Amdocs shall notify Subcontractor of such fact and Subcontractor shall immediately remove said Personnel and, if requested by Amdocs, replace such Personnel with a person acceptable to Amdocs of suitable education, qualifications and experience within [**] days of said notice.
 
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7.2.
Subcontractor agrees to use reasonable efforts to ensure the continuity of Subcontractor Personnel assigned to perform its obligations.
 
7.3.
If at any time AT&T or Amdocs requires removal of Subcontractor Personnel, and AT&T or Amdocs so inform Subcontractor, then Subcontractor shall promptly remove such individual from the applicable Project and from AT&T’s and Amdocs’ respective premises.
 
7.4.
All Subcontractor Personnel shall clearly identify themselves as Subcontractor Personnel and not as employees of Amdocs or AT&T.  This shall include any and all communications, whether oral, written or electronic.
 
7.5.
Amdocs is committed to complying with all applicable immigration laws of the United States, including the Immigration Reform and Control Act of 1986, as amended. This law requires that all employees hired since 1986 provide proof of identity and employment eligibility before they can work in the United States.  It is the policy of Amdocs to comply fully with this requirement, and to require compliance by all suppliers and subcontractors performing services in the United States at Amdocs’ or its clients’ worksites. Subcontractor shall not place Subcontractor Personnel at a Amdocs or AT&T worksite in the United States, nor shall Subcontractor permit any Personnel to perform any work in the United States on behalf of or for the benefit of Amdocs, without first verifying and ensuring said Personnel’s authorization to lawfully work in the United States. To that end, Subcontractor represents that: (a) Subcontractor maintains and follows an established policy to verify the employment authorization of Personnel, and to ensure continued compliance for the duration of employment, (b) Subcontractor has verified the identity and employment eligibility of all Personnel, in compliance with applicable law, and (c) Subcontractor is without knowledge of any fact that would render any Subcontractor Personnel ineligible to work legally in the United States.
 
8.
TESTING AND ACCEPTANCE TEST PROCEDURES
 
8.1.
Testing and acceptance test procedures with respect to Subcontractor’s Deliverables will be specified in the applicable Order.
 
9.
RECORDS AND AUDIT RIGHTS
 
9.1.
Subcontractor shall maintain complete and accurate records of and supporting documentation for all charges, all AT&T Data and all transactions, authorizations, changes, implementations, soft document access, reports, analyses, data or information created, generated, collected, processed or stored by Subcontractor in the performance of its obligations under this Agreement (“Contract Records”).  Subcontractor shall maintain such Contract Records in accordance with generally accepted accounting principles applied on a consistent basis and generally accepted auditing standards.  Subcontractor shall retain Contract Records in accordance with AT&T’s record retention policy as it may be modified from time to time and provided to Subcontractor in writing.
 
9.2.
Subcontractor shall, and shall cause its Subcontractors to, provide to AT&T and Amdocs (and internal and external auditors, inspectors, regulators and other external representatives that AT&T may designate from time to time), subject to receipt of customary confidentiality undertakings towards Subcontractor, reasonable access at reasonable hours to Subcontractor Personnel and to the facilities at or from which Services are then being provided, and to Subcontractor records and other pertinent information, all solely to the extent relevant to the Services and Subcontractor’s obligations under this Agreement, subject to customary confidentiality undertakings to be received by Subcontractor. Subcontractor shall provide any assistance reasonably requested by AT&T or Amdocs or its designee in conducting any such audit.  If an audit reveals a material breach of this Agreement, Subcontractor shall promptly reimburse Amdocs for the actual cost of such audit and any damages, fees, fines, expenses, or penalties assessed against or incurred by Amdocs or AT&T to remedy deficiencies caused by Subcontractor or Subcontractor Personnel discovered during such audits.
 
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9.3.
Financial Audits
 
9.3.1.
During the term of this Agreement [**] or expiration of this Agreement, Subcontractor shall provide to Amdocs and AT&T (and internal and external auditors, inspectors, regulators and other representatives that AT&T or Amdocs may designate from time to time), subject to receipt of customary confidentiality undertakings towards Subcontractor, reasonable access at reasonable hours to Subcontractor Personnel and to Contract Records and other pertinent information, all solely to the extent relevant to the performance of Subcontractor’s obligations under this Agreement.
 
9.3.2.
Such reasonable access shall be provided for the purpose of performing audits
 
9.3.3.
Subcontractor shall provide any assistance reasonably requested by AT&T or Amdocs or its designee in conducting any audit under this Section and shall make requested personnel, records and information available.  If any audit reveals an overcharge by Subcontractor, and Subcontractor does not successfully dispute the amount questioned by the audit, Subcontractor shall promptly pay to Amdocs the amount of such overcharge, together with interest from the date of Subcontractor’s receipt of such overcharge at the then current “Prime Rate” set forth in the “Money Rates” table in The Wall Street Journal (“Prime Rate”).  In addition, if any audit   reveals an overcharge of more than five percent (5%) of the audited charges in any charges category, Subcontractor shall promptly reimburse Amdocs for the reasonable cost of such audit and shall issue to Amdocs a credit for any charges due from Amdocs to Subcontractor.
 
9.4.
AT&T and Amdocs may be subject to regulation by governmental bodies and other regulatory authorities under applicable laws, rules, regulations and contract provisions.  If a governmental body or regulatory authority exercises its right to examine or audit AT&T’s or Amdocs’ books, records, documents or accounting practices and procedures pursuant to such laws, rules, regulations or contract provisions, Subcontractor shall provide all reasonable assistance requested by AT&T or Amdocs in responding to such audits or government requests for information to the extent such requests are related to this Agreement.
 
9.5.
AT&T and Amdocs shall provide Subcontractor with advanced notice at least [**] days prior to any operational or financial audit by AT&T or Amdocs or its authorized agents or representatives. AT&T and Amdocs shall be given adequate private workspace in which to perform an audit, plus reasonable access to photocopiers, telephones, facsimile machines, computer hook-ups, and any other facilities or equipment needed for the performance of the audit.  AT&T and Amdocs will not undertake audits more than [**] in any contract year, unless AT&T or Amdocs has reasonable grounds to believe that Subcontractor is not in compliance with this Agreement, including improper invoicing of Amdocs, or Amdocs or AT&T is otherwise required to undertake such audit.
 
9.6.
If Subcontractor determines as a result of its own internal audit that it has overcharged Amdocs, then Subcontractor shall promptly pay to Amdocs the amount of such overcharge, together with interest from the date of Subcontractor’s receipt of such overcharge at the Prime Rate.
 
9.7.
Subcontractor and Amdocs shall meet to review each audit report promptly after the issuance thereof.  The Parties will respond to each audit report in writing within [**] days from receipt of such report, unless a shorter response time is specified in such report.  Subcontractor and Amdocs shall develop and agree upon an action plan to promptly address and resolve any deficiencies, concerns and/or recommendations in such audit report and Amdocs and Subcontractor, each at its own expense, shall undertake remedial action in accordance with such action plan and the dates specified therein.
 
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9.8.
If an audit by a governmental body or regulatory authority having jurisdiction over AT&T, Amdocs or Subcontractor results in a finding that Subcontractor is not in compliance with any generally accepted accounting principle or other audit requirement or any rule, regulation or law relating to the performance of its obligations under this Agreement, Subcontractor shall, at its own expense and within the time period specified by such auditor, address and resolve the deficiency(ies) identified by such governmental body or regulatory authority.
 
9.9.
Subcontractor and its suppliers shall provide the Services described in this Section 9 at no additional charge.
 
9.10.
SAS 70
 
9.10.1.
At Subcontractor’s sole cost and expense, Subcontractor shall cooperate with AT&T and Amdocs on SAS 70 Type II audits and on other Sarbanes-Oxley related documentation, testing, and auditing related activities.
 
9.11.
Security Audit
 
To the extent AT&T’s then-current security policies, architectures, standards, rules and procedures are applicable to Services and Materials provided by Subcontractor, on an annual basis starting on a date designated by AT&T or Amdocs, Subcontractor will, at no charge, perform a security audit of each offshore site from which Services are provided under this Agreement, utilizing an independent auditor, as mutually agreed by the Parties, and provide a copy of the results of such audit to Amdocs. Such security audit shall review whether Subcontractor is strictly following all AT&T security rules and procedures as made available to the Subcontractor for use of AT&T’s electronic resources provided to Subcontractor and that Subcontractor is in strict compliance with AT&T’s then-current security policies, architectures, standards, rules and procedures, all as set forth in the most current version of AT&T’s Offshore Management Office External Audit Controls.
 
10.
WARRANTIES
 
10.1.
Work Standards
 
Subcontractor represents and warrants that the Services shall be rendered with promptness and diligence and shall be executed in a professional and workmanlike manner, in accordance with high standards of and at least generally accepted practices in the information technology services industry and the Service Levels.  Subcontractor represents and warrants that it shall use adequate numbers of qualified individuals with suitable training, education, experience, competence and skill to perform the Services.  Subcontractor shall provide such individuals with training as to new products and services prior to the implementation of such products and services in the AT&T environment.
 
10.2.
Software
 
10.2.1.
Subcontractor represents, warrants and covenants that it is either the owner of, or authorized to use, any and all Software provided and used by Subcontractor in providing the Services.  As to any such Software that Subcontractor does not own but is authorized to use, Subcontractor shall advise Amdocs as to the ownership and extent of Subcontractor’s rights with regard to such Software to the extent any limitation in such rights would materially impair Subcontractor’s performance of its obligations under this Agreement.
 
10.2.2.
Subcontractor represents, warrants and covenants that any Subcontractor Owned Software will Comply with its Specifications and will provide the functions and features and operate in the manner described therein.
 
10.2.3.
To the extent applicable to Subcontractor’s Services and Materials to be provided under an Order, Subcontractor represents, warrants and covenants that Developed Materials shall be free from material errors in operation and performance, shall Comply with its documentation and the Specifications in all material respects and shall provide the functions and features and operate in the manner agreed by the Parties for [**] months after the installation, testing and Acceptance of such Developed Materials.
 
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10.2.4.
In the event that the Subcontractor Owned Software or Developed Materials do not Comply with the Specifications and criteria set forth in this Agreement, and/or materially and adversely affect the Services provided hereunder, Subcontractor shall repair or replace such Software or Material with conforming Software or Material.
 
10.3.
Non-Infringement
 
10.3.1.
Performance of Responsibilities :  Except as otherwise provided in this Agreement, each Party represents and warrants that it shall perform its responsibilities under this Agreement in a manner that does not infringe, or constitute an infringement or misappropriation of, any patent, copyright, trademark, trade secret or other proprietary or privacy rights of any third party; provided, however, that the performing Party shall not have any obligation or liability to the extent any infringement or misappropriation is caused by (i) modifications made by the other Party or its contractors or subcontractors, without the knowledge or approval of the performing Party, (ii) the other Party’s combination of the performing Party’s work product or Materials with items not furnished, specified or reasonably anticipated by the performing Party or contemplated by this Agreement, (iii) a breach of this Agreement by the other Party, or (iv) the failure of the other Party to use corrections or modifications provided by the performing Party offering equivalent features and functionality. Each Party further represents and warrants that it will not use or create materials in connection with the Services which are or are alleged to be libelous, defamatory or obscene.
 
10.3.2.
Actions in Case of Infringement :  In the event that (1) any Materials, Developed Materials, Equipment or Software provided by Subcontractor or its Affiliates or permitted subcontractors pursuant to this Agreement or used by them in the performance of the Services are found or, based upon a third party claim or threatened claim of infringement, are likely to be found, to infringe upon the patent, copyright, trademark, trade secret, or other intellectual property or proprietary rights of any third party in any country in which Services are to be performed or received under this Agreement or (2) the continued use of such Materials, Developed Materials, Equipment or Software is enjoined, Subcontractor shall, in addition to defending, indemnifying and holding harmless Amdocs and AT&T as provided in this Agreement, promptly and at its own cost and expense and in such a manner as to minimize the disturbance to Amdocs’  and AT&T’s business activities do one of the following:
 
(a)
Obtain for AT&T and Amdocs the right to continue using such Materials, Developed Materials, Equipment or Software.
 
(b)
Modify the item(s) in question so that it is no longer infringing (provided that such modification does not degrade the performance or quality of the Services or adversely affect AT&T’s and Amdocs’ intended use as contemplated by this Agreement).
 
(c)
Replace such item(s) with a non-infringing functional equivalent acceptable to AT&T and Amdocs.
 
10.4.
Authorization
 
Each Party represents and warrants to the other that:
 
10.4.1.
It is a corporation duly incorporated, validly existing and in good standing under the laws of its State of incorporation;
 
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10.4.2.
It has the requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement;
 
10.4.3.
It has obtained all licenses, authorizations, approvals, consents or permits required to perform its obligations under this Agreement under all applicable Laws and under all applicable rules and regulations of all authorities having jurisdiction over the Services, except to the extent the failure to obtain any such license, authorizations, approvals, consents or permits is, in the aggregate, immaterial;
 
10.4.4.
The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by the requisite corporate action on the part of such Party; and
 
10.4.5.
The execution, delivery, and performance of this Agreement shall not constitute a violation of any judgment, order, or decree; a material default under any material contract by which it or any of its material assets are bound; or an event that would, with notice or lapse of time, or both, constitute such a default.
 
10.5.
Inducements
 
Subcontractor represents and warrants that it has not given and will not give commissions, payments, kickbacks, lavish or extensive entertainment, or other inducements of more than minimal value to any employee or agent of AT&T or Amdocs in connection with this contract.  Subcontractor also represents and warrants that, to the best of its knowledge, no officer, director, employee, agent or representative of Subcontractor has given any such payments, gifts, entertainment or other thing of value to any employee or agent of AT&T or Amdocs.  Subcontractor also acknowledges that the giving of any such payments, gifts, entertainment, or other thing of value is strictly in violation of AT&T’s policy on conflicts of interest, and may result in the cancellation of this Agreement and all other existing and future contracts between the Parties.
 
10.6.
Malicious Code
 
Each Party shall cooperate with the other Party and shall take commercially reasonable actions and precautions (including the use of Antivirus Software) to prevent the introduction and proliferation of Malicious Code into AT&T’s environment or any System used by Subcontractor to provide the Services.  Without limiting Subcontractor’s other obligations under this Agreement, in the event Malicious Code is found in Equipment, Software or Systems managed or supported by Subcontractor or used by Subcontractor to provide the Services, Subcontractor shall exercise all commercially reasonable efforts, at no additional charge, to eliminate and reduce the effects of such Malicious Code and, if the Malicious Code causes a loss of operational efficiency or loss of data, to mitigate such losses and restore such data with generally accepted data restoration techniques.
 
10.7.
Disabling Code
 
Subcontractor represents and warrants that, without the prior written consent of Amdocs, Subcontractor shall not insert into the Software any Disabling Code.  Subcontractor further represents and warrants that, with respect to any Disabling Code that may be part of the Software, Subcontractor shall not invoke or cause to be invoked such Disabling Code at any time, including upon expiration or termination of this Agreement for any reason, without Amdocs’ prior written consent.  Subcontractor also represents and warrants that it shall not use third party software with Disabling Code without the prior approval of Amdocs.
 
10.8.
Compliance with Laws
 
10.8.1.
Subcontractor represents and warrants that, with respect to the provision of the Services and the performance of its other legal and contractual obligations hereunder, it is and shall be in compliance with all applicable Laws (including but not limited to those requiring the acquisition of applicable permits, certificates, manifests, approvals and inspections, applicable to the Equipment, Software, Systems and Services for which Subcontractor is operationally responsible), and shall remain in compliance with such Laws for the entire term of this Agreement.  If a charge or a claim of non-compliance by Subcontractor with such Laws is made or asserted against Subcontractor, Subcontractor shall promptly notify Amdocs of such charge or claim.
 
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10.8.2.
At no additional charge, upon Amdocs’ request, Subcontractor shall provide Amdocs with data and reports in Subcontractor’s possession necessary for AT&T and Amdocs to comply with, all Laws applicable to the Services.
 
10.8.3.
Subcontractor covenants that the Software, Equipment, Systems and Materials owned, provided or used by Subcontractor in providing the Services are in compliance with all applicable Laws on the Effective Date and shall remain in compliance with such Laws for the entire term of this Agreement.
 
10.8.4.
Subcontractor shall notify Amdocs of any Laws and changes in Laws of which Subcontractor is aware applicable to the provision of the Services and shall, to the extent such Laws or changes in Laws require a change in the performance, receipt, or use of the Services, identify the impact of such Laws and changes in Laws on Subcontractor’s performance and AT&T’s receipt and use of such Services.  Subcontractor also shall maintain familiarity with the legal and regulatory requirements applicable specifically to the provision of telecommunications services by AT&T which are similar to the Services to be provided hereunder and shall bring additional or changed requirements to Amdocs’ attention.  Subject to its non-disclosure obligation under other customer contracts, Subcontractor shall make commercially reasonable efforts to obtain information regarding such requirements from other customer engagements and to communicate such information to Amdocs in a timely manner.  With respect to those Laws applicable to AT&T as providers of telecommunication services, AT&T shall retain the right, in its sole discretion, to interpret and determine the impact of such Laws on the Services to be provided by Subcontractor.  At Amdocs’ request, Subcontractor Personnel shall participate in AT&T provided regulatory compliance training programs.
 
10.8.5.
Cost of Compliance With Changes in Laws :  Subcontractor shall comply with all Laws and changes in Laws applicable to the Services (including Laws specifically applicable to AT&T as providers of telecommunication services to the extent Subcontractor receives notice of such Laws from Amdocs) and shall implement upon Amdocs’ approval any necessary modifications to the Services prior to the deadline imposed by the regulatory or governmental body having jurisdiction for such requirement or change.
 
10.8.6.
Compliance with Data Privacy Laws :  Without limiting the foregoing, with respect to any AT&T Personal Data, Subcontractor shall comply with all Laws under applicable Privacy Laws (as well as Laws with respect to any CPNI or CPI).  Subcontractor shall also provide Amdocs with such assistance as Amdocs may reasonably require to assist AT&T to fulfill its responsibilities under the resp ective applicable Privacy Laws.
 
10.8.7.
Compliance with Export Control Laws :  To the extent applicable to the Services and Materials to be provided by Subcontractor, the following shall apply:
 
(a)
The Parties shall comply with all export control, import and foreign trade sanctions laws, rules and regulations, in their performance of this Agreement.
 
(b)
No Party shall use, sell, export, re-export, distribute, transfer, dispose or otherwise deal with any such Material or any direct product thereof or undertake any transaction or Service without first obtaining all necessary consents, permits and authorizations and completing such formalities as may be required by any such laws or regulations.
 
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(c)
Subcontractor shall be solely responsible for arranging export clearance, including applying for and obtaining any permits, licenses or other authorizations and complying with export clearance formalities, for all exports of Materials used to provide Services and all Services made by Subcontractor hereunder, including exports thereof by Subcontractor to its Affiliates or subcontractors and exports thereof from such Affiliates or subcontractors to Subcontractor or to Amdocs in the United States.
 
(d)
Each Party represents and warrants for the benefit of the other that it shall not export/re-export or otherwise transfer any Applications or Materials used to provide Services or any Services to any country that is subject to US trade sanctions imposed from time to time (currently, Cuba, Iran, North Korea, Sudan and Syria), to any persons or entities located in or organized under the laws of such country, or who are owned or controlled by or acting on behalf of the governments of such countries, as well as to citizens of such countries, or to persons identified from time to time on applicable US government restricted party lists (e.g., the US Department of Commerce’s Denied Party List, Entity List, Unverified List; the US Department of the Treasury’s List of Specially Designated Nationals and Other Blocked Persons; the US Department of State’s various non-proliferation lists).
 
(e)
Neither Party shall do anything which would cause the other Party to be in breach of applicable export control or foreign trade control laws, rules and regulations.
 
10.8.8.
Foreign Corrupt Practices Act (FCPA) Compliance
 
(a)
Without limiting any other provision of this Agreement, in all activities associated with the performance of the Services, Subcontractor shall perform in a manner consistent with the requirements of the FCPA.  Amdocs may, from time to time, in its sole discretion, require that Subcontractor sign a certification statement providing that, in performing the Services, (i) Subcontractor has complied with and will continue to comply with the FCPA; (ii) Subcontractor has not made or caused to be made any offer or payment, directly or indirectly, to any government official or political party or candidate; (iii) Subcontractor has otherwise engaged in no activity which would result in a violation by AT&T of the FCPA; and (iv) such other representation to Amdocs as AT&T or Amdocs deems necessary to ensure compliance with the FCPA.
 
(b)
Subcontractor agrees that no part of Subcontractor’s compensation will be used for any purpose that could constitute a violation of the FCPA.  Subcontractor agrees that it will not hire or in any other way retain a foreign official, a foreign political party or official thereof, or a candidate for foreign political office for any purpose relating to or in connection with the Services.
 
10.8.9.
Subcontractor’s obligation to comply with all Laws includes the procurement of permits, certificates, approvals, inspections and licenses, when needed, in the performance of this Agreement.
 
10.8.10.
Subcontractor shall be responsible for any fines or penalties imposed on Subcontractor, Amdocs or AT&T resulting from Subcontractor’s performance hereunder and any failure of Subcontractor or its Subcontractors to comply with applicable Laws or respond in a timely manner to changes in such Laws.
 
10.8.11.
Offshore Transfer or Processing of AT&T Data
 
(a)
Subcontractor represents and warrants that, to the extent that its performance of the Services includes the transfer, storage or processing outside of the United States of AT&T Data or other performance of the Services outside of the United States, such Services (the “Offshore Services”) will be (i) performed in accordance with the Agreement and Laws (including Privacy Laws) of the United States, European Union (if applicable) and any jurisdiction in which the Offshore Services are performed and (ii) performed such that Laws permit the transfer of the AT&T Data back into the United States, and future performance of the Services within the United States, without any additional cost to Amdocs or authorization or permission of any Entity or government.
 
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(b)
In the event that new Laws or changes in Laws (i) require that any such Services be performed within the United States or any other jurisdiction, (ii) prohibit the performance of any Services as Offshore Services or (iii) require that the AT&T Data used in connection with such Offshore Services be transferred back to the United States or restrict such AT&T Data from being transferred to or from, or processed in, stored in or accessed from any jurisdiction (collectively, “Offshore Impact”), Subcontractor shall perform all necessary tasks in order to continue to perform the Services, including any Offshore Services, in compliance with Laws, including, as required by Laws, the performance of any or all Services within the United States.  Upon the event of an Offshore Impact, the Parties will in good faith seek to agree on changes, if any, to the charges appropriate due to the increased costs, if any, of Subcontractor.  If the parties are unable to agree on such changes, Amdocs shall be entitled to terminate this Agreement upon thirty (30) days prior written notice to Subcontractor.
 
(c)
Subcontractor represents and warrants that, to the extent that Offshore Services are performed and to the extent that AT&T Data is transferred to, processed or stored outside, or accessed from outside of the United States and in addition to its other obligations under this Agreement, Subcontractor shall store and process AT&T Data and store and operate all Application Software in a secure environment designed, monitored and administered to prevent the violation of Laws or this Agreement.  In addition, Subcontractor shall establish, and require all Subcontractor Personnel to comply with, stringent policies and rules regarding the removal of AT&T Data or Application Software from Subcontractor facilities and otherwise requiring Subcontractor Personnel to act in accordance with this Agreement and Laws, and Subcontractor shall establish physical and logical measures to ensure that such policies and rules are followed.  Under no circumstances shall AT&T Data or Application Software used in Offshore Services be removed from Subcontractor facilities.
 
10.9.
Interoperability
 
Subcontractor represents and warrants that the Systems used to provide the Services will be Compliant with the specifications set forth in the Order.
 
10.10.
Disclaimer
 
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, NEITHER PARTY MAKES ANY REPRESENTATIONS, CONDITIONS OR WARRANTIES TO THE OTHER PARTY, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
 
11.
FEES, RATES AND EXPENSES
 
11.1.
In consideration for the Services and Deliverables to be provided by Subcontractor hereunder, Amdocs will pay Subcontractor the fees and expenses set forth in the applicable Order, inclusive of all applicable taxes (including, but not limited to, sales tax if applicable to Subcontractor). Subcontractor’s fees will be based on (i) a fixed price for the Services and Deliverables as set out in the Order; or (ii) Subcontractor’s time and materials rates as specified in the Order.
 
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11.2.
In the event of Services provided on a time and materials basis, Subcontractor shall provide to Amdocs an estimate for the cost of the Services, based upon the amount of time that Subcontractor Personnel will be engaged in the provision of the Services. Amdocs shall not pay for any work performed which exceeds the estimate and which is not allowed for in the Order.
 
11.3.
Save as may otherwise be agreed in an Order, payments to Subcontractor under an Order will be made within [**] days of the last to occur of Amdocs’ receipt of Subcontractor’s invoice and Amdocs’ receipt of the corresponding payment from AT&T.  Amdocs will be entitled to withhold payment of any portion of an invoice that it disputes in good faith until such dispute is resolved.  All payments will be made in U.S. Dollars unless otherwise mutually agreed to by the Parties. Subcontractor agrees that if Amdocs is required to return amounts to AT&T associated with the Deliverables or Services due to the fault of Subcontractor, then within [**] days of receipt of notice from Amdocs of such requirement, Subcontractor shall reimburse Amdocs such amount.
 
11.4.
Amdocs shall not be responsible for any travel, meal or other business related expense incurred by Subcontractor whether or not incurred in its performance of its obligations under this Agreement, unless reimbursement of expenses is expressly authorized in an Order pursuant to this Agreement.  If reimbursement of expenses is so authorized, in order to be reimbursable, each and every such expense must comply with the requirements of AT&T’s Vendor Expense Policy (the “Expense Policy”), a copy of which will be provided to Subcontractor.
 
11.5.
Additionally, the Parties agree as follows:
 
(a)
Travel and living expenses will not be paid for resources working at their primary work location or in the same metropolitan area as their primary work location.
 
(b)
Certain travel and living expenses may be subject to caps imposed by AT&T and/or Amdocs.
 
11.6.
Except as provided herein, it is understood that any and all costs and expenses incurred by either Party in connection with this Agreement shall be borne by that Party.
 
11.7.
With respect to any amount to be paid or reimbursed by Amdocs hereunder, Amdocs may set off against such amount any amount that Subcontractor is obligated to pay Amdocs hereunder.
 
12.
SERVICE LEVELS AND LIQUIDATED DAMAGES
 
12.1.
Subcontractor shall perform the Services at the levels of accuracy, quality, completeness, timeliness, responsiveness and productivity that meet high standards of the software and software service industries.
 
12.2.
Subcontractor acknowledges that Amdocs may be required to pay liquidated damages to AT&T under the Prime Contract if delivery of the Deliverables or Services is delayed. Accordingly, if requested by Amdocs in the applicable Order, Subcontractor agrees to pay to Amdocs such liquidated damages in certain circumstances, to the extent that delivery of the Deliverables or Services is delayed beyond the timetable set forth in the applicable Order  by Subcontractor.  The delivery of the Deliverables and Services shall be deemed to occur only upon delivery of the Deliverables and Services in a manner that conforms to the requirements and specifications set forth in the applicable Order.
 
12.3.
Subcontractor acknowledges that AT&T or Amdocs may require that certain service levels be met with regard to certain Deliverables or Services to be provided in connection with this Agreement (“Service Levels”).  The Parties agree that a service level agreement, which shall set out the applicable severity levels, response and fix times and the Liquidated Damages applicable in the event of failure to comply with such Service Levels, may be attached to an applicable Order.
 
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12.4.
If Subcontractor fails to provide the Services in accordance with the Service Levels and this Agreement, Subcontractor shall (after restoring service or otherwise resolving any immediate problem): (i) promptly investigate and report on the causes of the problem; (ii) provide a Root Cause Analysis of such failure as soon as practicable after such failure or AT&T’s or Amdocs’ request; (iii) use all commercially reasonable efforts to implement remedial action and begin meeting the Service Levels as soon as practicable; (iv) advise Amdocs of the status of remedial efforts being undertaken with respect to such problem; and (v) demonstrate to AT&T’s and Amdocs’ reasonable satisfaction that the causes of such problem have been or will be corrected on a permanent basis.  Subcontractor shall use all commercially reasonable efforts to complete the Root Cause Analysis within [**] days; provided that, if it is not capable of being completed within [**] days using reasonable diligence, Subcontractor shall complete such Root Cause Analysis as quickly as possible and shall notify Amdocs prior to the end of the initial [**] day period as to the status of the Root Cause Analysis and the estimated completion date.  It is not intended that a protracted Root Cause Analysis should unduly delay prompt resolution of service level issues, including allocation of service level credits.  Subcontractor shall provide the results of the Root Cause Analysis to Amdocs in writing or comparable electronic media.
 
12.5.
If Subcontractor becomes aware of any failure by Amdocs to comply with its obligations under this Agreement or any other situation (i) that has impacted or reasonably could impact the maintenance of AT&T’s financial integrity or internal controls, the accuracy of AT&T’s financial, accounting or human resources records and reports or compliance with AT&T’s strategic decisions, or (ii) that has had or reasonably could have any other material adverse impact on the Services in question or the impacted business operations of AT&T, then Subcontractor  shall immediately inform Amdocs in writing of such situation and the impact or expected impact and Subcontractor and Amdocs shall meet to formulate an action plan to minimize or eliminate the impact of such situation.
 
13.
CHANGE MANAGEMENT
 
13.1.
The Parties agree that all changes to this Agreement, or any changes to an Order which materially alter the terms and conditions of this Agreement, must be set forth in a written amendment to such Order (such amendment, a “Change Order”), and signed by the Parties.
 
13.2.
The rights and obligations of both Parties in connection with this Agreement, including any Order, shall not be changed, until a proposed Change Order is agreed to and mutually executed.  Until such Change Order has been executed by both Parties, each Party shall continue to perform its obligations in accordance with the Agreement and the applicable Orders.
 
14.
OWNERSHIP OF MATERIALS
 
14.1.
AT&T Owned Materials
 
AT&T shall be the sole and exclusive owner, including all United States and foreign patent, copyright and other intellectual property rights, of (a) all Software and other Materials owned by AT&T prior to the Effective Date or developed or acquired by or on behalf of AT&T on or after the Effective Date, (b) all enhancements and Derivative Works of such Software and other Materials (other than as expressly agreed in writing by the Parties outside the scope of this Agreement), and (c) certain Developed Materials, as provided in Section 14.2 (collectively, “AT&T Owned Materials”).
 
14.2.
Developed Materials
 
14.2.1.
Ownership by AT&T :  All Developed Materials created by or for Subcontractor in connection with the Services provided by Subcontractor under this Agreement shall, upon creation, be owned by AT&T and considered to be works made for hire (as that term is used in Section 101 of the Copyright Act or other applicable Law).  If any such Developed Materials may not be considered a work made for hire under applicable Law, Subcontractor hereby irrevocably assigns, and shall assign, to AT&T without further consideration all of Subcontractor’s right, title and interest in and to such Developed Materials (except with regard to any Subcontractor-Owned Materials incorporated therein), including United States and foreign intellectual property rights.  Subcontractor acknowledges that AT&T and the successors and assigns of AT&T shall have the right to obtain and hold in their own name any intellectual property rights in and to such Developed Materials (except with regard to any Subcontractor-Owned Materials incorporated therein).  Subcontractor agrees to execute any documents and take any other actions reasonably requested by AT&T or Amdocs to effectuate the purposes of this Section. Subcontractor is free to redevelop Materials similar to Developed Materials for other customers, provided that such redevelopment does not (i) breach confidentiality obligations of Subcontractor (including under this Agreement) and the Subcontractor Personnel hereunder or (ii) infringe, misappropriate or otherwise violate AT&T’s rights (including rights in the Developed Materials).
 
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14.3.
Subcontractor Owned Materials
 
14.3.1.
General :  Subcontractor shall be the sole and exclusive owner of the (a) Materials it lawfully owned prior to the Effective Date, (b) Materials acquired by Subcontractor on or after the Effective Date, (c) derivative works of Subcontractor Owned Software created by Subcontractor and not otherwise owned by AT&T pursuant to the terms of this Agreement, and (d) Materials developed by Subcontractor other than in the course of the performance of its obligations under this Agreement or in connection with the use of any AT&T Data or AT&T Owned Software (“Subcontractor-Owned Materials” ) , including United States and foreign intellectual property rights in such Subcontractor Owned Materials.
 
14.3.2.
Embedded Materials :  To the extent that Subcontractor desires to embed any Subcontractor-Owned Materials into any Software or Developed Materials, Subcontractor will clearly identify such proposal and obtain AT&T’s permission before such embedding.  To the extent that Subcontractor-Owned Materials are embedded in any Developed Materials, Subcontractor shall not be deemed to have assigned its intellectual property rights in such Subcontractor Owned Materials to AT&T, but, except as the Parties may otherwise provide in a written amendment, Subcontractor hereby grants to AT&T and Amdocs a license to use such Subcontractor-Owned Materials together with the Developed Materials.
 
14.4.
Other Materials
 
This Agreement shall not confer upon either Party intellectual property rights in Materials of the other Party (to the extent not covered by this Article 14) unless otherwise so provided elsewhere in this Agreement.
 
14.5.
General Rights and Restrictions
 
14.5.1.
Each Party agrees to reproduce copyright legends which appear on any portion of the Materials which may be owned by the other Party or third parties.
 
14.5.2.
Nothing in this Agreement shall restrict any employee or representative of a Party from using general ideas, concepts, practices, learning or know-how relating to information technology, network and data processing products and services that are retained solely in the unaided memory of such employee or representative after performing the obligations of such Party under this Agreement, except to the extent that such use infringes upon any patent, copyright or other intellectual property right of a Party or its Affiliates; provided, however, that this Section shall not be deemed to limit either Party’s obligations under this Agreement with respect to the disclosure or use of Proprietary Information.  An individual’s memory is unaided if the individual has not intentionally memorized the Proprietary Information for the purpose of retaining and subsequently using or disclosing it and does not identify the information as Proprietary Information upon recollection.
 
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14.5.3.
Should either Party incorporate into Developed Materials any intellectual property subject to third party patent, copyright or license rights, any ownership or license rights granted herein with respect to such Materials shall be limited by and subject to any such patents, copyrights or license rights; provided that, prior to incorporating any such intellectual property in any Materials, the Party incorporating such intellectual property in the Materials has disclosed this fact and obtained the prior approval of the other Party.
 
15.
AT&T DATA AND OTHER PROPRIETARY INFORMATION
 
15.1.
Ownership of AT&T Data and AT&T Derived Data
 
15.1.1.
AT&T Data is the property of AT&T. To the extent needed to perfect AT&T’s ownership in AT&T Data, Subcontractor hereby assigns all right, title and interest in AT&T Data to AT&T.  No transfer of title in AT&T Data is implied or shall occur under this Agreement. Subcontractor shall promptly return AT&T Data, at no cost to AT&T, and in the format and on the media prescribed by AT&T (i) at any time at AT&T’s or Amdocs’ request, regardless of the expiration or termination of this Agreement, (ii) at the expiration or termination of this Agreement, or (iii) with respect to particular AT&T Data, whenever such data is no longer needed by Subcontractor to perform its obligations under this Agreement. AT&T Data shall not be (a) utilized by Subcontractor for any purpose other than as required to fulfill its obligations under this Agreement, (b) sold, assigned, leased, commercially exploited or otherwise provided to or accessed by third parties, whether by or on behalf of Subcontractor, (c) withheld from Amdocs or AT&T by Subcontractor, or (d) used by Subcontractor to assert any lien or other right against or to it.  Subcontractor shall promptly notify Amdocs if Subcontractor believes that any use of AT&T Data by Subcontractor contemplated under this Agreement or to be undertaken as part of the performance of this Agreement is inconsistent with the preceding sentence.

15.1.2.
AT&T shall own all right, title and interest to the AT&T Derived Data.  To the extent needed to perfect AT&T’s ownership in AT&T Derived Data, Subcontractor hereby assigns all right, title and interest in AT&T Derived Data to AT&T. Subcontractor shall deliver AT&T Derived Data in the format, on the media and in the timing prescribed by Amdocs.  Such delivery shall be at no cost to Amdocs unless the format, media, or timing prescribed by Amdocs for delivery would cause Subcontractor to incur substantial additional costs, in which case Subcontractor shall so notify Amdocs and the Parties shall negotiate in good faith to determine whether the format, media, or timing can be changed to avoid Subcontractor’s incurring such costs or to determine whether Amdocs is willing to reimburse Subcontractor for such costs.  For the avoidance of doubt, Subcontractor shall not create or develop AT&T Derived Data after the expiration or termination of this Agreement.
 
15.2.
Safeguarding AT&T Data
 
15.2.1.
Subcontractor shall establish and maintain environmental, safety and facility procedures, data security procedures and other safeguards against the destruction, loss, unauthorized access or alteration of AT&T Data in the possession of Subcontractor which are (a) no less rigorous than those maintained by Subcontractor for its own information of a similar nature, and (b) adequate to meet the requirements of AT&T’s record retention policy and applicable Laws.  Subcontractor will revise and maintain such procedures and safeguards upon AT&T’s or Amdocs’ request.  AT&T and Amdocs shall have the right to establish backup security for AT&T Data and to keep backup copies of the AT&T Data in AT&T’s possession at AT&T’s expense if AT&T so chooses.  Subcontractor shall remove all AT&T Data from any media taken out of service and shall destroy or securely erase such media in accordance with Amdocs’ instructions.  No media on which AT&T Data is stored may be used or re-used to store data of any other customer of Subcontractor or to deliver data to a third party, including another Subcontractor customer, unless securely erased in accordance with Amdocs’ instructions.  In the event Subcontractor discovers or is notified of a breach or potential breach of security relating to AT&T Data, Subcontractor will expeditiously under the circumstances notify AT&T and Amdocs and investigate and remediate the effects of such breach or potential breach of security and will provide AT&T and Amdocs with such assurances as AT&T or Amdocs shall request that such breach or potential breach will not recur.
 
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15.2.2.
As part of the Services, Subcontractor shall be responsible for developing and maintaining procedures for the reconstruction of lost AT&T Data which are no less rigorous than those maintained by Subcontractor for its own information of a similar nature.
 
15.2.3.
Subcontractor shall at all times adhere to the procedures and safeguards specified in Sections 15.2.1 and 15.2.2, and shall correct, at no charge to Amdocs, any destruction, loss or alteration of any AT&T Data attributable to the failure of Subcontractor or Subcontractor Personnel to comply with Subcontractor’s obligations under this Agreement.
 
15.3.
Confidentiality
 
15.3.1.
Amdocs and Subcontractor have entered into a Non-Disclosure and Confidentiality Agreement dated as of _______________________ (the “NDA”). The Parties acknowledge and agree that the NDA shall apply to the rendering of the Services hereunder and shall survive any termination or expiration of this Agreement or any Order.  Subcontractor shall protect the confidentiality of any AT&T confidential and proprietary information in accordance with the NDA.
 
15.3.2.
At Amdocs’s request, Subcontractor will sign a non-disclosure agreement with AT&T.
 
15.3.3.
Subcontractor Personnel will sign the Confidentiality and Invention Agreement attached as Exhibit D .
 
15.4.
Information -- Customer
 
15.4.1.
Except as provided herein, title to all Customer Information shall be in AT&T.  Except as otherwise provided herein, no license or rights to any Customer Information are granted to Subcontractor hereunder.
 
15.4.2.
Subcontractor acknowledges that Customer Information received may be subject to certain privacy laws and regulations and requirements, including requirements of AT&T.  Subcontractor shall consider Customer Information to be private, sensitive and confidential.  Accordingly, with respect to Customer Information, Subcontractor shall comply with all applicable privacy laws and regulations and requirements, including, but not limited to, the CPNI restrictions contained in Section 222, and, for AT&T’s customers residing in California, the Constitution of California (Article I, § 1), the California Public Utilities Code (§§ 2891 – 2894), and General Order 107-B of the California Public Utilities Commission.  Accordingly, Subcontractor shall:
 
(d)
comply with AT&T’s privacy policies (which are available at http://att.sbc.com/gen/privacy-policy?pid=2506 or its successors made known to Subcontractor); [Internal policies]
 
(e)
not use any CPNI to market or otherwise sell products to AT&T’s customers, except to the extent necessary for the performance of Services for AT&T or as otherwise approved or authorized by AT&T in this Agreement or in writing;
 
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(f)
make no disclosure of Customer Information to any party other than AT&T or Amdocs, except to the extent necessary for the performance of Services for AT&T or except such disclosure required under force of law; provided that Subcontractor shall provide AT&T and Amdocs with notice immediately upon receipt of any legal request or demand by a judicial, regulatory or other authority or third party to disclose or produce Customer Information;  Subcontractor shall furnish only that portion of the Customer Information that is legally required to furnish and shall provide reasonable cooperation to AT&T and Amdocs should AT&T or Amdocs exercise efforts to obtain a protective order;
 
(g)
not incorporate any Customer Information into any database other than in a database maintained exclusively for the storage of AT&T’s Customer Information;
 
(h)
not incorporate any data from any of Subcontractor’s other customers, including Affiliates of AT&T, into AT&T’s customer database;
 
(i)
make no use whatsoever of any Customer Information for any purpose except to comply with the terms of this Agreement;
 
(j)
make no sale, license or lease of Customer Information to any other party;
 
(k)
restrict access to Customer Information to only those employees of Subcontractor that require access in order to perform Services under this Agreement;
 
(l)
implement and comply with a data security plan, approved in advance in writing by Amdocs , and other procedures as may be agreed by the Parties relative to the security of Customer Information at all times in performing Services hereunder;
 
(m)
prohibit and restrict access or use of Customer Information by any of Subcontractor’s other customers, Subcontractor’s Affiliates, or third parties except as may be agreed otherwise by the Parties ;
 
(n)
promptly return all Customer Information to Amdocs  upon expiration, termination or cancellation of this Agreement or applicable schedule or Order, unless expressly agreed or instructed otherwise by the Parties ; and
 
(o)
immediately notify Amdocs upon Subcontractor’s awareness of (A) any breach of the above-referenced provisions, (B) any disclosure (inadvertent or otherwise) of Customer Information to any third party not expressly permitted herein to receive or have access to such Customer Information, or (C) a breach of, or other security incident involving, Subcontractor’s systems or network that could cause or permit access to Customer Information inconsistent with the above-referenced provisions, and such notice shall include the details of the breach, disclosure or security incident.  Subcontractor shall fully cooperate with AT&T and Amdocs in determining, as may be necessary or appropriate, actions that need to be taken including, but not limited to, the full scope of the breach, disclosure or security incident, corrective steps to be taken by Subcontractor, the nature and content of any customer notifications, law enforcement involvement, or news/press/media contact etc., and Subcontractor shall not communicate directly with any AT&T customer without AT&T’s and Amdocs’s consent, which such consent shall not be unreasonably withheld.
 
15.5.
File Access
 
AT&T will have unrestricted access to, and the right to review and retain the entirety of, all computer or other files containing AT&T Data, as well as all systems and network logs.  At no time will any of such files or other materials or information be stored or held in a form or manner not immediately accessible to AT&T.
 
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16.
INDEPENDENT CONTRACTOR
 
16.1.
It is hereby understood and agreed that Subcontractor will perform its Services hereunder as an independent contractor.  Nothing in this Agreement is intended to or shall be deemed to create a partnership or joint venture of any kind or for any purpose. There is no employer/employee relationship between Amdocs and Subcontractor or Subcontractor Personnel, and Amdocs will not have any liability toward Subcontractor or its Personnel based on or arising from such relationship (including, but not limited to, liability for payments to individual employees of Subcontractor for work performed pursuant to a particular Order).  The partners, employees, officers and agents of one Party, in the performance of this Agreement, shall act only in the capacity of representatives of that Party and not as employees, officers or agents of the other party and will not be deemed for any purpose to be employees of the other. Amdocs is not, nor shall Amdocs be deemed to be, a joint employer with, or an agent of, Subcontractor. Subcontractor Personnel are not, and will not be, entitled to make any representations or commitments on behalf of Amdocs, and/or represent Amdocs.
 
16.2.
During the term of this Agreement, Subcontractor, and not Amdocs, shall be solely responsible for: (a) paying all wages and other compensation to Subcontractor Personnel, (b) withholding and payment of all income taxes and any other taxes and applicable amounts with respect to payments made to Subcontractor Personnel, (c) providing all insurance and other employment related benefits to Subcontractor Personnel, and (d) making any overtime payments to Subcontractor Personnel if required by the applicable laws or regulations.
 
16.3.
Subcontractor Personnel shall not, as a result of providing Services, be entitled to any additional benefits that may accrue or be paid to employees of Amdocs under any employee retirement or insurance program or any other type of employee program of any nature, including, without limitation, sick leave or pay, vacation leave or pay, or health or accident insurance coverage.
 
16.4.
Subcontractor acknowledges that it will be treated as an independent contractor for all tax purposes, including but not limited to employment taxes.  Consequently, Subcontractor hereby accepts exclusive liability for, and agrees to hold Amdocs harmless for and indemnify Amdocs against, the payment by Amdocs of any taxes, contributions or other amounts pursuant to any applicable federal, state or local laws based upon the salaries or payroll of “employees,” as that term is defined for such purposes, and related to Subcontractor’s rendition of the Services pursuant to this Agreement.
 
16.5.
Subcontractor shall comply with all federal and state laws, including, but not limited to, the requirements to (i) make estimated tax payments and to report all items of gross receipts as income from the operation of its business and (ii) pay all self-employment taxes.
 
17.
ASSIGNMENT
 
Subcontractor will not, without first obtaining Amdocs’s written consent, assign, delegate or subcontract this Agreement or any of its obligations under this Agreement or any Order to any third party.
 
18.
INSURANCE
 
Subcontractor will, at Subcontractor’s expense, maintain the insurance coverage and comply with the insurance requirements set out in Exhibit E and shall comply with such other insurance requirements as may be required by law or requested by AT&T (including as requested of Amdocs by AT&T) from time to time.
 
19.
INDEMNITY
 
19.1.
Indemnity by Subcontractor
 
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19.1.1.
General Indemnification.   Subject to the provisions of Section 19.4, Subcontractor agrees to indemnify, defend and hold harmless Amdocs and AT&T and their respective officers, directors, employees, agents, representatives, successors, and assigns from any and all Losses and threatened Losses relating to third party claims arising from or in connection with any of the following:
 
(a)
Subcontractor’s breach of any of the representations, warranties and covenants set forth in Sections 10.4 and 10.8;
 
(b)
[**];
 
(c)
Infringement or misappropriation or alleged infringement or misappropriation of a patent, trade secret, copyright or other proprietary rights in contravention of Subcontractor’s representations, warranties and covenants in Section 10.3;
 
(d)
Taxes, together with related interest and penalties, that are the responsibility of Subcontractor;
 
(e)
Any claim, other than an indemnification claim under this Agreement, initiated by Subcontractor’s subcontractor asserting rights under this Agreement;
 
(f)
[**];
 
(g)
Any claim by Subcontractor Personnel for death or bodily injury suffered on a AT&T or Amdocs site, except to the extent caused by AT&T’s or Amdocs’s gross negligence or willful misconduct;
 
(h)
Any claim relating to any: (i) violation by Subcontractor, Subcontractor Affiliates or subcontractors, or their respective officers, directors, employees, representatives or agents, of Federal, state, provincial, local, international or other Laws or regulations or any common law protecting persons or members of protected classes or categories, including laws or regulations prohibiting discrimination or harassment on the basis of a protected characteristic; (ii) liability arising or resulting from the employment of Subcontractor Personnel by Subcontractor, Subcontractor Affiliates or Subcontractors; (iii) payment or failure to pay any salary, wages or other cash compensation due and owing to any Subcontractor Personnel; (iv) employee pension, benefit plan, bonus program, vacation benefit, sick leave benefit, tuition assistance, severance program, medical benefit, stock benefit, stock option benefit or other benefits of any Subcontractor Personnel; (v) other aspects of the employment relationship of Subcontractor Personnel with Subcontractor, Subcontractor Affiliates or subcontractors or the termination of such relationship, including claims for wrongful discharge, claims for breach of express or implied employment contract and claims of joint employment or co-employment;
 
(i)
Pledging Damages :  Claims by third parties in connection with payment right transfers by Subcontractor associated with this Agreement.
 
19.2.
Indemnity by Amdocs
 
19.2.1.
Subject to the provisions of Section 19.4, Amdocs agrees to indemnify, defend and hold harmless Subcontractor and its officers, directors, employees, agents, representatives, successors, and assigns, from any Losses and threatened losses relating to third party claims arising from or in connection with any of the following:
 
(a)
Amdocs’s breach of any of the representations, warranties and covenants set forth in Sections 10.4 and 10.8;
 
(b)
Amdocs breach of its obligations with respect to Subcontractor’s Proprietary Information;
 
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(c)
Any claim by Amdocs employees for death or bodily injury suffered on a Subcontractor facility under this Agreement, except to the extent caused by Subcontractor’s gross negligence or willful misconduct; and
 
(d)
Infringement or misappropriation or alleged infringement or misappropriation of a patent, trade secret, copyright or other proprietary rights in contravention of Amdocs’s representations, warranties and covenants in Section 10.3.
 
19.3.
Additional Indemnities
 
Subcontractor and Amdocs each agree to indemnify, defend and hold harmless the other and their respective Affiliates, officers, directors, employees, agents, representatives, successors, and assigns, from any and all Losses and threatened Losses arising from or in connection with any of the following: (a)  the death or bodily injury of any agent, employee, customer, business invitee, business visitor or other person caused by the negligence or other tortious conduct of the indemnitor or the failure of the indemnitor to comply with its obligations under this Agreement; and (b) the damage, loss or destruction of any real or tangible personal property caused by the negligence or other tortious conduct of the indemnitor or the failure of the indemnitor to comply with its obligations under this Agreement.
 
19.4.
Indemnification Procedures
 
With respect to third party claims, the following procedures shall apply:
 
19.4.1.
Promptly after the entity entitled to indemnification (under Section 19.1 through Section 19.3 or any other provisions of this Agreement) has notice of the commencement or threatened commencement of any civil, criminal, administrative, or investigative action or proceeding involving a claim in respect of which the indemnitee will seek indemnification pursuant to any such Section, the indemnitee shall notify the indemnitor of such claim.  No delay or failure to so notify an indemnitor shall relieve it of its obligations under this Agreement except to the extent that such indemnitor has suffered actual prejudice by such delay or failure.  Within fifteen (15) days following receipt of notice from the indemnitee relating to any claim, but no later than five (5) days before the date on which any response to a complaint or summons is due, the indemnitor shall notify the indemnitee that the indemnitor elects to assume control of the defense and settlement of that claim (a “Notice of Election”).
 
19.4.2.
If the indemnitor delivers a Notice of Election within the required notice period, the indemnitor shall assume sole control over the defense and settlement of the claim; provided, however, that (i) the indemnitor shall keep the indemnitee fully apprised at all times as to the status of the defense, and (ii) the indemnitor shall obtain the prior written approval of the indemnitee before entering into any settlement of such claim asserting any liability against the indemnitee or imposing any obligations or restrictions on the indemnitee or ceasing to defend against such claim.  The indemnitor shall not be liable for any legal fees or expenses incurred by the indemnitee following the delivery of a Notice of Election; provided, however, that  (i) the indemnitee shall be entitled to employ counsel at its own expense to participate in the handling of the claim, and (ii) the indemnitor shall pay the fees and expenses associated with such counsel if, in the reasonable judgment of the indemnitee, based on an opinion of counsel, there is a conflict of interest with respect to such claim or if the indemnitor has requested the assistance of the indemnitee in the defense of the claim or the indemnitor has failed to defend the claim diligently. The indemnitor shall not be obligated to indemnify the indemnitee for any amount paid or payable by such indemnitee in the settlement of any claim if (x) the indemnitor has delivered a timely Notice of Election and such amount was agreed to without the written consent of the indemnitor, (y) the indemnitee has not provided the indemnitor with notice of such claim and a reasonable opportunity to respond thereto, or (z) the time period within which to deliver a Notice of Election has not yet expired.
 
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19.4.3.
If the indemnitor does not deliver a Notice of Election relating to any claim within the required notice period, the indemnitee shall have the right to defend the claim in such manner, as it may deem appropriate. The indemnitor shall promptly reimburse the indemnitee for all such costs and expenses incurred by the indemnitee, including attorneys’ fees.
 
19.5.
Subrogation
 
Except as otherwise provided in Exhibit E , in the event that an indemnitor shall be obligated to indemnify an indemnitee pursuant to Section 19.1 through Section 19.3 or any other provision of this Agreement, the indemnitor shall, upon payment of such indemnity in full, be subrogated to all rights of the indemnitee with respect to the claims to which such indemnification relates.
 
20.
LIMITATION OF LIABILITY
 
20.1.
EXCEPT AS PROVIDED IN THIS SECTION 20.1, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR CONSEQUENTIAL, INCIDENTAL, EXEMPLARY, OR PUNITIVE DAMAGES, INCLUDING LOST REVENUE, REGARDLESS OF THE FORM OF THE ACTION OR THE THEORY OF RECOVERY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  Additionally, except as provided below, the total aggregate liability of either Party, for claims asserted by the other Party under or in connection with this Agreement, regardless of the form of the action of the theory of recovery, shall not exceed two times the fees paid or payable under this Agreement.
 
20.2.
The limitations of liability set forth in Section 20.1 shall not apply with respect to:
 
20.2.1.
Losses occasioned by the fraud or willful misconduct of a Party;
 
20.2.2.
Amounts paid with respect to third party claims that are the subject of indemnification under this Agreement;
 
20.2.3.
Losses occasioned by the wrongful termination of this Agreement by Subcontractor;
 
20.2.4.
Losses occasioned by any breach of a Party’s obligations under Article 15; or
 
20.3.
Items Not Considered Damages :  Fees that are due and owing to Subcontractor for Services performed under this Agreement shall not be considered damages subject to, and shall not be counted toward the liability cap specified in Section 20.1. In addition, liquidated damages and Service Level Credits shall not be considered damages subject to, and shall not be counted toward the liability cap specified in Section 20.1.
 
20.4.
Waiver of Liability Cap :  If, at any time, the total aggregate liability of one Party for claims asserted by the other Party under or in connection with this Agreement equals or exceeds [**] of either of the liability caps specified in Section 20.1 and, upon the request of the other Party, the Party incurring such liability refuses to waive such cap and/or increase the available cap to a mutually agreeable amount, then the other Party may terminate this Agreement.
 
20.5.
Acknowledged Direct Damages :  The following shall be considered direct damages and neither Party shall assert otherwise to the extent they result directly from either Party’s failure to perform in accordance with this Agreement:
 
20.5.1.
Costs and expenses of recreating or reloading any lost, stolen or damaged AT&T Data;
 
20.5.2.
Costs and expenses of implementing a work-around in respect of a failure to provide the Services or any part thereof;
 
20.5.3.
Costs and expenses of replacing lost, stolen or damaged Equipment, Software and Materials;
 
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20.5.4.
Cover damages, including the costs and expenses incurred to procure the Services or corrected Services from an alternate source, to the extent in excess of Subcontractor’s fees under this Agreement;
 
20.5.5.
Straight time, overtime or related expenses incurred by AT&T or Amdocs, including overhead allocations for employees, wages and salaries of additional employees, travel expenses, overtime expenses, telecommunication charges and similar charges for cover, due to failure of Subcontractor  to provide all or a portion of the Services incurred in connection with clauses (i) through (iv) above or otherwise perform in accordance with this Agreement;
 
20.5.6.
Straight time, overtime or related expenses incurred by Subcontractor in accordance with this Agreement, including overhead allocations for employees, wages and salaries of additional employees, travel expenses, overtime expenses, telecommunication charges and similar charges for cover, due to Amdocs’s failure to perform an obligation under this Agreement;
 
20.5.7.
Costs and expenses incurred to bring the Services in-house or to contract to obtain the Services from an alternate source, including the costs and expenses associated with the retention of external consultants and legal counsel to assist with any re-sourcing;
 
20.5.8.
Payments, fines, penalties, sanctions, or interest imposed by a governmental body or regulatory agency for failure to comply with requirements or deadlines; and
 
20.5.9.
Service level credits or other credits or liquidated damages assessed against Subcontractor.
 
21.
TERM
 
21.1.
This Agreement shall be in full force and effect for a period of five (5) years commencing on the Effective Date, unless sooner terminated pursuant to the terms hereof (the “Initial Term”).  Thereafter the term of the Agreement may be extended for one or more years (each, an “Extension”) upon the parties’ written agreement. The Initial Term and any Extension(s) shall together be referred to as the “Term.”
 
21.2.
Notwithstanding the foregoing any Order(s) in effect at the time of expiration or Termination of the Agreement will remain in effect and subject to the terms of this Agreement until such Order(s) expire or are terminated in accordance with their terms.
 
22.
TERMINATION
 
22.1.
Termination for Cause
 
22.1.1.
By Amdocs .  If Subcontractor:
 
(a)
commits a material breach of this Agreement, which breach is not cured within [**] days after notice of the breach from Amdocs;
 
(b)
commits a material breach of this Agreement which is not capable of being cured within [**] days;
 
(c)
commits numerous breaches of its duties or obligations which collectively constitute a material breach of this Agreement;
 
(d)
makes an unpermitted assignment of this Agreement;
 
then Amdocs may, by giving notice to Subcontractor, terminate this Agreement with respect to all or any part of the Services as of a date specified in the notice of termination.  If Amdocs chooses to terminate the Agreement in part, the fees payable under the Agreement will be equitably adjusted in accordance with this Agreement.
 
22.1.2.
By Subcontractor :  Subcontractor may only terminate in accordance with the following:
 
In the event that Amdocs fails to pay Subcontractor undisputed Charges for [**] days after the payment due date therefor and fails to cure such default within [**] days of notice from Subcontractor of the possibility of termination for failure to make such payment, then Subcontractor may, by notice to Amdocs, terminate this Agreement.
 
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22.2.
Critical Services
 
Without limiting Amdocs rights under Section 22.1, if Subcontractor commits a material breach which prevents or materially degrades AT&T’s ability to conduct, perform and support a [**]  hours of written notice from Amdocs, Amdocs may, in addition to its other remedies under this Agreement, at law, and in equity, obtain from a third party or provide for itself services which will allow Amdocs to conduct its business without material degradation until Subcontractor has cured the breach or this Agreement is terminated.  During such period, Amdocs shall continue to pay Subcontractor the applicable undisputed fees. Subcontractor shall reimburse Amdocs for all costs and expenses of obtaining or providing such services. The express inclusion of this remedy in this Section 20 does not limit Amdocs’s right to use a similar remedy for other breaches by Subcontractor of this Agreement.
 
22.3.
Termination for Convenience
 
22.3.1.
Amdocs may terminate an Order for convenience upon the provision of [**]written notice to Subcontractor, however, if AT&T determines in good faith that an order Between Amdocs and AT&T regarding specific Project requires immediate Termination due to budget restrictions and terminates such order immediately, Amdocs shall be entitled to terminate the Order regarding such Project immediately by written notice to Subcontractor.
 
22.3.2.
In the event of Termination for Convenience by Amdocs, Subcontractor shall be entitled to compensation in respect of Services performed and Deliverables Accepted prior to the effective date of such Termination for Convenience. Upon receipt of Amdocs’s payment, Subcontractor shall deliver to Amdocs all drafts and versions of the Deliverables which have been prepared pursuant to such terminated Order.
 
22.4.
Insolvency
 
This Agreement may be terminated by either Party on written notice if the other Party shall become insolvent, cease doing business as a going concern, make an assignment for the benefit of its creditors, or admit in writing its inability to pay debts, or if proceedings are instituted by or against it in bankruptcy, under the insolvency laws, or for receivership or dissolution, provided such proceedings are not dismissed within thirty (30) days of their commencement.
 
22.5.
Upon receipt of any termination notice from Amdocs, Subcontractor shall, if so requested by Amdocs, immediately cease performing work and incurring costs in connection with the applicable Order. All notices of intention to terminate this Agreement or any Order shall be provided in writing by the terminating Party to the other Party and shall set forth the effective date of Termination.  In the event of termination, the provisions of this Agreement that by their nature are intended to survive this Agreement shall survive.
 
23.
GOVERNING LAW AND DISPUTE RESOLUTION
 
23.1.
The validity, performance, construction and effect of this Agreement shall be governed by the laws of Texas, without giving effect to its choice-of-law rules.  In any litigation arising out of this Agreement, and to the fullest extent permitted by Law, the Parties hereby irrevocably agree, submit and waive objection to jurisdiction and venue in, the United States District Court for the Southern District of New York, provided that in any litigation arising out of this Agreement in which AT&T is a party, and to the fullest extent permitted by Law, the Parties hereby irrevocably agree, submit and waive objection to jurisdiction and venue in, the United States District Court for the Central District of Texas and the District Courts of the State of Texas, Bexar County.
 
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23.2.
The Parties will use their best efforts to resolve any controversy or claim arising out of or relating to this Agreement or an Order through good faith negotiations during a period not to exceed [**] days.
 
23.3.
Arbitration
 
23.3.1.
Except for claims arising out of the breach of a Party’s obligations under Article 15, any controversy or claim arising out of or relating to this Agreement, or any breach thereof, which cannot be resolved using the procedures set forth above in Section 23.2, shall be finally resolved under the Commercial Arbitration Rules of the American Arbitration Association then in effect; provided, however, that without limiting any rights or remedies under this Agreement, at law, or in equity a Party may have because of an improper termination of this Agreement by the other Party, nothing contained in this Agreement shall limit either Party’s right to terminate this Agreement pursuant to Article 22. Subject to the foregoing, the Parties shall escalate arbitration proceedings so that any dispute relating to Section 22.1 is resolved within any applicable cure period specified in Section 22.1.
 
23.3.2.
The Arbitration shall take place in New York City, New York and shall apply the law of the State of Texas without regard to its choice of law provisions.  The decision of the arbitrator shall be final and binding and judgment on the award may be entered in any court of competent jurisdiction.  The arbitrator shall be instructed to state the reasons for its decisions in writing, including findings of fact and law.  The arbitrator shall be bound by the warranties, limitations of liability and other provisions of this Agreement.  Except with respect to the provisions of this Agreement that provide for injunctive relief rights, such arbitration shall be a precondition to any application by either Party to any court of competent jurisdiction.
 
23.3.3.
Within [**] days after delivery of written notice (“Notice of Dispute”) by one Party to the other in accordance with this Section, the Parties each shall use good faith efforts to mutually agree upon one (1) arbitrator.  If the Parties are not able to agree upon one (1) arbitrator within such period of time, then an arbitrator will be chosen in accordance of the Commercial Arbitration Rules of the American Arbitration Association who has at no time ever represented or acted on behalf of either of the Parties, and is not otherwise affiliated with or interested in either of the Parties.
 
23.3.4.
The arbitrator selected pursuant to this Section shall be a practicing attorney with at least five (5) years’ experience in technology law applicable to the Services.  Any such appointment shall be binding upon the Parties.  The Parties shall use best efforts to set the arbitration within [**] days after selection of the arbitrator, but in no event shall the arbitration be set more than [**] days after selection of the arbitrator.  Discovery as permitted by the Federal Rules of Civil Procedure then in effect will be allowed in connection with arbitration to the extent consistent with the purpose of the arbitration and as allowed by the arbitrator.  The decision or award of the arbitrator shall be rendered within [**] days after the conclusion of the hearing, shall be in writing, shall set forth the basis therefor, and shall be final, binding and nonappealable upon the Parties and may be enforced and executed upon in any court having jurisdiction over the Party against whom the enforcement of such decision or award is sought.  Each Party shall bear its own arbitration costs and expenses and all other costs and expenses of the arbitration shall be divided equally between the Parties; provided, however, the arbitrator may modify the allocation of fees, costs and expenses in the award in those cases where fairness dictates other than such allocation between the Parties.
 
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23.4.
Continued Performance
 
23.4.1.
General :  Each Party agrees that it shall, unless otherwise directed by the other Party, continue performing its obligations under this Agreement while any dispute is being resolved; provided that this provision shall not operate or be construed as extending the term of this Agreement.   For purposes of clarification, AT&T Data may not be withheld by Subcontractor pending the resolution of any dispute.
 
23.4.2.
Non-Interruption of Service :  Subcontractor acknowledges and agrees that any interruption to the Service will cause irreparable harm to AT&T, in which case an adequate remedy at law would not be available.  Subcontractor expressly acknowledges and agrees that, pending resolution of any dispute or controversy, it will not deny, withdraw, or restrict Subcontractor’s provision of the Services to AT&T under this Agreement, except as specifically and expressly agreed in writing by AT&T and Subcontractor.  Subcontractor further agrees as follows:
 
(a)
In the event of any material breach by Subcontractor (or attempt or threat of breach) of any of the terms of this Agreement that could reasonably be expected to cause an interruption to the Services or compromise of rights of AT&T under this Agreement (including provision of access to computers or other files containing AT&T Data in accordance with this Agreement), Amdocs may proceed directly to court without going through any otherwise applicable procedures or waiting periods set forth in Article 23.  If a court of competent jurisdiction should find that Subcontractor has breached (or attempted or threatened to breach) any such obligations, Subcontractor agrees that without any additional findings of irreparable injury or other conditions to injunctive relief, it shall not oppose the entry of an appropriate order compelling performance by Subcontractor and restraining it from any further breaches (or attempted or threatened breaches).
 
(b)
Subcontractor shall not intentionally interrupt the Services or provide reduced levels of Service quality or support.
 
(c)
To the extent that Subcontractor suspends the availability of the Services or any portion of the Services because it is required to do so by a governmental authority of competent jurisdiction (“Government Requirement”), Subcontractor shall promptly use all reasonable efforts to comply with any such Government Requirement to the extent necessary to fully restore the Services.
 
24.
FORCE MAJEURE
 
24.1.
A Party is excused from performing its obligations under this Agreement or any Order if, to the extent that, and for so long as:
 
i.
such Party’s performance is prevented or delayed by an act or event (other than economic hardship, changes in market conditions or insufficiency of funds) that is beyond its reasonable control and could not have been prevented or avoided by its exercise of due diligence; and
ii.
such Party gives written notice to the other Party, as soon as practicable under the circumstances, of the act or event that so prevents such Party from performing its obligations.

By way of illustration, and not by way of limitation, acts or events that may prevent or delay performance (as contemplated by this Section) include:  acts of God or the public enemy, acts of civil or military authority, terrorists acts, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, and labor disputes (even if AT&T is involved in a labor dispute). If Subcontractor is the Party whose performance is prevented or delayed, and if such event of Force Majeure continues for a period of [**] days or more, at any point thereafter during the pendency of such Force Majeure event, Amdocs may elect to:

i.
Terminate, in whole or in part, the affected Orders, without any liability to Subcontractor,  or
ii.
Suspend the affected Orders or any part thereof for the duration  of the delay; and (at Amdocs’ option) obtain Material and Services elsewhere and deduct from any commitment under such Order the quantity of the Material and Services obtained elsewhere or for which commitments have been made elsewhere; and resume performance under this Agreement or such Order when Subcontractor resumes its performance; and extend any affected Delivery Date or performance date up to the length of time Subcontractor’s performance was delayed or prevented.
 
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24.2.
Upon the occurrence of a force majeure event, Subcontractor shall implement promptly, as appropriate, its disaster recovery plan and provide disaster recovery services, and shall periodically update and test such disaster recovery plan, as described in Exhibit F . The occurrence of a force majeure event shall not relieve Subcontractor of its obligation to implement its disaster recovery plan and provide disaster recovery services.
 
24.3.
If Subcontractor fails to provide Services in accordance with this Agreement due to the occurrence of a force majeure event, all amounts payable to Subcontractor hereunder shall be equitably adjusted in a manner such that Amdocs is not required to pay any amounts for Services that it is not receiving from Subcontractor.
 
24.4.
Without limiting Subcontractor’s obligations under this Agreement, whenever a force majeure event or disaster causes Subcontractor to allocate limited resources between or among Subcontractor’s customers and Affiliates, Amdocs shall receive at least the same treatment as comparable Subcontractor customers.
 
25.
GENERAL TERMS AND CONDITIONS
 
25.1.
Subcontractor will not induce or attempt to induce AT&T, either directly or indirectly, to cease doing business with Amdocs.  In addition, Subcontractor agrees that during the term of this Agreement, Subcontractor will not, directly or indirectly, provide services to AT&T that would involve Amdocs’s software or applications.
 
25.2.
Any Amdocs Affiliates shall be entitled to place Orders with Subcontractor pursuant to this Agreement; provided, however, Amdocs shall remain primarily liable for any Orders placed on behalf of one or more Amdocs Affiliates.  In such event, the references in this Agreement to Amdocs shall be deemed to be references to the applicable Amdocs Affiliate.
 
25.3.
Any notice, demand or communication which under the terms of this Agreement or otherwise must or may be given or made by either Party shall be in writing and shall be given or made by certified or registered air mail, return receipt requested, facsimile (electronic confirmation required) or any delivery services requiring signature of receipt, addressed to the respective Parties as set forth on the first page of this Agreement or other addresses of which a Party may notify the other Party in writing.  Subcontractor shall concurrently transmit to Amdocs, in the same manner transmitted to or received from AT&T, any request, permission, approval, claim, or other notice which is transmitted between Subcontractor and AT&T and made in connection to this Agreement.
 
25.4.
Subcontractor’s failure to perform its responsibilities under this Agreement or to meet the Service Levels shall be excused if and to the extent such Subcontractor non-performance is caused by the act or omission of Amdocs (each a “Savings Event”), but only if (i) Subcontractor provides prompt and reasonable notification (including by e-mail) to Amdocs of such act or omission and Subcontractor’s inability to perform under such circumstances, (ii) Subcontractor provides Amdocs with a reasonable opportunity to correct such act or omission and thereby avoid such Subcontractor non-performance, and (iii) Subcontractor uses commercially reasonable efforts to perform notwithstanding such act or omission. Without limiting the foregoing, to the extent Amdocs reasonably believes that a Savings Event has occurred it shall use commercially reasonable efforts to correct such Savings Event and avoid such Subcontractor non-performance.
 
34

 
25.5.
This Agreement, including the NDA and all Orders and Exhibits hereto, is the complete and exclusive statement regarding the subject matter hereof and supersedes any prior or contemporaneous oral or written agreement, understanding, communication or representation with regard to the subject matter hereof.  This Agreement and any Order may only be modified by a written instrument signed by the authorized representatives of the Parties.
 
25.6.
If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate or render unenforceable the entire Agreement, but rather the entire Agreement shall be construed as if not containing the particular invalid or unenforceable provision and the rights and obligations of the Parties shall be construed and enforced accordingly.  In addition, the parties hereby agree to cooperate to replace the invalid or unenforceable provision(s) with valid and enforceable provision(s) which will achieve the same result (to the maximum legal extent) as the provision(s) determined to be invalid or unenforceable.
 
25.7.
No waiver of rights arising under this Agreement or Orders shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced.  No failure or delay by either party in exercising any right, power or remedy under this Agreement shall operate as a waiver of any such right, power or remedy and/or prejudice any rights of such party.
 
25.8.
Headings used in this Agreement are for convenience only and shall not be used for interpretation purposes.
 
25.9.
Obligations under this Agreement, which by their nature would continue beyond the expiration or ending in any other way of this Agreement shall survive the expiration or termination of this Agreement.
 
25.10.
Neither Party shall disclose or publicly refer to the other party or the existence of this Agreement in any advertising or promotional materials, business plans, investment memoranda, or announcements without the other party’s specific, written consent, except that disclosure to AT&T shall be permitted.
 
IN WITNESS WHEREOF, the Parties hereto have entered into this Agreement as of the date first stated above.
 
AMDOCS INC.
 
RADCOM Inc,
 
By:       /s/ Thomas C. Druey
Name:  Thomas C. Drury
Title:    President
Date:    March 26, 2015
By:   /s/ David Ripstein
Name:  David Ripstein
Title:    CEO
Date:    March 23, 2015
 
 
 
35

 
SCHEDULES TO
 
MASTER SUBCONTRACTOR AGREEMENT
 
Between
 
AMDOCS INC.
 
And
Radcom, Inc.
 

 
Table of Contents
 
EXHIBIT A –[**]
3
EXHIBIT B -- [**]
4
EXHIBIT C – [**]
28
EXHIBIT D -- [**]
29
EXHIBIT E -- [**]
31
EXHIBIT F -- [**]
33
 
2

 
Exhibit A --
 
[**]
3

 
Exhibit B - [**]
4

 
Exhibit C – [**]
 
5

Exhibit D -- [**]
 
[**]
 
6

Exhibit E -- [**]
 

7

 
Exhibit F – [**]
 
8

 
 
 


 
EXHIBIT 4.5
 
 
PORTIONS OF THIS AGREEMENT WERE OMITTED AND HAVE BEEN FILED
 SEPARATELY WITH THE SECRETARY OF THE COMMISSION PURSUANT TO AN
APPLICATION FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE
 SECURITIES EXCHANGE ACT OF 1934; [**] DENOTES OMISSIONS
 
Value Added Reseller Agreement
 
This Value Added Reseller Agreement (“ Agreement ”), is entered into by and between Amdocs Software Systems Limited ., existing under the laws of Ireland, having its principal offices at First floor, Block S, East Point Business Park, Dublin 3, Ireland (“ Amdocs ”) and RADCOM Ltd a corporation organized and existing under the laws of  Israel having its principal offices at 24 Raoul Wallenberg Street, Tel Aviv, Israel   (“ Company ”).
 
The purpose of the Agreement is to provide the parties with a commercial framework for marketing, distributing and reselling Company’s products specified in Schedule A (the “ Products ”) and related services by Amdocs or any of its Affiliates (collectively, “ Amdocs ”) to Amdocs’ customers and prospective customers (“ End Users ”).
 
1.
Scope of the Agreement
 
a.
As a reseller Amdocs has the right to offer and resell the Products and related services (maintenance and support, professional services and training) to End Users by reselling Product licenses.
 
b.
Orders for Products shall be made under this Agreement, and orders for related services (such as professional services and maintenance and support) shall be made under an applicable service agreement, if needed, and as will be entered between the parties on a case by case basis.
 
c.
Amdocs or any of Amdocs's Affiliate (as this term is defined herein) shall be entitled to place orders with the Company or any of the Company’s Affiliates under this Agreement and/or the applicable service agreement, as will be mutually agreed on a case by case basis. In such event, the references in this Agreement and/or the applicable service agreement, to Company and/or Amdocs shall be deemed to be references to the applicable Company's and/or Amdocs Affiliate.
 
d.
The Products shall be licensed to End Users pursuant to a written license or subscription agreement to be entered into between Company and the End Users directly. Company will handle any claim related to that license/subscription agreement. Amdocs shall not be a party to the license/ subscription agreement, nor bound by any of its provisions.
 
e.
Company and its suppliers/lawful licensors own all right, title and interest in the Products and related documentation, including all intellectual property rights therein and all, updates and upgrades. With respect to modification, customizations and derivative works, only the above will apply unless otherwise agreed in writing. The rights granted to Amdocs under this Agreement confer no title to, or ownership interest in, the Products and documentation and they are not deemed as a sale of any copies or rights in the Products or the documentation. There are no implied licenses in this Agreement, and all rights not expressly granted to Amdocs herein are reserved solely to Company and/or its suppliers/lawful licensors.
 
2.             Marketing
 
When Amdocs learns of an opportunity for the Products, it will register the opportunity using the Opportunity Registration Form ( Schedule B ).  Within 7 business days of receipt of the notification by the Company, the Company must reject or accept the notice.
 

 
Registered and confirmed opportunities expire six months after last major sales process event (which is either demonstration or proof of concept, and/or an offer to RFXs) to occur, unless extended by the parties.
 
At Amdocs’ request, Company’s sales organization will work closely with Amdocs’ sales organization to sell the Products and related services to End Users, in connection with the relevant opportunity registered. Company will not directly or indirectly, alone or through, including but not limited, any of its affiliates, agents, subcontractors, distributors etc. solicit orders, from those registered End User who have been confirmed as exclusive in the Opportunity Registration Form, for the Products and related services in connection with the specific opportunity registered and confirmed as exclusive.
 
Any orders Company receives from any partner designated in the Opportunity Registration Form (including if designated as “OEM Partner” in said form), shall not be deemed as Company’s solicitation of orders, and such order will not entitle Amdocs for any payment.  Nothing stated in this Agreement, shall prevent Company from working directly and/or indirectly through a partner, which was registered and confirmed in the  Opportunity Registration   Form with the End Users including receiving orders from the End Users, in each of the following events: (i) if the relevant opportunity registered, was not confirmed as exclusive in the Opportunity Registration Form, and/or (ii) in the event the relevant registered opportunity has expired and/or terminated, (iii) in the event Amdocs refuses to process the deal as a reseller of the Company. With respect to registered opportunities, in cases where the End User requests to work directly with the Company and/or if Amdocs is not able to offer, provide and/or perform the Products and/or the Products’ related services, at terms acceptable by and/or agreed with the End User, the parties will discuss in good faith the approach to be taken.
 
3.
Revenue Sharing
 
In this Agreement, “ Proceeds (Amdocs) ” shall mean the net amounts actually received (i.e., cash basis) by Amdocs from an End User. Accordingly, any taxes, duties, insurance, and delivery charges paid by an End User to Amdocs in connection with a sale made to an End User or taxes, duties, insurance and delivery charges paid by Amdocs or withheld from the payments to Amdocs in connection with a sale made to the End User shall not be deemed as part of the Proceeds (Amdocs).
 
a.
End User Licenses (reselling) :
 
1.
The fee payable by Amdocs to Company for hardware and third party software (other than software of Radcom or its affiliates) related to the RADCOM’s Products and provided by Radcom shall be [**] of the Proceeds (Amdocs) paid by the End User to Amdocs which are attributed to the RADCOM’s Products sold by Amdocs to the End User in the applicable transaction (“third party hardware and software license fees”) .
 
2.
The fee payable by Amdocs to Company for RADCOM software licenses Products shall be [**] of the Proceeds (Amdocs) paid by the End User to Amdocs which are attributed to licenses of the Products sold by Amdocs to the End User in the applicable transaction. (" License Fees ").
 
4.            Maintenance and Support for End Users
 
a.
Company will extend maintenance and support to End Users, as mutually agreed in accordance with the following support options:
 
i.
Support Option A - Amdocs shall be responsible for providing Support Level One to End Users, who have purchased support and maintenance services from Amdocs . Company shall provide Support Level Two and Three and maintenance for the Company Products directly to Amdocs. "First Level Support" shall consist of receiving and logging calls by a non-technical person via email, phone or web and shall be available during business working hours of the respective Amdocs Affiliate. Other specific terms may be agreed by the parties on a case by case basis.
 

 
ii.
Support Option B - Company will provide End Users Support Level One, Two and Three and maintenance, provided the End User enters into a maintenance and support contract directly with Company.
 
iii.
Support Option C - Company will provide Support Level One, Two and Three to End Users who have purchased support and maintenance services from Amdocs.
 
iv.
Company will provide maintenance and support in accordance with its standard maintenance and support agreement. Company is fully aware and confirms that the maintenance and support terms will be agreed directly between the End User and the Company.
 
b.            Support Fees:
 
i.
Support Option A - The fee paid by Amdocs to Company for Support Option A shall be [**] of the Proceeds (Amdocs) for such services.
 
ii.
Support Option B - The fee paid by Company to Amdocs for Support Option B shall be [**] of the Proceeds received by Company for such services.
 
iii.
Support Option C - The fee paid by Amdocs to Company for Support Option C shall be [**] of the Proceeds (Amdocs) for such services.
 
The support fees in section 4b (ii)  shall apply beyond two maintenance and support renewals and/or two years of maintenance and support service, the shorter of the two, subject to Amdocs providing Level One (in accordance with Company’s maintenance and support terms) to the End User.
 
5.            Source Code
 
Company acknowledges that it might be required to deposit the Source Code and all the respective documentation if so required by the End User. The terms of the Escrow agreement would be determined on a case by case basis.
 
6.            Lost Sale Fee
 
In this Agreement, “ Proceeds (Company) ” shall mean the net amounts actually received (i.e., cash basis) by Company and its Affiliates. Accordingly, any taxes, duties, insurance, and delivery charges paid to Company (or its Affiliate) in connection with a sale made or taxes, duties, insurance and delivery charges paid by Company (or its affiliate) or withheld from the payments to Company (or its Affiliate) in connection with such sale shall not be deemed as part of the Proceeds (Company)
 
Lost Sale Fee : If Amdocs engages in sales promotion activities, and actively offers and promotes the sale of the Products to an End User, for a certain opportunity, and it was agreed in the Opportunity Registration Form that exclusivity shall apply, but the End User elects to buy the Products for said opportunity directly from Company (or including but not limited from: its Affiliates, agents, subcontractors or their other distributors not mentioned in the registration form or from OEM partners of the Company when not designated in the registration form), Amdocs will receive a fee of [**] of the Proceeds (Company) received by Company (or its Affiliate) from such sale, provided the Company Product operate in conjunction with an Amdocs software and/or services.
 
7.            Support, Testing, Backup, Development and Evaluation Licenses
 
Company hereby grants Amdocs with a worldwide: free-of-charge nonexclusive, non assignable (other than to Amdocs’ entities), royalty free license and right to use the Products during the term of this Agreement for the following purposes: (i) to internally evaluate the Products; (ii) to perform demonstrations for customers and prospective customers, including the right to sub-license under the same license terms set in this Section, during the Term of this Agreement, trial licenses of the Products for allowing a potential End Users for evaluation purposes; trial and demonstration licenses shall be provided for no more than [**], and shall be free provided the relevant customer or End User is not being charged by Amdocs for the demonstration and/or trial   (iii) to receive training for Amdocs’ employees and contractors in the use of the Products; and (iv) for a period of [**] days (which may be extended for further periods subject to Company’s prior approval) to install, use, configure and integrate the Products with Amdocs’ Products for the purpose of pre-production, testing and staging Company’s Products for End Users and prospective customers within Amdocs (and or its Affiliates) premises unless otherwise agreed by the parties; (v) to use and install a reasonable number of copies of the Company’s Products solely for the purpose of end user support and/or any preliminary trouble shooting; (vi) To copy the documentation, incorporate all or any portion of the documentation into or with Amdocs’ documentation for and distribute the documentation for such evaluation and support purposes.
 

 
With respect to third party components combined in and/or offered with the Product but only in relation to Support, Testing, Backup, Development and Evaluation Licenses , it is agreed that a prior written consent from the relevant third party will be required, and that additional costs may be involved.
 
In exercising the above Support, Testing, Backup, Development and Evaluation Licenses , Amdocs shall not:
 
directly or indirectly, in whole or in part, modify, port, re-engineer, change, translate, reverse engineer, decrypt, decompile, disassemble, reprogram, make error corrections to, create derivative works based on, or otherwise attempt or create, or cause others to attempt or create, or discover, the source code or underlying ideas or algorithms of the Product;
 
remove or alter any trademarks or other proprietary notices, legends, symbols or labels that appear on or in connection with Product and/or documentation;
 
use the Product and/or its documentation for development;
 
allow any third party other than an Affiliate to use the Product or documentation;
 
transfer, assign, sell, market, rent, lease, license, distribute, disclose, pledge, grant or convey any other rights whatsoever in the Product or any portion thereof to any third party;
 
reproduce or make any copy of the Product or of any part, portion or module thereof, except for end user support and/or any preliminary trouble shooting only;
 
use, access, evaluate or view the Product or documentation for the purpose of designing, modifying, or otherwise creating any software program which performs functions identical or similar to the functions performed by the Product;
 
Notwithstanding anything contrary in this Agreement, the evaluation, demonstration, trial and training licenses are provided by Company “AS IS” with no warranties, intellectual property infringement indemnity or support, and Company shall not be liable for any damage, direct and/or indirect, arising out of and/or in connection with said licenses.
 
8.            Professional Services
 
Company's professional services will be provided under a specific agreement such as a Master Subcontractor Agreement between the parties, SOW, Order etc.
 
Amdocs will make its commercially reasonable efforts to work in transparent with the Company to ensure best proposal is submitted to the End-User. The fee payable by Amdocs to Company for the services (customization, training and other services to be sold to the relevant End-User and provided by Radcom, but not including maintenance and support) shall be [**] of the Proceeds (Amdocs) paid by the End User to Amdocs which are attributed the services sold by Amdocs to the End User in the applicable transaction. (“Service Fees”) .
 
If a fixed fee proposal and/or contract is required, it will be based on a scope of work determined and agreed to by Amdocs and Company.

 
9.             Training
 
To ensure sufficient technical knowledge of the Company Software, and its use:
 
a.
Company shall train free of charge [**] employees of Amdocs (and its Affiliates) in reselling and marketing the Company Software.
 
b.
To improve the use of the Company Software in connection with Amdocs Software, Company will assist Amdocs’ technical team to educate itself on the features and uses of the Company Software.
 
10.          Payment Terms
 
a.
All undisputed amounts owed by Amdocs to Company shall be due hereunder within [**] days following the later of receipt of the applicable invoice or actual payment from the End User. All undisputed fees owed by Company to Amdocs shall be payable within [**] days following the later of Company's receipt of an invoice from Amdocs or receipt of payment from the End User. Company will not issue the invoice before the Products sold to the End User have been delivered to the End User and in case of software licenses, not before the Products were made available to the End-User.  Invoicing for applicable services shall be in accordance with the relevant service agreement between the Parties or as otherwise agreed in an applicable service order.
 
b.
Each party will notify the other party in writing within [**] business days following receipt of payment from End-User which trigger the payment obligations under this Agreement and the amount which the other party is entitled to receive.
 
c.
All fees payable by Amdocs to Company or by Company to Amdocs are on an inclusive basis and include all current and future applicable taxes and duties, including, but not limited to, Value Added Tax, sales tax and withholding tax, if applicable to such payments. In the event that any of the amounts payable to a Party (or its Affiliates) are subject to withholding taxes, the other Party (or its Affiliates) shall withhold and pay over the required amounts to the appropriate tax authorities within the time provided by law and shall furnish to the other within [**] days thereof, or as soon as practicable thereafter, the official receipts of the relevant tax authorities for the taxes involved.
 
11.          Term and Termination:
 
a.
This Agreement shall commence on the Effective Date and shall be valid for a period of [**] months (“ Original Term ”). This Agreement will be automatically renewed for an additional t [**] month period each time (“ Additional Period ”), unless either party notifies the other of its intent to terminate this Agreement at least [**] days prior to the end of the Original Term or the applicable Additional Period. The Original Term and the Additional Period, if any, shall be collectively referred to herein as the “Term” of this Agreement.
 
b.
Notwithstanding the foregoing, (i) Either party may terminate this Agreement upon [**] days written notice to the other party; (ii) This Agreement may be terminated upon any breach of this Agreement, which remains uncured for [**] days after written notice to the breaching party. In such case, the terminating party may notify the breaching party that this Agreement will terminate following such [**] days cure period.
 
c.
Notwithstanding termination of this Agreement: (i) the terms and conditions of this Agreement will continue to apply to any purchase orders issued by Amdocs and accepted by Company, prior to the termination date  (ii) the terms and conditions of this Agreement will continue to apply to any outstanding quotes issued by Amdocs prior to the termination date for a period of [**] days.
 
12.          General Provisions
 
a.
Amdocs’ Affiliates Any Amdocs’ Affiliate has the right to exercise the same rights and obligations granted to (or undertaken by) Amdocs in this Agreement. Amdocs and/or any of its affiliates have the right to be engaged on a transaction basis on Amdocs’ sole discretion.  In such event, the references in this Agreement to Amdocs shall be deemed to be references to the applicable Amdocs Affiliate. Amdocs hereby warrants and declares, that its Affiliates’ exercise of the same rights and obligations granted to (or undertaken by) Amdocs in this Agreement, shall be subject to the terms of this Agreement, to which said Affiliates agree and bound to. Without derogating the above, Amdocs shall be liable at all times, for the applicable Affiliate’s compliance with the terms of this Agreement.
 

 
 “Affiliate” means an entity that controls, is controlled by, or is under common control with a party, where “control” means the direct or indirect holding of more than [**] of equity ownership or voting rights.
 
b.
Confidentiality. For purposes of this Agreement, the parties agree that exchange and treatment of confidential information shall be treated in accordance with the Non Disclosure & Confidentiality Agreement between Company and Amdocs which is attached hereto as Schedule C .
 
c.
Independent Contractors . The parties to this Agreement are and shall remain independent contractors, and nothing herein shall be construed to create a partnership, agency or joint venture between Company and Amdocs. No fiduciary relations exist.
 
d.
Responsibility for Expenses. During the term of this Agreement, each party will be responsible for its own expenses associated with its sales activities and the negotiation of any reselling agreement signed by the parties.
 
e.
Warranty. Company represents and warrants that (i) it has the right and authority to enter into this Agreement and to grant Amdocs (and its Affiliates) the rights set out in this Agreement, and the rights and licenses hereunder with respect to the Products; (ii) the media, if any, on which the Products are provided shall be free of material defects in material and workmanship and free of any viruses that can be detected by commercially available anti-virus software (iii) any services provided by Company or its Affiliates under this Agreement shall be provided in a workmanlike manner in accordance with generally accepted standards of professional care and skill applicable to the type of work performed.   It is agreed that additional warranty clauses would be agreed directly between the End-User and the Company in the applicable license agreement.
 
It is agreed that any warranty claims by the End Users will be handled by Company, at its sole expense and responsibility.
 
Amdocs represents and warrants that (i) it has the right and authority to enter into this Agreement; (ii) the execution delivery and performance by it of the Agreement does not; (a) violate any charter document of it, (b) violate any agreement or order to which it is a party or by which it or its assets are bound, or (c) require any consent from any person or entity (iii) it shall not make any representations, warranties or guaranties to any party, including the End Users, with respect to the specifications, features or capabilities of the Products or services that are materially inconsistent with or broader than those explicitly set in the applicable documentation and/or by Company in writing.
 
f.
Either Party agrees that it is familiar with the provisions of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other analogous anti-corruption legislation in other jurisdictions it operates in, (together “Anti-Corruption Laws”), that it shall comply at all times with the FCPA Policy and with the Anti-Corruption Laws, and that it shall not in connection with the transactions contemplated by this Agreement make any payment or transfer anything of value, offer, promise or give a financial or other advantage or request, agree to receive or accept a financial or other advantage, either directly or indirectly: (a) to any government official or employee (including employees of a government corporation or public international organization); (b) or to any political party or candidate for public office; (c) or to any other person or entity. Either Party further agrees that it will not take any action which would cause the other Party to be in violation of the U.S. Foreign Corrupt Practices Act, the FCPA Policy or any other applicable anti-corruption law or regulation. Either Party will promptly notify the other Party if it becomes aware of any such violation and will indemnify the other party for any losses, damages, fines, penalties whatsoever which the other Party may suffer or incur, arising out of or incidental to any such violation. In case of breach of the above, the other Party may suspend or terminate this Agreement at any time without notice or indemnity.
 

 
g.
Liability. Except for liability relating to (i) the parties’ confidentiality obligations hereunder and (ii) indemnification obligations under section 12 (h) [excluding 12 (h)(2)] hereunder (Non Infringement and indemnity), and (iii) willful misconduct, (1) neither party will be liable to the other party for any incidental, special, indirect or consequential damages of any kind or nature, whether alleged to be attributed to a breach of this Agreement, tort or otherwise, including, without limitation, lost profits resulting from an alleged breach of this Agreement even if, under applicable law, such lost profits would not be considered consequential or special damages; and (2) the total liability of each party to the other under this Agreement shall not exceed the amounts payable under all orders for Products and services.
 
h.
Non-Infringement and Indemnity. Company represents and warrants that it has the right and authority to enter into this Agreement and to grant Amdocs (and its Affiliates) the rights set out in this Agreement, and the rights and licenses hereunder with respect to the Products/services. Company represents and warrants that the Products and services do not violate or infringe any patent, copyright, trade secret or other proprietary right of any third party and that it is not aware of any facts upon which such a claim for infringement could be based. Company shall at its own expense indemnify, defend and hold harmless Amdocs, its affiliates, their respective customers, officers, directors, employees, agents and End Users (“Amdocs’ indemnitee”) from any and all claims (including third party ones), allegations, demands, suit, cause of action, liabilities, losses, damages, awards, judgments or settlements including all reasonable costs and expenses related thereto including reasonable attorneys’ fees (“Claims”) that will be awarded against Amdocs’ indemnitee by a court of competent jurisdiction or arbitration panel directly arising from or in connection with any Claims that (i) the provision of the Products/services or related services by Company infringes any copyright, trademark, patent, trade secret or other intellectual property right or (ii) Amdocs is in breach of a End User Agreement due to failure on the part of Company to provide the Products/services or related services in accordance with the terms of this Agreement or (iii) Company’s violation of confidentiality or (iv) Claim by or on behalf of Company’s employees, alleging that a relationship of employer-employee exists between them and Amdocs;  provided that Amdocs (i) notifies Company promptly in writing of such claim provided that Amdocs’s failure to provide such notice or to provide it promptly will relieve the Company of its indemnification obligations only if and to the extent that such failure prejudices the Company’s ability to defend the Claims; (ii) grants Company sole control over the defense and settlement thereof; and (iii) reasonably cooperates in response to Company’s request for assistance, at the Company’s sole expense.
 
Amdocs may employ counsel at its own expense to assist it with respect to any such Claim; provided, however, that if such counsel is necessary because of a conflict of interest of either the Company or its counsel or because the Company does not assume control, the Company will bear the expense of such counsel.
 
Company shall have no liability if the alleged infringement is solely  based on (1) combination with third party products neither provided by Company or authorized by Company to be used with the Products and provided and solely to the extent that the alleged infringement would have been avoided without this combination; (2) use for a purpose or in a manner for which the Product was not designed or licensed provided that the alleged infringement would have been avoided without this use (3) use of any older version of the Product, when use of a newer Product’s version would have avoided the infringement, provided that the newer Product’s version was provided and the Company promptly gives notice on the new version and a reasonable amount of time to install, unless Company agrees for Amdocs to maintain the older version; (4) any modification not made with Company’s written approval, where the alleged infringement relates to such modification and would have been avoided but for such modification;
 
Amdocs shall defend and indemnify Company against any third party claim (i) that the use or disposition of Amdocs’ products, whether standalone or in combination with the Product or other third party products,  violate or infringe any patent, copyright, trade secret or other proprietary right of any third party, and pay the resulting costs and damages awarded against Company by a court of competent jurisdiction in a final and binding judgment, provided that Company (a) notifies Amdocs promptly in writing of such claim, (b) grants Amdocs sole control over the defense and settlement thereof (with Company’s retaining the right to hire independent counsel at Company’s expense), and (c) reasonably cooperates if  necessary in response to Amdocs’ request for assistance.
 

THIS SECTION STATES AMDOCS’ SOLE AND EXCLUSIVE REMEDY AND COMPANY’S ENTIRE LIABILITY FOR THIRD PARTY INFRINGEMENT CLAIMS.
 
i.
Independent Evaluation . Amdocs acknowledges that its investment in performing pursuant to this Agreement is the result of its own independent evaluation of the Products and the business opportunities related to the distribution of the Products.
 
j.
Non-Solicitation . In accordance with the applicable law, during the term of this Agreement and for a period of one year after its termination, neither party will solicit, interview, hire, or discuss employment prospects with any officer or employee of the other party; nor will the parties during said restriction period solicit, interview, hire or discuss employment prospects with any former officer or employee of the other party who voluntarily terminated his or her employment for a period of six (6) months after such termination.
 
k.
Assignment . Neither party may assign or transfer any of the rights or responsibilities set forth herein (including by merger or acquisition) without the express written consent of the other. Notwithstanding the above, Amdocs has the right to assign this Agreement to any of its Affiliates.
 
l.
Press Releases. Neither party shall issue a press release regarding this Agreement, nor disclose its existence without the express prior written consent of the other party.
 
m.
Law and Jurisdiction. The validity, performance, construction and effect of this Agreement shall be governed by the laws of the State of New York, U.S.A., excluding its choice of law rules.
 
n.
Escalation Process . The Parties shall promptly attempt to resolve through good faith negotiation any dispute or disagreement between them relating to this Agreement. Each of the Parties may escalate the dispute or disagreement, first to VP Partner Sales (for Amdocs) and VP Products and Marketing (for Company); if VP Partner Sales and VP Products and Marketing fail to reach a consensus within 7 days, the matter shall be escalated to their managers (“ Lead Executives ”).
 
If the dispute is not resolved according to the process described above, Company and Amdocs may refer the dispute to arbitration in accordance with this Agreement but will not initiate such proceedings for the resolution of the dispute until the earlier of: (a) the Lead Executives' joint written conclusion that amicable resolution through continued negotiation is unlikely; (b) 30 days after the matter was escalated to the Lead Executives; or (c) 30 days before the statue of limitation period governing any such cause of action relating to such dispute would expire.
 
o.
Dispute Resolution . Subject to the escalation process set forth in section 12(m) above, any dispute under this Agreement shall be referred to and resolved in accordance with following provisions:
 
i.
Notwithstanding sections 12(m) and 12(n)(iii), intellectual property indemnification claims for court proceedings initiated by a third party against Amdocs (or its Affiliate) may be brought in the court in which Amdocs (or its Affiliate) is being sued.
 
For all other disputes arising under or in connection with this Agreement, these disputes shall be exclusively referred to and finally resolved by binding arbitration conducted by three (3) arbitrators, in accordance with the rules of the the American Arbitration Association (“AAA”) . In the event that the Parties are not able to agree upon the arbitrators’ decision within thirty (30) days of a request by either Party to appoint such arbitrators, the arbitrators will be appointed at the request of either Party by the AAA. The situs of all arbitration proceedings shall be New-York, unless the Parties agree in writing to another situs. All arbitration proceedings and records shall be in English. The arbitration award and/or determination shall be final and binding and judgment may be entered thereon in any court of competent jurisdiction.  The arbitration proceedings contemplated by this section shall be as confidential and private as permitted by law. To that end, the parties shall not disclose the existence, content or results of any proceedings conducted in accordance with this section, and materials submitted in connection with such proceedings shall not be admissible in any other proceeding, provided, however, that this confidentiality provision shall not prevent a petition to vacate or enforce an arbitral award, and shall not bar disclosures required by law.
 

 
p.
Costs Except as otherwise agreed, any and all costs, expenses or liabilities of Amdocs or Company  arising out of this Agreement or its implementation shall be borne by the party incurring the costs, expenses or liabilities.  Each party will be responsible for its own costs, expenses or liabilities incurred in connection with all sales and marketing activities, including expenses associated with the preparation of any proposals.
 
q.
Force Majeure.   Neither party shall be liable hereunder by reason of any failure or delay in the performance of its obligations under this Agreement (other than the obligation to make payments when due) that is caused by force majeure events, such as fire, war, shortage, embargo, riot, insurrection, sabotage, explosion, earthquake, governmental action (rendering provision of the Services unlawful), and/or any other cause, which is beyond the control of such party PROVIDED that such party (i) gives prompt notice of the event causing the failure or delay and (ii) makes all reasonable efforts to perform its obligations as soon as possible.  In the event that either party is unable to perform its obligations for a period of twenty-one (21) days or more the other party may give notice of termination of this Agreement.
 
r.
Statute of limitation - in no event will any cause of action be brought against either Party (or any of its Affiliates) more than three years from the date when either party knew, or should have known after reasonable investigation, of the facts giving rise to the claim(s). The foregoing does not apply to any claim brought against either partyin relation to infringement  of any copyright, trademark, patent, trade secret or other intellectual property right .
 
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their authorized representatives as set forth below.
 
Radcom Limited
(“Company”)
 
Amdocs Software Systems Limited
(“Amdocs”)
 
 
By:        /s/ David Ripstein
Name:   David Ripstein
Title:     President & CEO
Date:    December 30, 2015
By:         /s/ Philip Butler
Name:   Philip Butler
Title:     Director and Assistant Secretary
Date:     December 30, 2015
 
 
 
 
 

SCHEDULE A
 
COMPANY'S PRODUCTS
 
All Radcom’s products and related services
 

 
SCHEDULE B
 
OPPORTUNITY REGISTRATION FORM
 
Partner Entity (Reseller):     Amdocs  Software Systems Limited        SUBMISSION Date:
Partner competence center:
Request made by:
Request made at:
Prospect name:
Prospect country:
Business Unit/Division(s):
Exclusive opportunity for Amdocs only: Yes/No
Company’s other partners related to this opportunity:
 
OEM partners: Yes/No
Project Scope:
·   Brief description Project Scope (including Identifying Name):
·   Architecture environment:
·   Functionality required by the Prospect:
Project phases and timing:
·   Implementation timelines:
·   Rollout due date:
Competition (ISV, SI, IT):
Other comments:
Partner lead
Partner manager:
Sales :
Technical :
Company lead
Company manager:
Sales :
Technical :
☐   Accepted by
With following assumptions:
 
 
Signature
Name
Title
Date
Amdocs
       
Company
       
 


Schedule C- Non Disclosure & Confidentiality Agreement
 

NON-DISCLOSURE AND CONFIDENTIALITY AGREEMENT

 

THIS NON-DISCLOSURE AND CONFIDENTIALITY AGREEMENT (“Agreement”) is made as of the _25_ day of _August_ 2008

 

BY AND BETWEEN:

 

Radcom _Ltd., a corporation organized and existing under the laws of Israel, having its principal offices at 24 Raoul Wallenberg St. Tel-Aviv, 69719, Israel (hereinafter referred to as “COMPANY”)

 

AND

 

Amdocs Software Systems Ltd., a corporation organized and existing under the laws of Ireland, having its principal offices at First Floor, Block S, Eastpoint Business Park, Clontarf, Dublin 3, Ireland (hereinafter referred to as “AMDOCS”).

 

WHEREAS COMPANY is the owner and/or author of and/or has the rights to license certain valuable proprietary routines, computer programs, documentation, trade-secrets, systems, methodology, know-how, marketing and other commercial knowledge, techniques, specifications, plans and other proprietary information associated with and forming part of its software systems, all of which are referred to in this Agreement as the “COMPANY Proprietary Information”; and

 

WHEREAS AMDOCS (or any of its affiliated companies) is the owner and/or author of and/or has the rights to license certain valuable proprietary routines, computer programs, documentation, trade-secrets, systems, methodology, know-how, marketing and other commercial knowledge, techniques, specifications, plans and other proprietary information, including but not limited to material associated with and forming part of the proprietary software systems of AMDOCS, all of which are referred to in this Agreement as the “AMDOCS Proprietary Information”; and

 

WHEREAS COMPANY and AMDOCS wish to evaluate the possibility of cooperating in providing joint solution to telecommunication services providers, and thereafter the parties may, if agreed between them, enter into an agreement relating to such cooperation (the evaluation process and performance of such agreement, if any, are hereinafter referred to as the “Project’’’); and

 

WHEREAS each party may, in connection with the Project, disclose to the other party information which is part of its Proprietary Information and, therefore, the parties wish to set forth the manner in which the COMPANY Proprietary Information and the AMDOCS Proprietary Information will be treated during the Project;

 

NOW THEREFORE, in consideration of the mutual agreements contained herein, the parties agree as follows:

   
1. The term “Proprietary Information”, whenever relating to COMPANY’S information, shall mean the COMPANY Proprietary Information and whenever relating to AMDOCS’ information, shall mean the AMDOCS Proprietary Information,
   
2. The receiving party agrees to hold in confidence the disclosing party’s Proprietary Information, and to refrain from copying, distributing, disseminating or otherwise disclosing such Proprietary Information to anyone, other than to those of its employees who have a need to know such Proprietary Information for purposes of the Project. AMDOCS’ employees are deemed to include employees of its affiliates in the Amdocs group of companies who will be involved in the Project.
   
3. The receiving party undertakes not to use the Proprietary Information of the disclosing party for any purposes other than the Project, and not to sell, grant, make available to, or otherwise allow the use of the disclosing party’s Proprietary Information by any third party, directly or indirectly, except as expressly permitted herein.
- 1 -

     
4. In addition, except as otherwise agreed by the parties in writing for purposes of the Project, each party undertakes not to use, directly or indirectly, the Proprietary Information of the other party or any derivatives thereof in any form (e.g., reports and analyses) for purposes of:
     
  (a) the sale or licensing of any software systems, or the provision of any services, to any third parties; and
     
  (b) the development of any software systems, for itself or any third parties.
     
5. Upon the termination and/or expiration of this Agreement for any reason and/or upon the conclusion of the Project and/or at the request of the disclosing party, the receiving party shall:
     
  (a) return to the disclosing party any document or other material in tangible form in its possession being part of the Proprietary information of the disclosing party, unless otherwise agreed upon in writing between the parties; and/or
     
  (b) destroy any document or other material in tangible form that contains Proprietary Information of the disclosing party and the receiving party; and
     
  (c) confirm such return or destruction in writing to the disclosing party.
     
6. Disclosure of the disclosing party’s Proprietary Information to the receiving party may only be made in writing or other tangible or electronic form that is marked as proprietary and/or confidential information of the disclosing party, or occur by demonstration of any product within the AMDOCS products.
   
7. Disclosure of the disclosing party’s Proprietary Information to the receiving party shall in no way serve to create, on the part of the receiving party, a license to use, or any proprietary right in, the disclosing party’s Proprietary Information or in any other proprietary product, trademark, copyright or other right of the disclosing party.
   
8. The confidentiality obligations of the receiving party regarding the disclosing party’s Proprietary Information shall not apply to such Proprietary Information which:
   
  (a) becomes public domain without fault on the part of the receiving party;
     
  (b) is lawfully obtained from a source other than the disclosing party, free of any obligation to keep it confidential;
     
  (c) is previously known to the receiving party without an obligation to keep it confidential, as can be substantiated by written records;
     
  (d) is expressly released in writing from such obligations by the party that owns or has the rights to such Proprietary Information; or
     
  (e) is required to be disclosed pursuant to law, regulation, judicial or administrative order, or request by a governmental or other entity authorized by law to make such request; provided, however, that the receiving party so required to disclose shall first notify the disclosing party to enable it to seek relief from such requirement, and render reasonable assistance requested by the disclosing party (at the disclosing party’s expense) in connection therewith.
- 2 -

   
9. Any use by the receiving party of the disclosing party’s Proprietary Information permitted under this Agreement is conditioned upon the receiving party first taking the safeguards and measures required to secure the confidentiality of such Proprietary Information. Without limiting the generality of the foregoing, each party shall draw to the attention of its employees, including those employees of the affiliates referred to in Section 2 above, who shall have access to the Proprietary Information of the other party, all the obligations concerning such Proprietary Information contained in this Agreement
   
10. This Agreement shall be in full force and effect for a period of seven (7) years commencing on the date first stated above. However, the provisions of Sections 3, 4 and 7 above shall survive the termination and/or expiration of this Agreement for any reason.
   
11. Each party acknowledges that its breach of this Agreement may cause the other party extensive and irreparable harm and damage, and agrees that the other party shall be entitled to injunctive relief to prevent use or disclosure of its Proprietary Information not authorized by this Agreement, in addition to any other remedy available to the other party under applicable law.
   
12. This Agreement constitutes the entire agreement between the parties and supersedes any prior or contemporaneous oral or written representation with regard to the subject matter hereof. This Agreement may not be modified except by a written instrument signed by both parties.
   
13. If, however, any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate or render unenforceable the entire Agreement, but rather the entire Agreement shall be construed as if not containing the particular invalid or unenforceable provision or provisions, and the rights and obligations of the parties shall be construed and enforced accordingly. In addition, the parties agree to cooperate to replace the invalid or unenforceable provision(s) with valid and enforceable provision(s) which will achieve the same result (to the maximum legal extent) as the provision(s) determined to be invalid or unenforceable.
   
14. Neither this Agreement, nor the disclosure of Proprietary Information under this Agreement, nor the ongoing discussions and correspondence between the parties, shall constitute or imply a commitment or binding obligation between the parties to enter into any business arrangement. If, in the future, the parties elect to enter into a binding commitment regarding a business arrangement, such commitment will be explicitly stated in a separate written agreement executed by both parties, and the parties hereby affirm that they do not intend their discussions, correspondence, and other activities to be construed as forming a contract relating thereto or any other transaction between them without execution of such separate written agreement.
   
15. This Agreement shall be governed by and construed under the laws of England, without giving effect to such laws’ provisions regarding conflicts of law.
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first stated above.
- 3 -

         
RADCOM   Amdocs Software Systems Ltd.
(“COMPANY”)   (“AMDOCS”)
         
By: /s/ Udi Kohav   By: /s/ Alan Weldsect
Name:   Udi Kohav   Name:   Alan Weldsect
Title: VP Business Dev.   Title: Deputy General Manager
Date: 25/8/08   Date: 9 th September 08
 
 
- 4 -


  - -
 


EXHIBIT 4.6
 
PORTIONS OF THIS AGREEMENT WERE OMITTED AND HAVE BEEN FILED
 SEPARATELY WITH THE SECRETARY OF THE COMMISSION PURSUANT TO AN
APPLICATION FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE
 SECURITIES EXCHANGE ACT OF 1934; [**] DENOTES OMISSIONS
 
ADDENDUM TO VALUE ADDED RESELLER AGREEMENT
 
This Addendum to the Value Added Reseller Agreement ("Addendum") with an effective date of   December 30, 2015 on (“Effective Date”), Amdocs Software Systems Limited., existing under the laws of Ireland, having its principal offices at First floor, Block S, East Point Business Park, Dublin 3, Ireland (“Amdocs”) and RADCOM Ltd a corporation organized and existing under the laws of Israel having its principal offices at 24 Raoul Wallenberg Street, Tel Aviv, Israel   (“Company”),
 
WHEREAS, Company and Amdocs have entered into a Value Added Reseller Agreement dated December 30, 2015 (the “Agreement”) providing Amdocs with the right to resell Company’s Products (also referred to as “Software” herein) and Services to its End Users; and
 
WHEREAS, pursuant to the Agreement Company shall provide and Amdocs shall resell to its End User AT&T Services, Inc. and their affiliates and subsidiaries (“AT&T”) Company’s Products, subject to the terms and conditions of the Agreement, this Addendum and pursuant to and in conformance with the Supplement Agreement between Amdocs and Radcom dated December 30, 2015 (the “Supplement Agreement”) and Orders entered into between Company and Amdocs; and
 
WHEREAS, the parties wish to supplement, add to, and amend the Agreement with respect to transactions with AT&T as follows:
 
1.     Section 5 “Source Code” shall be replaced with the following:
 
5. Source Code.
 
[**]
 
5.12   This Section 5 shall survive any expiration or termination of the Agreement.
 
2.    The first paragraph of Section 12 (e) “Warranty” shall be replaced with the following:
 
e .
RADCOM warrants and represents that all RADCOM Software shall function in all material respects in accordance with the Documentation for a period defined as the Warranty Period in the Supplement Agreement (“Warranty Period”). RADCOM warrants that during the Warranty Period, the RADCOM Software will be free from defects in material and workmanship under conditions of normal use, and will operate substantially in accordance with the applicable Documentation.
 

 
Should the RADCOM Software fail to comply with the warranty set forth above during the Warranty Period, Amdocs’ sole and exclusive remedy and RADCOM’s sole obligation is to repair and replace (or cause to be replaced) the RADCOM Software at no additional charge to Amdocs or AT&T, provided that Amdocs and/or AT&T has promptly reported same to RADCOM in writing and RADCOM has, upon inspection, found such RADCOM Software actually to be defective.
 
With respect to any RADCOM Software that is subject to warranty pursuant to this Section , RADCOM shall, at its cost, pay for inspection and labor services (“Warranty Service”) if such Warranty Service is deemed necessary by RADCOM to perform the repair or replacement of the RADCOM Software. If Amdocs and/or AT&T requests RADCOM to perform Warranty Service on RADCOM Software that is: (i) excluded from warranty; or (ii) found by RADCOM not to be defective, Amdocs and/or AT&T shall be responsible the cost of such Warranty Service.
 
The warranty provided above does not include damage to RADCOM Software resulting from a cause other than a defect or malfunction, including: (i) improper storage, misuse or unreasonable use; (ii) neglect, accident, fire, lightning, power or air conditioning failure, unusual physical or electrical stress caused by forces or elements external to the RADCOM Software, or other hazard; or (iii) installation, testing, maintenance, servicing or modification of the RADCOM Software or part thereof by anyone other than RADCOM and/or Amdocs.
 
Upon the expiration of the Warranty Period, Amdocs may purchase maintenance and support services for the RADCOM Software for the benefit of AT&T; such services shall be provided under the Support and Maintenance Agreement.
 
Amdocs will also be entitled to Updates for the RADCOM Software resold to AT&T for no additional cost during the term of any Support and Maintenance Agreement in effect.
 
RADCOM will use commercially reasonable efforts to notify Amdocs and AT&T in writing (which may be via email) of all Updates and Upgrades for the RADCOM Software licensed hereunder to which Amdocs and AT&T will be entitled at least ninety (90) days or as soon as possible prior to the scheduled release.
 
Such notice will define the Updates’ and Upgrades’ elements, such as the bug fixes, error corrections and patches included, and the new release availability date. In addition, in the event that RADCOM changes the elements of the Updates and Upgrades after providing the initial notice mentioned above, RADCOM shall promptly provide Amdocs and AT&T with a revised list of the actual elements of the Updates and Upgrades.  RADCOM shall provide Updates and Upgrades via electronic delivery, and will include Documentation and installation procedures. RADCOM shall also furnish any available new and/or revised Documentation and installation instructions therewith. Except as provided otherwise herein, provided that the RADCOM Software is covered by a Support and Maintenance Agreement, no additional license fee shall be due for such Updates.
 

 
Technical support services for the RADCOM Software shall be provided under and in accordance with the Support and Maintenance Agreement related to this Addendum during the applicable support and maintenance term.
 
For the avoidance of doubt, and notwithstanding anything in this Agreement to the contrary, Upgrades are not provided during the Warranty Period and the support and maintenance term.
 
During the applicable term of a Support and Maintenance Agreement, LICENSEE will be provided, at no additional charge, with basic telephone consulting assistance in the event that difficulties occur in the use of the RADCOM Software or in LICENSEE’s interpretation of the results of such software use.
 
It is expressly understood that these warranty obligations, however, do not limit Radcom’s warranty obligations provided to Amdocs and AT&T in accordance with the Supplement Agreement.
 
This Warranty obligation shall survive any expiration or termination of the Agreement and shall continue for the Warranty Period (defined above).
 
3.            Section 12 (h) “Non-Infringement and Indemnity: shall be replaced with the following:
 
h.
Indemnity
 
Definitions .  For purposes of this Section:

“Indemnified Parties” shall mean Amdocs, and its Affiliates individually or collectively, as the case may be (as may be applicable).

“Loss” shall mean any liability, loss, claim, demand, suit, cause of action, settlement payment, cost, expense, interest, award, judgment, damages (including, without limitation, punitive and exemplary damages and increased damages for willful infringement), liens, fines, fees, penalties, and Litigation Expense.

“Litigation Expense” means any court filing fee, court cost, arbitration fee, and each other reasonable fee and cost of investigating or defending an indemnified claim or asserting any claim for indemnification or defense under this Agreement, including without limitation reasonable attorneys’ fees and other professionals’ fees, and disbursements.

“Provided Elements” shall mean any products, hardware, software (including the Software), interfaces, systems, content, services, processes, methods, documents, materials, data or information, or any functionality therein, provided to any Indemnified Party, by or on behalf of RADCOM (including, without limitation, by any of RADCOM’s sub-suppliers or distributors) Nothing in this paragraph shall be construed either as an affirmative obligation on RADCOM’s part to furnish Amdocs or AT&T any particular kinds of Provided Elements (e.g., hardware, systems, etc.) other than as may be provided elsewhere in this Agreement or in the Supplement Agreement, or as an affirmative right on Amdocs part to demand that RADCOM furnish such kinds of Provided Elements.
 

 
Obligations .
 
RADCOM shall indemnify, hold harmless, and defend (which shall include, without limitation, cooperating with Amdocs as set forth below in the defense of) the Indemnified Parties against any Loss resulting from, arising out of or relating to any allegation, threat, demand, claim or lawsuit brought by any third party (“Covered Claim”), regardless of whether such Covered Claim is meritorious, of:

(a)   infringement (including, without limitation, direct, contributory and induced infringement) of any patent, copyright, trademark, service mark, or other Intellectual Property Right in connection with the Provided Elements, including, for example, any Covered Claim of infringement based on:

(1)
making, repair, receipt, use, importing, sale or disposal (and offers to do any of the foregoing) of Provided Elements (or having others do any of the foregoing, in whole or in part, on behalf of or at the direction of the Indemnified Parties), provided that the above acts were provided or performed by RADCOM, or performed by Amdocs as permitted by this Agreement, the Supplement Agreement, the General Agreements, and the Subordinate Support and Maintenance Agreement. or
 
(2)
use of Provided Elements in combination with products, hardware, software, interfaces, systems, content, services, processes,  methods, documents, materials, data or information not furnished by RADCOM, including, for example, use in the form of the making, having made or using of an apparatus or system, or the making or practicing of a process or method unless the function performed by the Provided Elements in such combination is of a type that is neither normal nor reasonably anticipated for such Provided Elements (a “Combination Claim”); With respect to a Combination Claim notwithstanding the above and/or anything to the contrary herein, the use of Provided Elements by Amdocs in combination with products, hardware, software, interfaces, systems, content, services, processes,  methods, documents, materials, data or information furnished by Amdocs, its Affiliates and/or anyone acting on their behalf, differently than and/or in addition to and/or independently of from those provided by RADCOM to Amdocs for AT&T (the “Independent Materials”), shall not be considered for the sake of this Agreement, as a “Combination Claim”.
 
(b)   misappropriation of any trade secret, proprietary or non-public information in connection with the Provided Elements; any and all such Loss referenced in this Section (“Obligations”) being hereinafter referred to as a “Covered Loss.”

Insofar as RADCOM’s obligations result from, arise out of, or relate to a Covered Claim that is a Combination Claim, RADCOM shall be liable to pay only its Proportionate Share of the Covered Loss associated with such Combination Claim.  The “Proportionate Share” payable by RADCOM shall be a portion of the Covered Loss determined on an objectively fair and equitable basis to be attributable to RADCOM based on the relative materiality of the role played by the applicable Provided Elements in the Combination Claim.  If RADCOM believes Amdocs assessment of RADCOM’s Proportionate Share is not fair and equitable, then RADCOM’s Proportionate Share shall be determined, insofar as possible, through good faith negotiation between the Parties; provided, however, that a failure of the Parties to agree on RADCOM’s Proportionate Share shall not relieve RADCOM of its obligations to pay its Proportionate Share under this Section. RADCOM shall make payments in satisfaction of its Proportionate Share obligation whenever such payments become due.
 

 
Amdocs shall have sole control over the defense of (i) any Combination Claim and (ii) any other Covered Claim that involves RADCOM and one or more other suppliers of Amdocs, AT&T or its Affiliates  (i) and (ii) being hereinafter referred to separately and collectively as a “Compound Claim”).  RADCOM shall cooperate in every reasonable way with Amdocs to facilitate the defense and may, at its option and at its own expense, participate with Amdocs in the defense with counsel of their own choosing. Where Amdocs controls the defense under this paragraph, Amdocs shall make good faith efforts to enter into a reasonable joint defense or common interest agreement with RADCOM. Amdocs shall not settle any Compound Claim in a manner that make any admission on behalf of RADCOM without RADCOM’s prior approval, which shall not be unreasonably withheld or delayed.

Insofar as RADCOM’s obligations result from, arise out of, or relate to other than a Compound Claim, RADCOM may control the defense of the Covered Claim provided that, promptly upon any of the Indemnified Parties’ giving RADCOM written notice of the Covered Claim, RADCOM delivers to Amdocs a written, properly executed, unconditional, irrevocable, and binding promise to fully indemnify and hold harmless the Indemnified Parties from and against all Losses related to the Covered Claim as provided under this Section.  In the event that RADCOM controls the defense of the Covered Claim, RADCOM shall retain as its lead counsel, subject to Amdocs’ approval, one or more competent attorneys from a nationally recognized law firm who have significant experience in litigating intellectual property claims of the type at issue; and the Indemnified Parties may, at their option and expense, participate with RADCOM in the defense of such Covered Claim.

Amdocs, shall notify RADCOM promptly of any Covered Claim; provided, however, that any delay in such notice shall not relieve RADCOM of its obligations under this Section, except insofar as RADCOM can show that such delay actually and materially prejudiced RADCOM.

In no event shall RADCOM settle, without Amdocs, prior written consent, any Covered Claim, in whole or in part, in a manner that would require any Indemnified Party to discontinue or materially modify its products or services (or offerings thereof).  In no event shall RADCOM enter into any agreement related to any Covered Claim or to the Intellectual Property Rights asserted therein that discharges or mitigates RADCOM’s liability to the third-party claimant but fails to fully discharge all of Amdocs’ and/or AT&T, liabilities as to the Covered Loss.

Continued Use of Provided Elements Upon Injunction .
 
Without in any manner limiting the foregoing indemnification, if, as a result of a Covered Claim, (i) the Indemnified Parties’ rights under this Agreement are restricted or diminished; or (ii) an injunction, exclusion order, or other order from a court, arbitrator or other competent tribunal or governmental authority preventing or restricting the Indemnified Parties’ use or enjoyment of the Provided Elements (“Adverse Judicial Order”) is issued or imminent, then, in addition to its other obligations set forth in this Section, RADCOM, in any case at its sole expense (or, in the case of a Combination Claim, at its fairly and equitably apportioned expense) and at no loss, cost or damage to the Indemnified Parties , shall use commercially reasonable efforts to obtain for the Indemnified Parties the right to continue using or conducting other activities with respect to the Provided Elements (or, in the case of a Combination Claim, shall use commercially reasonable efforts, in cooperation as reasonably needed with other interested parties, to obtain for the Indemnified Parties the right to continue using or conducting other activities with respect to the Provided Elements in the combination at issue); provided that if RADCOM is unable to obtain such right, RADCOM shall, after consulting with and obtaining the written approval of the Indemnified Parties, provide modified or replacement non-infringing Provided Elements that are (or, in the case of a Combination Claim, shall use commercially reasonable efforts, in cooperation as reasonably needed with other interested parties, to provide a modified or replacement non-infringing combination, with the Provided Elements being modified or replaced as needed therein, that is) equally suitable and functionally equivalent while retaining the quality of the original Provided Elements and complying fully with all the representations and warranties set forth in this Agreement; provided further that if RADCOM is unable in this way to provide such modified or replacement non-infringing Provided Elements, : Amdocs shall have the right, at its option and without prejudice to any other rights or remedies that Amdocs has in contract, law or equity: (i) to terminate this Agreement, the Supplement Agreement and/or Maintenance and Support Agreement or relevant purchase or funding commitments hereunder; and/or (ii) to require RADCOM, as applicable, to remove, accept return of, or discontinue the provision of the Provided Elements, to refund to AT&T the purchase price thereof paid by AT&T to Amdocs, or other monies paid therefor (subject, in the case of Provided Elements other than services, to reduction based on the amount of depreciation or amortization over the useful life of the Provided Elements at issue), and to reimburse Amdocs for any and all reasonable   out-of-pocket expenses of removing, returning, or discontinuing such Provided Elements.
 


Elimination of Charges .  After AT&T ceases, as a result of actual or claimed infringement or misappropriation, to exercise the rights granted under the ESLA with respect to the Provided Elements, Amdocs shall not have any obligation to pay RADCOM any charges that would otherwise be due under this Agreement, the Supplement Agreement or the Maintenance and Support Agreement for such rights.

Exceptions. RADCOM shall have no liability or obligation to any of the Indemnified Parties for that portion of a Covered Loss which is based on (and only to the extent such portion is based on):

use of the Provided Elements by the Indemnified Parties in a manner that constitutes a material breach of this Agreement (including use of the Software in a manner that violates the license grant in the ESLA); or

an unauthorized modification of the Provided Elements by an Indemnified Party; or an Indemnified Party’s deliberate continued use of the Provided Elements in their unchanged, unmodified form after the Likely Implementation Date after RADCOM has promptly consulted with such Indemnified Party as to RADCOM’s -provided modifications or changes in the Provided Elements (e.g., a new version of the Software) required to avoid such Covered Claim and offered to implement those modifications or changes at RADCOM’s sole expense if (i) such Covered Claim would have been avoided by such implementation of such modifications or changes, and (ii) the modified or changed Provided Elements were functionally equivalent while retaining the quality of the original Provided Elements and complying fully with all representations and warranties set forth in this Agreement  (the “Likely Implementation Date” being the first date by which all such RADCOM-provided modifications or changes could reasonably have been fully and successfully implemented without causing any material business disruption to the Indemnified Party); or

RADCOM’s contractually required conformance to Amdocs’ and AT&T’s written specifications, unless any one or more of the following is true:
 


there was a technically feasible non-infringing means of complying with those specifications; or

the relevant specifications are designed to bring the Provided Elements into compliance with, or have the Provided Elements conform to, an industry standard promulgated by a generally recognized industry standards-setting body (e.g., IEEE, ITU, 3GPP, ETSI, W3C, etc.);

the Provided Elements are or have been provided by or on behalf of RADCOM to any third party at any time; or

the Provided Elements are or have been available on the open market (i.e., provided or offered for general availability to all interested customers by a third party other than the third party who brought the Covered Claim against the Indemnified Parties) at any time; or

the relevant specifications for the Provided Elements are of RADCOM’s (or one or more of its sub-suppliers’) origin, design, or selection.

OTHER LIMITATIONS OF LIABILITY NOT APPLICABLE.   NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT TO THE CONTRARY (AND WHETHER OR NOT SUCH A PROVISION CONTAINS LANGUAGE TO THE EFFECT THAT THE PROVISION TAKES PRECEDENCE OVER OTHER PROVISIONS CONTRARY TO IT), WHETHER EXPRESS OR IMPLIED, NONE OF THE LIMITATIONS OF LIABILITY (INCLUDING, WITHOUT LIMITATION, ANY LIMITATIONS REGARDING TYPES OF OR AMOUNTS OF DAMAGES OR LIABILITIES) CONTAINED ANYWHERE IN THIS AGREEMENT WILL APPLY TO RADCOM’S AND/OR AMDOCS’ OBLIGATIONS UNDER THIS SECTION. IT IS EXPRESSELY UNDERSTOOD THAT THERE MAY BE OTHER LIABILITY PROVISIONS IN THE SUPPLEMENT AGREEMENT THAT ADD TO THE LIABILITY OF RADCOM SET FORTH HEREIN AND SUCH ADDITIONAL LIABILITY IS ACCEPTED BY RADCOM.

This Subsection h sets forth the entire obligation of RADCOM with respect to any Covered Claims.
 
In addition to its obligation to indemnify against infringement as set forth above, RADCOM shall also indemnify, defend and hold harmless Amdocs, and their Affiliates from and against any liability, claim, demand, suit, or cause of action, regardless of whether meritorious, settlement payment, cost and expense, interest, award, judgment, damages (including punitive damages), liens, fines, fees, penalties, and reasonable associated attorneys’ fees and other costs (“Loss”) resulting from a third party claim of personal injury (including death) or property damage arising out of the negligent or willful act of Radcom and any claims by any governmental agency or any of RADCOM’s or its subcontractors’ current or former employees arising out of the employment relationship with RADCOM or a claim that they were employed by Amdocs, or one of their Affiliates, including any liability, cause of action, lawsuit, penalty, claim or demand, or administrative proceeding in which AT&T or any of its Affiliates is named as or alleged to be an “employer” or “joint employer” with RADCOM. This paragraph shall apply even if such Loss was caused in whole or in part by the negligence of Amdocs and/or their Affiliates, to the fullest extent permitted by Law. RADCOM shall keep AT&T fully informed of any such defense and afford Amdocs at their own expense, an opportunity to participate in the defense or settlement of such Loss.
 


This Section shall survive any expiration or termination of the Agreement.
 
4.     New Section 13 entitled “[**]” shall be added to the Agreement as follows:
 
             [**]
 
5.     New Section 14 entitled “Governance Meetings” shall be added to the Agreement as follows:
 
14. Governance Meetings
 
14.1                The Company and Amdocs will agree in writing procedures for monitoring and managing their activities under this Agreement.  These procedures will include, among other things, a framework for ongoing project management for all projects related to AT&T as well as Amdocs’ participations in Company’s internal project management.  .  The Parties may amend those procedures by agreement in writing from time to time.
 
14.2                 Without limiting the foregoing and unless otherwise agreed by the Parties in the written procedures set forth above, meetings between the Parties will be held on a regular basis at times agreed.  The Company will provide to Amdocs a week before each scheduled review meeting, reports in respect of each of the matters to be discussed the Parties, including:
 
14.2.1   The status of all outstanding Orders;
 
14.2.2   the performance and status of the Software, Documentation, Deliverables and Services;
 
14.2.3   the Parties' performance under the Agreements generally;
 
14.2.4   the Company’s product roadmap applicable only to AT&T as it relates to the Software, Documentation, Deliverables and Services; and
 
14.2.5   any other matters agreed between the Parties.
 
14.3           Additionally, during the Term, the Parties will meet every [**] months, at a minimum, at a time nominated by Amdocs following at least [**] Business Days’ notice to the Company to discuss the Company’s product roadmap applicable only to AT&T as it relates to the Software, Documentation, Deliverables and Services, including:
 
14.3.1   future product release plans for the Company;
 
14.3.2   any dependencies impacting on the Software, Documentation, Deliverables and Services; and
 
14.3.3   Amdocs’s and AT&T’s requirements in relation to the Company’s roadmap and future functionality of the Software.
 

 
14.4              For the avoidance of doubt, the Parties agree that these meetings are in addition to Amdocs’s right to attend any other meetings offered by the Company generally to its customers in relation to the Company’s roadmap.
 
6.   Miscellaneous.
 
All other terms and conditions of the Agreement shall apply to this Addendum and remain unchanged. This Addendum may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Capitalized terms in this Addendum, unless otherwise defined herein, shall have the same meanings ascribed thereto in the Agreement.   All references in this Addendum to the “Subordinate Support and Maintenance Agreement” and “General Agreements” shall have the meaning ascribed thereto in the Supplement Agreement (as defined above).   In the event of any inconsistencies between the terms of this Addendum and those in the Agreement, the provisions contained in this Addendum shall prevail.
 
IN WITNESS WHEREOF, the parties have caused this Addendum to be executed by their authorized representatives as set forth below.
 
RADCOM Ltd.  (“Company”)
 
Amdocs Software Systems Limited (“Amdocs”)
 
By:  /s/ David Ripstein  
Name: David Ripstein  
Title:   President and CEO  
Date:  December 30, 2015
By: /s/ Philip Butler
Name:   Philip Butler
Title:    Director & Assistant Secretary
Date:    December 30, 2015
 
 
 


 
EXHIBIT 4.7
 
PORTIONS OF THIS AGREEMENT WERE OMITTED AND HAVE BEEN FILED
 SEPARATELY WITH THE SECRETARY OF THE COMMISSION PURSUANT TO AN
APPLICATION FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE
 SECURITIES EXCHANGE ACT OF 1934; [**] DENOTES OMISSIONS
 
Supplemental Agreement
 
Agreement NET002.B
 
Between
 
Amdocs Software Systems Limited
 
And
Radcom Ltd
 

Supplement   NO. --
 
1.0 Preamble
 
    1.1 Overview
 
This Subordinate Agreement No. RADCOM01 (this “Agreement”) is pursuant to and hereby incorporates by reference the terms and conditions of (1) The Master Subcontractor Agreement  between Amdocs, Inc. (“Amdocs”) and Radcom, Inc. dated March 23 rd , 2015 as assigned by Radcom, Inc. to Radcom Ltd. by Assignment, Consent and Consumption Agreement dated December 30, 2015 and as amended by Amendment to the Subcontract Agreement dated December 30, 2015 (collectively the “Subcontractor Agreement”) as if Amdocs Software Systems, Ltd., were Amdocs, Inc. for purposes of the Subcontractor Agreement; and (2) The Value Added Reseller Agreement between Amdocs Software Systems Limited and RADCOM Ltd dated December 30, 2015 and as amended by the Addendum to the Value Added Reseller Agreement dated December 30, 2015 (collectively the “VAR”). Both the Subcontract Agreement and the VAR may be collectively referred to herein as the “ General Agreements .” Terms capitalized herein but not otherwise defined shall have the meaning given to them in the General Agreements.
 
    1.2 Preamble and Effective Date
 
This Agreement, effective on the date when signed by the last Party (“Effective Date”), is by and between Amdocs Software Systems Limited, an Irish corporation (“Amdocs”), and Radcom, Ltd., an Israeli Corporation (“Radcom”), each of which may be referred to in the singular as “Party” or in the plural as “Parties”
 
    1.3 Scope of Agreement
 
a.
This Agreement shall only apply to Amdocs’ resale to AT&T of the Software and provision of Services described herein and in Appendix A for the Virtual Probe Solution (vprobe), subject to the terms and conditions of this Agreement and the EULA and pursuant to and in conformance with Statements Of Work (each an “Order”) submitted by Amdocs or its Affiliates.  The applicable fee for the Material and Services is specified in Appendix B.  Amdocs Affiliates may issue Orders under this Agreement.  Radcom shall not reject any Order for Material or Services described in Appendix A unless the Order includes:

1.
Delivery Dates to which Radcom has not agreed, prior to the placement of the Order, and which Radcom is unable to meet; or

2.
Terms and conditions to which Radcom has not agreed, prior to placement of the Order, and which are objectionable to Radcom; or

3.
Prices contrary to those established under this Agreement.

b.
If Radcom rejects an Order, Radcom, shall give Amdocs written notice stating Radcom’s reasons for rejecting the Order and the modifications, if any, that would make the Order acceptable to Radcom. Radcom shall furnish Materials that materially conform to the Specifications established under this Agreement or as otherwise set forth in an Order.  If Radcom is unable to tender conforming Material, Radcom shall not tender non-conforming Material; the Parties agree non-conforming tenders are not an accommodation to Amdocs.  All Delivery Dates are firm, and time is of the essence.
 

 
2.0 Definitions
 
 
    2.1 Capitalized Terms Not Defined
 
Capitalized terms used but not defined in this Agreement shall take the meanings assigned to such terms by the General Agreements.  For the sake of clarification, capitalized terms used and defined herein, which have also been defined in the General Agreements, shall have for the scope of this Agreement the meaning set in this Agreement.
 
2.2 Additional Definitions
 
“Software” means RADCOM Software as described in Appendix A.
 
“CP” or “Control Plane” means transmitted data that is used to control (e.g., establish, clear, etc.) sessions and/or calls.
 
“CPU” or “Central Processing Unit” means the hardware within a system that carries out the instructions of a program or application software.
 
“CSO” means AT&T Chief Security Office.
 
End User License Agreement ” or “ EULA ” shall mean that Agreement No. 20151218.060.C   between AT&T and Radcom Ltd. with respect to the Software.
 
“Enterprise Wide License” means a license granted to AT&T and all AT&T Affiliates.
 
“Error” shall mean defects found in Software which cause the Software to function in non-compliance with the Specifications.
 
“Evaluation Period” means the period after First Field Application but before General Acceptance.   Evaluation Period shall last [**] days.
 
“First Field Application” or “FFA” means the Services that are provided in connection with the Software being passed from the Labs to the Network (as Network is defined AT&T’s or any of its Affiliates’ 4G mobile networks deployed in the Territory, and used by AT&T or any of such Affiliates to provide mobile services to subscribers of said network) and deployed in a limited capacity as detailed in Appendix A in order to ascertain whether the Software meets contractually established criteria.
 
“General Acceptance” means Amdocs and AT&T’s acceptance of the Software or Services Ordered by Amdocs for AT&T and provided by Radcom to Amdocs that have successfully passed the Lab Acceptance and First Field Application, and successfully completed the Evaluation Period.  General Acceptance of the Software will be based on the features and functionality delivered in the March 2016 release, as detailed in Appendix A.
 
“Gbps” means Gigabits per second.
 

 
 “GGSN” or “Gateway GPRS Support Node” means a network node that acts as a gateway between a GPRS wireless data network and other networks such as the Internet or private networks. When a GPRS device establishes a Packet Data Protocol (PDP) Context to a specific Access Point Name (APN), the APN selected determines the GGSN to be used.
 
“Gi” or “SGi” means the reference point between a GGSN/PGW and the Internet.
 
“GTP-C” means the GTP-C protocol is the control section of the GPRS Tunneling Protocol (GTP) standard.
 
“GTP-U” means a relatively simple IP based tunneling protocol which permits many tunnels between each set of end points.
 
“GTPV1” means the GPRS Tunneling Protocol version 1 group of IP-based communications protocols used to carry General Packet Radio Service within GSM and UMTS networks.
 
“Hyper Text Transfer Protocol” or “HTTP” means the request/response communications protocol between clients and servers used to transfer or convey information on the World Wide Web.
 
“Intellectual Property Rights” means all patents (including all reissues, divisions, continuations, and extensions thereof) and patent applications, trade names, trademarks, service marks, logos, trade dress, copyrights, trade secrets, mask works, rights in technology, know-how, rights in content (including performance and synchronization rights), or other intellectual property rights that are in each case protected under the Laws of any governmental authority having jurisdiction.
 
“IP” means Internet Protocol.
 
“IPV6” means Internet Protocol Version 6.
 
“ITO” means AT&T Information Technology Operations.
 
“KPI” or “Key Performance Indicator” means a type of performance measurement.  AT&T uses KPIs to evaluate its success for particular activities, e.g., Call Drop Rate, Call Setup Delay.
 
“KCI” or “ Key Capacity Indicator” means a type of capacity measurement.  AT&T uses KCIs to evaluate the load on a system and/or element.  CPU and memory utilization are common KCIs.
 
“LT” or “Long Term Storage” means the disk volumes that are used to store the control plane call trace (ISA) records on the probe.
 
“Material” means (a) Software licensed or otherwise provided hereunder, including without limitation and for the avoidance of doubt, where applicable, Paid for Development, and (b) any unit of equipment, apparatus, components, tools, supplies, material, product, or firmware thereto, and third party tangible and intangible materials provided or furnished by Supplier.
 
“Mbps” means Megabits per second.
 
“MCD” or “Master Configuration Document ” means a document that identifies the configurable parameters and their current values for a system.  AT&T uses the MCD to document the AT&T-recommended parameter values and to determine whether a new software release impacts the recommended values.
 
“Minor Release” means an Update.
 

 
“MME” or “Mobility Management Entity” means the key control-node for the LTE access-network.
 
“MOP” means “Method Of Procedure”.
 
“NDC” or “National Data Center” means the location where the Serving/Packet (S/P)-Gateways (GWs) and GGSNs are housed.
 
“NEO Zone” means a high capacity service zone architecture defined by AT&T.  It includes recommended configurations for the Serving Gateways (SGW), Packet Gateways (PGW), GGSNs, and policy enforcement functions.
 
“NTC” or “National Technology Center” means the location where the S/P-GWs and GGSNs are housed.  The terms NTC and NDC are used interchangeably.
 
“OA&M” or “Operations, Administration and Management” means the processes, activities, tools, standards, etc., involved with operating, administering, managing and maintaining systems.
 
“PCEF” or “Policy Charging and Enforcing Function” means the protocol that provides Quality of Service control for user plane traffic in accordance with AT&T’s policy and charging rules.
 
“PGW” or “PDN Gateway” means the Packet Data Network Gateway, which is an LTE element that routes user data packets between AT&T’s LTE network and external packet data networks.
 
“PO” means Purchase Order.
 
“PPS” or “Packets Per Second” means the calculation for the router throughput metric.
 
“Protocol Data Unit” or “PDU” means the protocol data traffic from a combination of interfaces or monitored Nodes in the network. Control plane packets (such as GTP-C, Radius, RTSP, and DNS).
 
“S11 Interface” means the reference point between the MME and serving gateway.
 
“S4 Interface” means the user plane with related control and mobility support between SGSN and the SGW and is based on Gn reference point as defined between SGSN and GGSN.
 
“SGn Interface” means the LTE version of 2G/3G Gn interface.
 
“SGI Interface” means the reference point between the PDN GW and the packet data network.
 
“SGW” or “Serving Gateway” is an LTE element that routes and forwards user packets within AT&T’s network.
 
“ST” or “Short Term Storage” means the disk volumes that are used to store the user plane call trace (ISA) records on the probe.
 
“SP” or “Service Patch” means a minor Amdocs software release.  SPs are used to provide fixes to known problems and/or new features without requiring a major software release.
 
“Store-to-Disk” or “S2D” means the storage of only packet data to short-term or long-term volumes on a storage array.
 
“SW” means Software.
 

 
“TB” or “ Terabyte” means a standard unit measure for 1 trillion bytes.
 
“TCP” or “Transmission Control Protocol” means a transport layer protocol which is used by applications that required guaranteed delivery of data.
 
“UDP” or “User Datagram Protocol” means a transport layer protocol which is used by applications that do not require guaranteed delivery of data.
 
“UP” or “User Plane” means the transmitted data representing the user content portion of a call or data session.  Voice conversations, web surfing, and email are examples of user plane data.
 
“Software Updates” means new versions of the Software made available, which are limited to  error corrections, bug fixes and/or patches;
 
“Software Upgrades” means new features or functions of the Software, whether contained in or designated as new versions.
 
“Supplier” means Radcom Ltd.
 
“Support and Maintenance” means the maintenance and support Services provided by Supplier after the Warranty Period with respect to Material that are provided under a separate Subordinate Support and Maintenance Agreement.
 
“Viral Open Source Software” means software (including source code) used or distributed under license terms that:
 
a.
requires as a condition of use, that such Viral Open Source Software or other software combined with such Viral Open Source Software be:
 
i.   disclosed or distributed in source code form;
 
ii.   licensed for the purpose of making derivative works; or
 
iii.   redistributable at no charge;
 
b.
as a condition of use by AT&T, affect or purport to affect any AT&T intellectual property right not originating exclusively in such Viral Open Source Software; or
 
c.
impede or restrict AT&T’s ability to use the corresponding Materials as contemplated in the Specifications and Documentation.
 
“VoLTE” means voice over LTE and refers to packetized voice sent over an LTE network.
 
“Warranty Period” or “warranty period” will expire [**] months after General Acceptance or [**] whichever occurs first, during which Amdocs is entitled, for the benefit of AT&T, to the warranty coverage with respect to that Software. The Parties acknowledge that the warranty term described in the General Agreement does not apply, and only the warranty set forth in Section 4.9 shall apply with respect to the Software provided pursuant to this Agreement.  Should Amdocs purchase for resale to AT&T a product that uses an older version of Software, Amdocs shall be entitled for the benefit of AT&T during the Warranty Period to any and all newer versions of that Software up to and including the current release (but excluding any Upgrades).
 

 
3.0 General Terms
 
    3.1 Order of Precedence
 
The terms contained in this Agreement, and any Orders placed pursuant hereto, including all exhibits, appendices and subordinate documents attached to or referenced in this Agreement or any Orders placed pursuant hereto, together with the General Agreements, will constitute the entire integrated agreement between Amdocs  and Radcom with regard to the subject matter.  This Agreement supersedes all prior oral and written communications, agreements and understandings of the Parties, if any, with respect hereto. In the event of any conflict in terms between this Agreement, an Order, and the General Agreements, the Parties agree to follow the following order of precedence:
 
With respect to the Software, the terms of this Agreement will govern, then the terms set forth in an Order, and then the terms of the VAR. With respect to all Services (including but not limited to Paid For Development, other development, Maintenance and Support or other services and any unlicensed Materials, materials or Deliverables provided in connection therewith),  the terms of this Agreement will govern, then the terms set forth in an Order, and then the terms of the Subcontract Agreement.
 
Acceptance of Material or Services, payment or any inaction by Amdocs or where applicable AT&T, shall not constitute Amdocs or AT&T’s consent to or acceptance of any additional or different terms from those stated in this Agreement, except for terms in an Order placed by Amdocs and signed by both Parties.  Estimates furnished by Amdocs and Radcom are for planning purposes only and shall not constitute commitments. Amdocs and Radcom covenant never to contend otherwise .
 
    3.2 Notices
 
a.
Each Party giving or making any notice, consent, request, demand, or other communication (each, a “Notice”) pursuant to this Agreement must give the Notice in writing and use one of the following methods, each of which for purposes of this Agreement is a writing: in person; first class mail with postage prepaid; Express Mail, Registered Mail, or Certified Mail (in each case, return receipt requested and postage prepaid); internationally recognized overnight courier (with all fees prepaid); facsimile transmission; or email.  If Notice is given by facsimile transmission or e-mail, it must be confirmed by a copy sent by any one of the other methods.  Each Party giving Notice shall address the Notice to the appropriate person (the “Addressee”) at the receiving Party at the address listed below:
 
Supplier:
 
Amdocs Software Systems Limited:
 
AMDOCS SOFTWARE SYSTEMS LIMITED
East Point Business Park
1st Floor, Block S
Dublin 3
Attn.: Manager of Contracts


Radcom Ltd.:
 
24 Raoul Wallenberg Street,
  Tel Aviv, Israel
 
Attn: Eyal Harari, VP Products and Marketing
 
 Email Address:  EyalH@radcom.com

b.
A Notice is effective only if the Party giving notice has complied with the foregoing requirements of this Section and the Addressee has received the Notice.  A Notice is deemed to have been received as follows:

1.
If a Notice is delivered by first class mail, five (5) days after deposit in the mail;

2.
If a Notice is furnished in person, or sent by Express Mail, Registered Mail, or Certified Mail, or internationally recognized overnight courier, upon receipt as indicated by the date on the signed receipt;

3.
If a Notice is sent by e-mail or facsimile transmission, upon successful transmission to the receiving machine, if such Notice is sent in time to allow it to be accessible by the Addressee before the time allowed for giving such notice expires, and a confirmation copy is sent by one of the other methods.

c.
The addresses and telephone numbers to which notices or communications may be given to the Addressees of either Party may be changed by written notice given by such Party to the other pursuant to this Section.
 
  3.3 Term of Agreement
 
a.
This Agreement is effective on upon final signature (the “Effective Date”) and, unless terminated as provided in this Agreement, shall remain in effect for a term ending [**] years from the Effective Date  (the “Initial Term”).
 
b. After the Initial Term, Amdocs shall have the option to extend the term for an additional period of [**] months by giving Radcom written notice at least [**] days prior to the expiration of the Initial Term.  The termination or expiration of this Agreement shall not affect the obligations of either Party to the other Party pursuant to any Order previously executed hereunder, and the terms and conditions of this Agreement shall continue to apply to such Order as if this Agreement were still in effect.  Likewise, termination, or expiration of the General Agreements shall not affect the obligations of either Party to the other Party pursuant to this Agreement, and the terms and conditions of the General Agreements shall continue to apply to this Agreement as if the General Agreements were still in effect.
 

 
4.0     Additional Terms and Conditions:
 
4.1 Lab Equipment and Software
 
Radcom shall provide the Software for use in AT&T’s labs for testing and evaluation purposes and AT&T shall provide all other material (including software or hardware) for the lab activities.
 
Lab testing for the purpose of moving forward to the FFA will be in accordance with the Project Plan.
 
The quantity and configuration of the Software to support AT&T’s requirements will be mutually agreed upon between Amdocs and Radcom with input from AT&T.  Radcom shall provide a basic one time installation service free of charge if needed. Other Services will be provided at a mutually agreed upon discount.
 
4.2 General Availability
 
Initial or first official release of the Software resold by Radcom to the AT&T Lab shall meet the requirements set forth below for General Availability.
 
General Availability” or “GA” means that the condition of the official Software release version (including major releases and emergency patches) is such as to render it ready for deployment. These are the minimum GA requirements:
 
a.
Radcom has tested and certified to Amdocs that Radcom has identified no Critical faults.
 
b.
AT&T has received from Amdocs of all software, complete media, and documentation from Radcom.
 
c.
All emergency patches must be officially released by Radcom. 
 
d.
The content of delivered software must be compatible with previous releases and remain consistent through the life of the core software.
 
e.
Radcom shall comply with the following policy regarding OS patch testing related to ongoing releases: Radcom will notify Amdocs of the patch releases Radcom plans to test prior to test execution. Amdocs will confirm within [**] working days   whether releases have been accepted by AT&T (ITO/CSO). If AT&T have rejected a patch release, Amdocs will advise and Radcom will verify against the previous accepted version. Radcom will test one OS and one database patch version for each release.
 
f.
Included in the GA release is the associated final Documentation associated with each of the applicable target released components planned for deployment, provided that further updates to the Documentation may be made and provided to AT&T later on .
 
g.
Release notes have been provided by Radcom to Amdocs identifying major features expected in the release and any known issues (minor faults) that may be encountered during testing.
 
h.
Associated training materials compiled by Radcom technical subject matter experts are complete and available for use by AT&T.  AT&T pre-requisites are identified, documented, and met. This includes any additional software that must be obtained to satisfy requirements for the target release by Radcom.
 
i.
Any GA requirement may be waived (in writing in AT&T sole discretion) if there is a specific documented requirement for a non-GA release by AT&T.
 

 
4.3    Delivery, Performance, and Acceptance
 
For the purpose of the Software, the Subcontractor Agreement shall have no application.  In its place, the following shall apply between the Parties for such purposes:
 
a.
If installation services are provided for the Software for or during the FFA, it shall be considered complete and ready for AT&T’s consideration only after testing by Radcom in material compliance with both AT&T and Radcom installation Specifications and procedures.  Upon completion of the initial Installation, Radcom will submit to Amdocs (who shall then submit promptly to AT&T) a “Notice of Completion”. If found by AT&T to be materially in compliance with such installation Specifications and procedures, upon notice by AT&T, Amdocs will advise Radcom and the Software will be granted General Acceptance by Amdocs and, if not in compliance, then additional rounds of tests will be conducted until compliance is achieved. The Software shall be deemed Accepted upon the earliest occurrence of the following events: (i) a “Notice of Completion” was issued by Radcom, and Amdocs did not raise any material deviations from the installation Specifications and procedures, by the lapse of the period set for said tests as agreed by the Parties as part of the Project Plan; and/or (ii) if completion of Installation is delayed for an extended period of time due to an act and/or omission of AT&T, Amdocs and Radcom agree to achieve a mutually agreed resolution; and/or (iii) the Radcom Software is no longer deployed in a limited capacity; and/or (iv) there are no Critical and no more than [**] Major Errors. There will be an Evaluation Period after First Field Application to evaluate performance of the Software.
 
b.
If the Software meets the requirements as set forth in Appendix A for General Acceptance, Amdocs shall be deemed as Accepting the relevant Software component.
 
c.
Radcom, at its expense, shall correct defects or other issues impeding such General Acceptance within [**] working days, or as may be otherwise agreed to by the Parties, from receipt of Amdocs’ receipt of AT&T’s notification and shall notify Amdocs that such corrections have been made. Amdocs shall require that AT&T repeat the appropriate acceptance tests, and the above procedure shall continue until General Acceptance is achieved. General Acceptance shall be deemed to occur upon the earlier occurrence of the following events: (i) there are no Critical Errors and no more than [**] Major Errors; and/or (ii) Amdocs was notified on the remedy of the corrections, and failed to raise any feedback within [**] working days of said notification.

Amdocs shall not reject the Software which is subject to Acceptance by AT&T, unless to the extent rejected by AT&T and in the event AT&T accepted the Software as described above, Amdocs will accept accordingly and promptly.
 
4.3.1
Lab and FFA Process
 
The objective of the AT&T Product Acceptance Process is to validate the Radcom’s fulfillment of their solutions in AT&T’s Lab and in production with a FFA.
 


Radcom will work with Amdocs to prepare the following for AT&T:
 
(a)
FFA Project Plan with relevant milestones and resource allocation.
 
(b)
An Acceptance Test Plan (ATP), which highlights the relevant Test Objects to be validated. These Test Objects will cover the various functionalities of the Supplier solutions.
 
(c)
The lab test environment to be set up for the validation.
 
(d)
Establish a regular lab meeting schedule and method of documenting validation status and progress.
 
(e)
The scope of testing may include but is not limited to feature/functionality verification, negative tests, monitoring of other network elements, load/capacity tests, interoperability/interworking tests for D1 and other platforms, end-to-end performance evaluation, application tests, and user interface testing.
 
(f)
, If so requested by AT&T from Amdocs, Amdocs may mandate that a release be tested on an entire market/region before GA can be granted, and the Parties will agree as part of the FFA project plan on a per release basis.
 
4.3.2
AT&T Product Acceptance Milestones
 
The AT&T Product Acceptance Procedure consists of two steps: Lab testing and FFA .  The goal of the Lab phase is to demonstrate and test the Supplier’s software in AT&T’s lab as defined by a mutually agreed Acceptance Test Plan (ATP). The goal of the FFA phase is to introduce and test the Radcom’s software in an AT&T First Field Application area. An FFA precedes full network introduction of a product in AT&T’s network, and in which the Radcom’s software will be introduced into a live, commercial AT&T market for the first time.
 
For each of the phases, there are entry and exit criteria that have to be met in order to proceed towards the final goal, which is to reach the acceptance of the Radcom product.  Ready for Acceptance (RFA) entry criteria to the AT&T lab are used to determine that the solution is ready for testing in the AT&T lab environment. Ready For Service (RFS) criteria shall be used as entry criteria prior to start of FFA. RFA exit criteria (and hence RFS entry criteria) are used to determine that the solution is ready for service in the commercial network.

During the entire FFA process, the Radcom shall use commercially available tools and scripts available to Amdocs which shall be made available to AT&T. No proprietary development tools or software shall be used unless with prior agreement with Amdocs. In such cases, Radcom shall commit to provide AT&T with the software or tools required to continue the rollout and operation of the network.
 
4.3.3
Ready for Acceptance (RFA) Milestone
 
The RFA entry criteria are achieved when the following milestones are met:
 
·
Amdocs and Radcom have agreed to jointly-developed Acceptance Test Plans (ATPs) with AT&T input accepted.
·
All known “Critical” issues (found during Radcom testing period) have been resolved or have an agreed upon resolution plan.
 

 
·
Amdocs and Radcom have had an Entry RFA meeting and, upon AT&T’s agreement, agree to proceed to RFA.
·
Radcom has provided all required product documentation, including but not limited to
o
System load and product verification test plans and results, as needed to determine that RFA entry criteria are met.
o
Release notes and system impact document where all impacts and changes to Software, backend, and interfaces are identified.
o
Key documents where changes with impacts to AT&T 3 rd party applications (ex. IT systems) and D1 Interworking (other suppliers’ nodes and systems) are identified.
o   Response to Amdocs, with respect to AT&T security checklist and AT&T approval/acceptance
·
Radcom will hold a knowledge transfer workshop that will provide AT&T lab personnel with sufficient details regarding product architecture, operation, and implementation. Where possible, the information should include simulation results or knowledge gained from testing in Radcom’s lab. Knowledge transfers sessions’ topics shall include, but are not limited to, feature implementation, feature testing/simulation, delta training, etc. This may be in a customized format specifically addressing the current project, or Radcom may make use of existing training courses, so long as project timeline constraints are met, at no cost and with no minimum attendance requirements. Workshops will be scheduled for a mutually agreed timeframe to the AT&T lab and Radcom as lab entry criteria, and to provide knowledge transfer to meet project requirements.  Every effort will be made to schedule workshops on-site while appropriate Radcom personnel are present.
 
The RFA exit criteria is achieved with the following:
 
·
All tests specified in the ATPs have been completed, with any exceptions noted.
·
All known priority “Critical” issues remaining after the RFA phase have been resolved and all priority “Major” issues have an agreed upon resolution plan. Priority “Critical” issues have an acceptable and approved work around.
·
Amdocs, AT&T and Radcom have had an Exit RFA meeting and agreed to proceed on to the RFS stage.
 
4.3.4    Ready for Service (RFS) Milestone
 
The entry criteria to be met for RFS are:
 
·
All tests specified in the ATPs have been completed, with any exceptions noted.
·
All known “Critical” issues remaining after the RFA phase have been resolved and all “Major” priority issues have an agreed upon resolution plan.
·
AT&T, Amdocs and Radcom have had an Entry RFS meeting and agree to proceed.
·
Engineering support from AT&T, Amdocs or Radcom are available to monitor performance and issues related to the overall solution to be tested .
 

 
·
AT&T, Amdocs and Radcom have had a kick off meeting with AT&T Operations, ATS and other relevant teams.
·
Required Operational Training for the FFA has been held prior to proceeding to the field.   Content of the training shall be agreed between Amdocs and Radcom.
·
The exit criteria to be met for RFS are:
o
All tests specified in the ATPs have been completed, with any exceptions noted.
o
All new “Critical” priority issues found during the RFS phase have been resolved. All “Major” issues have a resolution plan acceptable to Amdocs.
o
All major feature functionality has been proven to work satisfactorily
o
Software is benchmarked and the result is compared to performance with the prior software version and there is no degradation in features, functionality or capacity, unless any such degradation is agreed with Amdocs prior to FFA and is noted in Radcom’s documentation.
o
System is declared stable for a mutually agreed soak period and with normal usage.  The soak period starts after the last changes are implemented and lasts for a minimum of [**] weeks. All FFA documentation is completed and released, including FFA result document.
o
Updated MOP, Test Plans, and other FFA related documents that have been updated during the FFA should be provided to Amdocs.
o
A complete list of all cases failed during the FFA periods has been provided to Amdocs. This should be a detailed list which explains the nature of the problem for which the case was failed, and the nature of the fix.
o
A complete list of all patches applied during the FFA, and which cases those fixed, if applicable. 
 
4.3.5
FFA Support
 
As part of the FFA process, Radcom shall initially support lab testing. Radcom will provide on-site and/or remote, as necessary, technical support to the lab during this initial test period.  This support is to include installation support, as well as design level technical and test support.  Once the FFA software is installed in the field, Supplier will provide sufficient support to the lab so long as support to the field installations is not affected.
 
4.3.6
Software Efficiency and Capacity Requirements
 
Radcom’s software shall be efficient to ensure minimal usage of AT&T hardware resources, as commercially possible. In case of inefficient use Radcom commits to make all reasonable efforts to improve the Software’s utilization of AT&T hardware resources at no additional cost.
 
4.4    Severity Levels impacting Acceptance
 
The defects/problems identified through testing will be assigned one of the following severity levels:
 
It is clarified that, in the event the below are caused by a component and/or service not provided by Radcom and/or its sub-contractors, or in the event the below are caused due to an act and/or omission of Amdocs, AT&T and/or any party acting on their behalf, then the below shall not be deemed as defects/problems caused by the Software.
 


1.
Critical:   Critical system functionality is not operational or not capable of producing critical deliverables (which have been pre-defined in Appendix A as critical) and there are no workarounds available.  The problem/defect has one or more of the following characteristics:
 
a.
Data corruption such that physical or logical data is unavailable or incorrect.
 
b.
System hangs.  The system becomes non responsive indefinitely or there is severe performance degradation, causing unreasonable wait time for resources or response, as if the system is hanging.
 
c.
System crashes repeatedly. Database process or background processes fail and continue to fail after restart attempts.
 
d.
Critical functionality (which has been pre-defined in Appendix A or otherwise by the Parties in writing as critical) is not available.  The application cannot continue because a vital feature is inoperable.
 
e.
Resource limitation (e.g., disk space) prevents a user from doing work without an agreed-upon workaround.
 
f.
Security vulnerability beyond AT&T control that results in unauthorized access to systems, crashing of systems or data corruption, and which cannot be avoided by AT&T.
 
2.
Major:   Major system functions are unavailable or unusable.  An agreed-upon workaround is available, and operations can continue in a restricted fashion.  The problem/defect has one or more of the following characteristics:
 
a.
Reoccurring Errors causing the system to fail, but restart or recovery is possible.
 
b.
Severely degraded performance.
 
c.
Limited access to data to perform the job.
 
d.
Missing a message capture per requirements (no error message at all) when a major error occurs.
 
e.
Incorrect response to a command for a major system function.
 
f.
Security vulnerability with a workaround that mitigates such vulnerability.
 
g.
Some important functionality is unavailable, yet the system can continue to operate in a restricted fashion.
 
3.
Minor:   A defect/problem that does not rise to the level of either Critical or Major.
 
4.5 Documentation
 
a.
Radcom shall furnish, [**], Documentation for the Software and other Material delivered hereunder, including any and all succeeding changes, updates and upgrades.
 
b.
Documentation shall include user instructions, engineering guidelines, installation information, system manuals and training material in electronic form, Radcom’s customer facing written specifications, all written material defined in the table below associated with Software and other information that is normally delivered by Radcom regarding the Software and/or Material.  Engineering/capacity management guidelines shall include sufficient information and insight from Radcom to enable Amdocs to assist AT&T in capacity management of the Software under this Agreement.  Capacity management guidelines shall enable AT&T to determine the engineered capacity for the system and identify the key capacity indicators that should be monitored and trended to recognize when the system resources are nearing exhaust. Radcom will provide the following to Amdocs, in order to enable AT&T to capacity manage the monitoring system:
 
·
Capacity limits of the v-probe solution
 

 
·
Call model factors that were used to produce the stated capacity
·
A list of KCIs that should be used to monitor the stated capacity triggers
·
A mechanism to obtain the KCI data
·
MOP for installation and any making any changes to the Software. This MOP shall provide guidelines to install Software, Upgrades and Updates.

4.6   Ownership of Paid-For Development, Use and Reservation of Rights
 
a.
Ownership and Use of Rights and Items.
 
AT&T shall be the exclusive owner of all right, title, and interest in and to all Paid-For Development (defined below), including, without limitation, all Intellectual Property Rights therein and thereto.  Radcom shall assign or have assigned to AT&T and hereby assigns directly and solely to AT&T all Intellectual Property Rights in and to the Paid-For Development.  “Paid-For Development” shall mean any and all Items to the extent produced or developed by or on behalf of Radcom or its employees, agents, or direct or indirect contractors or suppliers (and whether completed or in-progress), or forming part of any deliverable, pursuant to this Agreement (including, without limitation, under any statement of work, exhibit, order or other document under, subordinate to, or referencing this Agreement) (collectively “Agreements” ) for the development of which AT&T has been charged monies by Amdocs (and Amdocs in return has been charged monies by Radcom) in one or more of the Agreements ( “Development Fees” ).  Payment of standard license fees, configuration, integration, and implementation fees or standard maintenance fees, and standard support fees shall not be deemed payment of Development Fees under this subsection.  Paid-For Development shall always exclude all Excluded Materials, and shall further exclude any third-party software as to which Radcom lacks the right to transfer or assign the Intellectual Property Rights therein and thereto to AT&T. For the avoidance of doubt, Radcom’s development of Paid-For Development shall not, in and of itself, limit Radcom’s right to develop and provide similar products or technologies for Radcom’s other customers besides AT&T ( “Outside Similar Development” ), it being understood that where Radcom engages in Outside Similar Development, Radcom must not violate the terms and conditions of this Agreement and, in particular, must not infringe or misappropriate any of AT&T’s Intellectual Property Rights, including without limitation any of AT&T’s Intellectual Property Rights in and to any Paid-For Development.
 

 
“Items” shall mean any or all inventions, discoveries, ideas (whether patentable or not), and all works and materials, including but not limited to products, devices, computer programs, source codes, interfaces, designs, files, specifications, texts, drawings, processes, data or other information or documentation in preliminary or final form, and all Intellectual Property Rights in or to any of the foregoing.
 
“Excluded Materials” shall mean: i) Radcom’s Pre-Existing Materials; ii) Radcom’s Independently Developed Materials; and iii) Radcom’s Mere Reconfigurations
 
“Radcom’s Pre-Existing Materials” shall mean those Items (including derivatives thereof)  owned by Radcom or by Radcom’s suppliers to the extent and in the form that such Items (including derivatives thereof) (i) existed prior to the date Radcom began any work under this Agreement and (ii) were created without any use of any AT&T Items.
 
“Radcom’s Independently Developed Materials” shall mean those Items (including, without limitation, derivatives thereof, e.g., Updates and Upgrades, fixes and patches) that have been developed by Radcom   or its employees, agents, or direct or indirect contractors or suppliers, or on the aforementioned parties’ behalf i) without use of any AT&T Items and ii) independently of any work performed under any Agreements.
 
“Radcom’s Mere Reconfigurations” means those specific integrations, implementations and/or reconfigurations of Radcom’s pre-existing software performed by Radcom, or on Radcom’s behalf, but only to the extent that such integrations, implementations and reconfigurations are alterations to such software that are strictly required to permit Radcom’s software to function on AT&T’s network or service platform. In no event shall Radcom’s Mere Reconfigurations include enhancements, modifications, or updates that are not contained in Radcom’s Pre-Existing Materials and that add any features, functionality, or capabilities.
 
For the sake of removing any doubt, it is clarified that Amdocs and/or its Affiliates shall have no title, license or right of any sort, in the Paid-For Development and/or the Excluded Materials except as may be otherwise provided under the escrow of the source code section in the General Agreements,.
 
b.
License Grant to Excluded Materials.
 
If and to the extent that Radcom embeds any Excluded Materials in the Paid-For Development, Radcom hereby grants and promises to grant and have granted to AT&T and its Affiliates a royalty-free, nonexclusive, sublicensable, assignable, transferable, irrevocable, perpetual, world-wide license in and to the Excluded Materials (but, insofar as the Excluded Materials consists of software in object code form, not to the underlying  source code or detailed specification) and under (but not to) any applicable Intellectual Property Rights of Radcom to use (provided that this right to  use shall not include the right to develop, modify, enhance, customize, create derivative works, or improve, all of which are not granted except for the limited “modify” right below), copy, modify (except that software in object code form may not be modified),  distribute, display, perform, import, make, sell, offer to sell, and exploit (and have others  do any of the foregoing on or for AT&T’s or any of its customers’ behalf or benefit) the Excluded Materials, but only insofar as such Excluded Materials are embedded in the Paid-For Development by Radcom.
 

 
c.
Further Acts and Obligations.
 
Radcom will take or secure such action (including, but not limited to, the execution, acknowledgment, delivery and assistance in preparation of documents or the giving of testimony) as may be reasonably requested by AT&T to evidence, transfer, perfect, vest or confirm AT&T’s right, title and interest in any Paid-For Development.  Radcom shall, in all events and without the need of AT&T’s request, secure all Intellectual Property Rights in any Paid-For Development (and any licenses specified above in any Excluded Materials) from each employee, agent, subcontractor or sub-supplier of Radcom who has or will have any rights in the Paid-For Development or Excluded Materials.
 
d.
Reservation of Rights and Limited License.
 
Notwithstanding any other provision in this Agreement, AT&T is not transferring or granting to Radcom any right, title, or interest in or to (or granting to Radcom any license or other permissions in or to) any or all:  a) Items created by or on behalf of AT&T or directly or indirectly provided to Radcom (in any form, including, without limitation, verbally) by or on behalf of AT&T or its third party providers (“AT&T Provided Items”); b) Paid-For Development or c) Intellectual Property Rights, including, without limitation, any Intellectual Property Rights in or to any AT&T Provided Items or Paid-For Development.  The sole exception to the foregoing reservation of rights is that AT&T hereby grants Radcom a limited, nonexclusive, non-transferable license (that shall automatically terminate upon the termination or expiration of this Agreement), under any rights owned by AT&T, to use the AT&T Provided Items and Paid-For Development solely as instructed by AT&T and to the extent necessary for Radcom to perform its obligations under this Agreement, subject further to the terms and conditions of this Agreement.  In no way expanding the foregoing license, said license in no manner permits Radcom to (and Radcom hereby promises not to without the explicit prior written and signed consent of AT&T Intellectual Property, Inc. (“ATTIPI Consent”) make use of any AT&T Provided Items, Paid-For Development or AT&T Intellectual Property Rights either for the benefit of any third party or other than as instructed in writing by AT&T. (AT&T may be willing, in its sole discretion, to grant ATTIPI Consent in exchange for appropriate additional compensation).  Paid-For Development and AT&T Provided Items shall constitute AT&T Information under this Agreement.
 
e.
Notwithstanding anything in the General Agreement to the contrary, the Section of the General Agreement entitled “Title to Work” shall not apply to this Agreement.
 
4.7 Training
 
a.
Radcom and Amdocs shall make available a minimum [**] user training sessions, and [**] admin training sessions, in multi-person classes, up to [**] each, at an AT&T-designated site, at a date, time and location to be proposed by Amdocs and AT&T and reasonably agreed to by Radcom and Amdocs.  This will be provided at no cost.
 

 
b.
User training materials and admin training materials will be reasonably agreed upon by the Parties and be provided to the identified participants at least [**]   week prior to the scheduled training, at no additional cost.
 
c.
Radcom will make available to AT&T, at the detailed below published Radcom rates (less any applicable discount to which AT&T is entitled), additional training material and courses to include instruction on functions, features and usability tailored to the specific group receiving the training. Radcom has a professionally-developed in house training curriculum for Radcom products that offer student guides that are designed to work in conjunction with the instructor’s presentation.  Each student enrolled in the class will receive a current copy of the student guide.
 
Training Course
Cost
Description
Training-Basic
 
US$ [**]
 
[**]
[**]
Training-Adv
US$ [**]
[**]
[**]
Administrator/Operations Training
 
US$ [**]
[**]  
·   [**] .
 
In addition to the training described above, AMDOCS shall receive the training set forth in the VAR and its Addendum.
 
4.8 Competitive Cost Analysis - Should Cost
 
Radcom shall maintain the Material and Services contemplated by this Agreement competitive as compared to reasonably comparable materials and services available in the marketplace, including with respect to pricing, features, performance, functions and capabilities, including capacity and scalability.  Amdocs shall have the right, upon AT&T’s request to conduct studies from time to time, including by engaging one or more third parties, regarding the Material and Services to assess their competitiveness, in accordance with AT&T’s guidelines and instructions.  Such analyses may evaluate, among other things, the cost to Radcom of internal components, services and processes.  Radcom shall reasonably cooperate with such studies, including by providing reasonably requested information with respect to the Material and Services. Amdocs acknowledges that Radcom is a publicly traded corporation and will cooperate subject to certain reporting rules of applicable regulatory bodies. 
 

 
4.9 Warranty, Support and Maintenance
 
Amdocs will be entitled to Updates for Software for no additional cost during the term of the Support and Maintenance Agreement, for the sole purpose of providing said Updates to AT&T.  Support and Maintenance for the product will commence upon expiration of the Warranty Period, provided that Amdocs on behalf of AT&T enters into a separate Supplement for Support and Maintenance and all applicable Support and Maintenance fees are paid when due. Amdocs may purchase yearly support renewals for a product for so long as Support and Maintenance is generally available for that product.
 
4.10    Non-Exclusive Market
 
This Agreement does not grant Radcom any right or privilege to provide to Amdocs or AT&T any Material and Services of the type described in or purchased under this Agreement.  Except for obligations arising under an Order, this Agreement does not obligate Amdocs to purchase or license any such Material or Services.  AT&T may contract with other manufacturers and vendors for the procurement or trial of Material and Services or for Amdocs to contract with other manufacturers and vendors for the resale to, or the provision of a trial to AT&T of Material and Services comparable to those described in or purchased under this Agreement, and AT&T or Radcom may itself perform such Services.
 
4.11   Offshore Requirements
 
Radcom resources will be located in the United States, India, Israel, Canada and Brazil.
 
Radcom’s Offshore resources working on this Work Order will be located at the addresses listed in Appendix K:
 
Radcom’s Offshore resources can only access AT&T Systems/data while physically located in an AT&T-approved Radcom facility as stated in this Work Order, and may not at any time remotely access any AT&T System or data from outside of the AT&T-approved Radcom facilities as stated in the Work Order.
 

4.12 Liquidated Damages Regarding Initial Project Deployment
 
Radcom recognizes the importance of meeting Delivery Dates and agrees to the following Liquidated Damage provisions and procedures:
 
a.
Upon discovery of anything indicating a reasonable certainty that Software and/or Services will not be Delivered by the scheduled Delivery Date, Radcom shall notify Amdocs and provide the estimated length of delay. The Parties shall work jointly toward resolving the delayed Delivery and to agree on a revised Delivery Date.  Amdocs will use reasonable efforts to obtain agreement from AT&T on an extended Delivery Date and if such an extended date is agreed, will align the Radcom Delivery Date to the date agreed with AT&T.  If the Parties reach agreement on an extended Delivery Date  and Radcom fails to meet the extended Delivery Date, then Amdocs may (i) exercise its right to recover Liquidated Damages specified hereunder, to the extent AT&T has exercised its right to recover Liquidated Damages from Amdocs (ii) further extend the Delivery Date, and/or (iii) if such delay amounts to a material breach, terminate the applicable Order, but only after the cap of the Liquidated Damages mentioned below has been reached and only in the event AT&T has terminated the Applicable order with Amdocs, under this section. Notwithstanding any terms to the contrary in this Agreement or the General Agreements, the effective date of termination of the Amdocs Order with Radcom shall be the same as the effective date of termination of the corresponding scope of the AT&T order with Amdocs. No payments, progress or otherwise, made by Amdocs to Radcom after any scheduled Delivery Date shall constitute a waiver of Liquidated Damages. Delivery Dates shall be extended as and to the extent Radcom is unable to meet the original Delivery Date due to causes outside of Radcom’s control.  Such extension shall be proportionate to the delay caused by factors outside Radcom’s and/or Amdocs’ control, and in such events, the Liquidated Damages shall not apply. 
 
b.
Notwithstanding the above paragraph, in the event of Radcom’s failure to meet a Delivery Date, Amdocs shall be entitled to recover amounts as liquidated damages, and not as a penalty. For the first [**] days of delay, no liquidated damages will apply. Thereafter, liquidated damages of [**] % percent of the price of delayed Software and/or Services shall apply for each week up to [**] % of the delayed Software or Services price.
 
For the sake of relieving any doubt, it is clarified that Radcom shall not be liable for any delays to the extent caused solely by Amdocs and/or AT&T.

4.13 Third Party Software
 
The Parties recognize that third party software is required for the operation of the Software.  Amdocs shall require AT&T to be responsible to provide to Amdocs and Radcom the temporary use of the software, software version updates/upgrades and associated licenses for the following Third Party Software:
 
[**]
 

 
5.0   Special Software Terms
 
5.1 Delivery of Software
 
Software for the products shall initially be delivered by Radcom directly to AT&T for download electronically through transfer by means of telecommunications and any subsequent Updates of such Software to which AT&T is entitled, shall be made available as above. Unless and until directed in writing by Amdocs to do so, Radcom will not transfer any disks, tapes or other tangible property containing a product’s Software, or any subsequent Updates of that Software, to AT&T.
 
5.2 Documentation Updates
 
During the applicable Support and Maintenance period, Radcom agrees to make available to Amdocs (who shall then make them available to AT&T) updates to Documentation furnished to Amdocs hereunder which is related to the use and support of the Software (when such updates are made generally available to Radcom’s other customers who are covered by Support and Maintenance).  Documentation shall be maintained and revised to incorporate new or revised operating procedures resulting from corrections to and revisions of the Software.  Radcom shall also provide written communications (which may be via email) concerning the Material, Updates, newly available Upgrades, programming notes, and Documentation corrections to Amdocs with respect to Material that is under Support and Maintenance.  In addition, during the applicable Support and Maintenance period, Radcom agrees to promptly assist Amdocs with any undocumented error or abnormal program end conditions encountered by AT&T with respect to any of the corresponding Material.
 
5. 3 Program Protection and Security
 
a.
Amdocs shall require in its agreement with AT&T that AT&T shall not provide or otherwise make available the Software in any form to any unaffiliated third party, except as provided in this Agreement, ,, the EULA or in an Order accepted by Radcom.
 
b.
Amdocs shall require in its agreement with AT&T that AT&T shall take appropriate action, by instruction, agreement or otherwise with the persons permitted access to the Software and Documentation, to satisfy the obligations pursuant to its agreement with Amdocs with respect to use, protection and security of the Software and Documentation.
 
c.
Amdocs shall provide in its agreement with AT&T that  AT&T’s  rights of disclosure under its agreement with Amdocs shall include the right to provide the Software and related Documentation to AT&T’s agents and contractors anywhere in the world who have a reasonable need for it in connection with for the performance of services for AT&T  under its agreement with Amdocs , provided that the Software and related Documentation may not be provided to a third party for the purpose of allowing that third party to develop or participate in the development of a product or service that competes with Radcom’s products.
 


5.4 Software
 
Subject to the execution of the Agreement, AT&T will receive from Radcom a Worldwide, Perpetual License to the Software outlined below:
 
[**]
 
It is agreed, that the license granted to AT&T for the Software shall be as set forth in the EULA.
 
5.5 Software Enhancement Notification
 
a.
Radcom will use commercially reasonable efforts to notify Amdocs and AT&T in writing (which may be via email) of all Updates for Software licensed hereunder to which Amdocs will be entitled for the purpose of providing them to AT&T, at least [**] prior to the availability of that Update.
 
b.
each new Update of Software (provided under a Support and Maintenance agreement) will be subject to AT&T policies but for that particular Update only.
 
c.
The Parties will seek to identify future Software Updates through the Radcom/Amdocs/AT&T roadmap planning sessions and/or on-going communication exchanges.  The Parties will seek to jointly identify and document an annual (calendar year) inventory of future Software Updates to be included as part of that year’s Software releases to be made available as part of Support and Maintenance (the “Annual Software Feature List”).
 
5.6 Software Support
 
Radcom shall make available to Amdocs for the sole purpose of Amdocs then providing to AT&T all Updates to Software licensed hereunder for no additional cost during the term of the Support and Maintenance Agreement and Software technical support at no additional cost during the Warranty Period for such Software.
 
5.7 Software Updates
 
a.
With respect to any Updates provided to Amdocs for AT&T hereunder, RADCOM acknowledges and agrees that as per Amdocs agreement with AT&T, AT&T will have the right to remove same and replace it with the previous version if such new version will degrade or impair AT&T’s network.  If Amdocs wishes to resell licenses for any new features or functionality of Software that are not licensed to AT&T as part of an Update and are licensed separately, then Amdocs and Supplier will negotiate in good faith on a license fee or payment for such feature or functionality.
 
5.8   Support of Previous Versions
 
Provided that Amdocs enters into a separate Support and Maintenance Supplement, during the applicable Support and Maintenance term for the benefit of AT&T, Radcom agrees that, for all Software covered by Support and Maintenance, Radcom will make available error correction and technical support for each version of that Software for at least [**] months following Radcom’s initial release of that version.
 

 
6.0     Warranties, Indemnities and Liabilities for Software Licenses, Services and related Maintenance
 
The standard warranties, indemnities and liability obligations set forth in this Agreement and in the Subcontractor Agreement  shall apply with respect to all Services provided under this Agreement including but not limited to development, Paid For Development, Maintenance and Support, testing, installation and implementation;

The standard warranties, indemnities and liability obligations set forth in this Agreement and the VAR shall apply with respect to Amdocs’ resale of the Software to AT&T.

AT&T’s right to use the Software, and the related warranties, indemnities and liabilities, are provided to AT&T in accordance with the EULA and this Agreement.
 
[**]
 
7.0    Escrow/Source Code
 
[**]
 
8.0    General Provisions
 
Without derogating from those rights and licenses given directly from Radcom to AT&T under Section 4.6 above and/or the Software license granted to AT&T by Radcom under the EULA, a person who is not a party to this Agreement and/or the General Agreements, may not enforce any of their terms.
 
The last sentence of Section 11.3 of the Subcontractor Agreement, which obligates Radcom to reimburse Amdocs within [**] days , shall not apply to the Software license and Services. It is expressly understood that all indemnification obligations in this Agreement and the General Agreements shall continue to apply.
 
9. 0    Additional Appendices
 
Appendix A: Statement of Work or Requirements
 
Appendix B: Fees
 
Appendix C: AT&T Responsibilities
 
Appendix D: Additional Features
 
Appendix M: Change Processes with Forms A through F
 
Appendix O: [**]
 
Appendix Q: Software Enhancement Form
 

 
10.0    Execution of Agreement
 
10.1 Transmission of Original Signatures and Executing Multiple Counterparts
 
Original signatures transmitted and received via facsimile or other electronic transmission of a scanned document, (e.g., .pdf or similar format) are true and valid signatures for all purposes hereunder and shall bind the Parties to the same extent as that of an Original signature. This Agreement may be executed in multiple counterparts, each of which shall be deemed to constitute an original but all of which together shall constitute only one document.
 
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date the last Party signs.
 
Amdocs Software Systems Limited
Radcom Ltd.
 
 
By: /s/ Philip Butler
By: /s/ David Ripstein
 
Printed Name: Philip Butler
Printed Name: David Ripstein
 
Title: Director and Assistant Secretary
Title: President & CEO
 
Date: December 30, 2015
Date: December 30, 2015
 
     
 
Proprietary Information
 

Appendix A: Statement of Work
 
This Agreement incorporates the requirements for the Virtual Probe Solution (vprobe). The following document constitutes AT&T’s and Amdocs’ Specifications, which may be amended during the course of Work hereunder by use of the Change Management Process:
 
Document Version
Scope Items
V4
 
[**]


Appendix B: Fees
 
1.
License
 
the Software license fee of US$ [**] million will be invoiced as set forth in the table 1 below.

[**]
[**]
[**]
 
2.
In the event that based on a material breach by RADCOM of this Supplement Agreement or the General Agreements, which was not cured by RADCOM within [**] days of receipt of notice from Amdocs, Amdocs is in a material breach of its applicable agreement with AT&T and as a result, Amdocs is contractually obligated to pay AT&T any amounts attributable to licenses, Radcom will promptly indemnify Amdocs up to [**] for any amounts paid to AT&T.
 
3.
Additional Features
 
An additional license payment for Additional Features (as outlined in Appendix D) is not due until the requested Features are delivered and [**]. RADCOM may invoice the corresponding amount listed in Appendix D1 for each additional feature delivered upon AT&T’s [**] of that additional feature. For clarity the amount for all Additional Features as outlined in Appendix D shall not exceed [**].
 
4.   Paid-For Development and Upgrades
 
The annual charges for additional feature functionality that is mutually agreed per roadmap discussions will be negotiated based on the individual feature content but shall not exceed US$ [**] million per [**] except as set forth below.
 
Any feature functionality that constitutes Paid-For Development shall be subject to the terms of Section 4.6 of the Agreement.
 
In the event Amdocs requests development work significantly in excess of per year, and Radcom can reasonably substantiate the incremental costs, both Parties agree to discuss in good faith whether an increase in those charges is justified.
 
The parties agree that as per their understanding of the current applicable taxation legislation, Amdocs (and/or its Affiliates) shall not withhold any tax payments, from any payments it and/or its Affiliates will make to Radcom, which are attributed to licenses of the Software, Paid for Developments, Upgrades or any Services of Radcom, resold by Amdocs to [**]. In the event of a change in the applicable taxation legislation, which will obligate Amdocs to withhold tax payments, then the Parties shall discuss in good faith for the purpose of finding an amicable solution.  If the Parties fail to reach an amicable solution, Amdocs shall follow the applicable taxation legislation.
 

Appendix C - AT&T Responsibilities
 
AT&T will be responsible for the following:
 
·
Provide a timely response to open issues and action items as raised by Radcom
·
Provide physical access into AT&T premises to Radcom employees, including outside of standard business hours.
·
Provide physical office environment for Radcom engineers on site (Desk, chairs, power, internet connection)
·
24x7 Remote access to all servers and clients running Radcom Software (Windows applications as well as command line interfaces). At least 15 concurrent remote connections. Open the Remote access to multiple TCP/UDP ports (list of ports will be provided by Amdocs)
·
Ensure that Software will receive required traffic 24x7 from AT&T, including simulated and live traffic
·
Responsible to provide the required hardware
·
Provide full description of network elements
·
Provide full description of traffic (shape, type, protocols, scenarios, correlation etc.)
·
Provide full details of network sizing and expected growth
·
Provide Network Time Protocol (NTP) servers
·
Provide access to DNS servers
·
Provide access to DHCP servers
·
Provide access to SMTP servers
·
Provide SNMP access
·
Provide network inventory Enrichment data – IP addresses, types and names for all network elements,  sites, markets, sub-markets, APNs, Charging codes, Realms, MCC/MNC codes, Cell Global Identifier (CGI) values and names, Type Approval Code (TAC) – UE manufacturer / Model mapping.
·
Assign the required HW resources to the virtual machines (compute, network, storage) according to Supplier's sizing
·
Assign the require HW performance according to product requirements provided by Supplier
·
Assign IP addresses to the virtual machines.
·
Provide IP/VLAN connectivity between all Software components, within sites and between sites as well as between Software and test PCs as well as AT&T client PCs.
·
Open all ports between Software components in Firewall
·
Allocate qualified personnel who shall work with Supplier
·
Provide technical focal point from AT&T for support.
·
Provide at least three (3) Windows client PCs/VMs per site for running MaveriQ OAM applications, with internet access
·
Provide at least three (3) User Equipment units for testing purposes, with the ability to perform test calls for scenarios required in the project scope, including phones, SIM cards, etc
 

·
Provide detailed documentation, KPI samples, XDR samples, XML samples for [**]   and on-going updates in advance of any changes in the interface of the production environment.
·
Provide detailed documentation, samples, application access and testing environment to APIs for [**] data and on-going updates in advance of any changes in the interface of the production environment
·
Provide detailed documentation, KPI samples, XDR samples, XML samples for [**] and on-going updates in advance of any changes in the interface of the production environment
·
Provide detailed documentation samples, application access and testing environment to APIs for [**] and on-going updates in advance of any changes in the interface of the production environment
·
Provide detailed documentation, samples, application access and testing environment for AT&T APIs that Supplier is required to integrate with (e.g. AT&T’s User Authentication platform) and on-going updates in advance of any changes in the interface of the production environment
·
Provide detailed definitions and calculation methodology descriptions for new KPIs required by AT&T
·
Provide test plan & test case documents for required testing procedures, at least 4 weeks before the start date of the test session
·
Provide sample pcap trace files and key files from AT&T network for protocols and interfaces required in the project, for testing & validation, including on-going updates in advance of any changes in the interfaces/protocols in the production environment
·
Provide timely information & answers to Supplier, including Supplier’s technical questions with regards to AT&T network, network elements, interfaces, protocols, call flows, platforms and 3rd party solutions that interact with Supplier’s solution.


 
Appendix D - Additional Features [**]
 

 
Appendix D-1 Additional Features Pricing [
 
This list of Additional Features represents the chargeable portion of the full list of features in Appendix D.
 
Commences on following page [**]
 

Appendix K Offshore Locations
 
Country(ies) where services are authorized by AT&T to be performed (physical location address is also required if the Services involve Information Technology-related work or if a “virtual” or “work-from-home” address is authorized)
City(ies) where services will be performed for AT&T
Services   to be performed at approved Physical Location
Name of Supplier / Supplier Affiliate, and/or Subcontractor performing the services
Israel
24 Raoul Wallenberg Street,
Tel-Aviv 69719
Tel Aviv
Research & Development (R&D), PS, M&S
Radcom
Brazil
Al. Mamoré, 503 – 13º andar sala
Alphaville – Barueri/SP
Alphaville
PS, M&S
Radcom
India
Level 4, Rectangle 1,
Commercial Complex D-4,
Saket, New Delhi - 110017
New Delhi
PS, M&S
Radcom
 
Radcom acknowledges that AT&T is constantly reviewing the security requirements for AT&T’s networks, systems and applications. As a condition to AT&T and Amdocs approving this Agreement and granting Radcom access to AT&T’s non-public, firewall-protected networks, systems and/or Information, Supplier agrees that, in the event AT&T identifies a security issue involving such access that requires a modification of Supplier’s access granted pursuant to this Agreement to be resolved, Radcom will renegotiate such access as necessary for AT&T to resolve the security issue. In the event that the Parties are unable to successfully renegotiate such access, Amdocs shall have the right to terminate this Agreement, only in the event AT&T has terminated its agreement with Amdocs for this reason. Notwithstanding any terms (including notice or termination requirements) to the contrary in this Agreement and the General Agreements, the effective date of AT&T’s termination with Amdocs, shall be the effective date of Amdocs’ termination with Radcom
 

 
Appendix M - Change Control Process and Forms
Change Control Process
 
If either Party identifies the need for any change to the Specifications (“Change Control”) under this Agreement, including any Order, the   Parties shall proceed in accordance with the change Control Process set forth herein.
 
A.
If Amdocs is the Party submitting the request, Amdocs shall complete Form A and describe in reasonable detail the change it is proposing, and any effects on other Specifications or on the delivery schedule of which it is aware.  Radcom shall strive to respond to such request as soon as reasonably practical, but no later than ten (10) working days.  Radcom’s response shall be using Form B.  Subsequent communication shall use Form A and Form B, respectively, until the Parties either agree upon the terms pursuant to which the proposed change will be made, or agree that the proposed change will not be made and agree to close the proposed Change Order.  An agreement to proceed with the proposed change must be documented by using Form E.
 
B.
If Radcom is the Party submitting the request, Radcom shall complete Form C and describe in reasonable detail the change it is proposing, and the effects, if any, on other Specifications, schedule, and cost.  AT&T shall strive to respond to such request as soon as reasonably practical, but no later than ten (10) working days.  AT&T’s response shall be using Form D.  Subsequent communication shall use Form C and Form D, respectively, until the Parties either agree upon the terms pursuant to which the proposed change will be made, or agree that the proposed change will not be made and agree to close the proposed Change Order.  An agreement to proceed with the proposed change must be documented by using Form E.
 
C.
The rights and obligations of both Parties in connection with this Agreement, including any Order, shall not be changed, until a proposed Change Order is agreed to by executing Form E.  Until both Parties have executed Form E, each Party shall continue to perform its obligations in accordance with the Agreement and the Order(s) placed under the Agreement.
 
D.
In the event Form E contains terms that are different than those set forth in the Agreement or the Order(s), the terms contained in Form E shall apply.
 
E.
The Change Control Log, included as Form F, shall be used by the Parties to track and monitor all proposed changes.
 
F.    The standard AT&T feature request form will be used to initiate a request for new features.
 

 
FORM A
 
AMDOCS PROPOSED CHANGE ORDER
 
Change Order #:                                                 
 
Date:                                                                   Affected Order(s):                                                                 
 
1.
Proposed Specification Changes - [Identify the Specification(s), including where the Specification(s) is described in the Order, and summarize in reasonable detail the proposed changes to such Specification(s).]
       
        2.             Effective Date For Proposed Change:
Date:  
 
3.
Summarize Expected Or Possible Impact On Other Specifications Or Schedule
 
4.
Specify Any Key Assumptions, Additional Terms, Or Other Important Information
 

 
Direct all Inquiries to Amdocs’ Project Manager:
 

                                                                                                                                                                               
 
Submitted by:  ______________________________________
 
Telephone #:                                                    Fax #:                                                                 
 


 
FORM B
 
RADCOM REPLY TO AMDOCS PROPOSED CHANGE ORDER
Change Order #:                                                 
 
        Date:                                                                   Affected Order(s):                                                               
 
1.
Proposed Specification Changes [Reiterate and summarize Supplier’s understanding of the proposed changes to the Specification(s)]
 
2.
Effective Date For Proposed Change   [Indicate the date the change can be implemented.]
 
Date:                                                              
 
3.
Summarize Expected Or Possible Impact On Other Specifications Or Schedule   [Indicate the impact on other Specifications, schedule of delivery, and cost/budget, if any.]
 
4.
Specify Any Key Assumptions, Additional Terms, Or Other Important Information


 
Direct all Inquiries to Supplier’s Project Manager:
 
                                                                                                                                                                               
 
Submitted by:  ______________________________________
 
Telephone #:                                                    Fax #:                                                               
 

 

 
FORM C
RADCOM PROPOSED CHANGE ORDER
 
Change Order #:                                                 
 
        Date:                                                                   Affected Order(s):                                                               
 
1.
Proposed Specification Changes - [Identify the proposed Specification(s) and describe in reasonable detail the proposed changes.]
 
2.
Effective Date For Proposed Change:
 
Date:                                                              
 
3.
Summarize Expected Or Possible Impact On Other Specifications Or Schedule   [Indicate the impact on other Specifications, schedule of delivery, and cost/budget, if any.]
 
4.
Specify Any Key Assumptions, Additional Terms, Or Other Important Information
 
Direct all Inquiries to Radcom’s Project Manager:
 
                                                                                                                                                                               
 
Submitted by:  ______________________________________
 
Telephone #:                                                    Fax #:                                                               
 


 
FORM D
AMDOCS’ REPLY TO RADCOM’S PROPOSED CHANGE ORDER
 
Change Order #:                                                 
 
        Date:                                                                 Affected Order(s):                                                               
 
1.
Proposed Specification Changes [Reiterate and summarize Amdocs’ understanding of the proposed changes to the Specification(s)]
 
2.
Effective Date For Proposed Change   [Indicate the proposed effective date of the change.]
 
Date:                                                                 
 
3.
Summarize Expected Or Possible Impact On Other Specifications Or Schedule   [Indicate the impact on other Specifications, schedule of delivery, and cost/budget, if any Amdocs expects may occur as a result of Radcom’s proposed change.]
 
4.
Specify Any Key Assumptions, Additional Terms, Or Other Important Information   [Indicate on what basis Amdocs would be willing to agree to Radcom’s proposed change order.]
 
Direct all Inquiries to Amdocs’ Project Manager:
                                                                                                                                                                              
 
Submitted by:  ______________________________________
 
Telephone #:                                                    Fax #:                                                               
 

 
FORM E
 
CHANGE CONTROL APPROVAL
 
Change Order #:                                                 
 
        Date:                                                                 Affected Order(s):                                                               
 
1.
Agreed Upon Change To Specification(s): [Identify Specification that will be changed.]
 
2.
Date Scope Change Effective: [State the date the change will be effective.]
 
Date:  
 
3.
Describe Scope Change, including any Specifications:   [Describe the agreed upon change in full detail.]
 
4.
Revised price, payment schedule, and delivery schedule, if any, of the proposed change: [State any changes to the original delivery schedule, original price, and payment schedule.]
 
5.
Additional Terms and Conditions:   [State any terms and conditions that apply to the proposed change.]
 
IN WITNESS WHEREOF, the Parties approve this Change Order No. ______ and incorporate it into Order No. _______.  If the terms of this Change Order are inconsistent with the terms of Order No. ______ or the Agreement, the terms of this Change Order shall control.
 
Amdocs Software System Limited
Radcom, Ltd.
 
By:                                                                              
By:                                                                               
Printed Name:_________________________
Printed Name:__________________________
Title:                                                                             
Title:                                                                             
Date:                                                                             
Date:                                                                              


FORM F
 
CHANGE CONTROL LOG
 
Change Order Number
Change Component
Priority
(High, Med., Low)
Description of Change
Level of Effort
Comments
Status
Status Date
               
               
               
               
               
               
               
               


Appendix O [**]
 


Appendix Q - Software Enhancement Notification Form (SEN)
 
SOFTWARE ENHANCEMENT NOTIFICATION FORM
 
Revision # ____________
 
Supplier Name:  _________________________________________________________
 
Product Name:  _________________________________________________________
 
Software Release (Enhancement) No.: ____________________________________________
 
Software Features Added/Removed from previous releases (Please list any patches included); _______________________________________________________________________________________________________________________________________________________________________
_________________________________________________________________________
 
Software Compatibility (List all previous releases compatible or incompatible with this release): ______________________________________________________________________________________________________________________________________________________________
 
Hardware Compatibility (List all new or additional Hardware requirements or incompatibilities): _________________________________________________________________________________________________
_______________________________________
______________________
 
List applicable Documentation: _______________________________________________________________________________________________________________________________________________
_______________
 
Date Available to AT&T Labs for testing (including Documentation): _______________________________
 
Date of anticipated First Office Application (FOA): _______________________________________
 
Date of General Availability (GA): ____________________________________________________
 
Supplier Contact Name: ________________________________________
 
Telephone: ________________________________
 
ACKNOWLEDGEMENT:
 
Amdocs Software Systems Limited.                                       Radcom, Inc.
 
By: _________________________________                 By: ___________________________________
 
Name: _______________________________                  Name: _________________________________
 
Title: ________________________________                  Title: __________________________________
 
Date: ________________________________                 Date: __________________________________
 




 
EXHIBIT 12.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Yaron Ravkaie, certify that:

1. I have reviewed this annual report on Form 20-F of RADCOM Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: March 30, 2017
                                                                                                                
 
/s/ Yaron Ravkaie
Yaron Ravkaie
 
Chief Executive Officer




 
EXHIBIT 12.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ran Vered, certify that:

1. I have reviewed this annual report on Form 20-F of RADCOM Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: March 30, 2017
 
 
/s/ Ran Vered
 
Ran Vered
 
Chief Financial Officer




EXHIBIT 13.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 20-F of RADCOM Ltd. (the “Company”) for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Yaron Ravkaie, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 30, 2017
 
 
/s/ Yaron Ravkaie
 
Yaron Ravkaie
 
Chief Executive Officer

 



 

 
EXHIBIT 13.2
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 20-F of RADCOM Ltd. (the “Company”) for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ran Vered, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 30, 2017

 
/s/ Ran Vered
 
Ran Vered
 
Chief Financial Officer
   
 




 


 
EXHIBIT 15.1
 
Consent of Independent Registered Public Accounting Firm
 
We consent to the incorporation by reference in the Registration Statements on Form S-8, (File No. 333-111931, No. 333-123981, No. 333-190207, No. 333-195465 No. 333-203087 and No. 333-215591) pertaining to the Radcom Ltd. 2003 Share Option Plan and the Radcom Ltd. 2013 Share Option Plan, and Form F-3 (File No. 333-170512 and No. 333-189111   and No. 333-210448) of Radcom Ltd., and in the related prospectus, of our reports dated March 30, 2017 with respect to the consolidated financial statements of Radcom Ltd. and its subsidiaries and the effectiveness of internal control over financial reporting of Radcom Ltd. and its subsidiaries included in this Annual Report on Form 20-F for the year ended December 31, 2016.
 
Tel Aviv, Israel
March 30, 2017
/s/ KOST, FORER, GABBAY & KASIERER
A Member of EY Global