SEPARATION AND ASSET PURCHASE AGREEMENT AMONG ECI TELECOM LTD., ECI TELECOM-NGTS LTD. AND VERAZ NETWORKS LTD

Exhibit 10.3

SEPARATION AND ASSET PURCHASE AGREEMENT

AMONG

ECI TELECOM LTD.,

ECI TELECOM-NGTS LTD.

AND

VERAZ NETWORKS LTD.

___, 2002

INDEX TO SCHEDULES

INDEX TO EXHIBITS

Separation and Asset Purchase Agreement

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

WITNESSETH:

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

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

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

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

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

1. Definitions

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

     1.2 "Assigned Contracts" means as defined in Section 2.1.2 hereof.

     1.3 "Assumed Liabilities" means as defined in Section 2.1 hereof.

     1.4 "Businesses" means the VoIP Business and the DCME Distribution Business.

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     1.5 "Business Employee" means as defined in Section 6.1 hereof.

     1.6 "Closing" means as defined in Section 3.1. hereof

     1.7 "Closing Date" means as defined in Section 3.1 hereof

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

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

     1.10 "ECI Conflict" means as defined in Section 4.2 hereof.

     1.11 "Effective Date" means as defined in Section 3.1 hereof.

     1.12 "Government Entity" means as defined in Section 4.3 hereof

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

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

     1.15 "Share Exchange" means as defined in the recitals hereto.

     1.16 "Sister Newco" means as defined in Section 7.9 hereof

     1.17 "Transferred Assets" means as defined in Section 2.1 hereof

     1.18 "VoIP" means Voice over Internet Protocol.

     1.19 "VoIP Business" means as defined in the recitals hereto.

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

2. Sale of the Businesses

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

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

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

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

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

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

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

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

          2.1.8 all accounts receivable related to the VoIP Business;

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

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

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

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

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

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

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

3. Closing

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

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

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

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

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

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

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

4. Representations and Warranties of ECI Telecom and of NGTS

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

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

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

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

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

5. Representations and Warranties of Veraz

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

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

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

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

6. Employment Matters

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

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

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

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

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

7. Additional Matters

     7.1 Allocation of Expenses . All expenses incurred in connection with this Agreeme