zk1618195.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 20-F/A
 
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR

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

For the fiscal year endedDecember 31, 2015
 
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR

☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________
 
Commission file number 0-30862
 
_________________________
 
CERAGON NETWORKS LTD.
(Exact Name of Registrant as Specified in Its Charter)
_______________________
 
Israel
(Jurisdiction of Incorporation or Organization)
 
24 Raoul Wallenberg Street, Tel Aviv 69719, Israel
(Address of Principal Executive Offices)
 
Michal Lavee Machlav (+972) 3-543-1284 (tel.), (+972) 3-543-1600 (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
Ordinary Shares, Par Value NIS 0.01
Name of Exchange of Which Registered
Nasdaq Global Select Market
 
Securities registered or to be registered pursuant to Section 12(g) of the Act:  None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:  None
 
________________________
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:   77,636,864 Ordinary Shares, NIS 0.01 par value.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  
 
Yes ☐                     No ☒
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant  to Section 13 or 15(d) of the Securities Exchange Act of 1934.  
 
Yes ☐                     No ☒
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
 
Yes ☒                   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 (Section 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 ☒                    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 ☒ Non-accelerated filer o
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP ☒
 
International Financial Reporting Standards as issued by the International Accounting Standards Board  ¨
 
Other  ¨
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:  
 
Item 17 ☐                  Item 18 ¨
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes ☐                 No ☒
 
EXPLANATORY NOTE
 
This Amendment No. 2 on Form 20-F/A (“Amendment 2”) is filed in order to amend the Annual Report on Form 20-F for the fiscal year ended December 31, 2015 (the “Form 20-F”) of Ceragon Networks Ltd. (the “Company”), as filed with the Securities and Exchange Commission on March 23, 2016, as well as amend Amendment No. 1 on Form 20-F/A filed with the Securities and Exchange Commission on December 27, 2016 (“Amendment 1”).
 
Amendment 2 further amends and restates “Item 15. Control and Procedures” of Part I of Form 20-F, incorporates the certifications pursuant to section 302 of the Sarbanes – Oxley Act of 2002 (exhibits 12.1 and 12.2 of the Form 20-F), which were inadvertently omitted from Amendment 1, and adds the signature page, which was erroneously not inserted at the end of the Form 20-F, after “Item 19. Exhibits”.
 
Pursuant to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended, we have included the entire Form 20-F in this Amendment 2. However, there have been no changes to the text of such item other than the changes stated in the immediately preceding paragraphs. Furthermore, there have been no changes to the XBRL data filed in Exhibit 101 of the Form 20-F.
 
Except as expressly set forth above, this Amendment 2 does not, and does not purport to, amend, update or restate the information presented in any other item of the Form 20-F or reflect any events that have occurred after the filing of such Form 20-F.

 
TABLE OF CONTENTS
 
Page
 
PART I
 
1
 
1
 
2
 
23
 
39
 
39
 
55
 
75
 
77
 
78
 
79
 
93
 
93
PART II
  
 
93
94
 
94
 
95
 
95
 
95
 
96
 
96
97
 
97
 
97
 
97
PART III
  
 
97
 
98
 
98
 
- i -
 
INTRODUCTION
 
Definitions
 
In this annual report, unless the context otherwise requires:
 
●
references to “Ceragon,” the “Company,” “us,” “we” and “our” refer to Ceragon Networks Ltd. (the “Registrant”), an Israeli company, and its consolidated subsidiaries;
 
●
references to “ordinary shares,” “our shares” and similar expressions refer to the Registrant’s Ordinary Shares, NIS 0.01 nominal (par) value per share;
 
●
references to “dollars,” “U.S. dollars” and “$” are to United States Dollars;
 
●
references to “shekels” and “NIS” are to New Israeli Shekels, the Israeli currency;
 
●
references to the “Companies Law” are to Israel’s Companies Law, 5759-1999;
 
●
references to the “SEC” are to the United States Securities and Exchange Commission; and
 
●
references to the "Nasdaq Rules" are to rules of the Nasdaq Global Select Market.
 
Cautionary Statement Regarding Forward-Looking Statements
 
This annual report includes certain statements that are intended to be, and are hereby identified as, “forward-looking statements” for the purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  We have based these forward-looking statements on our current expectations and projections about future events.
 
Forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue,” “believe” or other similar expressions, but are not the only way these statements are identified.  These statements discuss future expectations, plans and events, contain projections of results of operations or of financial condition or state other “forward-looking” information.  When a forward-looking statement includes an underlying assumption, we caution that, while we believe the assumption to be reasonable and make it in good faith, assumed facts almost always vary from actual results, and the difference between a forward-looking statement and actual results can be material.  Forward-looking statements may be found in Item 4. “INFORMATION ON THE COMPANY” and Item 5. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS” and in this annual report generally. Our actual results could differ materially from those anticipated in these statements as a result of various factors, including all the risks discussed in “Risk Factors” and other cautionary statements in this annual report.  All of our forward-looking statements are qualified by and should be read in conjunction with those disclosures. Except as may be required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this annual report might not occur.
 
PART I
 
ITEM 1.                      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable.
 
ITEM 2.                      OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
 
1
ITEM 3.                      KEY INFORMATION
 
Selected Financial Data
 
The selected financial data set forth in the table below have been derived from our audited historical financial statements for each of the years from 2011 to 2015. The selected consolidated statement of operations data for the years 2013, 2014 and 2015, and the selected consolidated balance sheet data at December 31, 2014 and 2015, have been derived from our audited consolidated financial statements set forth in Item 18. “FINANCIAL STATEMENTS.” The selected consolidated statement of operations data for the years 2011 and 2012 and the selected consolidated balance sheet data at December 31, 2011, 2012 and 2013, have been derived from our previously published audited consolidated financial statements, which are not included in this annual report. This selected financial data should be read in conjunction with our consolidated financial statements and are qualified entirely by reference to such consolidated financial statements. We prepare our consolidated financial statements in U.S. dollars and in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”). You should read the consolidated financial data with the section of this annual report entitled Item 5. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS” and our consolidated financial statements and the notes to those financial statements included elsewhere in this annual report.
 
   
Year ended December 31,
  
   
2011
    
2012
    
2013
    
2014
    
2015
  
 
  
(In thousands, except share and per share data)
  
Consolidated Statement of Operations Data:
                              
                                         
Revenues
   $ 445,269     $ 446,651     $ 361,772     $ 371,112     $ 349,435  
Cost of revenues
     323,191       308,354       249,543       286,670       246,487  
Gross profit
     122,078       138,297       112,229       84,442        102,948  
                                         
Operating expenses:
                                        
Research and development
     50,456       47,487       42,962       35,004        22,930  
Selling and marketing
     81,716       77,326       67,743       56,059       40,816  
General and administrative.
     26,524       27,519       26,757       23,657        21,235  
Restructuring costs
     7,834       4,608       9,345       6,816       1,225  
Goodwill impairment
     --       --       --       14,765          
Other income
     --       --       (7,657 )     (19,827 )     (4,849 )
Acquisition related cost
     4,919       --       --       --       --  
Total operating expenses
     171,449       156,940       139,150       116,474       81,357  
Operating income (loss)
     (49,371 )     (18,643 )     (26,921 )     (32,032 )     21,591  
Financial expenses, net
     (2,024 )     (3,547 )     (14,018 )     (37,946 )      (14,738 )
Income (loss) before taxes
     (51,395 )     (22,190 )     (40,939 )     (69,978 )      6,853  
Tax on income
     (2,259 )     (1,201 )     (6,539 )     (6,501 )     (5,842 )
Net income (loss)
     (53,654 )     (23,391 )     (47,478 )     (76,479 )     1,011  
                                         
Basic net earnings (loss) per share
   $ (1.49 )   $ (0.64 )   $ (1.23 )   $ (1.22 )   $ 0.01  
Diluted net earnings (loss) per share
   $ (1.49 )   $ (0.64 )   $ (1.23 )   $ (1.22 )   $ 0.01  
 
Weighted average number of shares used in computing basic earnings (loss) per share
       35,975,434         36,457,989       38,519,606       62,518,602          77,239,409  
Weighted average number of shares used in computing diluted earnings (loss) per share
        35,975,434           36,457,989        38,519,606        62,518,602            77,296,681  
 
2
     
At December 31
  
     
2011
       2012       2013       2014       2015  
     
(In thousands)
  
Consolidated Balance Sheet Data:
                                        
Cash and cash equivalents, short and long term bank deposits, short and long term marketable securities 
   $ 49,531     $ 51,589     $ 52,337     $ 42,371     $ 36,318  
Working capital                                              
     154,987       129,407       106,765       87,748      
84,311
  
Total assets                                              
     411,158       393,596       365,971       341,873      
265,332
  
Total long term liabilities                                              
     76,664       69,767       52,498        31,822      
19,915
  
Shareholders’ equity                                              
     161,051       143,709       135,078       104,552       102,821  

Risk Factors
 
The following risk factors, among others, could affect our business, results of operations or financial condition and cause our actual results to differ materially from those expressed in forward-looking statements made by us. These forward-looking statements are based on current expectations and we assume no obligation to update this information.  You should carefully consider the risks described below, in addition to the other information contained elsewhere in this annual report. The following risk factors are not the only risk factors that the Company faces. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. Our business, financial condition and results of operations could be seriously harmed if any of the events underlying any of these risks or uncertainties actually occur. In that event, the market price for our ordinary shares could decline.
 
3
Risks Relating to Our Business
 
In 2015 we experienced a decline in sales and revenues. If this decline continues, our results of operations and cash flow may be significantly adversely impacted.
 
While our measures, taken at the end of 2014, to improve gross profit, reduce operating expenses and improve our working capital management, were the main drivers for the improved financial results in 2015, we have seen a decrease in our sales and revenue as compared with 2014 and 2013. If this trend continues, our results of operations and cash flow may be significantly adversely impacted. In such a case, we may need to take additional measures such as cut in costs, which may impact our ability to compete in the market.

We face intense competition from other wireless equipment providers. If we failto compete effectively, our business, financial condition and result ofoperations would be materially adversely affected.

The market for wireless equipment is rapidly evolving, highly competitive and subject to rapid change.

Our primary competitors include industry “generalists” such as Fujitsu Limited, Huawei Technologies Co., Ltd., L.M. Ericsson Telephone Company, NEC Corporation, Nokia and ZTE Corporation, each providing a vast wireless solutions portfolio, with a wireless backhaul solution within their portfolio. In addition to these primary competitors, a number of smaller microwave communications equipment suppliers, including Aviat Networks Inc., DragonWave Inc., and SIAE Microelectronica S.p.A., offer or are developing products that compete with our products.

Most of our principal competitors, the industry “generalists”, are substantially larger than we are and have longer operating histories and greater financial, sales, service, marketing, distribution, technical, manufacturing and other resources than we have. Moreover, the market for wireless equipment is going through significant consolidation. For example, five years ago we had five major wireless network equipment manufacturers, while today we have only three such major manufacturers. As these consolidations have increased the size and thus the competitive resources of these providers, which have greater name recognition and a larger customer base than we have, they may be able to respond more quickly to changes in customer requirements and evolving industry standards, as well as greater resources to the development, promotion and sale of their products. Many of these "generalists", also have well-established relationships with our current and potential customers, have extensive knowledge of our target markets, which may give them additional competitive advantage. In addition, as these “generalists” have begun to focus more on selling services and bundle the entire network as a full-package offering,  some of our customers, which seek best-of-breed solutions like ours, may be driven to purchase “bundled” solutions from the “generalists”. Moreover, as these “generalists” are usually financially stronger than us, some of these large competitors, especially those from China, may be able to offer customers more significant financing packages and more attractive pricing, which are frequently expected by customers in certain regions, and may increase the attractiveness of their products in comparison to ours.

Additionally, even where these “generalists” resell Ceragon products as a part of their own portfolio – selling through resellers may negatively impact our margins and it means that our business success may depend on these competitors to some extent. For example the consolidation between Nokia and Alcatel-Lucent may negatively impact our sales should Nokia decide to decrease volume of sales of the Ceragon products, since today Nokia resells the Ceragon products in various markets.

Moreover, current and potential competitors, may make strategic moves such as mergers, acquisitions or establishing cooperative relationships among themselves or with third parties that may allow them to increase their market share and competitive position.

We expect to face increasing competitive pressures in the future. If we are unable to compete effectively, our business, financial condition and results of operations would be materially adversely affected.

4
In previous years we incurred substantial losses and negative cash flows. Although we were profitable and generated cash from our operations in 2015, we cannot assure you that we will be able to maintain this improving trend and profitability or continue to have positive operating cash flows.

From 2011 through 2014, we incurred substantial net losses and a negative cash flow from operations. For example, in 2013 we incurred a net loss of $47.5 million, a net loss of $76.5 million in 2014, and negative cash flow from operations of $(29.5) million and $(32.3) in 2013 and 2014, respectively. Our prior losses were impacted by decreases in revenues, decreased gross margins and the significant expenses, costs and charges associated with prior organizational restructuring activities.  In 2015 we incurred a net income of $1.0 million and generated cash from operating activities of $16.1 million. However, there is no assurance we will be able to maintain the improved results and may need to take further measures such as cutting additional costs in order to maintain or further improve our results. This may impact our ability to compete in the market for the short and long term and impair our financial condition.

Fluctuating working capital needs may require additional or alternate cash resources. If we are unable to obtain such resources our ability to fund operations could be impaired.
 
We have experienced significant fluctuations in liquidity and in our working capital needs. Our working capital needs are primarily impacted by the volume of our business and its profitability, our payment terms with our vendors and customers and the level of inventory we need to maintain in order to meet our contractual obligations.
 
We believe that our cash resources can support our business plan for at least the next 12 months; nevertheless changes and fluctuations in the above elements may require additional cash. Should our cash needs increase, we may need to raise additional funds through public or private debt or equity offerings. If we are not able to raise other capital or borrow additional funds, we may not be able to fund our working capital and operational needs which would have a material adverse effect on our business, financial condition, results of operations and cash flow.

In addition, as our credit facility period ends at March 31, 2017, we will have to extend the credit facility agreement or replace it with another financing arrangements in order to support the operations beyond March 31, 2017. The inability of the syndicate of banks to extend our credit facility, including by reason of a non-approval by the Controller of Restricting Trade, whose approval is required, and our inability to extend this credit facility under terms applicable to our business plans or to find alternate sources for it, may have material adverse effect on our business, financial condition, results of operations and cash flow.
 
We could be adversely affected by our failure to comply with the covenants in our credit agreement or by the failure of any bank to provide us with credit under committed credit facilities.
 
We have a committed credit facility available for our use from a syndicate of four banks. Our credit agreement contains financial and other covenants requiring that we maintain, among other things, minimum shareholders’ equity value, a certain ratio between our shareholders’ equity and the total value of our assets on our balance sheet, a certain ratio between our net financial debt to each of our working capital and accounts receivable, and a minimum cash covenant. Any failure to comply with the covenants, including due to poor financial performance, may constitute a default under the credit agreement and may require us to seek an amendment or waiver from the banks to avoid termination of their commitments and/or an immediate repayment of all outstanding amounts under the credit facilities which would have a material adverse effect on our financial condition and ability to operate. In addition, the payment may be accelerated and the credit facility may be cancelled upon an event in which a current or future shareholder acquires control (as defined under Israel Securities Law) of us. For more information, See Item 5. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS; B. “Liquidity and Capital Resources,” for a more detailed discussion.

In addition, the credit facility is provided by the syndication with each bank agreeing severally (and not jointly) to make its agreed portion of the credit loans to us in accordance with the terms of the credit loan agreement, which includes a framework for joint decision making powers by the banks. If one or more of the banks providing the committed credit facility were to default on its obligation to fund its commitment, the portion of the committed facility provided by such defaulting bank would not be available to us.

5
Due to the volume of our sales in emerging markets, we aresusceptible to a number of political, economic and regulatory risks that could have amaterial adverse effect on our business, reputation, financial condition and results ofoperations.

A majority of our sales are made in countries in Latin America, India, Asia Pacific and Africa. For each of the years ended December 31, 2014 and 2015, sales in these regions accounted for approximately 73% of our revenues. As a result, the occurrence of any international, political, regulatory or economic events in these regions could adversely affect our business and result in significant revenue shortfalls and collection risk. Any such revenue shortfalls and/or collection risk could have a material adverse effect on our business, financial condition and results of operations. For example, there have been substantial import controls into Argentina, under which we need to obtain tax and customs authorities’ approvals for import activities. To date we have been able to obtain all required approvals, and in Argentina, controls are just now being slowly lifted after the recent change in government, but we cannot assure you that more stringent requirements will not be imposed in the future. Due to the continued Venezuelan government policy that limits our customers’ ability to pay for imported goods in foreign currency, our revenue from Venezuela has decreased significantly in 2014. In addition we have recorded in 2014 and 2015 a charge of $20.5 million and $1.6 million respectively, to reflect a re-measurement of assets in Venezuela, primarily accounts receivables, which were denominated or linked to the U.S. dollars. During 2015 our equity was adversely impacted at an amount of $4.3 million as a result of the erosion of the Brazilian currency against the U.S. dollar in this year. We have no assurance that current conditions will not further deteriorate or that similar conditions will not occur in other developing countries, which might adversely affect our sales in these countries and/or our ability to collect the proceeds from such sales in the future.

Following are some of the risks and challenges that we face doing business internationally, several of which are more likely in the emerging markets than in other countries:
 
 
· 
unexpected changes in or enforcement of regulatory requirements, including security regulations relating to international terrorism and hacking concerns and regulations related to licensing and allocation processes;

·  unexpected changes in or imposition of tax or customs levies;
 
·  fluctuations in foreign currency exchange rates;
 
·  restrictions on currency and cash repatriation;
 
·  imposition of tariffs and other barriers and restrictions;
 
·  burden of complying with a variety of foreign laws including foreign import restrictions which may be applicable to our products;
 
·  difficulties in protecting intellectual property;
 
·  laws and business practices favoring local competitors;
 
·  demand for high-volume purchases with discounted prices;
 
·  collection delays and uncertainties;
 
·  civil unrest, war and acts of terrorism;
 
·  requirements to do business in local currency; and
 
·  requirements to do manufacture or purchase locally;
 
 
6
 
In addition, local business practices in jurisdictions in which we operate, and particularly in emerging markets, may be inconsistent with international regulatory requirements, such as anti-corruption and anti-bribery regulations to which we are subject. It is possible that, notwithstanding our policies and in violation of our instructions, some of our employees, subcontractors, agents or partners may violate such legal and regulatory requirements, which may expose us to criminal or civil enforcement actions. If we fail to comply with such legal and regulatory requirements, our business and reputation may be harmed.

Our operating results may vary significantly from quarter to quarter and from our expectations for any specific period.
 
Our quarterly results are difficult to predict and may vary significantly from quarter to quarter, or from our expectations and guidance for any specific period. Most importantly, delays in product delivery or completion  related services, can cause our revenues, net income and operating cash flow to fluctuate significantly from anticipated levels, especially as a large portion of our revenues are traditionally generated towards the end of each quarter.  Factors such as geographical mix, delivery terms and timeline, product mix, related services mix and other deal terms may differ significantly from our prediction and impact our revenue recognition timing, gross margins, costs and expenses as well as cash flow from operations. In addition, the decisions of our customers regarding spending throughout the year may also create unpredictable fluctuations in the timing in which we received orders and can recognize revenues, which may impact our quarterly results.

The quarterly variation of our operating results, may, in turn, create volatility in the market price for our shares.

A decrease in industry growth or reduction in our customers’ revenue from increased regulation or new mobile services may cause operators’ investments in networks to slow, be delayed or stop, harming our business.

We are exposed to changing network models that affect operator spending on infrastructure as well as trends in telecom operators and other service provider’s investment cycles. The emergence of over-the-top services, which make use of the operators’ network to deliver rich content to users but are not sharing their revenue with the operators, are causing operators to lose a substantial portion of their voice/SMS revenues.  In addition, changes in regulatory requirements in certain jurisdictions around the world are allowing smaller operators to enter into, and compete in, the market, which may also reduce our customers’ pricing to their end-users further causing them to lose revenues.  This is leading operators to spend more carefully on infrastructure upgrades and build-outs.  Operators today are revising their old models because adding capacity to meet demand could force them to increase their current capital expense investments over the coming years.  As a result, operators are looking for more cost-efficient solutions and network architecture that allow them to break the linearity of cost and capacity through more efficient use of existing infrastructure and assets. If operators fail to monetize new services, fail to introduce new business models or experience a decline in operator revenues or profitability, their willingness to invest further in their network systems may decrease, which will reduce their demand for our products and services and may have an adverse effect on our business, operating results and financial condition.

Global competition and current market conditions, including those specifically impacting the telecommunications industry, have resulted in downward pressure on the prices for our products, whichcould result in reduced revenues, gross margins, profitability and demand for our products and services.

Currently, we and other manufacturers of telecommunications equipment are experiencing, and are likely to continue to experience, increased downward price pressure, particularly as we increase our customer base to include more Tier 1 customers and continue to meet market demand in certain emerging markets and other less profitable countries. As a result, we may experience declining average sales prices for our products. Our future profitability will depend upon our ability to improve manufacturing efficiencies, to reduce costs of materials used in our products, and to continue to design to cost and introduce new lower-cost products and product enhancements. Because customers frequently negotiate supply arrangements far in advance of delivery dates, we may be required to commit to price reductions for our products before we are aware of how, or if, cost reductions can be obtained. Current or future price reduction commitments and any inability on our part to respond to increased price competition, in particular from tier 1 customers with higher volumes and stronger negotiating power, could harm our profitability, business, financial condition and results of operations. Alternatively, if we decide not to pursue some of the deals, our revenues might significantly decrease and harm our business and financial results.

7
In recent years we have increased our sales in India, a region typically characterized as being price-sensitive, resulting in pressure on our profitability. For the years ended December 31, 2014 and 2015, 24.8% and 30.3% of our revenues were earned in India, respectively. We expect that our revenues from sales of our products in India will continue to constitute a significant portion of our business in the future. In addition, we anticipate continued demand for our sales in Latin America, a geography which is characterized by strong downward pricing pressures. Challenging global economic conditions could also have adverse, wide-ranging effects on demand for our products and services, as well as for the products of our customers. The telecommunications industry has experienced downturns in the past in which operators substantially reduced their capital spending on new equipment. Continued adverse economic conditions, which still exist in certain jurisdictions, including certain countries in Europe, Latin America and Africa, could cause network operators to postpone investments or initiate other cost-cutting initiatives to improve their financial position. Over the past several years, network operators have started to share parts of their network infrastructure through cooperation agreements rather than through legal consolidation, which may adversely affect demand for lower cost network equipment. Moreover, the level of demand by operators and other customers who buy our products and services can change quickly and can vary over short periods, including from month to month.

If the current economic situation deteriorates, or if the uncertainty and variations in the telecommunications industry continues, our business could be negatively impacted, including in such areas as reduced demand for our products and services, slowed customer buying decisions, pricing pressures, possible withdrawal of global operators from some geographies in which they currently  operate in and in which we sell, supplier or customer disruptions, or insolvency of certain of our key distributors, resellers, original equipment manufacturers (OEMs) and systems integrators, which could impair our distribution channels, which could reduce our revenues or our ability to collect our accounts receivable and have a material adverse effect on our financial condition and results of operations.

Some of our competitors can benefit from currency fluctuations as their costs and expenses are primarily denominated in currencies other than the U.S. dollar. In case the U.S. dollar strengthens against these currencies these competitors might offer their products and services for a lower price and take market share from us, which might adversely affect our business, result of operation and financial condition.

If we fail to effectively manage deliveries of our products, we may be unable to timely fulfill our customer commitments, which would adversely affect our business and results of operations. Technical problems in our relatively new product line, may adversely affect our business.

We outsource substantially all our manufacturing operations, and purchase ancillary equipment for our products from contract and other independent manufacturers and other third parties.  If we fail to effectively manage and synchronize our deliveries from all these sources to the customer in a timely manner, fail to forecast the mix or quantities of our products or underestimate our production requirements, which could interrupt manufacturing, we could incur additional costs, be subject to penalties and suffer from reduction in our business. If one or more of the contract and other independent manufacturers or other third parties do not fully comply with their contractual obligations or experience delays, disruptions or component procurement problems, our ability to deliver complete product orders to our customers, or otherwise fulfill our contractual obligations to our customers, could be delayed or impaired.  This could result in higher manufacturing costs, could cause damage to customer relationships or could result in our payment of penalties to our customers, which would adversely affect our business, financial results and customer relationships.

Since we launched our IP-20 platform, we face some technical problems that are typical to an introduction phase of a new product. Such technical problems may cause delays in product delivery, which could result in additional costs and adversely affect customer satisfaction and our result of operation. In addition, in our competitive market, we are expected to launch new versions and as well as new products from time to time, which again, are more prone to technical problems that may delay our deliveries. Any such technical problem may adversely affect our ramping up ability and may cause us to incur additional manufacturing costs or decrease our revenues, and may have a material adverse effect on our business.

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We derive a substantial portion of our revenues from fixed-price projects, including our rollout projects, under which we assume greater financial risk if we fail to accurately estimate the costs of the projects.

We are engaged in supplying rollout projects, involving fixed-price contracts. We assume greater financial risks on fixed-price projects, which routinely involve the provision of installation and other services, versus equipment –only sales, which do not similarly require us to provide services or require customer acceptance certificates in order for us to recognize revenue.  If we miscalculate the resources or time we need for these fixed-price projects, the costs of completing these projects may exceed our original estimates, which would negatively impact our financial condition and results of operations.

We have in the past undertaken restructuring activities, most recently in the fourth quarter of 2014, which may adversely impact our operations.

Since 2012, we implemented several restructuring activities in order to reduce operating costs and improve efficiency. The restructuring activities mainly included post termination costs, property and equipment write-offs in relation to activities that were terminated, as well as facilities-related expenses for warehouse and office closings and relocations.

We incurred restructuring charges of $9.3 million and $6.8 million, respectively, in 2013 and 2014. In the first quarter of 2015 we incurred charges of $1.2 million which were related to our 2014 restructuring activity.

We based our restructuring efforts on assumptions and plans regarding the appropriate cost structure of our businesses, taking into consideration, among other factors, our product mix and projected sales. These assumptions may not be correct as we continue to evaluate and transform our business in order to achieve desired cost savings in an increasingly competitive market. If we are required to carry out an additional restructuring plan, we may incur additional restructuring charge, which may have adverse impact on our results of operation as well as our ability to compete in the market for the short and long term. Further, we may have difficulty attracting and retaining personnel as a result of a perceived risk of future workforce reductions.

We face intense competition from other communications solutions thatcompete with our high-capacity point-to-point wireless products, which couldreduce demand for our products and have a material adverse effect on our business and results of operations. In addition, we are dependent upon sales of our single family of products into the high-capacity point-to-point wireless backhaul market. Any reduction in demand for our products in this market would cause our revenues to decrease.

Our products compete with other high-speed communications solutions, including fiber optic lines and other wireless technologies. Some of these technologies utilize existing installed infrastructure and have achieved significantly greater market acceptance and penetration than high-capacity point-to-point wireless technologies.  Moreover, as more and more data demands are imposed on existing network frameworks and because of consolidation of fixed and mobile operators, operators may be more motivated to invest in more expensive high-speed fiber optic networks to meet current needs and remain competitive.

Some of the principal disadvantages of high capacity, point-to-point wireless technologies that may make other technologies more appealing include suboptimal operations in extreme weather conditions and limitations in connection with the need to establish line of sight between antennas.

In addition, customers may decide to use transmission frequencies for which we do not offer products.

Moreover, we develop and sell one family of products into the high-capacity point-to-point wireless backhaul market. As a result, we are more likely to be adversely affected by a reduction in demand for point-to-point wireless backhaul products in comparison to companies that also sell multiple and diversified product lines and solutions to customers.

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To the extent that these competing communications solutions reduce demand for our high-capacity point-to-point wireless transmission products, there may be a material adverse effect on our business and results of operations.

Consolidation of our potential customer base could harm our business.

The increasing trend toward mergers in the telecommunications industry has resulted in the consolidation of our potential customer base. In situations where an existing customer consolidates with another industry participant, which uses a competitor’s products, our sales to that existing customer could be reduced or eliminated completely to the extent that the consolidated entity decides to adopt the competing products. Further, consolidation of our potential customer base could result in purchasing decision delays as consolidating customers integrate their operations and could generally reduce our opportunities to win new customers, to the extent that the number of potential customers decreases. Moreover, some of our potential customers have agreed to share networks, which results in less network equipment and associated services required and a decrease in the overall size of the market.  Network operators have started to share parts of their network infrastructure through cooperation agreements rather than legal consolidations, which may adversely affect demand for network equipment and could harm our business and results of operations.

We rely on a limited number of contract manufacturers to manufacture ourproducts and if they experience delays, disruptions, quality control problemsor a loss in capacity, it could materially adversely affect our operatingresults.

We outsource substantially all of our manufacturing processes, management of our logistic hubs and supply of our antennas to a limited number of contract manufacturers and suppliers that are located in Israel, Ukraine, Malaysia, Singapore, the Philippines and Hungary. We do not have long-term contracts with any of these contract manufacturers. From time to time, we have experienced and may in the future experience delays in shipments from these contract manufacturers. As part of our continued effort to reduce costs and the restructuring announcement on December 15, 2014, on March 18, 2015 we signed a contract with a certain contract manufacturer to outsource our production facility in Slovakia. As part of this outsourcing, we transferred the production activity to the new manufacturer during 2015. As a result of this move, we may experience delays in shipment as well as quality issues, until ramp up and knowledge transfer is completed.

Although we believe that our contract manufacturers have sufficient economic incentive to perform our manufacturing, the resources devoted to these activities are not within our control, and we cannot assure you that manufacturing problems will not occur in the future. In addition, the operations of our contract manufacturers are not under our control, and may themselves in the future experience manufacturing problems, including inferior quality and insufficient quantities of components.  These delays, disruptions, quality control problems and loss in capacity could result in delays in deliveries of our product to our customers, which could subject us to penalties payable to our customers, increased warranty costs and possible cancellation of orders. If our contract manufacturers experience financial, operational, manufacturing capacity or other difficulties, or shortages in components required for manufacturing, our supply may be disrupted and we may be required to seek alternate manufacturers. We may be unable to secure alternate manufacturers that meet our needs in a timely and cost-effective manner. In addition, some of our contract manufacturers have granted us licenses with respect to certain technology that is used in a number of our products. If we change contract manufacturers, we may be required to renegotiate these licenses or redesign some of our products, either of which could increase our cost of revenues and cause product delivery delays. If we change manufacturers, during the transition period, we may be more likely to face delays, disruptions, quality control problems and loss in capacity, and our sales, profits and customer relationships may suffer.

Our international operations expose us to the risk of fluctuation in currencyexchange rates and restrictions related to foreign currency exchange controls.

Although we derive a significant portion of our revenues in U.S. dollars, a portion of our U.S. dollar revenues are derived from customers operating in local currencies, which are different from the U.S. dollar. Therefore, devaluation in the local currencies of our customers relative to the U.S. dollar could cause our customers to cancel or decrease orders or delay payment. In addition, part of our revenues from customers are in non-U.S. dollar currencies, therefore we are exposed to the risk of devaluation of such currencies relative to the dollar, which could have a negative impact on our revenues and results of operations.  We are also subject to other foreign currency risks including repatriation restrictions in certain countries, particularly in Latin America. See also the risk of “Due to the volume of our sales in emerging markets, we are susceptible to a number of political, economic and regulatory risks that could have a material adverse effect on our business, reputation, financial condition and results of operations” 

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A substantial portion of our operating expenses are denominated in New Israeli Shekels, and to a lesser extent, other non-U.S. dollar currencies. Our NIS-denominated expenses consist principally of salaries and related costs and related personnel expenses. We anticipate that a portion of our expenses will continue to be denominated in NIS. In 2015, the NIS continued to fluctuate in comparison to the U.S. dollar, with the NIS depreciating by 0.3% against the U.S. dollar for that year.  If the U.S. dollar weakens against the NIS in the future, there will be a negative impact on our results of operations.

In some cases, we are paid in non-U.S. dollar currencies or maintain monetary assets in non-U.S. dollar currencies, which could affect our reported results of operations. Also our cash balances in certain countries, may be devaluated significantly, especially in cases where conversion to U.S. dollars and repatriation of these cash reserves is restricted or impossible, which could have a material adverse effect on our financial condition.  In addition, we have assets and liabilities that are denominated in non-U.S. dollar currencies. Therefore, significant fluctuation in these other currencies could have a significant effect on our results.

We use derivative financial instruments, such as foreign exchange forward contracts, to mitigate the risk of changes in foreign exchange rates on balance sheet accounts and forecast cash flows. We do not use derivative financial instruments or other “hedging” techniques to cover all of our potential exposure and may not purchase derivative instruments adequate to insulate ourselves from foreign currency exchange risks. In some countries, we are unable to use “hedging” techniques to mitigate our risks because hedging options are not available for certain government restricted currencies. During 2015, we incurred losses in the amount of $7.8 million as a result of exchange rate fluctuations that have not been offset in full by our hedging strategy. In addition, during 2015 we also recorded charges of $4.3 million to the other comprehensive loss in our shareholders’ equity as a result of the erosion of the Brazilian currency against the U.S. dollar. The volatility in the foreign currency markets may make it challenging to hedge our foreign currency exposures effectively.

We are engaged in supplying installation or rollout projects forour customers. Such long-term projects have inherent additional risks. Problems in executing these rollout projects, including delays orfailure in acceptance testing procedures and other items beyond our control, would have a material adverse effect on ourresults of operations.

We are engaged in supplying our products as total rollout projects, which include installation and other services for our customers. In this context, we may act as prime contractor and equipment supplier for network build-out projects, providing installation, supervision and commissioning services required for these projects, or we may provide such services and equipment for projects handled by system integrators. As we engage in more rollout projects, we expect to continue to routinely enter into contracts involving significant amounts to be paid by our customers over time and which often require us to deliver products and services representing an important portion of the contract price before receiving any significant payment from the customer.  Once a purchase agreement has been executed, the timing and amount of revenue, if applicable, may remain difficult to predict.  The completion of the installation and testing of the customer’s networks and the completion of all other suppliers’ network elements are subject to the customer’s timing and efforts, and other factors outside our control, such as site readiness for installation, availability of power and access to sites, which may prevent us from making predictions of revenue with any certainty. This could cause us to experience substantial period-to-period fluctuations in our results of operations and financial condition.

In addition, typically in rollout projects, we are dependent on the customer to issue acceptance certificates to generate and recognize revenue. In such projects, we typically bear the risks of loss and damage to our products until the customer has issued an acceptance certificate upon successful completion of acceptance tests. Moreover, we are not always the prime integrator in these projects and in such cases, the acceptance may be delayed even further since it depends on the acceptance of other network elements, which are not in our control. The early deployment of our products during a long-term project reduces our cash flow, as we generally collect a significant portion of the contract price after successful completion of an acceptance test. If our products are damaged or stolen, or if the network we install does not pass the acceptance tests or if the customer does not or will not issue an acceptance certificate, the end user or the system integrator, as the case may be, could refuse to pay us any balance owed and we would incur substantial costs, including fees owed to our installation subcontractors, increased insurance premiums, transportation costs, and expenses related to repairing or manufacturing the products. Moreover, in such a case, we may not be able to repossess the equipment, thus suffering additional losses.

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If any of the above occurs, we may not be able to generate or recognize revenue and we may incur additional costs, any of which could materially adversely impact our results of operation and financial condition.

A single customerand customer grouprepresent a significant portion of our revenues, and if we were to lose this single customer or customer group or experience any material reduction in orders from this single customer or customer group, our revenues and operating results may be adversely affected.

In 2015 we had revenue from a single customer group of affiliated companies equaling 17.7% of our total revenues. In 2014 we had revenue from a single customer that accounted for approximately 16.1% of our total revenues. In 2013 we had revenues from a single customer group of affiliated companies that accounted for approximately 15.4% of our total revenues. Our sales are generally made from standard purchase orders rather than long-term contracts. Accordingly, these large customers are not obligated to purchase a fixed amount of products or services over any period of time from us and may terminate or reduce their purchases from us at any time without notice or penalty. We therefore have difficulty projecting future revenues from these customers. This could have, and has had, an adverse effect on our reported revenues, profitability and cash flow. In addition, the loss of these customers or any material reduction in orders could adversely affect different aspects of our results of operations, including cash flow, and financial condition.

Our failure to establish and maintain effective internal control over financial reporting could result in material misstatements in our financial statements, failure to meet our reporting obligations. This may cause investors to lose confidence in our reported financial information, which could result in the trading price of our common stock to decline.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including the chief executive officer (“CEO”) and the chief financial officer (“CFO”), we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2015, using the criteria established in “Internal Control - Integrated Framework” (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected in a timely manner.

At the end of 2014, based on the Company’s evaluation, our management, including the CEO and CFO, has identified a material weakness related to our legal entity in Brazil, which accounted for approximately 10% of our total revenue for the year ended 2014, approximately 9% of our total assets as of 2014, finding that we did not maintain effective controls over our financial reporting and closing procedures as of December 31, 2014. This material weakness resulted from the fact that our accounting and supervisory personnel in Brazil did not have adequate accounting experience to enforce compliance with all the procedures that had been defined to ensure appropriate financial reporting. This deficiency could result in a material misstatement of the annual or interim consolidated financial statements that may not be prevented or detected on a timely basis.

With the oversight of CEO and CFO, we took steps and plan to take additional measures to remediate the underlying causes of the material weakness and as a result as of December 31, 2015 we had no material weakness in our internal controls over our financial reporting. See also ITEM 15. “CONTROLS AND PROCEDURES.”

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If we conclude in future periods that our internal controls over financial reporting are not effective, we may fail to meet our future reporting obligations on a timely basis, our financial statements may contain material misstatements, our operating results may be negatively impacted, and we may be subject to litigation and regulatory actions, causing investor perceptions to be adversely affected and potentially resulting in a decline in the market price of our common stock. Even if we conclude that our internal controls over financial reporting are adequate, any internal control or procedure, no matter how well designed and operated, can only provide reasonable assurance of achieving desired control objectives and cannot prevent all mistakes or intentional misconduct or fraud.

Additional tax liabilities could materially adversely affect our results of operations and financial condition.

As a global corporation, we are subject to income and other taxes both in Israel and various foreign jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Our tax expense includes estimates or additional tax, which may be incurred for tax exposures and reflects various estimates and assumptions, including assessments of our future earnings that could impact the valuation of our deferred tax assets.  From time to time, we are subject to income and other tax audits, the timings of which are unpredictable. Our future results of operations could be adversely affected by changes in our effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in our overall profitability, changes in tax legislation and rates, changes in generally accepted accounting principles, changes in the valuation of deferred tax assessments and liabilities, the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures.  While we believe we comply with applicable tax laws, there can be no assurance that a governing tax authority will not have a different interpretation of the law and assess us with additional taxes. Should we be assessed additional taxes, there could be a material adverse effect on our results of operations and financial condition.

Our business activities in multiple countries may also expose us to indirect as well as withholding taxes in those countries. Our inability to meet certain tax regulations related to indirect or withholding tax as well as different interpretations applied by the governing tax authorities to those regulations may expose us to additional tax payments and penalties which would have a material adverse impact on our results of operations and financial condition.

Due to inaccurate forecasts, we may be exposed to inventory-related losses on inventories purchased by our contract manufacturers and other suppliers or to increased expenses should unexpected production ramp up be required. In addition, part of our inventory may be written off, which would increase our cost of revenues.

Our contract manufacturers and other suppliers are required to purchase inventory based on manufacturing projections we provide to them. If the actual orders from our customers are lower than projected, or the mix of products ordered changes, or if we decide to change our product line and/or our product support strategy, our contract manufacturers or other suppliers will have excess inventory of raw materials or finished products, which we would be required to purchase, thus incurring additional costs and our gross profit and results of operations could be adversely affected. In addition, our inventory levels may be too high, and inventory may become obsolete or over-stated on our balance sheet. This would require us to write off inventory, which could adversely affect our results of operations.

Alternatively, if we underestimate our requirements and actual orders are significantly larger than our planned forecast, we may be required to accelerate production and purchase of supplies, which may result in additional costs of buying components at less attractive prices, paying expediting fees and express shipment costs, overtime and other manufacturing expenses and our gross margins and results of operations could be adversely affected.

We require our contract manufacturers and other suppliers from time to time to purchase more inventory than is immediately required, and, with respect to our contract manufacturers, to partially assemble components, in order to shorten our delivery time in case of an increase in demand for our products. In the absence of such increase in demand, we may need to make advance payments or compensate our contract manufacturers or other suppliers, as needed. We also may purchase components or raw materials from time to time for use by our contract manufacturers in the manufacturing of our products.

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Inventory of raw materials, work in-process or finished products located either at our warehouse or our customers’ sites as part of the network build-up may accumulate in the future, and we may encounter losses due to a variety of factors including:
 
●
new generations of products replacing older ones, including changes in products because of technological advances and cost reduction measures; and

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the need of our contract manufacturers to order raw materials that have long lead times and our inability to estimate exact amounts and types of items thus needed, especially with regard to the frequencies in which the final products ordered will operate.

Further, our inventory of finished products located either at our warehouse or our customers’ sites as part of a network build-up may accumulate if a customer were to cancel an order or refuse to physically accept delivery of our products, or in rollout projects which include acceptance tests, refuse to accept the network. The rate of accumulation may increase in a period of economic downturn.

Our sales cycles in connection with competitive bids or to prospectivecustomers are lengthy.

It typically takes from three to twelve months after we first begin discussions with a prospective customer before we receive an order from that customer, if an order is received at all. In some instances, we participate in competitive bids in tenders issued by our customers or prospective customers. These tender processes can continue for many months before a decision is made by the customer. In addition even after the initial decision is made we may be required for a lengthy and extensive testing and integration phase, as well as a lengthy contract negotiation phase, before a final decision to purchase is made.  In some cases, even if we have signed a contract and our products were tested and approved for usage, it could take a significant amount of time until customer places purchase orders, if at all. As a result, we are required to devote a substantial amount of time and resources to secure sales. In addition, the lengthy sales cycle results in greater uncertainty with respect to any particular sale, as events may occur during the sales cycle that impact customers’ decisions which, in turn, increases the difficulty of forecasting our results of operations.

Our contract manufacturers obtain some of the components included in ourproducts from a limited group of suppliers and, in some cases, single or solesource suppliers. The loss of or problems in any of these suppliers could cause us toexperience production and shipment delays as well as additional costs, which may result in a substantial cost increase or  loss of revenue.

Our contract manufacturers currently obtain key components from a limited number of suppliers. Some of these components are obtained from a single or sole source supplier. Our contract manufacturers’ dependence on a single or sole source supplier, or on a limited number of suppliers, subjects us to the following risks:
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The component suppliers may experience shortages in components and interrupt or delay their shipments to our contract manufacturers. Consequently, these shortages could delay the manufacture of our products and shipments to our customers, which could result in penalties or cancellation of orders for our products.
 
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The component suppliers could discontinue the manufacture or supply of components used in our systems. In such an event, our contract manufacturers or we may be unable to develop alternative sources for the components necessary to manufacture our products, which could force us to redesign our products, or we may need to buy a large stock of the component into inventory before it is discontinued. Any such redesign of our products would likely interrupt the manufacturing process and could cause delays in our product shipments. Moreover, a significant modification in our product design may increase our manufacturing costs and bring about lower gross margins.
 
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The component suppliers may increase component prices significantly at any time and with immediate effect, particularly if demand for certain components increases dramatically in the global market. These price increases would increase component procurement costs and could significantly reduce our gross margins and profitability.

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If we do not succeed in developing and marketing new products that keep pacewith technological developments, changing industry standards and our customers’needs, we may not be able to grow or sustain our business.

The market for our products is characterized by rapid technological advances, changing customer needs and evolving industry standards, as well as increasing pressures to make existing products more cost efficient. Accordingly, our success will depend, among other things, on our ability to develop and market new products or enhance our existing products in a timely manner to keep pace with developments in technology, and customer requirements.

In addition, the wireless equipment industry is subject to rapid change in technological and industry standards. This rapid change, through official standards committees or widespread use by operators, could either render our products obsolete or require us to modify our products resulting in significant investment, both in time and cost, in new technologies, products and solutions. We cannot assure you that we will continue to successfully develop these components and bring them into full production with acceptable reliability, or that any development or production ramp-up will be completed in a timely or cost-effective manner.

We are continuously seeking to develop new products and enhance our existing products. In late 2013 we announced a significant new line of products (IP-20 Platform) which we continue to enhance with newer products and capabilities. Developing new products and product enhancements requires research and development resources. We may not be successful in enhancing our existing products or developing new products in response to technological advances or to satisfy increasingly sophisticated customer needs in a timely and cost-effective manner, which would have a material adverse effect on our ability to grow or maintain our business.  Moreover, we cannot assure that new products being developed on the basis of the IP-20 Platform will be accepted in the market or will result in profitable sales or that such products will not require additional quality assurance and defect fixing processes.

Our past acquisition activities expose us to risks and liabilities.

The Nera Acquisition was our first acquisition involving significant international operations. In acquiring Nera we undertook a number of identified contingent liabilities of Nera, such as various known litigations with third parties, and other contingent exposures with customers, suppliers and employees, all of which could accumulate to a substantial amount. In addition, we may be exposed to potential tax liabilities worldwide with governmental authorities, which could result in a substantial cost. We also undertook certain exposures for penalties and other financial risks posed by a few of Nera’s customers in the event of a default by us due to commercial or political circumstances, which may not be under our control. We assessed these contingent liabilities in the purchase price allocation.

However, our assessment of such contingent liabilities may not have been accurate and we may be exposed to actual payments, which may be significantly higher than we assessed. If we are required to make any actual payment on such potential tax liabilities, this could result in the Nera Acquisition being substantially more expensive than originally estimated and could materially adversely affect our results of operations and financial condition.

Our acquisition activities expose us to risks and liabilities, which could also result in integration problems and adversely affect our business.

Following the Nera Acquisition and other smaller acquisitions, we have increased the size of our operations and worldwide presence. We intend to continue to explore potential merger or acquisition opportunities. We are unable to predict whether or when any prospective acquisitions will be completed. The process of integrating an acquired business may be prolonged due to unforeseen difficulties and may require a disproportionate amount of our resources and management’s attention. The anticipated benefits and cost savings of such mergers and acquisitions or other restructuring may not be realized fully, or at all, or may take longer to realize than expected. Acquisitions involve numerous risks any of which could harm our business, results of operations or the price of our ordinary shares.

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We sell other manufacturers’ products as an original equipment manufacturer, or OEM, which subjects us to variousrisks that may cause our revenues to decline.

We sell a limited number of products on an OEM basis through relationships with a number of manufacturers.  Some of these OEM products enable us to offer a complete solution to some of our customers.  These manufacturers have chosen to sell a portion of their products through us in order to take advantage of our reputation and sales channels. The sale of these OEM products by us depends in part on the quality of these products, the ability of these manufacturers to deliver their products to us on time and their ability to provide both presale and post-sale support. Sales of OEM products by us expose our business to a number of risks, each of which could result in a reduction in the sales of our products. We face the risks of termination of these relationships, technical and financial problems these companies might encounter or the promotion of their products through other channels and turning them into competitors rather than partners. In addition, failure by our OEM manufacturers to deliver their products or discontinue production of their products may cause difficulty to, and may have an adverse effect on, our business.  If any of these risks materialize, we may not be able to develop alternative sources for these OEM products, which may cause us to lose certain customers or a part of their business which would cause our revenues to decline.

If we fail to obtain regulatory approval for our products, or if sufficientradio frequency spectrum is not allocated for use by our products, our abilityto market our products may be restricted.

Radio communications are subject to regulation in most jurisdictions and to various international treaties relating to wireless communications equipment and the use of radio frequencies. Generally, our products must conform to a variety of regulatory requirements established to avoid interference among users of transmission frequencies and to permit interconnection of telecommunications equipment. Any delays in compliance with respect to our future products could delay the introduction of those products. Also, these regulatory requirements may change from time to time, which could affect the design and marketing of our products as well as the competition we face from other suppliers’ products. Delays in allocation of new spectrum, such as the E and V bands in various countries, at prices which are competitive for our customers, for use with wireless backhaul communications, may also adversely affect the marketing and sales of our products.

In addition, in most jurisdictions in which we operate, users of our products are generally required to either have a license to operate and provide communications services in the applicable radio frequency or must acquire the right to do so from another license holder. Consequently, our ability to market our products is affected by the allocation of the radio frequency spectrum by governmental authorities, which may be by auction or other regulatory selection. These governmental authorities may not allocate sufficient radio frequency spectrum for use by our products. We may not be successful in obtaining regulatory approval for our products from these authorities and as we develop new products either our products or some of the regulations will need to change to take full advantage of the new product capabilities in some geographies. Historically, in many developed countries, the lack of available radio frequency spectrum has inhibited the growth of wireless telecommunications networks. If sufficient radio spectrum is not allocated for use by our products, our ability to market our products may be restricted which would have a materially adverse effect on our business, financial condition and results of operations. Additionally, regulatory decisions allocating spectrum for use in wireless backhaul at frequencies used by our competitors’ products could increase the competition we face.

Other areas of regulation and governmental restrictions, including tariffs on imports and technology controls on exports or regulations related to licensing and allocation processes, could adversely affect our operations and financial results.

Our products are used in critical communications networks, which may subject usto significant liability claims.

Because our products are used in critical communications networks, we may be subject to significant liability claims if our products do not work properly. The provisions in our agreements with customers that are intended to limit our exposure to liability claims may not preclude all potential claims. In addition, any insurance policies we have may not adequately limit our exposure with respect to such claims. We warrant to our current customers that our products will operate in accordance with our product specifications. If our products fail to conform to these specifications, our customers could require us to remedy the failure or could assert claims for damages. Liability claims could require us to spend significant time and money in litigation or to pay significant damages. Any such claims, whether or not successful, would be costly and time-consuming to defend, and could divert management’s attention and seriously damage our reputation and our business.

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Our international wireless backhaul operations subject us to environmental, health and other laws and potential liabilities that could materially impact our business, results of operations and financial condition.

Due to the nature of our global operations, we must comply with certain international and domestic laws, regulations and restrictions, which may expose our business to risks including the following:
o
Pursuant to Section 1502 of the Dodd-Frank Act, as a United States publicly-traded company we are required to disclose use or potential use of certain minerals and their derivatives, including tantalum, tin, gold and tungsten, that are mined from the Democratic Republic of Congo and adjoining countries and deemed conflict minerals. These requirements necessitate due diligence efforts to assess whether such minerals are used in our products in order to make the relevant required annual disclosures. We timely file our conflict minerals reports. Yet, there are, and will be, ongoing costs associated with complying with these disclosure requirements, we may face reputational challenges that could impact future sales if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to verify with sufficient accuracy the origins of all conflict minerals used in our products.

o
Our business is subject to numerous laws and regulations designed to protect the environment, including with respect to discharges management of hazardous substances. Although we believe that we have complied with these requirements and that such compliance has not had a material adverse effect on our results of operations, financial condition or cash flows, the failure to comply with current or future environmental requirements could expose the company to criminal, civil and administrative charges, due to the nature of our business and environmental risks, we cannot provide assurance that any such material liability will not arise in the future.

o
Our wireless communications products emit electromagnetic radiation. While we are currently unaware of any negative effects associated with our products, there has been publicity in recent years, regarding the potentially negative direct and indirect health and safety effects of electromagnetic emissions from wireless telephones and other wireless equipment sources, including allegations that these emissions may cause cancer. Health and safety issues related to our products may arise that could lead to litigation or other actions against us or to additional regulation of our products. We may be required to modify our technology and may not be able to do so. Even if these concerns prove to be baseless, the resulting negative publicity could affect our ability to market these products and, in turn, could harm our business and results of operations. Claims against other wireless equipment suppliers or wireless service providers could adversely affect the demand for our backhaul solutions.

If we are unable to protect our intellectual property rights, our competitiveposition may be harmed.

Our ability to compete will depend, in part, on our ability to obtain and enforce intellectual property protection for our technology internationally. We currently rely upon a combination of trade secret, trademark and copyright laws, as well as contractual rights, to protect our intellectual property.  In connection with the Nera Acquisition, we acquired certain patents and patent applications.  However, our patent portfolio may still not be as extensive as those of our competitors. As a result, we may have limited ability to assert any patent rights in negotiations with, or in counterclaiming against, competitors who assert intellectual property rights against us.

We also enter into confidentiality, non-competition and invention assignment agreements with our employees and contractors engaged in our research and development activities, and enter into non-disclosure agreements with our suppliers and certain customers so as to limit access to and disclosure of our proprietary information. We cannot assure you that any steps taken by us will be adequate to deter misappropriation or impede independent third-party development of similar technologies. Moreover, under current law, we may not be able to enforce the non-competition agreements with our employees to their fullest extent.

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We cannot assure you that the protection provided to our intellectual property by the laws and courts of foreign nations will be substantially similar to the remedies available under U.S. law. Furthermore, we cannot assure you that third parties will not assert infringement claims against us based on foreign intellectual property rights and laws that are different from those established in the United States. Any such failure or inability to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.

Defending against intellectual property infringement claims could be expensiveand could disrupt our business.

The wireless equipment industry is characterized by vigorous protection and pursuit of intellectual property rights, which has resulted in often protracted and expensive litigation. We have been exposed to infringement allegations in the past. We may in the future be notified that we or our vendors, allegedly infringe certain patent or other intellectual property rights of others. Any such litigation or claim could result in substantial costs and diversion of resources. In the event of an adverse result of any such litigation, we could be required to pay substantial damages (including potentially treble damages and attorney’s fees should a court find such infringement willful), cease the use and licensing of allegedly infringing technology and the sale of allegedly infringing products (including those we purchase from third parties). We may be forced to expend significant resources to develop non-infringing technology, obtain licenses for the infringing technology or replace infringing third party equipment. We cannot assure you that we would be successful in developing such non-infringing technology, that any license for the infringing technology would be available to us on commercially reasonable terms, if at all, or that we will find suitable substitute for infringing third party equipment.

If we fail to attract and retain qualified personnel, our business, operationsand product development efforts may be materially adversely affected.

Our products require sophisticated research and development, marketing and sales, and technical customer support. Our success depends on our ability to attract, train and retain qualified personnel in all these professional areas while also taking into consideration varying geographical needs and cultures. We compete with other companies for personnel in all of these areas, both in terms of profession and geography, and we may not be able to hire sufficient personnel to achieve our goals or support the anticipated growth in our business. The market for the highly-trained personnel we require globally is competitive, due to the limited number of people available with the necessary technical skills and understanding of our products and technology. If we fail to attract and retain qualified personnel due to compensation or other factors, our business, operations and product development efforts would suffer.

Risks Related to Our Common Shares

If we are characterized as a passive foreign investment company, our U.S.shareholders may suffer adverse tax consequences, including higher tax ratesand potentially punitive interest charges on certain distributions and on the proceeds of share sales.

We do not believe that for 2015 we were a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Non-U.S. corporations may generally be characterized as a PFIC for any taxable year, if after applying certain look through rules, either (1) 75% or more of such corporation’s gross income is passive income, or (2) at least 50% of the average value of all such corporation’s assets are held for the production of, or produce, passive income. If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income, rather than capital gain income, and having potentially punitive interest charges apply.  Similar rules apply to distributions that are “excess distributions.”

It is possible that the United States Internal Revenue Service could attempt to treat us as a PFIC for the 2015 year or prior tax years. The tests for determining PFIC status are applied annually and it is difficult to make accurate predictions of our future income, assets, activities and market capitalization, including fluctuations in the price of our ordinary shares, which are relevant to this determination. Accordingly, there can be no assurance that we will not become a PFIC in 2016 or in subsequent years. For a discussion of the rules relating to passive foreign investment companies and related tax consequences, please see the section of this prospectus supplement entitled “U.S. Federal Income Tax Considerations” – “Tax Consequences if we are a Passive Foreign Investment Company.”

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The price of our ordinary shares is subject to volatility. Such volatility may expose us to class actions against the Company and its senior executives.

The stock market in general and the market price of our ordinary shares, in particular, are subject to fluctuation. As a result, changes in our share price may be unrelated to our operating performance. The price of our ordinary shares has experienced volatility in the past and may continue to do so in the future. In the two year period ended December 31, 2015, the price of our ordinary shares has ranged from a high of $3.84 per share to a low of $0.88 per share. On December 31, 2014 and 2015, the closing price of our ordinary shares was $1.01 per share and $1.21 per share, respectively.  The market price of our ordinary shares is and will continue to be subject to a number of factors, including:
 
 
• 
 announcement of corporate transactions or other events impacting our revenues;
 
 
• 
announcements of technological innovations by us or by others;
 
 
• 
customer orders or new products or contracts;
 
 
• 
competitors’ positions and other events related to this market;
 
 
• 
changes in the Company’s estimations regarding looking forward statements and/or announcement of actual results that vary significantly from such estimations;
 
 
• 
changes in financial estimates by securities analysts;
 
 
• 
our earnings releases and the earnings releases of our competitors;

 
• 
other announcements, whether by the Company or others, referring to the Company’s financial condition results of operations and changes in strategy;
 
 
• 
the general state of the securities markets (with particular emphasis on the technology and Israeli sectors thereof); and
 
 
• 
the general state of the credit markets, the current volatility of which could have an adverse effect on our investments.
 
These factors and any corresponding price fluctuations may materially and adversely affect the market price of our ordinary shares and may result in substantial losses by our investors. In addition to the volatility of the market price of our shares, the stock market in general and the market for technology companies in particular have been highly volatile and at times thinly traded. Investors may not be able to resell their shares following periods of volatility.

On January 6, 2015 the Company was served with a motion to approve a purported class action, naming the Company, its Chief Executive Officer and its directors as defendants. The motion was filed with the District Court of Tel-Aviv. The purported class action alleges breaches of duties by making false and misleading statements in the Company’s SEC filings and public statements. Although the Company believes it has strong defense against these allegations and that the District Court should deny the motion to approve the class action, there is no assurance that the Company’s position will be accepted by the District Court. In such case the Company may have to divert attention of its executives to deal with this class action as well as incur damages and expenses that may be beyond its insurance coverage for such cases, which cause a risk of loss and expenditures that may adversely affect its financial condition and results of operations.

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Due to the size of their shareholdings, Yehuda and Zohar Zisapel have influenceover matters requiring shareholder approval.
 
As of March 16, 2016, Yehuda Zisapel and Nava Zisapel beneficially owned, directly or indirectly, 4.61% of our outstanding ordinary shares; and Zohar Zisapel, our Chairman, beneficially owned, directly or indirectly, 13.9% of our outstanding ordinary shares. Such percentages include options which are exercisable within 60 days of March 16, 2016. Yehuda and Zohar Zisapel, who are brothers, do not have a voting agreement. Regardless, these shareholders may influence the outcome of various actions that require shareholder approval. Yehuda and Nava Zisapel have an agreement which provides for certain coordination in respect of sales of shares of Ceragon as well as for tag along rights with respect to off-market sales of Ceragon.

Our ordinary shares are traded on more than one market and this may result in price variations.

In addition to being traded on the Nasdaq Global Select Market, our ordinary shares are traded on the TASE. Trading in our ordinary shares on these markets take place in different currencies (U.S. dollars on Nasdaq and NIS on the TASE), and at different times (resulting from different time zones, trading days and public holidays in the United States and Israel). The trading prices of our ordinary shares on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on one market could cause a decrease in the trading price of our ordinary shares on the other market.

As a foreign private issuer we are permitted to follow certain home country corporate governance practices, instead of applicable SEC and Nasdaq Rules, which may result in less protection than is afforded to investors under rules applicable to domestic issuers.
 
As a foreign private issuer we are permitted to follow certain home country corporate governance practices and law instead of those rules and practices otherwise required by Nasdaq for domestic issuers. For instance, we have relied on the foreign private issuer exemption with respect to shareholder approval requirements for equity issuances and equity-based compensation plans and with respect to the Nasdaq requirement to have a formal charter for the compensation committee; See “Item 16G. Corporate Governance”.

Following our home country corporate governance practices, as opposed to the requirements that would otherwise apply to a US company listed on Nasdaq, may provide less protection than is afforded to investors under the Nasdaq Rules applicable to domestic issuers.
 
Risks Related to Operations in Israel
 
Conditions in the Middle East and in Israel may adversely affect our operations.
 
Our headquarters, a substantial part of our research and development facilities and some of our contract manufacturers’ facilities are located in Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly influence our operations. Specifically, we could be adversely affected by:
 
●
Hostilities involving Israel;
 
●
The interruption or curtailment of trade between Israel and its present trading partners;
 
●
A downturn in the economic or financial condition of Israel; and
 
·
A full or partial mobilization of the reserve forces of the Israeli army;
 
Since its establishment in 1948, Israel has been subject to a number of armed conflicts that have taken place between it and its Arab neighbors. While Israel has entered into peace agreements with both Egypt and Jordan, Israel has no peace arrangements with any other neighboring countries.
 
Furthermore, violent uprisings against the regimes experienced in recent years in some Arab countries in the Middle East and North Africa, including in Egypt, Syria and Jordan, which border Israel, and the significant increase of hostile activities of ISIS, the Islamic State of Iraq and the Levant, in Syria, adjacent to Israel's northern border, and in the Sinai Peninsula, adjacent to Israel's southern border, all maintain a level of uncertainty in the region.
 
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Despite the multiparty agreement reached between Iran and world powers, reports of its continuing nuclear development program have further heightened the antipathy between Israel and Iran.
 
In the last twenty years there has been a significant deterioration in Israel’s relationship with the Palestinian Authority and a related increase in violence, including continued hostilities related to the Gaza Strip, which is controlled by the Hamas militant group. Efforts to resolve the problem have failed to result in a permanent solution. Further, since the beginning of 2015, we have been experiencing a wave of individual attacks against Israeli citizens, carried out by Palestinian individuals mostly from areas controlled by the Palestinian Authority, but also from Eastern Jerusalem and other parts of Israel. In 2014 Israel experienced another round of armed conflict with Hamas in the Gaza Strip, with missiles reaching the south and center region of the country.
 
All of the above raise a concern as to the stability in the region, which may affect the political and security situation in Israel and therefore could adversely affect our business, financial condition and results of operations.
 
Deterioration of relations with the Palestinian Authority has already started disrupting some of Israel's trading activities; certain countries, as well as various companies and organizations, primarily in the Middle East, but also in Malaysia and Indonesia, continue to participate in a boycott of Israeli companies and others that do business with Israel. The boycott, restrictive laws, policies or practices directed towards Israel or Israeli businesses could, individually or in the aggregate, have a material adverse effect on our business, for example, opportunities that we cannot pursue, or from which we will be precluded. Further deterioration of our relations with the Palestinian Authority, Hamas or countries in the Middle East could expand the disruption of international trading activities in Israel, may materially and negatively affect our business conditions and could harm our results of operations.
 
In addition, our business may be disturbed by the obligation of personnel to perform military service; in general, our Israeli employees, are subject to an obligation to perform reserve military service every once in a while, until they reach the age of 45 (or older, for reservists with certain occupations). In the event of a military conflict, these employees may be called to active duty for longer periods of time. In response to the increase in violence and terrorist activity in the past few years, there have been periods of significant call-ups for military reservists, and it is possible that there will be additional military reserve duty call-ups in the future.  In case of further regional instability such employees who may include one or more of our key employees may be absent for extended periods of time which may materially adversely affect our business.
 
We can give no assurance that the political and security situation in Israel, as well as the economic situation, will not have a material impact on our business in the future.
 
We have received Israeli government grants for research and developmentexpenditures, that restrict our ability to manufacture products and transfer technologiesor know howoutside of Israel.
 
We have received grants from the Industrial Research and Development Administration (formerly and more commonly known as the Office of Chief Scientist – "OCS") for the financing of a significant portion of our research and development expenditures in Israel. Even following full repayment of any OCS grants, and unless otherwise agreed by the applicable authority of the OCS, we must nevertheless continue to comply with the requirements of the Encouragement of Industrial Research and Development Law, 1984 and regulations promulgated there under (the "R&D Law").
 
Among other requirements of the R&D Law, including the obligation to pay royalties to the OCS, the R&D Law requires that the manufacture of products, which incorporate know how developed with OCS funds, be carried out in Israel, unless the OCS provides its approval for manufacture outside of Israel. This approval, if obtained, may be subject to various conditions, including the repayment of increased royalties. Transfer of the know-how developed with OCS funds and any right derived there from to third parties is generally prohibited, unless approved by the research committee of the OCS, in special cases, subject to the receipt by the OCS of certain payments. These restrictions and requirements for payment may impair our ability to sell our technology assets or to outsource or transfer development or manufacturing activities with respect to any product or technology outside of Israel and to reduce the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know how developed with OCS funding (such as a merger or similar transaction), by any amounts that we are required to pay to the OCS.
 
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For information regarding the above-mentioned and other restrictions imposed by the R&D Law, please see Item 4. “INFORMATION ON THE COMPANY- B. Business Overview - The Industrial Research and Development Administration, formerly – the Israeli Office of Chief Scientist.”
 
The tax benefits to which we are currently entitled from our approvedenterprise program and our beneficiary enterprise program require us to satisfy specified conditions, which, if we fail to meet, would deny us from these benefits in the future; further, if such tax benefits are reduced oreliminated in the future, we may be required to pay increased taxes.
 
The Company has capital investment programs that have been granted approved enterprise status (“Approved Programs”) and a program under beneficiary enterprise status pursuant to the Law for the Encouragement of Capital Investments, 1959 (“Beneficiary Program”). When we begin to generate taxable income from these approved or beneficiary enterprise programs, the portion of our income derived from these programs will be exempt from tax for a period of two years and will be subject to a reduced tax for an additional eight years thereafter, depending on the percentage of our share capital held by non-Israelis. The benefits available to an approved enterprise program are dependent upon the fulfillment of conditions stipulated under applicable law and in the certificate of approval. If we fail to comply with these conditions, in whole or in part, we may be required to pay additional taxes for the period in which we benefited from the tax exemption or reduced tax rates and would likely be denied these benefits in the future. The amount by which our taxes would increase will depend on the difference between the then applicable tax rate for regular enterprises and the rate of tax, if any, that we would otherwise pay as an approved enterprise or beneficiary enterprise, and the amount of any taxable income that we may earn in the future.
 
In addition, the Israeli government may reduce or eliminate in the future, tax benefits available to approved or beneficiary enterprise programs. Our approved and beneficiary program and the resulting tax benefits may not continue in the future at their current levels or at any level and the legislation regarding Preferred Enterprise may not be applicable to us or may not fully compensate us for such change. The termination or reduction of these tax benefits would likely increase our tax liability. The amount, if any, by which our tax liability would increase will depend upon the rate of any tax increase, the amount of any tax benefit reduction, and the amount of any taxable income that we may earn in the future. For a description of legislation on “Preferred Enterprise" see Item 10. “ADDITIONAL INFORMATION; Taxation; Tax Benefits under the 2011 Amendment”.
 
It may be difficult to enforce a U.S. judgment against us or our officers anddirectors, or to assert U.S. securities laws claims inIsrael.
 
We are incorporated under the laws of the State of Israel. Service of process upon our directors and officers, almost all of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore, because the majority of our assets and investments, and almost all of our directors and officers, are located outside the United States, any judgment obtained in the United States against us or any of our directors and officers may not be collectible within the United States.
 
Additionally, it may be difficult to enforce civil liabilities under U.S. securities law in original actions instituted in Israel; Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws because Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear such a claim, it is not certain whether Israeli law or U.S. law will be applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact by an expert witness, 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 these matters.
 
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Your rights and responsibilities as a shareholder will be governed by Israeli law which differs in some respects from the rights and responsibilities of shareholders of U.S. companies.
 
Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our Articles of Association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in United States-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to a company’s articles of association, an increase of a company’s authorized share capital, a merger of a company and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or 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 an office holder in a company or has another power with respect to a company, has a duty to act in fairness towards such company. Israeli law does not define the substance of this duty of fairness and there is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.
 
Provisions of Israeli law may delay, prevent or make undesirable an acquisition of all or significant portion of our shares or assets.
 
Israeli corporate law regulates mergers and requires that a tender offer be effected when certain thresholds of percentage ownership of voting power in a company are exceeded (subject to certain conditions); See “Item 10.B. MEMORANDUM AND ARTICLES OF ASSOCIATION - Mergers and Acquisitions under Israeli Law.” Further, Israeli tax considerations may make potential transactions undesirable to us or to some of our shareholders if the country of residence of such shareholder does not have a tax treaty with Israel (thus not granting relief from payment of Israeli taxes). With respect to mergers, Israeli tax law provides tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including a holding period of two years from the date of the transaction, during which certain sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no actual disposition of the shares has occurred. See Item 6. “DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES –Mergers and Acquisitions under Israeli Law”. For more information regarding such required approvals please see Item 4. “INFORMATION ON THE COMPANY - B. Business Overview - The Industrial Research and Development Administration, formerly – the Israeli Office of Chief Scientist.”

In addition, in accordance with the Restrictive Trade Practices Law, 1988, and the R&D Law, approvals regarding a change in control (such as a merger or similar transaction) may be required in certain circumstances.

These provisions of Israeli law could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to acquire us or for our shareholders to elect different individuals to our board of directors, even if doing so would be beneficial to our shareholders, and may limit the price that investors may be willing to pay in the future for our ordinary shares.

ITEM 4.                      INFORMATION ON THE COMPANY
 
A. History and Development of the Company
 
We were incorporated under the laws of the State of Israel on July 23, 1996 as Giganet Ltd.  We changed our name to Ceragon Networks Ltd. on September 6, 2000. We operate under the Israeli Companies Law.  Our registered office is located at 24 Raoul Wallenberg Street, Tel Aviv 69719, Israel and the telephone number is 972-3-543-1000.  Our web address is www.ceragon.com. Information contained on our website does not constitute a part of this annual report.
 
Our agent for service of process in the United States is Ceragon Networks, Inc., our wholly owned U.S. subsidiary and North American headquarters, located at Overlook at Great Notch, 150 Clove Road, 9th Floor, Little Falls, NJ 07424.
 
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B. Business Overview
 
We are the number one wireless backhaul specialist company in terms of unit shipments and global distribution of our business, providing innovative wireless backhaul solutions to global wireless backhaul markets.  We provide wireless backhaul solutions that enable cellular operators and other wireless service providers, to deliver voice, data and other multimedia services, enabling smart-phone applications such as Internet browsing, social networking applications, image sharing, music and video applications. We also provide our solutions for wireless backhaul to other vertical markets such as public safety, utilities and oil and gas offshore drilling platforms. Our wireless backhaul solutions use microwave and millimeter-wave radio technologies to transfer large amounts of telecommunication traffic between wireless 4G, 3G and other cellular base station technologies (distributed, or centralized with dispersed remote radio heads) and the core of the service provider’s network.  We are also a member of industry consortiums of companies, which attempt to better define future technologies in ICT (Information and Communication Technologies) markets, such as Open Networking Foundation (ONF), Metro Ethernet Forum (MEF), European Telecommunications Standards Institute (ETSI) and others.
 
In addition to providing our solutions, we also offer our customers a comprehensive set of turn-key professional services, including: advanced network and radio planning, site survey, solutions development, network rollout, maintenance, training and more. Our services include utilization of powerful project management tools in order to streamline deployments of complex wireless networks, thereby reducing time and costs associated with network set-up, and allowing a faster time-to-revenue.  Our experienced teams can deploy hundreds of wireless backhaul links every week, and our rollout project track record includes hundreds of thousands of links already installed and in operation with a variety of industry-leading operators.
 
Designed for Internet Protocol (IP) network configurations, including risk-free migration from legacy to next-generation backhaul networks, our solutions provide fiber-like connectivity for next generation Ethernet/Internet Protocol, or IP-based, networks; for legacy circuit-switched, or SONET/SDH, networks and for hybrid networks that combine IP and circuit-switching technologies. Our solutions support all wireless access technologies, including LTE-Advanced, LTE, HSPA, EV-DO, CDMA, W-CDMA, WiFi and GSM. These solutions allow wireless service providers to cost-effectively and seamlessly evolve their networks from circuit-switched and hybrid concepts to all-IP packet-based concepts, thereby meeting the increasing demand of a growing number of subscribers and the increasing needs for mobile multimedia services. Our products also serve evolving network architectures including all-IP long haul networks.
 
We also provide our solutions to other non-carrier vertical markets such as oil and gas companies, public safety organizations, businesses and public institutions, broadcasters, energy utilities and others that operate their own private communications networks. Our solutions are deployed by more than 460 service providers of all sizes, as well as in hundreds of private networks, in more than 130 countries.
 
In March 2013, we received $113.7 million of credit facilities which replaced all of the Company’s existing credit facilities, including the agreement with Bank Hapoalim B.M. entered into in 2011 (the “Bank Hapoalim Agreement”) and other short term credit facilities with other banks. In October 2013 and again in April 2014, we obtained the bank syndicate's consent for temporary less restrictive financial covenants. Most of the less restrictive financial covenants were in effect until October 1, 2014, except for one less restrictive financial covenant, which was in effect until March 31, 2015. After each date, the respective original covenants again apply.  On March 31, 2015 we signed additional amendment with the banks syndicate that included primarily changes in our credit line structure, in some of our covenants, an extension of the credit facility period until June 30, 2016 and a gradual reduction of the maximum amount of loans from $63.5 million to $50 million by February 28, 2016. On March 10, 2016 we signed a further amendment to the credit facility agreement, which extended the credit facility repayment date till March 31, 2017 under the same terms of the previous amendment. See Item 5. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS; B. Liquidity and Capital Resources,” for a more detailed discussion.
 
In December 2014, we announced a significant new restructuring of our operations to reduce our operational costs. As part of the restructuring effort, we realigned operations, reduced head count and implemented other cost reduction measures in order to lower our breakeven point and improve profitability. The restructuring plan included consolidating or relocating certain offices and reduction of staff functions and several operations positions, as well as other measures. In connection with this restructuring, we incurred restructuring charges of $6.8 million and $1.2 million in the fourth quarter of 2014 and the first quarter of 2015, respectively.
 
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Wireless Backhaul; Short-haul, Long-haul and Small Cells Backhaul

Deployed by operators worldwide, today’s wireless base stations handle many different technologies such as smart phones, tablets and PCs. Voice and data traffic generated by these high-end devices are then gathered and transmitted via the backhaul transport network to the radio frequency (RF), or wireless, network. Wireless backhaul offers network operators a cost-efficient alternative to wire-line (copper/fiber) connectivity. Support for high capacities means that all value-added services can be supported, while the high reliability of wireless systems provide for lower maintenance costs. Because they require no trenching, wireless links can also be set up much faster and at a fraction of the cost of wire-line solutions. On the operator’s side, this translates into an increase in operational efficiency and faster time-to-market, as well as a shorter timetable to achieving new revenue streams.
 
The wireless backhaul market is divided into two main market segments. The first is a market segment in which operators invest resources and efforts to select the best wireless backhaul solution that will meet their wireless backhaul needs, in terms of the ability to improve their business operational efficiency, services reliability and their customers’ (subscribers’) quality of experience. This market segment is referred to as best-of-breed. The other market segment is characterized by operators that do not select the wireless backhaul solution, since this decision is made by a network’s solution provider retained by the operator. This network solution provider delivers an end-to-end solution and the equipment required to operate the entire network, including the wireless backhaul equipment. Operators in this segment of the market often view the wireless backhaul solution as a “commodity”, which should deliver network connectivity, without optimization of network and other resources, and a solution which does not play a primary role within the end-to-end network rollout considerations. This segment of the market is referred to as bundled-deals.
 
Ceragon serves the best-of-breed segment of the market and specializes in a range of solutions, which we believe provide high value for our customers:

 
●
Shorthaul solutions, which typically provide a wireless link capacity of up to 1 Gbps per link and are used to carry voice and data services over distances of between several hundred feet to 10 miles. Short-haul links are deployed in access applications wirelessly connecting the individual base-stations and cellular towers to the core network. Short-haul solutions are also used in a range of non-carrier “vertical” applications such as broadcast, state and local government, public safety, education and off-shore communication for oil and gas platforms.

 
●
Long-haul solutions, which typically provide a capacity of up to 5 Gbps, are used in the “highways” of the telecommunication backbone network. These links are used to carry services at distances of 10 to 50 miles, and, using the right planning, configuration and equipment, can also bridge distances of 100 miles.
 
Ceragon has more than once been the first to introduce new products and features to the market, including the first solution for wireless transmission of 155 Mbps at 38 GHz, the first native IP wireless transmission offering. More recently, we introduced a variety of technological enhancements including the first hitless/errorless 8-step Adaptive Coding and Modulation (ACM) technology (2007); first native Ethernet multi-channel long-haul radio with ACM (2010); unique asymmetric transfer mode and multi-layer compression (2011); and 1024QAM Long-Haul IP radio with 9 step ACM (2012)  The industry’s first multi-core radio solution supporting 2048 QAM and 4x4 MIMO (2012) and the industry’s first and only “Advanced Frequency Reuse” technology.  This technology, based on the Company’s multicore technology allows operators to flexibly deploy the wireless base stations exactly where those are needed, without being bound to wireless backhaul deployment limitations as a result of interferences from various other links, which are often deployed in a dense carrier’s network.
 
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Industry Background
 
The market demand for wireless backhaul is being generated primarily by cellular operators, wireless broadband service providers, businesses and public institutions that operate private networks. This market is fueled by the continuous customer growth in developing countries, and the explosion in mobile data usage in developed countries. Traditionally based on circuit-switched solutions such as T1/E1 or SONET/SDH, the market for wireless backhaul has shifted over the past several years, mostly to more flexible higher capacity and cost efficient architectures, based on IP/Ethernet technologies. The main catalyst of the shift towards IP/Ethernet-based networks as a whole, and the wireless backhaul in particular, has been the vast adoption of 4G/LTE wireless service technology in developed markets (predominantly the United States, Canada, Europe and some parts of Asia Pacific). While the adoption of 4G/LTE has yet to occur in some emerging markets (Latin America, Africa and other countries in Asia Pacific), 3G base stations deployed over recent years in emerging markets have also been relying on IP/Ethernet-based wireless backhaul, further fueling the market adoption of IP-based backhaul.

Rapid subscriber growth and the proliferation of advanced smartphones, tablets and other high data consuming devices, have significantly increased the amount of traffic that must be carried over a cellular operator’s backhaul infrastructure. As a result, existing transport capacity is heavily strained, creating a bottleneck that hinders service delivery and quality.

With the growth in adoption of 4G/LTE and LTE-A, which provides even higher subscriber capacity, cellular operators are seeking strategies for new services, using new technologies which will allow further business growth, by facilitating quick and cost efficient enablement of new services for more connected subscribers (either human or machine). Amongst those are next generation cellular 5G technologies and Software Defined Networks (SDN) technologies. Next generation cellular 5G services technologies, for which the standard is not anticipated to be ratified before 2017, are expected to allow the support for a 1,000 fold larger amount of subscribers with up to 1 Gbps service capacity for many. The need for supporting 5G service capacities will require wireless backhaul with higher capacity and scalability to support 5G services.

SDN technologies are designed to enable fast network rollout with simplified interoperability between vendors by decoupling certain functions from network devices (routers and switches) and centralizing the control functions, traditionally performed by these dedicated network devices, within an SDN network controller. This change will leave the network devices to handle the data transport alone. Together with 5G, SDN may allow fast service enablement, thus requiring a flexible and scalable network infrastructure, to allow for fast and cost effective network implementation and optimization.

The wireless backhaul domain of the network will require adaptation to these industry trends by enabling far higher capacities, with ultra-low latency for high service quality and a high degree of wireless backhaul resource optimization that will be incorporated within the wireless backhaul network infrastructure. Network optimization is expected to be achieved, in part, by the use of SDN technologies with wireless backhaul optimization applications, which shall exploit network intelligence gathered by SDN controllers within the network.

Cellular Operators
 
In order to address the strain on backhaul capacity, cellular operators have a number of alternatives, including leasing existing fiber lines, laying new fiber optic networks or deploying wireless solutions. Leasing existing lines requires a significant increase in operating expenses and, in some cases, requires the wireless service provider to depend on a direct competitor. Laying new fiber-optic lines is capital-intensive and these lines cannot be rapidly deployed. The deployment of high capacity and ultra-high capacity point-to-point wireless links represents a scalable, flexible and cost-effective alternative for expanding backhaul capacity. Supporting data rates of 1 Gbps and above, over a single radio unit, wireless backhaul solutions enable cellular operators to add capacity only as required while significantly reducing upfront and ongoing backhaul costs.

Some of today’s backhaul networks, primarily in emerging markets, still employ a large number of circuit switched (or TDM) solutions - whether T1/E1 or high-capacity SDH/SONET. These networks, originally designed to carry voice-only services, have a limited bandwidth capacity and offer no cost-efficient scalability model. The surge in mobile data usage, fueled by anticipation and adoption of 4G/LTE, drives operators to migrate their networks to a more flexible, feature-rich and cost optimized IP/Ethernet architecture. Additionally, the surge in data usage in densely populated areas drives operators to explore new network architectures that utilize a variety of small-cell technologies requiring the deployment of dense wireless backhaul network in various microwave and millimeter-wave spectral bands. As operators transition to 4G/LTE and LTE-Advanced, all of which are IP-based wireless access technologies, they look for ways to benefit from IP technology in the backhaul while maintaining support for their primary legacy services.
 
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In order to ensure the success of this backhaul network migration phase, operators require solutions that can support their legacy transport technology (TDM) while providing all the advanced IP/Ethernet capabilities and functionalities. This is because, in most cases, 4G/LTE base stations are co-located with 2G/3G base stations, and thus share the same backhaul network. Cellular operators therefore seek “hybrid” wireless backhaul solutions that can carry both types of traffic seamlessly over a single network, to facilitate their network migration. Our solutions, which support any network architecture and include both all-IP as well as hybrid products, offer operators a simple and quick network modernization plan.

Wireless Broadband Service Providers

For wireless broadband service providers, which offer alternate high data access, high-capacity backhaul is essential for ensuring continuous delivery of rich media service across their high-speed data networks.  If the backhaul network and its components do not satisfy the service providers’ need for cost-effectiveness, resilience, scalability or ability to supply sufficient capacity, then the efficiency and productivity of the network may be seriously compromised. While both wireless and wire-line technologies can be used to build these backhaul systems, many wireless service providers opt for wireless point-to-point microwave solutions. This is due to a number of advantages of the technology including: rapid installation, support for high-capacity data traffic, scalability and lower cost-per-bit compared to wire-line alternatives.

Other Vertical Markets

Many large businesses and public institutions require private high bandwidth communication networks to connect multiple locations. These private networks are typically built using IP-based communications infrastructure. This market includes educational institutions, utility companies, oil and gas industry, broadcasters, state and local governments, public safety agencies and defense contractors. These customers continue to invest in their private communications networks for numerous reasons, including security concerns, the need to exercise control over network service quality and redundant network access requirements. As data traffic on these networks rises, we expect that businesses and public institutions will continue to invest in their communications infrastructure, including backhaul equipment. Like wireless service providers, customers in this market demand a highly reliable, cost-effective backhaul solution that can be easily installed and scaled to their bandwidth requirements.  Approximately 20% of our business is associated with private network operators.

Wireless vs. Fiber Backhaul

Though fiber-based networks can easily support the rapid growth in bandwidth demands, they carry high initial deployment costs and take longer to deploy than wireless. Certainly, where fiber is available within several hundred feet of the operator’s point of presence, with ducts already in place, and when there are no regulatory issues that prohibit the connection – fiber can become the operator’s preferred route. In almost all other scenarios, high-capacity wireless backhaul using microwave and millimeter-wave technologies, is significantly more cost efficient. In fact, in most cases the return-on-investment from fiber installations can only be expected in the long term, making it hard for operators to achieve lower costs per bit and earn profits in a foreseeable future.

Wireless microwave and millimeter-wave backhaul solutions on the other hand are capable of delivering high bandwidth, carrier-grade Ethernet and TDM services. Our wireless backhaul solutions are suitable for all capacities up to 2,5 Gbps over a single radio connection (or “link”) and may be scaled up to higher degree of multiple Gbps using intelligent wireless carriers bonding technologies for bonding several radio frequency carriers together. Unlike fiber, wireless solutions can be set up quickly and are more cost efficient on a per-bit basis from the outset. In many countries, microwave backhaul links are deployed as alternative routes to fiber, ensuring on-going communication in case of fiber-cuts and network failures. Millimeter-wave backhaul links over short distances are expected to be used for this purpose as well, as millimeter-wave spectrum becomes readily available in various countries, at acceptable costs.

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Licensed vs. License-exempt Wireless Backhaul

Service providers select the optimal available transmission frequency based on the rainfall intensity in the transmission area and the desired transmission range. The regulated, or licensed, bands are allocated by government licensing authorities for high-capacity wireless transmissions. The license grants the licensee the exclusive use of that spectrum for a specific use thereby eliminating any interference issues.  Licensed microwave spectrum is typically the choice of leading operators around the world because it matches the bandwidth and interference protection they require. Our products operate in the 4 – 42 GHz microwave frequency bands, the principal licensed bands currently available for commercial use throughout the world, as well as in the 70, 80 GHz frequency bands, known as the E-band spectrum, for use in ultra-high (beyond 1 Gbps capacity) for relatively short-distance links, required for the radio access network (RAN) backhaul, as well as small cell backhaul within the radio access network.

License-exempt products typically operate in the “sub-6 GHz” 2.4 – 5.85 GHz band or in the 24 GHz spectrum band.  These systems can be deployed without any regulatory approval. Due to limited availability of spectrum, and the narrow bandwidth of frequency channels in this range, licensed-exempt systems can carry limited network capacity. Often operating in a near-line-of-sight (NLOS) mode, these systems also suffer from high signal loss which puts more limitations on their ability to provide high capacities for network traffic use. Another disadvantage is that because these frequencies are unregulated, it is impossible to ensure high, carrier-grade quality of service and high availability. There are, however, applications in which service providers, public or private, may use license-exempt spectrum products, for instance in enterprises, education, utility, financial, or public safety. Cellular operators and wireless ISPs may also use license-exempt spectrum solutions where NLOS is the only means to connect two end-points. For the license-exempt wireless networks market we offer products that are designed to operate in the “sub-6 GHz” frequencies.

Recently, the license exempt “Sub 6GHz” spectrum is being considered for providing a backhaul solution for cellular small cells situated on street-level fixtures such as lamp poles in urban locations. Though prone to interference by other license-exempt spectrum users, these products may provide some solution to the requirement of wireless backhaul within such small cells network environments, where relatively lower capacity is required.

Industry Trends and Developments
●
Software Defined Networking (SDN) is an emerging concept aimed at simplifying network operations and allowing network engineers and administrators to quickly respond to a fast-changing business environment. SDN delivers network architectures that transition networks from a world of task-specific dedicated network devices, to a world of optimization of network performance through network intelligence incorporated within network controllers performing control functions and network devices, which perform traffic (data-plane) transport. Our IP-20 platform, which we launched during 2013, is an SDN-ready solutions suite that is built around a powerful software-defined engine and may be incorporated within the SDN network architecture.  Our SDN architecture is envisioned to provide a set of applications that can achieve end-to-end wireless backhaul network optimization by intelligently making use of the scarce network resources, such as spectrum and power consumption.
 
 
●
The emergence of small cells presents backhaul challenges that differ from those of traditional macro-cells. Small cells can be used to provide a second layer of coverage in 4G/LTE networks, resulting in higher throughput and data rates for the end-user.  Although small cell deployments are still evolving and are as of yet not showing significant volumes, Ceragon already offers tailored solutions for forward looking mobile operators. Our small-cell wireless backhaul portfolio includes a variety of compact all-outdoor solutions that provide operators with optimal flexibility in meeting their unique physical, capacity, networking, and regulatory requirements.
 
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●
The network sharing business model is growing in popularity among mobile network operators (MNOs) who are faced with increasing competition from over-the-top players and an ever-growing capacity crunch. Network sharing can be particularly effective in the backhaul portion of mobile networks, especially as conventional macro cells evolve into super-sized macro sites that require exponentially more bandwidth for wireless backhaul. It has become abundantly clear that in these new scenarios, a new breed of wireless backhaul solutions with a significant investment is required. Our IP-20 platform supports network sharing concepts by addressing both the ultra-high capacities required for carrying multiple operator traffic, as well as the policing for ensuring that each operator’s service level agreement (SLA) is maintained. The IP-20 platform can deliver up to several Gbps of data over a single link. At the same time, by employing advanced hierarchical quality of service (H-QoS) mechanisms, the IP-20 platform ensures fairness and policy enforcement on a shared network.

●
While green-field deployments tend to be all IP-based, the overwhelming portion of network infrastructure investments goes into upgrading, or “modernizing” existing cell-sites to fit new services with a lower total cost of ownership. Modernizing is more than a simple replacement of network equipment. It helps operators build up a network with enhanced performance, capacity and service support.  For example, Ceragon offers a variety of innovative mediation devices that eliminate the need to replace costly antennas that are already in deployment. In doing so, we help our customers to reduce the time and the costs associated with network upgrades.  The result: a smoother upgrade cycle, short network down-time during upgrades and faster time to revenue.

●
A growing market for non-mobile backhaul applications which includes: Offshore communications for the oil and gas as well as the shipping industry, require a unique set of solutions for use on moving rigs and vessels; Broadcast networks that require robust, highly reliable communication for the distribution of live video content either as a cost efficient alternative to fiber, or as a backup for fiber installations. Smart Grid networks for utilities, as well as local and national governments that seek greater energy efficiency, reliability, and scale.

●
A growing demand for high capacity, IP-based long haul solutions in emerging markets. This demand is driven by the need of operators to connect more communities to 3.5G and 4G  mobile added value services, and a lack of alternative (wire-line) backbone telecommunication infrastructure in these emerging markets.
 
 
●
Market consolidation in the wireless backhaul segment continues. This trend was made evident in our acquisition of Nera and DragonWave’s acquisition of the microwave division of Nokia Siemens Networks.
 
 
●
Subscriber growth continues mainly in emerging markets such as India, Africa and Latin America.
 
Our Solutions

We offer a broad product portfolio of innovative, field-proven, high capacity wireless backhaul solutions, which incorporate our unique multicore technology. Our multicore technology is a key element in our differentiation within the wireless backhaul market, serving the best-of-breed market segment. Our multicore technology is comprised of high order of digital signal carriers imbedded in modems having multiple baseband cores, designed for microwave and millimeter-wave communications, and RF integrated circuits (RFIC), which support the entire available microwave and millimeter-wave spectrum. We integrate our multicore technology into sub systems and complete wireless backhaul solutions that deliver high value for our customers. With our approach to solutions, from system-on-a-chip design, all the way to solutions design, we enable cellular operators, other wireless service providers, public safety organizations, utility companies and private network owners to effectively obtain a range of benefits:

 
●
Increase business operational efficiency by reducing network related expenses: our customers are able to obtain the required capacity with one-quarter of the spectrum needed otherwise, double network capacity without adding more equipment simply by remotely expanding wireless link capacity, significantly reduce energy related expenses by utilizing our energy efficient products, use smaller antennas thereby reducing telecommunication tower leasing costs, and improve their staff productivity with the use of a single wireless backhaul platform for their longhaul, shorthaul and small cells backhaul needs. We offer a range of solutions for quick and simple modernization of wireless networks to 4G/LTE, 4.5G/LTE-A technologies, which significantly contribute to our customers’ ability to modernize and expand their service networks.

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Our wireless backhaul solutions are offered across the widest range of frequencies from 4GHz microwaves to 86GHz millimeter-waves. This provides our customer more flexibility in deploying its wireless backhaul infrastructure, as it enables the customer to select the spectrum available in customer’s market, from a wider range or frequencies. Any transport network topology is supported to enable high network availability and resiliency, including ring, mesh, tree and chain topologies.

 
●
Enhance customers’ (subscribers) quality of experience: our multicore technology allows our customers to improve subscriber (user) quality of experience generated from the voice, data and multimedia services that they provide to their customers. Our solutions enable our customers deliver services with the flexibility to deploy wireless bases stations and other types of communication sites, exactly where needed, in order to maximize their customers’ quality of experience. We do so by providing a solution, which can dramatically reduce the interference between wireless backhaul links, thereby allowing more flexibility for deploying wireless backhaul wherever needed.
 
Our Hierarchical Quality of Service (H-QoS) technology allows our customers offer a high order of SLAs (Service Level Agreements) to their customers, which increase their customers’ satisfaction and in turn can provide an additional source of revenues.

 
●
Ensure peace of mind: Our solutions utilize the latest in microwave and millimeter-wave technology, incorporated in-house developed System on Chips (baseband and RF integrated circuits), and use the latest advances in SMT (Surface-mount technologies) - based manufacturing – allowing our customers to benefit from the highest service availability across their Ceragon - based wireless backhaul network.

We provide our customers with future solutions already built-in to their Ceragon installed base; We invest a significant amount of effort in designing and providing solutions, which are not only backward compatible with our earlier product generations, but allow our customers to reuse the radio units and antennas of their Ceragon links installed based, thereby replacing only the low labor-consuming indoor (sheltered) units - thus benefiting from the latest wireless backhaul performance of our latest technology across their Ceragon installed base. Moreover, our solutions support both TDM - Time Division Multiplexing (E1/T1, STM-1/OC-3) and IP/Ethernet within the same wireless backhaul equipment, providing our customers with  high flexibility in network transition from legacy circuit-based connectivity to 4G and other IP/Ethernet-based connectivity, at their desired pace of transition - while achieving long-term operational efficiency, high service quality and availability.

Design to Cost. We see increasing demand for smaller systems with low power consumption and a cost structure that fits today’s business environment in the diverse markets, seeking wireless backhaul solutions. We believe that this complicated puzzle can only be solved through vertical integration from system to chip level. Our strategy to drive performance up while driving cost down is achieved through our investment in modem and RF (radio frequency) integrated circuit (IC) design. Our advanced chipsets, which are already in use in hundreds of thousands of units in the field, integrate all the radio functionality required for high-end microwave and millimeter-wave systems. By owning the technology and controlling the complete system design, we achieve a very high level of vertical integration. This, in turn, yields systems that have superior performance, due to our ability to closely integrate and fine-tune the performance of all the radio components. By significantly reducing the number of components in the system and simplifying its design, we have made our solutions easier to manufacture. We have introduced automated testing that allows us to speed up production while lowering the costs for electronic manufacturing services manufacturers. Thus we believe we are able to achieve one of the lowest per-system cost positions in the industry and can offer our customers further savings through compact, low power consumption designs – which is becoming a key parameter in the ability of operators to deploy their networks, while meeting operational efficiency targets.
 
As an example, our FibeAir IP-20C, which can quadruple the link capacity over a single frequency channel, has nearly the same footprint as our RFU-C which is a single-channel radio unit, and not a full system. This achievement could not have been possible without our full control of the entire design and production process
 
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Strategic Partnerships. Ceragon maintains strategic partnerships with third party solution vendors and network integrators. Through these relationships Ceragon develops interoperable ecosystems, enabling operators to profitably evolve mobile networks by using complementary backhaul alternatives.

Our Products

Our portfolio of products utilizes microwave and millimeter-waves radio technologies that provide our customers with a wireless connectivity that dynamically adapts to weather conditions and optimizes range and efficiency for a given frequency channel bandwidth. Our products are typically sold as a complete system comprised of four components: an outdoor unit, an indoor unit, a compact high-performance antenna and a network management system. We offer all-packet microwave radio links, with optional migration from TDM to Ethernet. Our products include integrated networking functions for both TDM and Ethernet.

We offer our products in three configurations: All-indoor, All-outdoor and Split-mount.

 
●
Split-mount solutions consist of:

 
●
Indoor units which are used to convert the transmission signals from digital to intermediate frequency signals and vice versa, process and manage information transmitted to and from the outdoor unit, aggregate multiple transmission signals and provide a physical interface to wire-line networks.

 
●
Outdoor units or Radio Frequency Units (RFU), which are used to control power transmission, convert intermediate frequency signals to radio frequency signals and vice versa, and provide an interface between antennas and indoor units. They are contained in compact weather-proof enclosures fastened to antennas. Indoor units are connected to outdoor units by standard coaxial cables.

●
All-indoor solutions refer to solutions in which the entire system (indoor unit and RFU) reside in a single rack inside a transmission equipment room. A waveguide connection transports the radio signals to the antenna mounted on a tower. All indoor equipment is typically used in long-haul applications.

●
All-outdoor solutions combine the functionality of both the indoor and outdoor units in a single, compact device. This weather-proof enclosure is fastened to an antenna, eliminating the need for rack space or sheltering as well as the need for air conditioning.

●
Pointing accuracy solutions for high vibration environments. These are advanced microwave radio systems for use on moving rigs/vessels where the antenna is stabilized in one or two axes, azimuth or azimuth/elevation.

●
Antennas are used to transmit and receive microwave radio signals from one side of the wireless link to the other. These devices are mounted on poles typically placed on rooftops, towers or buildings. We rely on third party vendors to supply this component.

●
End-to-End Network Management.  Our network management system uses standard management protocol to monitor and control managed devices at both the element and network level and can be easily integrated into our customers’ existing network management systems.

An antenna, an RFU and an indoor unit comprise a terminal. Two terminals are required to form a radio link, which typically extends across a distance of several miles and can extend across a distance of over 100 miles. The specific distance depends upon the customer’s requirements and chosen modulation scheme, the frequency utilized, the available line of sight, local rain patterns and antenna size. Each link can be controlled by our network management system or can be interfaced to the network management system of the service provider. The systems are available in both split-mount, including an indoor and outdoor unit, all-indoor and all-outdoor installations.

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The IP-20 Platform provides a wide range of solutions for any configuration requirement and diverse networking scenarios. Composed of high-density multi-technology nodes and integrated radio units of multiple radio technologies ranging from 4GHz and up to 86GHz, it offers ultra-high capacity of multiple Gbps with flexibility in accommodating for every site providing high performance terminals for all-indoor, split-mount and all-outdoor configurations.
 
 
Short-Haul
Long-Haul
  
Product
FibeAir IP-20G & IP-20GX
FibeAir IP-20N / IP-20A*
FibeAir IP-20C
FibeAir IP-20S
FibeAir IP-20E
FibeAir IP-20C HP
FibeAir IP-20LH
Evolution IP-20 LH
PointLink
Description
Multi-Radio Technology Edge Node
 
Multi-Radio Technology Aggregation Node
Compact All-Outdoor Multi-Core Node
 
Compact All-Outdoor Node
 
 
Compact All-Outdoor Node for E-band (70-80GHz)
Compact, high power, multi-carrier trunk
Ultra-high power multi-carrier trunk with HP-radio ODUs
Ultra-high power multi-carrier trunk with Evolution ODUs
High capacity offshore communication
Interfaces
1GE, FE, and
E1/T1
10GE, 1GE, FE, E1/T1
1GE
1GE
1GE
10GE, 1GE, STM-1/OC-3, E1/T1
Note: support for some interfaces requires use of  IP-20N/IP-20A IDU
 
10GE, 1GE, FE, STM-1/OC-3, E1/T1
10GE, 1GE, , FE, STM-1/OC-3, E1/T1
  
Site Configuration
Split-mount
All-outdoor
 
All-outdoor / Split Mount (with IP-20N or IP-20A IDU)
All-indoor /
Split-mount
Split mount
Transport
Technology
Hybrid and/or all-packet
All-packet
All-packet and/or Hybrid
Hybrid and/or all-packet
  
Typical Applications
Cellular operators, Wireless service providers, Incumbent local exchange carriers, Private Networks (Public Safety, First Responders, state/local gov. institutions and Utility Companies)
Cellular operators, Wireless service providers, Incumbent local exchange carriers, Private Networks (Public Safety, First Responders, state/local gov. institutions and Utility Companies)
Cellular
operators,
Wireless ISPs,
, , Private Networks (Public Safety, First Responders, state/local gov. institutions and Utility Companies)
Cellular
operators,
Wireless ISPs,
, Private Networks (Public Safety, First Responders, state/local gov. institutions and Utility Companies)
Cellular
operators,
Wireless ISPs,
, Private Networks (Public Safety, First Responders, state/local gov. institutions and Utility Companies)
Cellular operators,
Wireless ISPs,
Private Networks (Public Safety, First Responders, state/local gov. institutions and Utility Companies)
Cellular operators, Wireless service providers,
Incumbent local exchange
carriers, Private Networks (Public Safety, First Responders, state/local gov. institutions and Utility Companies)
Cellular operators, Wireless service providers,
Incumbent local exchange
carriers Private Networks (Public Safety, First Responders, state/local gov. institutions and Utility Companies)
Offshore oil/gas rigs in high vibration environment
Type of Customers
Cellular operators, Wireless ISPs, Private Network providers, Government institutions
Cellular operators, Wireless ISPs, Private Network providers, Government institutions
Cellular operators, Wireless ISPs, Private Network providers, Government institutions
 Cellular operators, Wireless ISPs, Private Network providers, Government institutions
Cellular operators, Wireless ISPs, Private Network providers, Government institutions
Cellular operators, Wireless service providers,  Incumbent local exchange carriers, Private Network providers
Cellular operators, Wireless service providers, Incumbent local exchange carriers, Private Network providers
Cellular operators, Wireless service providers, Incumbent local exchange carriers, Private Network providers
Oil and gas drilling companies, shipping industry
Operating system
Unified operating system (CeraOS), uniformly supporting  End-to-End networking, services and radio capabilities across the entire IP-20 platform series of products
  

* ANSI version

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Our network management system (NMS) can be used to monitor network element status, provide statistical and inventory reports, download software and configuration to elements in the network, and provide end-to-end service management across the network. Our NMS solutions support all IP-20 platform products, as well as our legacy FibeAir IP-10 and Evolution products through a single user interface.

 
Network Management System (NMS)
     
Description
User-friendly Network Management System designed for managing large scale wireless back haul networks. Optimized for centralized operation and maintenance of a complete network with an intuitive graphical interface for managing performance, end-to-end configuration, faults and system security.
Key Features
Managing wireless backhaul networks; Fault management; Configuration & performance management; Network awareness; Full FCAPS Support Redundancy & Backup; Pay as you Grow with Software Key Mechanism; Northbound Interfaces; Multi-platform Operating System Support

Our IP-based network products use native IP technology. Our hybrid products use our hybrid concept which allows them to transmit both native IP and native circuit-switched TDM traffic simultaneously over a single radio link. Native IP refers to systems that are designed to transport IP-based network traffic directly rather than adapting IP-based network traffic to existing circuit-switched systems. This approach increases efficiency and decreases latency. Our products provide effectively seamless migration to gradually evolve the network from an all circuit-switched and hybrid concept to an all IP-based packet.

As telecommunication networks and services become more demanding, there is an increasing need to match the indoor units’ advanced networking capabilities with powerful and efficient radio units. Our outdoor RFUs are designed with sturdiness, power, simplicity, and compatibility in mind. As such, they provide high-power transmission for both short and long distances and can be assembled and installed quickly and easily. The RFUs can operate with different Ceragon indoor units, according to the desired configuration, addressing any network need be it cellular, backbone, rural or private backhaul networks.

Our RFUs deliver a maximum capacity over 80 MHz channels with configurable modulation schemes from QPSK to 2048QAM. High spectral efficiency is ensured by using the same bandwidth for double the capacity, using a single channel, with vertical and horizontal polarizations. This feature is implemented with a built-in cross polarization interference canceller (XPIC) mechanism. Ceragon was also the first wireless backhaul solutions vendor to introduce a fully functioning LoS 4x4 MIMO (Multiple Inputs, Multiple Outputs) radio. Taking advantage of LoS MIMO technology, our solutions quadruple the available capacity over a single frequency channel using a single, compact FibeAir IP-20C device.

Our Services

Roll Out Services. Since 2012, we are responsible for installing part of the links we ship. We offer complete solutions and services for the design and implementation of telecommunication networks, as well as the expansion or integration of existing ones. We have a global projects and services group that operates alongside our products groups. Under this group we offer our customers a comprehensive set of turn-key services including: advanced network and radio planning, site survey, solutions development, installation, maintenance, training and more. Our services include utilization of powerful project management tools in order to streamline deployments of complex wireless networks, thereby reducing time and costs associated with network set-up, and allowing faster time to revenue. Our experienced teams can deploy hundreds of “wireless backhaul links” every week, and our rollout project track-record includes hundreds of thousands of links already installed and in operation with a variety of tier 1 operators.

We are committed to providing high levels of service and implementation support to our customers. Our sales and network field engineering services personnel work closely with customers, system integrators and others to coordinate network design and ensure successful deployment of our solutions.

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We support our products with documentation and training courses tailored to our customers’ varied needs. We have the capability to remotely monitor the in-network performance of our products and to diagnose and address problems that may arise. We help our customers to integrate our network management system into their existing internal network operations control centers.

Our Customers

We have sold our products through a variety of channels to over 460 service providers as well as to hundreds of private networks in more than 130 countries. Our principal customers are wireless service providers that use our products to expand backhaul network capacity, reduce backhaul costs and support the provision of advanced telecommunications services. In 2015, we continued to maintain our positioning as the number one wireless backhaul specialist, in terms of unit shipments and global distribution of our business.  While most of our sales are direct, we do reach a number of these customers through OEM or distributor relationships. We also sell systems to large enterprises and public institutions that operate their own private communications networks through system integrators, resellers and distributors. Our customer base is diverse in terms of both size and geographic location.

In 2015, customers from the Europe region contributed 14% of total yearly revenue. Our sales in Latin America and Africa reached 24% and 10% of yearly revenue in 2015, respectively. Our sales in Asia Pacific (excluding India), North America and India in 2015 were 9%, 13% and 30%, respectively.

The following table summarizes the distribution of our revenues by region, stated as a percentage of total revenues for the years ended December 31, 2013, 2014 and 2015:
 
     
Year Ended December 31,
  
     
2013
      
2014
      
2015
  
Region
                        
North America
     9 %     11 %     13 %
Europe
     18 %     16 %     14 %
Africa
     20 %     15 %     10 %
India
     8 %     25 %     30 %
APAC (excluding India)
     11 %     11 %     9 %
Latin America
     34 %     22 %     24 %

Sales and Marketing

We sell our products through a variety of channels, including direct sales, OEMs, resellers, distributors and system integrators. Our sales and marketing staff, including supporting functions, includes approximately 523 employees in numerous countries worldwide, who work together with local agents, distributors and OEMs to expand our business.

We are a supplier to four key OEMs which together accounted for approximately 7% of our revenues in 2015. System integrators distributors and resellers accounted for approximately 12% of our revenues for 2015. We are focusing our efforts on direct sales, which accounted for approximately 75% of our revenues for 2015, because we believe that this is the way to provide more value to our customers. We also plan to develop additional strategic relationships with equipment vendors, system integrators, distributors, resellers, networking companies and other industry suppliers with the goal of gaining greater access to our target markets.

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Our marketing efforts include advertising, public relations and participation in industry trade shows and conferences.
 
Manufacturing and Assembly
 
Our manufacturing process consists of materials planning and procurement, assembly of indoor units and outdoor units, final product assurance testing, quality control and packaging and shipping. With the goal of streamlining all manufacturing and assembly processes, we have implemented an outsourced, just-in-time manufacturing strategy that relies on contract manufacturers to manufacture and assemble circuit boards and other components used in our products and to assemble and test indoor units and outdoor units for us. The use of advanced supply chain techniques has enabled us to increase our manufacturing capacity, reduce our manufacturing costs and improve our efficiency.

We outsource most of our manufacturing operations to major contract manufacturers in Israel, Malaysia, Singapore, the Philippines, Hungary and Ukraine. On March 18, 2015 we signed a contract with a certain contract manufacturer to outsource our production facility in Slovakia and the production transfer to that manufacturer was carried out during 2015.  Most of our warehouse operations are outsourced to subcontractors in Israel, the Philippines, and Singapore. The raw materials for our products come primarily from the United States, Europe and Asia Pacific.

We comply with standards promulgated by the International Organization for Standardization and have received certification under the ISO 9001, ISO 14001 and OHSAS 18001 standards. These standards define the procedures required for the manufacture of products with predictable and stable performance and quality, as well as environmental guidelines for our operations and safety assurance.

Our activities in Europe require that we comply with European Union Directives with respect to product quality assurance standards and environmental standards including the “RoHS” (Restrictions of Hazardous Substances) Directive.

Research and Development

We place considerable emphasis on research and development to improve and expand the capabilities of our existing products, to develop new products, with particular emphasis on equipment for transitioning to IP-based networks, and to lower the cost of producing both existing and future products. We intend to continue to devote a significant portion of our personnel and financial resources to research and development. As part of our product development process, we maintain close relationships with our customers to identify market needs and to define appropriate product specifications. In addition, we intend to continue to comply with industry standards and, in order to participate in the formulation of European standards, we are full members of the European Telecommunications Standards Institute.

Our research and development activities are conducted mainly at our facilities in Tel Aviv, Israel and also at our subsidiaries in Greece and Romania. As part of the restructuring activities in 2013, we closed our research and development activities in Bergen, Norway. As of December 31, 2015, our research, development and engineering staff consisted of 190 employees. Our research and development team includes highly specialized engineers and technicians with expertise in the fields of millimeter-wave design, modem and signal processing, data communications, system management and networking solutions.
 
Our research and development department provides us with the ability to design and develop most of the aspects of our proprietary solutions, from the chip-level, including both application specific integrated circuits, or ASICs and RFICs, to full system integration. Our research and development projects currently in process include extensions to our leading IP-based networking product lines and development of new technologies to support future product concepts. In addition, our engineers continually work to redesign our products with the goal of improving their manufacturability and testability while reducing costs.

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Intellectual Property

To safeguard our proprietary technology, we rely on a combination of patent, copyright, trademark and trade secret laws, confidentiality agreements and other contractual arrangements with our customers, third-party distributors, consultants and employees, each of which affords only limited protection. We have a policy which requires all of our employees to execute employment agreements which contain confidentiality provisions.

Our patent portfolio may not be as extensive as those of our competitors. As a result, we may have limited ability to assert any patent rights in negotiations with, or in counterclaiming against, competitors who assert intellectual property rights against us. To date, we have 17 patents granted in the United States and other foreign jurisdictions including the EPO (European Patent Office) and 4 patent applications pending in the United States and other foreign jurisdictions including the EPO. We cannot assure you that any patents will actually be issued or that the scope of any issued patent will adequately protect our intellectual property rights.

We have registered trademarks as follows:
●
for the standard character mark Ceragon Networks and our logo in the United States, Israel, and the European Union;
 
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for the standard character mark Ceragon Networks in Canada;
 
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for the standard character mark CERAGON in Russia, Morocco, Israel, Mexico, Malaysia, United States, South Africa, the Philippines, Argentina, Venezuela and Colombia and International Registration (protection granted in Australia, Iceland, Bosnia & Herzegovina, Switzerland, Croatia, Norway, Russia, South Korea, Ukraine, CTM (European Union), Turkey, Singapore and Macedonia);
 
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for our design mark for FibeAir in the United States, Israel and the European Union;
 
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for the standard character mark FibeAir in the United States;
 
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for the standard character mark CeraView in Israel and the European Union; and
 
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For the standard character mark Native2 in India.

We have pending trademark applications as follows:
●
for the standard character mark CERAGON in Indonesia, India, Nigeria, and International Registration (protection pending in China, Egypt, Kenya and Vietnam).

Competition

The market for wireless equipment is rapidly evolving, fragmented, highly competitive and subject to rapid technological change. We expect competition, which may differ from region to region, to persist, intensify and increase in the future, especially if rapid technological developments occur in the broadband wireless equipment industry or in other competing high-speed access technologies.

We compete with a number of wireless equipment providers worldwide that vary in size and in the types of products and solutions they offer. Our primary competitors include large wireless equipment manufacturers (“generalists”) such as Fujitsu Limited, Huawei Technologies Co., Ltd., L.M. Ericsson Telephone Company, NEC Corporation, Nokia and ZTE Corporation. In addition to these primary competitors, a number of other smaller wireless backhaul equipment suppliers, including Aviat Networks, DragonWave Inc., and SIAE Microelectronica S.p.A offer or develop products that compete with our products.

We also expect consolidation to continue as the wireless equipment market continues to be highly competitive and, as a result, faces strong price pressures. We expect to continue to be a leader in the best-of-breed segment of the wireless backhaul market in terms of market share, technology and innovation, providing significant value to our customers.

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We expect that continued market pressures will drive further consolidation within equipment manufacturers competing with us and which focus solely on the best-of-breed segment of the wireless backhaul market. Examples of such previous consolidations are our acquisition in 2011 of Nera, the acquisition by Dragonwave of the wireless division of Nokia (formerly NSN), and the merger of the wireless divisions of Harris and Stratex Networks.

We expect further consolidations will take place within the “generalists”; the most recent is the merger between Nokia and Alcatel-Lucent, while Nokia itself is the result of a previous joint venture between Nokia and Siemens, and Alcatel-Lucent is the result of a previous merger between Alcatel and Lucent.

Further market consolidations among industry “generalists” may drive some operators, which seek best-of-breed solutions, to seek “bundled” network solutions from these "generalists", which today, in part, resell our products. This trend may put an additional strain on our competitiveness.
 
We believe we compete favorably on the basis of:
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our focus on the mobile market and active involvement in shaping next generation standards and technologies, which deliver best customer value;
 
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Our ability to expand to other vertical markets such as oil and gas and public safety, by drawing upon the capabilities of our technologies and solutions;
 
●
product performance, reliability and functionality, which assist our customers to achieve the highest value;
 
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range and maturity of product portfolio, including the ability to provide solutions in every widely available microwave and millimeter-wave licensed and license-exempt frequency, as well as our ability to provide both circuit switch and IP solutions and therefore to facilitate a migration path for circuit-switched to IP-based networks;
 
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cost structure;
 
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focus on high-capacity, point-to-point microwave technology, which allows us to quickly adapt to our customers’ evolving needs;
 
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range of rollout services offering for faster deployment of an entire network and reduced total cost of ownership; and
 
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support and technical service, experience and commitment to high quality customer service
 
Our products also indirectly compete with other high-speed communications solutions, including fiber optic lines and other wireless technologies.

The Industrial Research and Development Administration, formerly – the Israeli Office of Chief Scientist

The Government of Israel encourages research and development projects in Israel through the Industrial Research and Development Administration, formerly and more commonly known as the OCS, pursuant to and subject to the provisions of the R&D Law.
 
Under the R&D Law, we applied for and were granted R&D grants. As a recipient of such grants we were required to pay the OCS royalties ranging between 3% to 5% of the revenues deriving from sales of products or services incorporating know how developed within funds received from the OCS, until 100% of the dollar value of the grant is repaid (plus LIBOR interest).
 
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In December 2006, we entered into an agreement with the OCS to conclude our R&D grants sponsored by the OCS, and by 2008 completed paying all debts remaining therefrom. In each of 2013 and 2014 we received approval for a new R&D grant from the Government of Israel through the OCS in amounts of approximately $0.7 million and $0.9 million respectively, which were already received (the "Generic Plan"). The Generic Plan requires us to comply with the requirements of the R&D Law in the same manner applicable to previous grants, provided, however, that the obligation to pay royalties on sales of products based on technology or know how developed with the Generic Plan does not apply to us, but may apply, under certain conditions, to a recipient of the technology or know how developed with the Generic Plan, to the extent such is sold and/or transferred. Final approval of the 2015 grant under the Generic Plan is still pending.

The R&D Law generally requires that a product developed under a grant program be manufactured in Israel. However, upon the approval of the OCS, some of the manufacturing volume may be performed outside of Israel. Such approval may only be granted under various conditions, such as the repayment of increased royalties, in an amount equal to up to 300% of the total grant amount, plus applicable interest, or increase of 1% in the royalty rate, depending on the extent of the manufacturing that is to be conducted outside of Israel.
 
The R&D Law also provides that know-how developed with funds received from the OCS and any right derived therefrom may not be transferred to third parties, unless such transfer was approved in accordance with the R&D Law. The research committee operating under the OCS may approve the transfer of know how between Israeli entities, provided that the transferee undertakes all the obligations in connection with the R&D grant as prescribed under the R&D Law. In certain cases, such research committee may also approve a transfer of know how outside of Israel, in both cases subject to the receipt of certain payments, calculated according to a formula set forth in the R&D Law, in amounts of up to six (6) times the total amount of the grants, plus applicable interest (in case of transfer outside of Israel), and three (3) times of such total amount (in case the R&D activity related to the know how remains in Israel). Such approvals are not required for the sale or export of any products resulting from such R&D activity.
 
Further, the R&D Law imposes reporting requirements with respect to certain changes in the ownership of a grant recipient; it law requires the grant recipient and its controlling shareholders and foreign interested parties to notify the OCS of any change in control of the recipient or a change in the holdings of the means of control of the recipient that results in a non-Israeli becoming an interested party directly in the recipient and requires the new interested party to undertake to the OCS to comply with the R&D Law.   For this purpose, “control” means the ability to direct the activities of a company (other than any ability arising solely from serving as an officer or director of the company), including the holding of 25% or more of the Means of Control, if no other shareholder holds 50% or more of such Means of Control.  “Means of control” refer to voting rights 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 OCS that it has become an interested party and to sign an undertaking to comply with the R&D Law. In addition, the rules of the OCS may require additional information or representations with respect to such events.

The R&D Law has been amended effective as of January 1, 2016. Under the amendment a new Industrial Research and Development Administration has been established and is in charge of implementing the governmental policy regarding the R&D Law (and has been given discretion in the implementation of the R&D Law for such purpose). However, and until prescribed otherwise, the existing provisions relating to the transfer of knowhow and manufacturing outside of Israel, as detailed above, shall remain in full force and effect with respect to benefits and funding approved or received prior to such date.

In addition to the grants described above, in March 2014, we agreed to participate in two “Magnet” Consortium Programs (the “Programs”) sponsored by the OCS, which grants do not bear any royalty obligations. In the framework of the Programs, intended to support innovative generic industry-oriented technologies, we are to cooperate with additional companies and research institutes. With respect to each of the years 2014 and 2015 we received an approval from the OCS for a sum of $1.4 million under the Programs, most of which was already received. In 2016 we expect to receive additional sum of approximately $1 million, subject to our compliance with the terms of the Programs. The R&D Law applies to the Programs, including the restrictions on transfer of know how or manufacturing outside of Israel, as described above.

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C. Organizational Structure
 
We are an Israeli company that commenced operations in 1996. The following is a list of our significant subsidiaries:
 
Company
  
Place of Incorporation
  
Ownership Interest
  
           
Ceragon Networks, Inc.
  
New Jersey
     100 %
Ceragon Networks AS
  
Norway
     100 %
Ceragon Networks (India) Private Limited
  
India
     100 %

D. Property, Plants and Equipment
 
Our corporate headquarters and principal administrative, finance and operations departments are located at a leased facility of approximately 65,000 square feet of office space and 5,750 square feet of warehouse space, in Tel Aviv, Israel.  The leases for the majority of this space will expire December 31, 2017.
 
We also lease the following space at the following properties:
 
 
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in the United States, we lease approximately 5,350 square feet of new premises in Overlook at Great Notch, New Jersey,  expiring September, 2021 and approximately 12,461 square feet of office space in Richardson, Texas expiring May 2018.  The lease of our old premises in Paramus New Jersey expired in April 2015.
 
 
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in Norway we lease approximately 12,000 square feet of office space in Bergen, expiring in May 2019;
 
 
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in India, we lease approximately 11,737 square feet of office space in New Delhi expiring in October 2019.
 
We also lease space for other local subsidiaries to conduct pre-sales and marketing activities in their respective regions.
 
ITEM 4A.                   UNRESOLVED STAFF COMMENTS
 
Not applicable.
 
ITEM 5.                      OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
The following discussion and analysis should be read in conjunction withour consolidated financial statements, the notes to those financialstatements and other financial data that appear elsewhere in this annual report. In addition to historical information, the following discussioncontains forward-looking statements based on current expectations that involve risksand uncertainties. Actual results and the timing of certain events may differsignificantly from those projected in such forward-looking statements due to a numberof factors, including those set forth in “Risk Factors” and elsewhere in thisannual report.Our consolidatedfinancial statements are prepared in conformity with U.S. GAAP.

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A.
Operating Results

Overview

We are the number one wireless backhaul specialist in terms of unit shipments and global distribution of our business.  We provide wireless backhaul solutions that enable cellular operators and other wireless service providers to deliver voice and data services, enabling smart-phone applications such as Internet browsing, social networking applications, image sharing, music and video applications.  Our wireless backhaul solutions use microwave technology to transfer large amounts of telecommunication traffic between base stations and small-cells and the core of the service provider’s network.

We also provide our solutions to other non-carrier vertical markets such as oil and gas companies, public safety network operators, businesses and public institutions, broadcasters, energy utilities and others that operate their own private communications networks. Our solutions are deployed by more than 460 service providers of all sizes, as well as in hundreds of private networks, in nearly 130 countries.

In March 2013, we received $113.7 million of credit facilities which replaced all of the Company’s previous credit facilities. In October 2013 and again in April 2014, we obtained the bank syndicate's consent for temporary less restrictive financial covenants. On March 31, 2015 we reached an agreement with the bank syndicate under which our existing credit facility agreement was amended to reflect a reduction in our credit facility and to include, among other changes, certain relief under our covenants as well as an extension of the agreement until June 30, 2016. On March 10, 2016 we signed a further amendment to the credit facility agreement, which extended the credit facility repayment date till March 31, 2017 under the same terms of the previous amendment.  For a more detailed discussion see below under B. Liquidity and Capital Resources.
 
In December 2014, we announced a significant new restructuring of our operations to reduce our operational costs. The restructuring plan is intended to realign operations, reduce head count and undertake other cost reduction measures in order to lower our breakeven point and improve profitability. Once the restructuring and other cost reduction measures are completed, they were expected to result in annual savings of approximately $18 to $22 million. The restructuring plan includes relocating certain offices and reducing staff functions and some operations positions, as well as other measures. In 2014 and the first quarter of 2015, we incurred restructuring charges of $6.8 million and $1.2 million respectively, both related primarily to the 2014 restructuring plan. In addition, in the fourth quarter of 2014 we incurred a $4.4 million write-off of discontinued product inventory related to the restructuring plan.

In August 2014, the Company completed a public offering of its shares on Nasdaq. Total net proceeds from the issuance amounted to approximately $45.1 million, net of issuance expenses in the amount of $400 thousand.

In April 2014, we signed an agreement with Eltek ASA to settle all claims, counter claims, legal proceedings, and any other contingent or potential claims regarding alleged breaches of representations and warranties contained in the purchase agreement governing the Nera Acquisition in January 2011. Pursuant to the settlement agreement, we received $17 million in cash.

Industry Trends

Market trends have placed, and will continue to place, pressure on the selling prices for our products. Our objective is to continue to meet the demand for our solutions while at the same time increasing our profitability. We seek to achieve this objective by constantly reviewing and improving our execution in, among others, development, manufacturing and sales and marketing. Set forth below is a more detailed discussion of the trends affecting our business:
●
Growing Number of Global Wireless Subscribers. Growth in the number of global wireless subscribers is being driven by the availability of inexpensive cellular phones and more affordable wireless service, particularly in developing countries and emerging markets, and is being addressed by expanding wireless networks and by building new networks.

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Increasing Demand for Mobile Data Services. Cellular operators and other wireless service providers are facing increasing demand from subscribers to deliver voice and data services, including Internet browsing, music and video applications.

●
The emergence of small cells present wireless backhaul challenges that differ from those of traditional macro-cells. Small cells architectures can be used to provide a second layer of coverage in 4G networks, resulting in higher throughput and data rates for the end-user.

●
Transition to IP-based Networks. Cellular operators and other wireless service providers are deploying all-IP networks and upgrading their infrastructure to interface with an IP-based core network in order to increase network efficiency, lower operating costs and more effectively deliver high-bandwidth data services.

●
Software Defined Networking (SDN) deliver network architectures that transition networks from a world of task-specific dedicated equipment elements, to a world of optimization of network performance through network intelligence.

●
Network sharing business models are being adopted by mobile network operators (MNOs) who are faced with increasing competition from over-the-top players and an ever-growing capacity crunch. Network sharing can be particularly effective in the backhaul portion of mobile networks, especially as conventional macro cells evolve into super-sized macro sites that require exponentially more bandwidth for backhaul.

We are also experiencing pressure on our sale prices as a result of several factors:
●
Increased Competition: Our target market is characterized by vigorous, worldwide competition for market share and rapid technological development. These factors have resulted in aggressive pricing practices and downward pricing pressures, and growing competition from both start-up companies and well-capitalized telecommunication systems providers.

●
Regional Pricing Pressures: A significant portion of our sales derives from India, in response to the rapid build-out of cellular networks in this country. For the years ended December 31, 2013, 2014 and 2015, 8.0%, 24.8% and 30.3%, respectively, of our revenues were earned in India. Sales of our products in these markets are generally at lower gross margins in comparison to other regions.  Recently, network operators have started to share parts of their network infrastructure through cooperation agreements, which may adversely affect demand for network equipment

●
Transaction Size: Competition for larger equipment orders is increasingly intense due to the fact that the number of large equipment orders in any year is limited. Consequently, we generally experience greater pricing pressure when we compete for larger orders as a result of this increased competition and demand from purchasers for greater volume discounts. As an increasing portion of our revenues is derived from large orders, we believe that our business will be more susceptible to these pressures.

As we continue to focus on operational improvements, these price pressures may have a negative impact on our gross margins.

As we continue to adjust our geographic footprint, we are increasingly engaged in supplying installation and other services for our customers, often in emerging markets. In this context, we may act as prime contractor and equipment supplier for network build-out projects, providing installation, supervision and commissioning services required for these projects, or we may provide such services and equipment for projects handled by system integrators. In such cases, we typically bear the risks of loss and damage to our products until the customer has issued an acceptance certificate upon successful completion of acceptance tests. If our products are damaged or stolen, or if the network we install does not pass the acceptance tests, the end user or the system integrator, as the case may be, could delay payment to us and we would incur substantial costs, including fees owed to our installation subcontractors, increased insurance premiums, transportation costs and expenses related to repairing or manufacturing the products. Moreover, in such a case, we may not be able to repossess the equipment, thus suffering additional losses.  Also these projects are rollout projects, which involve fixed-price contracts. We assume greater financial risks on fixed-price projects, which routinely involve the provision of installation and other services, versus short-term projects, which do not similarly require us to provide services or require customer acceptance certificates in order for us to recognize revenue.
 
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After a significant decrease in our revenues in 2013 and a slight increase in 2014, in 2015, our revenues decreased compared to 2014 and 2013. However, this decrease is mainly attributed to the strategy we implemented in order to accelerate our return to profitability, which included managing the revenue mix more carefully, and seeking revised pricing, payment and other terms in certain new orders.

Results of Operations

Revenues. We generate revenues primarily from the sale of our products, and, to a lesser extent, services. The final price to the customer may largely vary based on various factors, including but not limited to the size of a given transaction, the geographic location of the customer, the specific application for which products are sold, the channel through which products are sold, the competitive environment and the results of negotiation.

Cost of Revenues. Our cost of revenues consists primarily of the prices we pay contract manufacturers for the products they manufacture for us, the costs of off the shelf parts, accessories and antennas, the costs of our manufacturing facility, estimated warranty costs, costs related to management of our manufacturing facility, supply chain and shipping as well as inventory write-off costs and amortization of intangible assets. In addition, we pay salaries and related costs to our employees and fees to subcontractors relating to installation services with respect to our products.

Significant Expenses

Research and Development Expenses. Our research and development expenses consist primarily of salaries and related costs for research and development personnel, subcontractors’ costs, costs of materials and depreciation of equipment. All of our research and development costs are expensed as incurred. We believe that continued investment in research and development is essential to attaining our strategic objectives.

Selling and Marketing Expenses. Our selling and marketing expenses consist primarily of compensation and related costs for sales and marketing personnel, amortization of intangible assets, trade show and exhibit expenses, travel expenses, commissions and promotional materials.

General and Administrative Expenses. Our general and administrative expenses consist primarily of compensation and related costs for executive, finance, information system and human resources personnel, professional fees (including legal and accounting fees), insurance, provisions for doubtful accounts and other general corporate expenses.

Restructuring costs. Our restructuring expenses consisted primarily of severance and related benefit charges, and to a lesser extent, facilities costs related to obligations under non-cancelable leases for facilities that we ceased to use and other associated costs.

Financial Income (expenses), net. Our financial income (expenses), net, consists primarily of interest paid on bank debts, gains and losses arising from the re-measurement of transactions and balances denominated in non-dollar currencies into dollars, gains and losses from our currency hedging activity, amortization of marketable securities premium, net, and other fees and commissions paid to banks, offset by interest earned on bank deposits and marketable securities.

Taxes. Our tax expenses consist of current corporate tax expenses in various locations and changes in tax assets and liabilities.
 
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Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require management to make certain estimates, judgments and assumptions based upon information available at the time they are made, historical experience and various other factors that are believed to be reasonable under the circumstances. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented.

Our management believes the accounting policies that affect its more significant judgments and estimates used in the preparation of its consolidated financial statements and which are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
●
Revenue recognition;
●
Inventory valuation;
●
Provision for doubtful accounts;
●
Taxes on income;
●
Stock-based compensation expense; and
●
Impairment of goodwill and long-lived assets.

Revenue recognition. We generate revenues from selling products to end users, distributors, system integrators and original equipment manufacturers (“OEM”).

Revenues from product sales are recognized in accordance with ASC topic 605-10, “Revenue recognition” and with ASC 605-25 “Multiple-Element Arrangements” (“ASC 605”), when delivery has occurred, persuasive evidence of an arrangement exists, the vendor's fee is fixed or determinable, no future obligation exists and collectability is probable.

In case the sale is subject to a right of return, we record a provision for estimated sale returns and stock rotation granted to customers on products in the same period the related revenues are recorded in accordance with ASC 605. These estimates are based on historical sale returns, stock rotations and other known factors.
 
Pursuant to the guidance of ASU 605-25, “Multiple Deliverable Revenue Arrangements”, when a sales arrangement contains multiple elements, such as equipment and services, we allocate revenues to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence (‘‘VSOE’’) if available, third party evidence (‘‘TPE’’) if VSOE is not available, or estimated selling price (‘‘ESP’’) if neither VSOE nor TPE is available. In multiple element arrangements, revenues are allocated to each separate unit of accounting for each of the deliverables using the relative estimated selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy.

In certain arrangements, we consider the sale of equipment and its installation to be two separate units of accounting in the arrangement in which the installation is not essential to the functionality of the equipment, the equipment has value to the customer on a standalone basis and whenever the arrangement does not include a general right of return relative to the delivered item or delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. In such an arrangement, revenues from the sale of equipment are recognized upon delivery, if all other revenue recognition criteria are met and the installation revenues are deferred to the period in which such installation occurs (but not less than the amount contingent upon completion of installation, if any) using relative selling prices of each of the deliverables based on the aforementioned selling price hierarchy.

We determine the selling price in our multiple-element arrangements by reviewing historical transactions, and considering internal factors including, but not limited to, pricing practices including discounting, margin objectives, and competition. The determination of ESP is made through consultation with   management, taking into consideration the pricing model and strategy.

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When sale arrangements include a customer acceptance provision, revenue is recognized when we demonstrate that the criteria specified in the acceptance provision has been satisfied or as the acceptance provision has lapsed and deemed to be attained.

To assess the probability of collection for revenue recognition purposes, we analyze historical collection experience, current economic trends and the financial position of our customers. On the basis of these criteria, we conclude whether revenue recognition should be deferred and recognized on a cash basis.

Deferred revenue includes unearned amounts received in our arrangements, and amounts received from customers but not recognized as revenues due to the fact that these transactions did not meet the revenue recognition criteria.

Inventory valuation. Our inventories are stated at the lower of cost or market value. Cost is determined by using the moving average cost method. At each balance sheet date, we evaluate our inventory balance for excess quantities and obsolescence. This evaluation includes an analysis of slow-moving items and sales levels by product and projections of future demand. If needed, we write off inventories that are considered obsolete or excessive. If future demand or market conditions are less favorable than our projections, additional inventory write-downs may be required and would be reflected in cost of revenues in the period the revision is made. As of December 31, 2015 our inventory write-off provision was $5.0 million.
 
Provision for doubtful accounts. We perform ongoing credit evaluations of our trade receivables and maintain an allowance for doubtful accounts, based upon our judgment as to our ability to collect outstanding receivables. Allowance for doubtful accounts is made based upon a specific review of all the overdue outstanding invoices. In determining the provisions, we analyze our historical collection experience, current economic trends, the financial position of our customers and the payment guarantees (such as letters of credit) that we receive from our customers. We also insure certain trade receivables under credit insurance policies. If the financial condition of our customers deteriorates, resulting in their inability to make payments, additional allowances might be required. As of December 31, 2015, our allowance for doubtful accounts was $12.2 million and our trade receivables were $116.6 million. Total expenses for doubtful debt during 2015 amounted to $4.5million. Historically, our provision for doubtful accounts has been sufficient to account for our bad debts.
 
Taxes on income. We utilize the liability method of accounting for income taxes. We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. In assessing the need for a valuation allowance, we consider all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence such as cumulative losses in the past. As a result of our cumulative losses and the utilization of our loss carry forward opportunities, we have recorded valuation allowances to reduce our net deferred tax assets to the amount we believe is more likely than not to be realized. While we have considered future taxable income and ongoing tax planning strategies in assessing the need for any valuation allowance, in the event we were to determine that it is more likely than not that we will be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to the valuation allowance would increase income in the period such a determination is made. Likewise, should we determine that it is more likely than not that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the valuation allowance would be charged to expenses in the period such a determination is made. As a result, in the years ended December 31, 2013, 2014 and 2015 we recorded a tax expense from the adjustment of the deferred tax assets in the amount of approximately $4.0 million, $9.9 million and $2.2 million, respectively.

We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are in accordance with applicable tax laws. As part of the determination of our tax liability, management exercises considerable judgment in evaluating tax positions taken by us in determining the income tax provision and establishes reserves for tax contingencies in accordance with ASC 740 “Income Taxes” guidelines. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, new tax legislation or the change of an estimate based on new information. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate, as well as the related interest and penalties.

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Management’s judgment is required in determining our provision for income taxes in each of the jurisdictions in which we operate. The provision for income tax is calculated based on our assumptions as to our entitlement to various benefits under the applicable tax laws in the jurisdictions in which we operate. The entitlement to such benefits depends upon our compliance with the terms and conditions set out in these laws. Although we believe that our estimates are reasonable and that we have considered future taxable income and ongoing prudent and feasible tax strategies in estimating our tax outcome, there is no assurance that the final tax outcomes will not be different than those which are reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision, net income and cash balances in the period in which such determination is made.

Stock-based compensation expense. ASC 718, “Compensation- Stock Compensation,” requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in our consolidated income statement.

We selected the binomial option pricing model as the most appropriate fair value method for our share-option awards based on the market value of the underlying shares at the date of grant. We recognize compensation expenses for the value of our awards, which have graded vesting, based on the accelerated attribution method over the requisite service period, net of estimated forfeitures. Estimated forfeitures are based on actual historical pre-vesting forfeitures and on management’s estimates. If actual forfeitures differ from our estimates, stock-based compensation expense and our results of operations would be impacted.

Stock-based compensation expense recognized under ASC 718 was $3.8 million, $3.3 million and $1.6 million for the years ended December 31, 2013, 2014 and 2015, respectively.

Impairment of Long-Lived Assets.

Our long-lived assets include property and equipment, goodwill and identifiable other intangible assets that are subject to amortization. In assessing the recoverability of our goodwill, property and equipment and other identifiable intangible assets that are held and used, we make judgments regarding whether impairment indicators exist based on our legal factors, market conditions and operating performances. Future events could cause us to conclude that impairment indicators exist and that the carrying values of the goodwill, property and equipment and other intangible assets are impaired. Any resulting impairment loss could have a material adverse impact on our financial position and results of operations.

ASC 350 “Intangible – Goodwill and Other,” requires that goodwill be tested for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition or sale or disposition of a significant portion of the company. We have concluded that we have one reporting unit. The goodwill impairment test is a two-step test. Under the first step, the fair value of the company is compared with its carrying value (including goodwill). If the fair value of the company is less than its carrying value, an indication of goodwill impairment exists and we must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the company’s goodwill over the implied fair value of that goodwill. If the fair value of the company exceeds its carrying value, step two does not need to be performed. The fair value of the Company is estimated using a discounted cash flow methodology. This requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of our long-term rate of growth, the period over which cash flows will occur and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value or goodwill impairment for the Company. During 2014, we recognized impairment of goodwill in the amount of $14.8 million primarily from Nera Acquisition.

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We are required to assess the impairment of long-lived assets, tangible and intangible, other than goodwill, under ASC 360 “Property, Plant, and Equipment,” when events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment indicators include any significant changes in the manner of our use of the assets or the strategy of our overall business, significant negative industry or economic trends and significant decline in our share price for a sustained period. Our 2014 restructuring plan has created the need for such an impairment in 2014. In 2015 no impairment was required.

Upon determination that the carrying value of a long-lived asset may not be recoverable based upon a comparison of aggregate undiscounted projected future cash flows to the carrying amount of the asset, an impairment charge is recorded for the excess of fair value over the carrying amount. We measure fair value using discounted projected future cash flows. During 2014, we recognized impairment of fixed assets in the amount of $2.4 million related to specific assets that will not be used as a result of our restructuring plan. In 2015 no impairment was recognized.

Comparison of Period to Period Results of Operations

The following table presents consolidated statement of operations data for the periods indicated as a percentage of total revenues.
 
   
Year Ended December 31
  
   
2013
    
2014
    
2015
  
Revenues
     100 %     100 %     100 %
Cost of revenues
     69.0       77.2       70.5  
Gross profit
     31.0       22.8       29.5  
Operating expenses:
                        
Research and development, net
     11.9       9.4       6.6  
Selling and marketing
     18.7       15.1       11.7  
General and administrative
     7.4       6.4       6.1  
Restructuring costs  
     2.6       1.8       0.4  
Goodwill impairment
     --       4.0          
Other income
     (2.1 )     (5.3 )     (1.4 )
Total operating expenses
     38.5       31.4       23.3  
Operating income (loss)
     (7.4 )     (8.6 )     6.2  
Financial expenses, net
     3.9       10.2       4.2  
Taxes on income
     1.8       1.8       1.7  
Net income (loss)
     (13.1 )     (20.6 )     0.3  

Year ended December 31, 2014 compared to year ended December 31, 2015
 
Revenues. Revenues totaled $349.4 million in 2015 as compared with $371.1 million in 2014, a decrease of $21.7 million, or 5.8%. Revenues in India increased to $106.0 million in 2015 from $92.1 million in 2014 primarily due to an increase in microwave solutions investment by a couple of customers, the majority driven by a single customer, offset by a decrease in revenue from our 2014 primary customer due to completion of a major deployment cycle. Revenues in the Africa region decreased to $34.6 million in 2015, from $56.0 million in 2014 primarily due to a slowdown in microwave solutions procurement of a customer group in this region. Revenues in the APAC region decreased to $32.0 million in 2015 from $42.1 million in 2014 primarily due to a completion of deployment cycles in a couple of customers. Revenues in Europe decreased to $48.6 million in 2015 from $58.5 million in 2014 partially due to the erosion of the Euro against the U.S. Dollar. Revenues in North America increased to $45.9 million in 2015 from $40.4 million in 2014. Revenues in Latin America increased slightly to $82.3 million in 2015 from $82.1 million in 2014.
 
46
Cost of Revenues. Cost of revenues totaled $246.5 million in 2015 as compared with $286.7 million in 2014, a decrease of $40.2 million, or 14%, attributed mainly to:
●
Lower direct material costs primarily resulting from lower volume of revenues
 
●
The Company’s continued product-cost improvement
 
●
Lower employees costs primarily as a result of the 2014 restructuring plan
 
Gross Profit.  Gross profit as a percentage of revenues increased to 29.5% in 2015 from 22.8% in 2014. This increase is mainly attributed to the product cost improvement as well as pursuing a more selective deal approach.
 
Research and Development Expenses,Net. Our net research and development expenses totaled $22.9 million in 2015 as compared with $35.0 million in 2014, a decrease of $12.1 million, or 34.5%, which  is primarily attributed to a decrease of approximately $7.8 million, in salary and salary related expenses, primarily as a result of the 2014 restructuring plan, a decrease of $0.9 million in subcontractors expenses, a decrease of $0.9 million in stock based compensation expenses, a decrease of $0.6 million in depreciation and an increase of $0.7 million in grants. Our research and development efforts are a key element of our strategy and are essential to our success. We intend to maintain our commitment to research and development and 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. As a percentage of revenues, research and development expenses decreased to 6.6% in 2015 compared to 9.4% in 2014.
 
Selling and Marketing Expenses. Selling and marketing expenses totaled $40.8 million in 2015 as compared with $56.1 million 2014, a decrease of $15.3 million, or 27.2%, resulting mainly from a decrease of approximately $10.5 million in salary and related expenses, primarily due to the 2014 restructuring plan, a decrease of $3.0 million in sales and agent commission expenses primarily attributed to a decrease in revenue and a decrease of $1.2 million in travel expenses. As a percentage of revenues, selling and marketing expenses were decreased to 11.7% in 2015 from 15.1% in 2014.

General and Administrative Expenses. General and administrative expenses totaled $21.2 million in 2015 as compared with $23.7 million in 2014; a decrease of $2.5 million, or 10.2%. This decrease is attributable primarily to a decrease of $1.9 million in salary, and salary related expenses, primarily due to the 2014 restructuring plan, a decrease of $0.7 million in IT subcontractors, $0.6 million decrease in legal and consulting expenses, $0.4 million related to liquidation of one of the Company’s subsidiaries in 2014 and a decrease of $0.5 million in stock based compensation expenses, partially offset by an increase in doubtful debt expenses of $2.2 million. As a percentage of revenues, general and administrative expenses decreased to 6.0% in 2015 from 6.1% in 2014.

Restructuring costs. Restructuring costs totaled $1.2 million in 2015 as compared with $6.8 million in 2014, a decrease of $5.6 million, or 82%. These costs are related to completion of the 2014 restructuring plan.

Other income. Other income for 2015 included $4.8 million related to the expiration of certain pre-acquisition indirect tax exposures in connection with the Nera Acquisition. Other income for 2014 included $16.8 million related to the settlement agreement with Eltek ASA and $3.0 million related to the expiration of certain pre-acquisition indirect tax exposures in connection with the Nera Acquisition.

Financial expenses, Net. Financial expenses, net totaled $14.7 million in 2015 as compared with $37.9 million in 2014, a decrease of $23.2 million. This decrease is primarily attributable to a decrease in financial expenses incurred from the re-measurement of assets denominated in or linked to the U.S. dollar and devaluation of assets and liabilities in local currency in Venezuela from $26.6 million in 2014, to $3 million in 2015, due to currency devaluation in Venezuela and Venezuelan government limitations on payments for imported goods in foreign currency. As a percentage of revenues, financial expenses, net decreased to 4.2% in 2015 compared to 10.2% in 2014.

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Taxes on income. Taxes on income, totaled $5.8 million in 2015 as compared with $6.5 million in 2014, a decrease of $0.7 million, mainly attributed to the decrease in deferred tax expenses of $7.7 million. This amount was offset by an increase in tax expenses, net related to direct tax exposures of approximately $5.9 million, primarily due to a tax income of $4.8 million, related to expiration of pre-acquisition tax provisions, which was recorded in 2014, and an increase of $1.0 million in our current taxes on income, primarily due to sales and distribution subsidiaries, where the local activities are profitable.

Net profit (loss). In 2015 the company had a $1.0 million of net profit as compared with net loss of $76.5 million in 2014. As a percentage of revenues, net profit increased to 0.3% in 2015 from loss of 20.6 % in 2014. The increase in net profit was attributable mainly to the improvement in our gross profit and the decrease in our operating expenses, which were mainly attributable to the 2014 restructuring plan and to the decrease in our financial expenses, mainly due to the reduction of the re-measurement and devaluation effect in Venezuela.

Year ended December 31, 2013 compared to year ended December 31, 2014
 
Revenues. Revenues totaled $371.1 million in 2014, as compared with $361.8 million in 2013; an increase of $9.3 million, or 2.6%. Revenues in India increased to $92.1 million in 2014 from $26.6 million in 2013, primarily due to a new deployment cycle in a major customer. Revenues in Africa region decreased to $56.0 million in 2014 from $73.7 million in 2013, primarily due to a completion of a major deployment cycle in a major customer. Revenues in the Latin America region decreased to $82.1 million in 2014 from $122.2 million in 2013 due to a completion of a major deployment cycle in a single group customer in this region.
 
Cost of Revenues. Cost of revenues totaled $286.7 million in 2014, as compared with $249.5 million in 2013 an increase of $37.2 million, or 14.9%. This increase was attributable mainly to:
●
Higher material costs primarily resulting from change in our revenue mix to one with lower prices of $38.8 million and inventory  write-off of discontinued product inventory , in the amount of $4.4 million; partially offset by
 
●
Lower subcontractors’ expenses in the amount of $12.2 million resulting from change in our revenues mix.
 
Gross Profit.  Gross profit as a percentage of revenues decreased to 22.8% in 2014 from 31.0% in 2013. This decrease was attributable mainly to change in our revenue mix to regions with lower prices.

Research and Development Expenses,Net. Our net research and development expenses totaled $35.0 million in 2014 as compared with $43.0 million in 2013, a decrease of $8.0 million, or 18.5%. The net decrease in our research and development expenses was attributable primarily to a reduction of approximately $6.5 million in salary and related expenses as a result of the 2013 restructuring plan, a decrease of approximately $0.8 million in office related expenses, mainly as a result of the decrease in research and development activities in Norway partially offset by an increase of $0.4 million in grant from the Israeli Office of the Chief Scientist. Our research and development efforts are a key element of our strategy and are essential to our success. We intend to maintain our commitment to research and development and 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. As a percentage of revenues, research and development expenses decreased to 9.4% in 2014 compared to 11.9% in 2013.

Selling and Marketing Expenses. Selling and marketing expenses totaled $56.1 million in 2014, as compared with $67.7 million in 2013, a decrease of $11.6 million, or 17.2%. This decrease was primarily attributable to a decrease of approximately $4.9 million in salary and related expenses, mainly as a result of the 2013 restructuring plan, a decrease of $1.0 million in commissions as a result of a change in revenue mix, a decrease of $2.1 million in office expenses, mainly related to the closure of offices, a decrease of $1.8 million in travel expenses, and a decrease in stock based compensation expenses of $0.7 million. As a percentage of revenues, selling and marketing expenses were 15.1% in 2014 and 18.7% in 2013.

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General and Administrative Expenses. General and administrative expenses totaled $23.7 million in 2014, as compared with $26.8 million in 2013, a decrease of $3.1 million, or 11.6%. This decrease was attributable primarily to a decrease of approximately $1.7 million in salary and related expenses, mainly as a result of the 2013 restructuring plan and, a decrease of $1.3 million in IT subcontractors related to our ERP implementation, partially offset by an increase in doubtful debt expenses of $1.5 million. As a percentage of revenues, general and administrative expenses were 6.4% and 7.4% in 2014 and 2013, respectively.

Restructuring costs. Restructuring costs totaled $6.8 million in 2014 as compared with $9.3 million in 2013, a decrease of $2.5 million, or 27.1%, due to the completion of the 2013 restructuring and a smaller restructuring in 2014.

Goodwill impairment. Goodwill impairment in 2014 included $14.8 million primarily from the Nera Acquisition.

Other income. Other income in 2014 included $16.8 million related to the settlement agreement with Eltek ASA and $3.0 million related to the expiration of certain pre-acquisition indirect tax exposures in connection with the Nera Acquisition. Other income in 2013 included $7.7 million related to the expiration of certain pre-acquisition indirect tax exposures in connection with the Nera Acquisition.

Financial expenses, Net. Financial expenses, net totaled $37.9 million in 2014 as compared with $14.0 million in 2013, an increase of $23.9 million. The increase in the financial expenses is mainly related to a $26.6 million non-recurring finance expense that consisted of $6.1 million of local currency devaluation and $20.5 million of re-measurement of certain assets denominated or linked to the U.S. dollar in Venezuela due to the Venezuelan government limitations on payments for imported goods in foreign currency. As a percentage of revenues, financial expenses, net increased to 10.2% in 2014 as compared to 3.9% in 2013.

Taxes on income. Taxes on income remained flat in 2014. Our current taxes on taxable income in our sales, distribution and manufacturing subsidiaries, where the local activities are profitable, have decreased by $2.2 million.  The reduction in tax provisions related to expiration of certain pre-acquisition direct tax exposures in connection with Nera Acquisition has increased by $4.2 million. These changes were offset by an increase in deferred tax expenses of $6.4 million, primarily due to devaluation of tax assets.

Net loss. Net loss totaled $76.5 million in 2014, compared with a net loss of $47.5 million in 2013. As a percentage of revenues, net loss increased to 20.6% in 2014 from 13.1 % in 2013. The increase in net loss was attributable primarily to the increase in financial expenses, and a small decrease in revenue as well as the decrease in gross profit, offset partially by a decrease in operating expenses.

Impact of Currency Fluctuations

We typically derive the majority of our revenues in U.S. dollars. Although the majority of our revenues were denominated in U.S. dollars, a significant portion of our expenses were denominated in NIS, NOK (Norwegian Kroner), INR (Indian Rupee), BRL (Brazilian Real) and Euros. Our NIS- denominated expenses consist principally of salaries and related personnel expenses. We anticipate that a material portion of our expenses will continue to be denominated in NIS.

In addition, because exchange rates between the dollar and the NIS, the NOK, the INR and the Euro fluctuate continuously, and because exchange rates between the dollar and the ARS (Argentine Peso), the VEB (Venezuelan bolivar) and the BRL (Brazilian Real) fluctuated significantly in recent years and continue to fluctuate, exchange rate fluctuations would have an impact on our results and period-to-period comparisons of our results. We partially reduce this currency exposure by entering into hedging transactions. The effects of foreign currency re-measurements are reported in our consolidated statements of operations. For a discussion of our hedging transactions, please see Item 11.”QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.”

49
Transactions and balances in currencies other than U.S. dollars are re-measured into U.S. dollars according to the principles in ASC topic 830, “Foreign Currency Matters”. Gains and losses arising from re-measurement are recorded as financial income or expense, as applicable.

The following table presents information about the change in exchange rate of several major currencies against the dollar:

    Change in the U.S. dollar against local currencies  
Year ended December 31,
  
NIS (%)
    
NOK (%)
    
Euro (%)
    
ARS (%)
    
VEB (%)
    
BRL (%)
  
2011
     7.7       3.0       3.3       7.9       0.0       8.2  
2012
     (2.3 )     (7.5 )     (2.1 )     13.6       0.0       13.5  
2013
     (7.0 )     9.0       (4.2 )     29.7       46.6       12.5  
2014
     12.1       22.3       13.5       34.2       694.6       13.3  
2015
     0.2       15.6       10.2       34.6       74.8       32.9  

Effects of Government Regulations and Location on the Company’s Business

For a discussion of the effects of Israeli governmental regulation and our location in Israel on our business, see “Information on the Company – Business Overview – Conditions in Israel” in Item 4 and the “Risks Relating to Israel” as well as the Risk Factor “Ourinternational operations expose us to the risk of fluctuation in currencyexchange rates and restrictions related to cash repatriation” in Item 3, above.

B.            Liquidity and Capital Resources

Since our initial public offering in August 2000, we have financed our operations primarily through the proceeds of that initial public offering and follow-on offering and through royalty-bearing grants from the OCS. In the initial public offering, we raised $97.8 million; and through December 31, 2006, we received a total of $18.5 million from the OCS. In follow-on public offerings completed in December 2007, November 2013 and August 2014, we raised net amounts of $88.3 million $35.0 million and $45.1 million, respectively.
 
In January 2011, we entered into a loan agreement with Bank Hapoalim B.M. in the principal amount of $35 million (the Bank Hapoalim Agreement). The Bank Hapoalim Agreement provided that the principal amount of $35 million bore interest at a rate of Libor + 3.15%, which Libor was updated every three months. The principal amount was to be repaid in 17 quarterly installments from February 19, 2012, through February 19, 2016 and the interest was to be paid in quarterly payments starting as of February 19, 2011. As of December 31, 2015, the loan balance is in the amount of $2.1 million is included in current liabilities section on our balance sheet.
 
In March 2013, we entered into a credit facility with four banks: Bank Hapoalim B.M. (also the lead - arranger and securities trustee), HSBC Bank Plc, Bank Leumi Le’Israel Ltd., and First International Bank Israel Ltd., pursuant to which we received $113.7 million of committed credit facilities consisting of up to $73.5 million in credit loans as well as up to $40.2 million for bank guarantees. The credit facility replaced all of the Company’s existing credit facilities, including the Bank Hapoalim Agreement, and other short term credit facilities with other banks.  Borrowings will bear floating interest at a base rate plus an applicable spread of up to 3% per annum. The credit facilities are secured by (1) a floating charge over all our assets and (2) floating and fixed charges over our bank accounts with the banks.  In the framework of the credit facility, we undertook certain financial and other standard covenants, including not to distribute dividends (unless certain terms are met) without the banks’ prior written consent pursuant to the agreement. In October 2013 and again in April 2014, we obtained the bank syndicate's consent for temporary less restrictive financial covenants. Most of the less restrictive financial covenants shall be in effect until October 1, 2014, except for one less restrictive financial covenant which remained in effect until March 31, 2015. After each date, the respective original covenants again apply. According to the April 2014 amendment, the available credit line has been reduced by $5 million on January 1, 2015 and additional $5 million on April 1, 2015. In addition, the terms of the credit facility agreement determined that if the Company does not meet the revised EBITDA covenant in the third quarter of 2014, the available credit line will be reduced further by an additional $5 million.
 
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On March 31, 2015 the Company signed an amendment to its agreement with the four banks to better align its credit facility terms to its current needs. The main changes consist of:
 
 
a.
An increase in the allowed accounts receivable discounting activities of one of the Company’s main customers by $34 million to an amount of up to $54 million;
 
 
b.
A gradual reduction of the maximum amount of credit facility for loans from $63.5 million (starting April 1, 2015) to $50 million by February 28, 2016;
 
 
c.
A gradual reduction in minimum cash covenant from $20 million to $15 million by October 1, 2015;
 
 
d.
An extension of the credit facility repayment date to June 30, 2016 (from March 14, 2016);
 
 
e.
Changes in the equity related covenants definition to exclude goodwill and Intangible Assets from the calculation, as well as reduction of the minimum total shareholders’ equity value to $85 million and reduction of the minimum ratio of total shareholders’ equity to total assets ratio to 0.27; and
 
 
f.
Other changes primarily increase in the maximum spread of interest chargeable to 3.5% and other bank fees
 
On December 31, 2014, based on the previous covenants, the Company was in breach of ratio of total shareholders’ equity to total assets. As part of the amendment to the credit facility, the banks agreed to apply the new covenant new term retroactively. Therefore, subject to this amendment, on December 31, 2014 the Company met all the covenants and expects to continue meeting these covenants.
 
On March 10, 2016 we signed a further amendment to the credit facility agreement, which extended the credit facility repayment date till March 31, 2017 under the same terms of the amendment from March 31, 2015. As of December 31, 2015, we sold trade receivables by factoring to several financial institutions in the total amount of $14.4 million. In accordance with our agreement with the bank syndicate we may sell trade receivables up to an amount of $20 million.
 
In the past few years we have initiated a few restructuring plans; during the fourth quarter of 2012 we initiated a restructuring plan to improve our operating efficiency and during the fourth quarter of 2013 we initiated a restructuring plan to reduce operational costs. The restructuring costs in 2013 amounted to $9.3 million. In December 2014, we announced a significant new restructuring of our operations to reduce our operational costs. The restructuring costs in 2014 amounted to $6.8 million.  In the first quarter of 2015 we incurred additional restructuring costs in a sum of $1.2 million, related to the 2014 restructuring plan. All three restructuring plans referred to above significantly contributed to the reduction in our operating expenses for the years ended 2013, 2014 and 2015, respectively. In the year ended December 31, 2015 our capital expenditures were $5.3 million, primarily for the development of our new IP-20 product family and its production lines.
 
As of December 31, 2015, our debt from financial institutions amounted to $32.8 million excluding current maturities of long-term loan in the amount of $2.1 million.
 
As of December 31, 2015, we had approximately $36.3 million in cash and cash equivalents, out of which $1.0 million is located in Venezuela. This country is regulated for foreign currency exchange, which impairs the availability of that cash outside of the country.

As of December 31, 2015, our cash investments were comprised from 100% short-term, highly liquid investments with original maturities of up to three months. Most of these investments are in U.S. dollars.

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Net cash provided by operating activities was $16.1 million for the year ended December 31, 2015.
 
Net cash used in operating activities was $32.3 and $29.5 million for the year ended December 31, 2014 and 2013, respectively.

In 2015, our $16.1 million cash provided by operating activities was affected by the following principal factors:
●
our net income of 1.0 million; and

●
a $40.2 million decrease in trade and other receivables, net; and

●
a $12.2 million of depreciation and amortization expenses; and

●
a $10.2 million decrease in inventories;
 
These factors were offset by:
 
●
a $41.5 million decrease in trade payables and accrued expenses, net; and

●
a $8.8 million decrease in deferred revenues paid in advance;
 
In 2014, our $32.3 million cash used in operating activities was affected by the following principal factors:
●
our net loss of 76.5 million; and

●
a $22.6 million increase in trade and other receivables, net;
 
These factors were offset by:
●
a $14.8 million impairment of goodwill;

●
a $13.5 million of depreciation and amortization expenses;

●
a $9.7 million increase in deferred revenues paid in advance;

●
a $8.9 million increase in trade payables and accrued expenses, net; and

●
a $9.8 million decrease in deferred tax asset;
 
In 2013, our $29.5 million cash used in operating activities was affected by the following principal factors:
●
our net loss of $47.5 million;

●
a $21.0 million decrease in trade payables, net of accrued expenses; and

●
a $8.8 million decrease in deferred revenues paid in advance;
 
These factors were offset by:
●
a $15.6 million of depreciation and amortization expenses;

52
●
a $15.5 million decrease in trade receivables, net; and

●
a $3.6 million decrease in deferred tax asset;

Net cash used in investing activities was approximately $4.7 million for the year ended December 31, 2015, as compared to net cash used in investing activities of approximately $7.5 million for the year ended December 31, 2014, and net cash used in investing activities of approximately $23.8 million for the year ended December 31, 2013. In the year ended December 31, 2015, our purchase of property and equipment of $5.3 million were partially offset by proceeds from maturities of short-term bank deposits of $0.4 million. In the year ended December 31, 2014, our purchase of property and equipment of $12.7 million, were partially offset by proceeds from sales of marketable securities of $5.2 million. In the year ended December 31, 2013 our investment in marketable securities of $7.9 million and purchase of property and equipment of $16.4 million, were offset partially by proceeds from sales of marketable securities of $0.5 million.

Net cash used in financing activities was approximately $15.8 million for the year ended December 31, 2015 as compared to net cash provided by financing activities, which was approximately $38.8 million for the year ended December 31, 2014 and net cash provided by financing activities of $49.6 million for the year ended December 31, 2013. In the year ended December 31, 2015, our net cash used in financing activities was primarily due to our net repayment of a bank loan of $16.0 million. In the year ended December 31, 2014, our proceeds from issuance of shares, net of $45.1 million and proceeds from financial institutions of $22.7 million were partially offset by repayment of a bank loan of $29.0 million.  In the year ended December 31, 2013, our proceeds from exercises of share options of $1.1 million, proceeds from issuance of shares, net of $35.0 million and proceeds from financial institutions, net of $23.7 million, were offset partially by repayment of a bank loan of $10.2 million.

As of December 31, 2015, our principal commitments consisted of $9.4 million for obligations outstanding under non-cancelable operating leases.

Our capital requirements are dependent on many factors, including working capital requirements to finance the business activity of the Company, and the allocation of resources to our research and development efforts, as well as our marketing and sales activities. We anticipate continuing to engage in raising funds as may be required subject to changes in our business activities.

In March 2016 the Company signed a further amendment to its agreement with the four financial institutions to extend the credit facility repayment date to March 31, 2017. We believe that current cash and cash equivalent balances together with the credit facility available based on the agreement with the financial institution will be sufficient for our requirements through at least the next 12 months.

C. 
Research and Development

We place considerable emphasis on research and development to improve and expand the capabilities of our existing products, to develop new products, with particular emphasis on equipment for emerging IP-based networks, and to lower the cost of producing both existing and future products. We intend to continue to devote a significant portion of our personnel and financial resources to research and development. As part of our product development process, we maintain close relationships with our customers to identify market needs and to define appropriate product specifications. In addition, we intend to continue to comply with industry standards and, in order to participate in the formulation of European standards, we are full members of the European Telecommunications Standards Institute.

Our research and development activities are conducted mainly at our facilities in Tel Aviv, Israel and also at our subsidiaries in Greece and Romania. As of December 31, 2015, our research, development and engineering staff consisted of 190 employees. Our research and development team includes highly specialized engineers and technicians with expertise in the fields of millimeter-wave design, modem and signal processing, data communications, system management and networking solutions.

53
Our research and development department provides us with the ability to design and develop most of the aspects of our proprietary solutions, from the chip-level, including both ASICs and RFICs, to full system integration. Our research and development projects currently in process include extensions to our leading IP-based networking product lines and development of new technologies to support future product concepts. In addition, our engineers continually work to redesign our products with the goal of improving their manufacturability and testability while reducing costs.

Our research and development expenses were approximately $22.9 million or 6.6% of revenues in 2015, $35.0 million or 9.4% of revenues in 2014, $43.0 million or 11.9% of revenues in 2013.

Intellectual Property

For a description of our intellectual property see Item 4. “INFORMATION ON THE COMPANY – B. Business Overview - Intellectual Property.”

D.
Trend Information

For a description of the trend information relevant to us see discussions in Parts A and B of Item 5.”OPERATING AND FINANCIAL REVIEW AND PROSPECTS.”
 
E. 
Off Balance Sheet Arrangements

We are not party to any material off-balance sheet arrangements. In addition, we have no unconsolidated special purpose financing or partnership entities that are likely to create material contingent liabilities.

F.
Tabular Disclosure of Contractual Obligations

 
  
Payments due by period (in thousands of dollars)
  
 
Contractual Obligations
  
Total
    
Less than 1
year
    
1-3 years
    
3-5 years
    
More than
5 years
  
                               
Operating lease obligations1 
     9,413       4,259       4,825       329        
Purchase obligations2 
     21,882       21,882                        
Other long-term commitment3 
     4,595                               4,595  
Uncertain income tax positions4 
     6,642                               6,642  
Loan Agreement
     2,072       2,072                          
Total
     44,604       28,213       4,825       329       11,237  
 
(1) 
Consists of operating leases for our facilities and for vehicles.
 
(2)
Consists of all outstanding purchase orders for our products from our suppliers.
 
(3)
Our obligation for accrued severance pay under Israel’s Severance Pay Law as of December 31, 2015 was approximately $6.9 million, of which approximately $4.7 million was funded through deposits in severance pay funds, leaving a net commitment of approximately $2.2 million. In addition, the commitment includes a net amount of approximately $2.4 million in pension accruals in other subsidiaries, mainly in Norway.
 
(4)
Uncertain income tax position under ASC 740-10, “Income Taxes,” are due upon settlement and we are unable to reasonably estimate the ultimate amount or timing of settlement. See Note 15g of our Consolidated Financial Statements for further information regarding the Company’s liability under ASC 740-10.
 
Effect of Recent Accounting Pronouncements

See Note 2, Significant Accounting Policies, in Notes to the Consolidated Financial Statements in Item 8 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, which is incorporated herein by reference.

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ITEM 6.                      DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management

The following table lists the name, age and position of each of our current directors and executive officers:
 
Name
  
Age
  
Position
         
Zohar Zisapel
  
67
  
Chairman of the Board of Directors
Ira Palti
  
58
  
President and Chief Executive Officer
Doron Arazi
  
52
  
Executive Vice President & Chief Financial Officer
John Earley
  
58
  
Executive Vice President, Delivery1
Nurit Kruk-Zilca
  
42
  
Executive Vice President, Human Resources
Yuval Reina
  
49
  
Executive Vice President, Global Products
Oz Zimerman
  
52
  
Executive Vice President, Global Marketing & Services
Flavio Perrucchetti
  
48
  
Regional President, Europe
Ram Prakash Tripathi
  
49
  
Regional President, APAC
Amit Ancikovsky
  
45
  
Regional President, Latin America & Africa
Charles Meyo
  
52
  
Regional President, North America
Shlomo Liran
  
65
  
Director
Yael Langer
  
51
  
Director
Yair E. Orgler
  
76
  
Director
Avi Patir
  
67
  
Director
 
Set forth below is a biographical summary of each of the above-named directors and executive officers.
 
Zohar Zisapel has served as the Chairman of our board of directors since we were incorporated in 1996. Mr. Zisapel is also a founder and a director of RAD Data Communications Ltd., of which he served as CEO from January 1982 until January 1998 and as chairman from 1998 until 2012. Mr. Zisapel also serves as a director of RADCOM Ltd. and Amdocs Limited and as chairman or director of several private companies.  Mr. Zisapel received a B.Sc. and a M.Sc. in electrical engineering from the Technion, Haifa Institute of Technology (“Technion”) and an M.B.A. from the Tel Aviv University.
 
Ira Palti has served as our President and Chief Executive Officer since August 2005. From January 2003 to August 2005, Mr. Palti was Chief Executive Officer of Seabridge Ltd., a Siemens company that is a global leader in the area of broadband services and networks. Prior to joining Seabridge, he was the Chief Operating Officer of VocalTec Communications Ltd., responsible for sales, marketing, customer support and product development. Among the positions he held before joining VocalTec was founder of Rosh Intelligent Systems, a company providing software maintenance and AI diagnostic solutions and one of the first startups in Israel. Mr. Palti received a B.Sc. in mathematics and computer science (magna cum laude) from the Tel Aviv University.
 
Doron Arazi has served as our Executive Vice President and Chief Financial Officer since 2014. He joined Ceragon as CFO after a long, successful career with Amdocs where he managed the business relationship with a US tier 1 mobile operator and was responsible for hundreds of employees.  Prior to Amdocs, Doron looked after the financial and growth activities of other high-tech companies in the telecommunications sector, including serving as CFO of Allot Communications and VP of Finance at Verint. Mr. Arazi is a CPA and holds a B.A. degree in Economics and Accounting as well as an MBA degree focusing on Finance and Insurance, both from the Tel Aviv University.
 
_______________________________
 
1 Mr. John Earley’s employment with the Company will terminate on June 30, 2016.
 
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John Earley has been our Executive Vice President, Delivery since April 2014. Prior to his appointment to such position, Mr. Earley served as our Regional President, Africa, as from March 2011.  From March 2010 to 2011, Mr. Earley served as Regional Head of Services, Africa for Nokia Siemens Network based in South Africa.  From November 2007 to 2010 Mr. Earley served as Chief Technical Officer for Celtel (later Zain) Nigeria and subsequently Head of Business Transformation for Zain Networks, Nairobi. Mr. Early received B.Sc. in electrical engineering from the Cleveland Institute of Technology.
 
Nurit Kruk-Zilca has served as our Executive Vice President, Human Resources since April 2014. From July 2005 until March 2014, Ms. Kruk-Zilca served in various positions in our human resources department, the last one as VP Global HR, responsible for all human resources. From 2000 until July 2005 she was a talent acquisition and sourcing specialist for Intel Israel. Ms. Kruk-Zilca received a B.A. in Leadership & Education and an M.A. in Organizational Sociology from the Tel Aviv University.
 
Yuval Reina has served as our Executive Vice President Global Products since 2015. He joined Ceragon in 2015, and is responsible for the conception, creation and delivery of leading-edge wireless backhaul solutions. With more than 25 years in management of large-scale, multidisciplinary projects and sizeable R&D organizations, Mr. Reina brings a wide breadth of experience along with a sharp focus on innovation and product delivery. Mr. Reina holds a B.Sc. (cum laude) in Electrical Engineering and a M.Sc. (summa cum laude) in Management from the Ben-Gurion University.
 
Oz Zimerman has served as our Executive Vice President Global Corporate Development since 2014. He joined the company in March 2013. Oz brings with him over 20 years of global executive business experience in sales, marketing and business development. From 2008 to 2012, Mr. Zimerman was Corporate VP Marketing and Business Development at DSP Group (DSPG), where he was responsible for leading the company's overall marketing activities, M&A and supporting its worldwide expansion. Prior to joining DSP Group, Oz was VP Marketing at Comverse, where he led global positioning and developed partnerships. Before joining Comverse, he was VP Channels Sales, Business Development and Strategic Marketing at ECI Telecom, and prior to his work at ECI, he was Engagement Manager at Shaldor, a leading management consulting firm. Mr. Zimerman holds a B.Sc. in Industrial Engineering & Management from NYU Polytechnic University (summa cum laude) and a Master’s degree in Business Administration & Industrial Engineering from Columbia University.
 
Flavio Perrucchettihas served as our Regional President, Europe since 2015. Mr. Perrucchetti joined Ceragon in August 2011 from SIAE Microelettronica, where he was the Head of Sales & Marketing for Europe from 2007. Prior to that, he was engaged for more than 20 years in sales, marketing and management activities in the telecommunications market, including as the Head of Sales for Europe & Key Accounts Manager for Italy for a major telecom service provider, and as Head of International Sales & Marketing for a major microwave manufacturer where was responsible for Latin America, the Far East and Northern Europe. Mr. Perrucchetti holds a M.Sc. in Biology and also participated in graduate studies in Environmental Chemistry at the Università degli Studi di Milano.
 
Ram Prakash Tripathi has served as our Regional President, APAC since 2002. Prior to joining Ceragon, Mr. Tripathi held senior managerial positions at several companies including Stratex and Reliance, and has over 20 years of experience in the telecommunications industry. Mr. Tripathi holds a B.Sc. in Electronics & Communication Engineering from the Dr. Babasaheb Ambedkar University, in Aurangabad, Maharashtra, India.
 
Amit Ancikovsky has served as our Regional President, Latin America since 2013 and has also assumed the position of Regional President Africa in 2015. Prior to joining to Ceragon, Mr. Ancikovsky held a number of management positions at Airspan Networks Inc., including President of Sales & Products. Before that, Mr. Ancikovsky served as the Chief Financial Officer and Head of Business Development for Gilat Networks Latin America, a world leader in VSAT technologies. Mr. Ancikovsky holds a B.A. in Accounting and Economics and an LL.B.  from the Hebrew University in Jerusalem.
 
Charles (Chuck) Meyo has served as our Regional President, North America since 2012. Prior to joining Ceragon, Mr. Meyo served as Vice President of Global Channels and Americas Sales at Narus, Inc. and thereafter worked within the Boeing Defense, Space and Security division (following the acquisition of Narus, Inc. by the Boeing Company in 2011). Prior to that, Mr. Meyo was the Sales Vice President of the IBM Global Accounts and Alliances organization at Avaya and held a variety of successful sales and management roles at Lucent Technologies and AT&T. Mr. Meyo holds a B.A. and B.Sc. from the Ohio State University in Columbus, Ohio.
 
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Shlomo Liran joined Ceragon’s Board of Directors in August 2015, after gaining vast experience in senior management positions, including in the telecommunication industry. From July 2014 until January 2015, Mr. Liran served as the Chief Executive Officer of Hadera Paper Ltd. From 2010 to 2013, Mr. Liran served as the Chief Executive Officer of Avgol Nonwovens Ltd.  During the years 2008 and 2009 Mr. Liran served as the Chief Executive Officer of Ericsson Israel Ltd., between 2004 to 2007 he served as Chief Executive Officer of TRE (Scandinavian cellular network) in Sweden and in Denmark, and from 2000 to 2003 as Chief Executive Officer of YES Satellite Multi-Channel TV. Prior to that, Mr. Liran spent thirteen years in STRAUSS as CEO (1995-2000), General Manager of the Dairy Division (1991-1995) and VP Operations (1987-1991). Mr. Liran holds a B.Sc. in Industrial Engineering from the Technion, an M. Eng. System Analysis from University of Toronto, Canada and an AMP-ISMP advanced management program from the Harvard Business School. Mr. Liran is one of our independent directors and is considered a "financial expert" for the purposes of the Nasdaq Rules.
 
Yael Langer has served as our director since December 2000.  Ms. Langer served as our general counsel from July 1998 until December 2000.  Ms. Langer is General Counsel and Secretary of RAD Data Communications Ltd. and other companies in the RAD-BYNET group. Since July 2009, Ms. Langer serves as a director in RADWARE Ltd. From December 1995 to July 1998, Ms. Langer served as Assistant General Counsel to companies in the RAD-BYNET group. From September 1993 until July 1995, Ms. Langer was a member of the legal department of Poalim Capital Markets and Investments Ltd. Ms. Langer received an LL.B. from the Hebrew University in Jerusalem.
 
Yair E. Orgler has served as our external director since March 2007. Prof. Orgler is Professor Emeritus at the Leon Recanati Graduate School of Business Administration, Tel Aviv University (the “Recanati School”). From 1996 to June 2006, Prof. Orgler was Chairman of the Board of the Tel-Aviv Stock Exchange. From 2001 to 2004, he was President of the International Options Markets Association (IOMA). Prof. Orgler serves as a director at Atidim-High Tech Industrial Park Ltd. and Gazit-Globe Ltd. Other public positions held by Prof. Orgler in recent years include: director at Israel Chemicals Ltd. (until September 2015), director at Bank Hapoalim, B.M.; director at Discount Investment Corporation Ltd., Founder and Chairman of “Maalot”, Israel’s first securities rating company; Chairman of the Wage Committee of the Association of University Heads in Israel; Chairman of the Executive Council of the Academic College of Tel-Aviv-Yafo; and member of the Board of the United States-Israel Educational Foundation (USIEF). Previous academic positions held by Prof. Orgler include: Vice Rector of the Tel-Aviv University and before that Dean of the Recanati School. For over 20 years he was the incumbent of the Goldreich Chair in International Banking at the Tel-Aviv University and served frequently as a Visiting Professor of Finance at the Kellogg Graduate School of Management, Northwestern University. Prof. Orgler holds a Ph.D. and M.A. in industrial administration from Carnegie Mellon University, a M.Sc. in industrial engineering from University of Southern California and a B.Sc. in industrial engineering from the Technion. Prof. Orgler is one of our independent directors for the purposes of the Nasdaq Rules and one of our external directors for purposes of the Companies Law.
 
Av Patir has served as our external director since March 2007. Mr. Patir is the CEO of a privately owned consulting company (Patir Consultants).  From 2007 to 2013 he served as Senior Vice President and CTO at Hot Mobile Ltd. (previously MIRS Communications Ltd.), a wholly-owned subsidiary of HOT Telecommunication.  From 2004 to 2006, Mr. Patir served as the Group COO and Head of the Wireline Division of “Bezeq” – The Israel Telecommunication Corp. Limited (“Bezeq”), Israel’s national telecommunications provider. From 2003 to 2004, Mr. Patir was President and CEO of American Israel Paper Mills Ltd., manufacturer and marketer of paper and paper products. From 1996 to 2003, he was the President and CEO of Barak International Telecommunication Corporation Ltd., a leading provider of international telecommunications services in Israel, and from 1992 to 1996, he was Executive Vice President Engineering and Operations at Bezeq. Mr. Patir has been a board member of, among others, Bezeq International, Pelephone Communications Ltd. and Satlink Communications Ltd. Mr. Patir holds a M.Sc. in electrical and electronic engineering from Columbia University and a B.Sc. in electrical and electronic engineering from the Technion. He is also a graduate of the Kellogg-Recanati executive management program of the Tel Aviv University. Mr. Patir is one of our independent directors for the purposes of the Nasdaq Rules and one of our external directors for purposes of the Companies Law.
 
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Arrangements Involving Directors and Senior Management
 
There are no arrangements or understandings of which we are aware relating to the election of our directors or the appointment of executive officers in our Company. In addition, there are no family relationships among any of the individuals listed in this section A (Directors and Senior Management).
 
B.
Compensation
 
a)
Aggregate Executive Compensation
 
During 2015, the aggregate compensation paid by us or accrued on behalf of all persons listed in Section A above (Directors and Senior Management), and other directors and executive officers who served as such during the year 2015 and have terminated their service with us, consisted of approximately $4.3 million in salary, fees, bonuses, commissions and directors' fees and approximately $0.3 million in amounts set aside or accrued to provide pension, retirement or similar benefits, but excluding amounts we expended for automobiles made available to our officers, expenses (including business travel, professional and business association dues and expenses) reimbursed to our officers and other fringe benefits commonly reimbursed or paid by companies in Israel.
 
During 2015, we granted to our directors and executive officers, in the aggregate, options to purchase 1,311,666 ordinary shares under our Amended and Restated Share Option and RSU Plan (no restricted share units (RSUs) were granted during 2015). The exercise price of the options ranges from $1.14 to $1.75 per share. Share options will expire 6 years after their date of grant.
 
We have a performance-based bonus plan, which includes our executive officers. The plan is based on our overall performance, the particular unit performance, and individual performance. A non-material portion of the performance objectives of our executive officers are qualitative. The measureable performance objectives can change year over year, and are a combination of financial parameters, such as revenues, booking, operating income and collection. The plan of our executive officers is reviewed and approved by our compensation committee and board of directors annually, as is any bonus payment of our executive officers made under such plan.
 
Other than payment of fees to our independent directors in accordance with regulations promulgated under the Companies Law concerning the remuneration of external directors (the “Remuneration Regulations”), reimbursement for expenses and the award of share options (see below), we do not compensate our directors for serving on our board of directors; We currently pay each of our independent directors, for their service as directors and their participation in each meeting of the Board or Board's committees, the "Minimum Amount" of the annual and participation fees as set forth in the Remuneration Regulations, based on the classification of the Company according to the amount of its capital; currently – the sum of NIS 52,480 (approximately $13,450) as annual fee and the sum of NIS 1,854 (approximately $475) as an in-person participation fee, NIS 1,113 (approximately $285) for conference call participation and NIS 927 (approximately $238) for written resolution,. These cash amounts are subject to a bi-annual adjustment for changes in the Israeli consumer price index and to an annual adjustment in accordance with the classification of the Company according to the amount of its capital. For more information, please see “Remuneration of Directors” and “The Share Option Plan” below and Note 14 to our consolidated financial statements included as Item 18 in this annual report.
 
As consideration for their contribution and efforts as independent directors of the Company, our shareholders have approved in August 2015 annual equity grants to each of Mr. Shlomo Liran, Mr. Yair E. Orgler and Mr. Avi Patir, in addition to the above-mentioned cash remuneration, with respect to their three-year terms of service, as follows: options to purchase 50,000 Ordinary Shares, one-third of which were granted, or are to be granted, on the date of the original appointment, or re-appointment, as applicable for each such director, with an additional one third, which shall be granted upon each of the first and second anniversaries thereof; i.e., for Mr. Liran, 16, 667 options were granted on August 11, 2015, additional 16,667 options shall be granted on August 11, 2016 and the remaining 16,666 options shall be granted on August 11, 2017. For each of Mr. Patir and Mr. Orgler, 16,667 options shall be granted on March 25, 2016 (the commencement date of their fourth term of service - see below under C. Board Practices - "External Directors"), additional 16,667 options shall be granted on March 25, 2017 and the remaining 16,666 options shall be granted on March 25, 2018; Provided that each of them is still a director of the Company at the time of such respective grant.
 
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As remuneration for their contribution and efforts as directors of the Company, our shareholders have approved in August 2015 annual equity grants to each of Mr. Zohar Zisapel and Ms. Yael Langer, with respect to their three-year terms of service, as follows:
 
·   To Zohar Zisapel, Chairman of the Board of Directors, options to purchase 150,000 Ordinary Shares, one-third of which were granted on August 11, 2015, the date of his re-appointment, and an additional one third of which shall be granted upon each of first and second anniversaries thereof (i.e., 50,000 options are to be granted on August 11 of each of the years 2016 and 2017), provided he is still a director of the Company at the time of each respective grant. The Compensation Committee and Board were of the opinion that, it would be appropriate to compensate Mr. Zisapel with the grant of an increased number of options in comparison to the number of options granted to the other members of the Board taking into account, among others, the considerable amount of time required from him in order to fulfill his Board activities as a Chairman and his contribution to the Company's success.
 
·   To Yael Langer, a director of the Company, options to purchase 50,000 Ordinary Shares, one-third of which (16,667 options) were granted on August 11, 2015, the date of her re-appointment, and an additional one third of which shall be granted upon each of the first and second anniversaries thereof (i.e., 16,667 options shall be granted on August 11, 2016 and the remaining 16,666 options shall be granted on August 11, 2017), provided she is still a director of the Company at the time of each respective grant.
 
All options granted each year, as detailed above, shall vest on their date of grant. The exercise price of such options equals to the average closing price of the Company’s Shares on the Nasdaq Global Select Market for the period of thirty (30) consecutive trading days immediately preceding the date of grant. These grants were made and will be made under the Company's Amended and Restated Share Option and RSU Plan and under the Capital Gains Route of Section 102(b)(2) of the Israeli Income Tax Ordinance (the “Ordinance”), except for the options granted to Zohar Zisapel, Chairman of the Board of Directors, which will be granted under Section 3(9) of the Ordinance.
 
b)
Individual Compensation of Office Holders
 
The following information describes the compensation of our five most highly compensated “officer holders" (as such term is defined in the Companies Law; see below under "C. Board Practices – External Directors – Qualification" with respect to the year ended December 31, 2015. The five individuals for whom disclosure is provided are referred to herein as “Covered Office Holders.” All amounts specified below are in terms of cost to the Company, as recorded in our financial statements, and are based on the following components:
 
●
Salary Costs. Salary Costs include gross salary, benefits and perquisites, including those mandated by applicable law which may include, to the extent applicable to each Covered Office Holder’s, payments, contributions and/or allocations for pension, severance, vacation, travel and accommodation, car or car allowance, medical insurances and risk insurances (e.g., life, disability, accidents), phone, convalescence pay, relocation, payments for social security, and other benefits consistent with the Company's guidelines.
 
●
Bonus Costs. Bonus Costs represent bonuses granted to the Covered Office Holder’s with respect to the year ended December 31, 2015, paid in accordance with the Covered Office Holder’s performance of targets as set forth in his bonus plan, and approved by the Company's compensation committee and board of directors.
 
●
Equity Costs. Represents the expense recorded in our financial statements for the year ended December 31, 2015, with respect to equity-based compensation granted in 2015 and in previous years. For assumptions and key variables used in the calculation of such amounts see note 14c of our audited consolidated financial statements.
 
59
(1)
 Charles (Chuck) Meyo – Regional President North America. Salary Costs - $308,151; Bonus Costs - $661,408; Equity Costs -$55,011.
 
(2)
Ira Palti – CEO. Salary Costs - $285,732; Bonus Costs - $125,651; Equity Costs - $216,550.
 
(3)
Amit Ancikovsky – Regional President Latin America & Africa. Salary Costs - $287,800; Bonus Costs - $267,938; Equity Costs - $30,120.
 
(4)
Flavio Perrucchetti – Regional President Europe. Salary Cost -  $401,540; Bonus Cost -  $73,256; Equity Cost - $31,994
 
(5)
Doron Arazi – EVP & CFO. Salary Cost - $252,250; Bonus Cost - $55,570; Equity Cost - $83,963
 
C. Board Practices
 
Corporate Governance Practices

We are incorporated in Israel and therefore are subject to various corporate governance practices under the Companies Law, relating to matters such as external directors, audit committee (hereinafter referred to as “corporate audit committee”), internal auditor and approvals of interested parties transactions. These matters are in addition to the ongoing listing conditions of the Nasdaq and other relevant provisions of U.S. securities laws. Under applicable Nasdaq Rules, a foreign private issuer such as us may generally follow its home country rules of corporate governance in lieu of comparable Nasdaq Rules, except for certain matters such as composition and responsibilities of the audit committee and the independence of its members. See Item 3. “KEY INFORMATION – Risk Factors – Risks Related to Our Common Shares - As a foreign private issuer we are permitted to follow certain home country corporate governance practices, instead of applicable SEC and Nasdaq Rules, which may result in less protection than is afforded to investors under rules applicable to domestic issuers.” For information regarding home country rules followed by us see Item 16G. “CORPORATE GOVERNANCE.”

General Board Practices

Our board of directors presently consists of five members, the minimum number authorized by our Articles of Association. The board retains all the powers in managing our Company that are not specifically granted to the shareholders; for example, the board may make decisions to borrow money for our Company, and may set aside reserves out of our profits, for whatever purposes it thinks fit.

The board may pass a resolution when a quorum is present, and by a vote of at least a majority of the directors present when the resolution is put to vote. A quorum is defined as at least a majority of the directors then in office who are lawfully entitled to participate in the meeting but not less than two directors. The Chairman of the board is elected and removed by the board members. Minutes of the board meetings are recorded and kept at our offices.

The Board may, subject to the provisions of the Companies Law, appoint a committee of the Board and delegate to such committee all or any of the powers of the Board, as it deems appropriate. Notwithstanding the foregoing and subject to the provisions of the Companies Law, the Board may, at any time, amend, restate or cancel the delegation of any of its powers to any of its committees. The Board has appointed a corporate audit committee under the Companies Law, a financial audit committee, a compensation committee – each such committee has three members – and a nomination committee – with two members.

Terms and Skills of Directors

The Nasdaq Rules require that director nominees be selected or recommended for the board’s selection either by a nomination committee composed solely of independent directors or by a majority of independent directors, in a vote in which only independent directors participate, subject to certain exceptions. Our two external (and independent) directors, Mr. Patir and Mr. Orgler, are the members of our Nomination Committee, who recommends director nominees for our board's selection.

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Our directors, other than external directors, are elected at the annual general meeting of shareholders for a term ending on the date of the third annual general meeting following the general meeting at which they were elected, unless earlier terminated in the event of such director’s death, resignation, bankruptcy, incapacity or removal. Accordingly, in the annual general meeting of shareholders held on August 11, 2015, our three directors (other than the external directors), were elected to serve until the date of the 2018 annual general meeting of shareholders.

According to the Companies Law, a person who does not possess the skills required and the ability to devote the appropriate time to the performance of the office of director in a company, taking into consideration, among other things, the special requirements and size of that company, shall neither be appointed as a director nor serve as a director in a public company. A public company shall not summon a general meeting the agenda of which includes the appointment of a director, and a director shall not be appointed, unless the candidate has submitted a declaration that he or she possesses the skills required and the ability to devote the appropriate time to the performance of the office of director in the company, that sets forth the aforementioned skills and further states that the limitations set forth in the Companies Law regarding the appointment of a director do not apply in respect of such candidate.

A director who ceases to possess any qualification required under the Companies Law for holding the office of director or who becomes subject to any ground for termination of his/her office must inform the company immediately and his/her office shall terminate upon such notice.

Independent Directors

Under the Nasdaq Rules, a majority of our directors is required to be independent. The independence standard under the Nasdaq Rules excludes, among others, any person who is: (i) a current or former (at any time during the past three years) employee of a company or its affiliates; or (ii) an immediate family member of an executive officer (at any time during the past three years) of a company or its affiliates. Messrs. Yair Orgler, Avi Patir and Shlomo Liran currently serve as our independent directors.

External Directors

Under the Companies Law, we are required to appoint at least two external directors. Each committee of a company’s board of directors, which is authorized to exercise the board of directors’ authorities is required to include at least one external director, and the corporate audit and compensation committees, are also required to include all of the external directors.

Qualification. To qualify as an external director, an individual or his or her relative, partner, employer, any person to whom such person is directly or indirectly subject to, or any entity under his or her control may not have, as of the date of appointment, or may not have had, during the previous two years, any affiliation with the company, any entity controlling the company on the date of the appointment or with any entity controlled, at the date of the appointment or during the previous two years, by the company or by its controlling shareholder and in a company that does not have a shareholder or an affiliated group of shareholders holding 25% or more of the company’s voting rights, such person may not have any affiliation with any person who, at the time of appointment, is the chairman, the chief executive officer, the chief financial officer or a 5% shareholder of the company. In general, the term “affiliation” includes:
●
an employment relationship;

●
a business or professional relationship maintained on a regular basis;

●
“Control”; and

●
service as an office holder; the Companies Law defines the term “office holder” of a company to include a director, the chief executive officer, an executive vice president, a vice president, any other person fulfilling or assuming any of the foregoing positions without regard to such person’s title, and any manager who is directly subordinated to the chief executive officer general manager and any officer that reports directly to the chief executive officer or any other.

 
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“Control” is defined in the Securities Law as the ability to direct the actions of a company but excluding a power that is solely derived from a position as a director of the company or any other position with the company; a person who is holding 50% or more of the “controlling power” in the company – voting rights or the right to appoint a director or a general manager – is automatically considered to possess control.

In addition, no person can serve as an external director if the person’s position or other activities creates, or may create, a conflict of interests with the person’s responsibilities as an external director or may otherwise interfere with the person’s ability to serve as an external director. Until the lapse of two years from termination of office, a company or its controlling shareholder may not give any direct or indirect benefit to the former external director.

Election and Term of External Directors.  External directors are elected by a majority vote at a shareholders’ meeting, provided that either:
●
the majority of the shares voted at the meeting, which are not held by controlling shareholders or shareholders with personal interest in approving the appointment (excluding personal interest not resulting from contacts with the controlling shareholder) ("Non-Related Votes"), not taking into account any abstentions, vote in favor of the election; or

●
the total number of Non-Related Votes, voting against the election of the external director, does not exceed two percent of the aggregate voting rights in the company.

In a company in which, at the date of appointment of an external director, all the directors are of the same gender, the external director to be appointed shall be of the other gender.

An external director can be removed from office only by: (i) a special meeting of the shareholders by the same majority of shareholders that is required to elect an external director; or (ii) a court, and provided that either: (a) the external director ceases to meet the statutory qualifications with respect to his or her appointment; or (b) the external director violates his or her duty of loyalty to the company. The court may also remove an external director from office if he or she is unable to perform his or her duties on a regular basis.

An external director who ceases to possess any qualification required under the Companies Law for holding the office of an external director must inform the company immediately and his/her office shall terminate upon such notice.

Each of our external directors serves a three-year term, and may be re-elected to serve in this capacity for two additional terms of three years each. Thereafter, he or she may be reelected by our shareholders for additional periods of up to three years each, only if the corporate audit committee, followed by the board, have approved the reelection, taking into consideration the expertise and special contribution of the external director to the work of the board and its committees, and determining that the appointment for a further term of service is beneficial to the Company.

Re-election of an external director may be effected through one of the following mechanisms:
1.
a shareholder holding one percent or more of a company's voting rights proposed the reelection of the nominee;
2.
the board of directors proposed the reelection of the nominee and the election was approved by the shareholders by the majority required to appoint external directors for their initial term; or
3.
the external director who is up for renewal has proposed himself or herself for reelection.

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With respect to mechanisms 1 and 3 above, the re-election is required to fulfill all of the following terms: (i) to be approved by a majority of the votes cast by the shareholders of the Company, excluding the votes of controlling shareholders and shareholders who have a personal interest in approving such nomination resulting from their relations with the controlling shareholders; (ii) to include votes cast in favor of the reelection by such non-excluded shareholders constituting more than two percent of the voting rights in the Company; and (iii) the external director is not a related or competing shareholder or a relative of such a related or competing  shareholder, at the time of the appointment, and does not and did not have any affiliation with a related or competing shareholder, at the time of the appointment or within the two years preceding the appointment. A ‘related or competing shareholder’ is a shareholder proposing the re-appointment or a shareholder holding 5% or more of the outstanding shares or voting rights of the company, provided that at the time of the re-appointment, such shareholder, a controlling shareholder thereof or a company controlled by such shareholder or by a controlling shareholder thereof, have business relationships with the Company or are competitors of the Company.
 
Financial and Accounting Expertise. Pursuant to the Companies Law and regulations promulgated thereunder, (1) each external director must have either “accounting and financial expertise” or “professional qualifications and (2) at least one of the external directors must have “accounting and financial expertise.”  A director with “accounting and financial expertise” is a director whose education, experience and skills qualifies him or her to be highly proficient in understanding business and accounting matters and to thoroughly understand the Company’s financial statements and to stimulate discussion regarding the manner in which financial data is presented. A director with “professional qualifications”  is a person that meets any of the following criteria: (i) has an academic degree in economics, business management, accounting, law, public administration; (ii) has a different academic degree or has completed higher education in an area relevant to the Company’s business or which is relevant to his or her position; or (iii) has at least five years’ experience in any of the following, or has a total of five years’ experience in at least two of the following: (A) a senior position in the business management of a corporation with substantial business activities; (B) a senior public position or a senior position in the public service; or (C) a senior position in the Company’s main fields of business.
 
Compensation. An external director is entitled to compensation as provided in the Remuneration Regulations and is otherwise prohibited from receiving any other compensation, directly or indirectly, from the Company. For more information, please see “Remuneration of Directors” below.
 
Our External Directors. Yair Orgler and Avi Patir were initially appointed in 2006 as our external directors. Their terms began in March 2007 and in December 2009 and again in December 2012, at the respective annual meeting of shareholders, Messrs. Orgler and Patir were appointed for a second and third terms as external directors.  Their third terms will expire in March 2016.  In the annual general meeting held on August 11, 2015, the shareholders approved the extension of terms of service of Messrs. Orgler and Patir for an additional period of three years each, commencing on March 25, 2016, following approvals by our corporate audit committee and board that such re-appointment for further terms of service is beneficial to the Company, considering the expertise and special contribution of each of them to the work of the board and its committees. Our board of directors has determined that Prof. Orgler has the “accounting and financial expertise” and that Mr. Patir has the “professional qualifications required by the Companies Law.”

Remuneration of Directors

Directors’ remuneration should be consistent with our compensation policy for office holders (see below) and requires the approval of the compensation committee, the board of directors and the shareholders (in that order).
 
Notwithstanding the above, under special circumstances, the compensation committee and the board of directors may approve an arrangement that deviates from compensation policy, provided that such arrangement is approved by a special majority of the company’s shareholders, including (i) at least a majority of the shareholders, present and voting (abstentions are disregarded), who are not controlling shareholders and who do not have a personal interest in the matter, or (ii) the non-controlling shareholders and shareholders who do not have a personal interest in the matter who were present and voted against the matter hold two percent or less of the voting power of the Company.
 
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In addition, according to the Remuneration Regulations, external directors are generally entitled to an annual fee, a participation fee for each meeting of the board of directors or any committee of the board on which he or she serves as a member and reimbursement of travel expenses for participation in a meeting which is held outside of the external director’s place of residence. The minimum, fixed and maximum amounts of the annual and participation fees are set forth in the Remuneration Regulations, and are based on the classification of the Company according to the size of its shareholders capital. According to the Remuneration Regulations, the compensation committee and shareholder’s approval may be waived if the annual and participation fees to be paid to the external directors are within the range of the fixed annual fee or the fixed participation fee and the maximum annual fee or the maximum participation fee for the Company’s level, respectively.  However, remuneration of an external director in an amount which is less than the fixed annual fee or the fixed participation fee, respectively, requires the approval of the compensation committee, the board of directors and the shareholders (in that order). The remuneration of external directors must be made known to the candidate for such office prior to his/her appointment and, subject to certain exceptions, will not be amended throughout the three-year period during which he or she is in office. A company may compensate an external director in shares or rights to purchase shares, other than convertible debentures which may be converted into shares, in addition to the annual and, the participation fees and the reimbursement of expenses, subject to certain limitations set forth in the Remuneration Regulations.
 
Additionally, according to other regulations promulgated under the Companies Law with respect  to relief in approval of certain related party transactions (the “Relief Regulations”), shareholders’ approval for directors’ compensation and employment arrangements is not required if both the compensation committee and the board of directors resolve that either (i) the directors’ compensation and employment arrangements are solely for the benefit of the Company or (ii) the remuneration to be paid to any such director does not exceed the maximum amounts set forth in the Remuneration Regulations; provided however that no holder of 1% or more of the issued and outstanding share capital or voting rights in the Company objects to such exemption from shareholders’ approval requirement by submitting such objection to the Company in writing not later than fourteen days from the date the Company notifies its shareholders regarding the adoption of such resolution. If such objection is duly and timely submitted, then the remuneration arrangement of the directors will require shareholders’ approval as detailed above.
 
Neither we nor any of our subsidiaries has entered into a service contract with any of our current directors that provide for benefits upon termination of their service as directors.
 
For a full discussion of the remuneration paid to our directors, including our external directors, see above in “B. Compensation”) “Aggregate Executive Compensation.”
 
Committees of the Board of Directors

Financial Audit Committee

In accordance with the Securities Exchange Act of 1934, rules of the SEC under the Exchange Act and under Nasdaq Rules, we are required to have an audit committee consisting of at least three directors, each of whom is (i) independent; (ii) does not receive any compensation from the Company (other than directors' fees); (iii) is not an affiliated person of the Company or any of its subsidiaries; (iv) has not participated in the preparation of the Company's (or  subsidiary's) financial statements during the past three years; and (v) financially literate and one of whom has been determined by the board to be the audit committee financial expert. Currently, Messrs. Yair Orgler, Avi Patir and Shlomo Liran serve on our financial audit committee, each of whom has been determined by the board to meet the Nasdaq standards described above. Mr. Liran is the chairman of our financial audit committee and its financial expert (see Item 16A. “AUDIT COMMITTEE FINANCIAL EXPERT,” below).

We have adopted a financial audit committee charter as required by the Nasdaq Rules. The duties and responsibilities of the financial audit committee include: (i) recommending the appointment of the Company's independent auditor to the board of directors, determining his compensation and overseeing the work performed by him;(ii) pre-approving all services of the independent auditor; (iii) overseeing our accounting and financial reporting processes and the audits of our financial statements; and (iv) handling complaints relating to accounting, internal controls and auditing matters.

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Corporate Audit Committee

Under the Companies Law, the board of directors of any Israeli company whose shares are publicly traded must appoint an audit committee, comprised of at least three directors including all of the external directors.  In addition, the majority of the members must meet certain independence criteria and may not include: (i) the chairman of the board; (ii) any controlling shareholder or any relative thereof; (iii) any director employed by or providing services on a regular basis to, the Company, a controlling shareholder or a company owned by a controlling shareholder; or (iv) any director whose main income is provided by a controlling shareholder ("Non-Permitted Members").  The chairman of such audit committee must be an external director. Messrs. Yair Orgler and Avi Patir serve as our two external directors. Both, as well as Mr. Shlomo Liran, meet the independence criteria defined in the Companies Law. Mr. Orgler is the chairman of our corporate audit committee.

The duties and responsibilities of our corporate audit committee include: (i) identification of irregularities and deficiencies in the management of our business, in consultation with the internal auditor and our independent auditor, and suggesting appropriate courses of action to amend such irregularities; (ii) reviewing and approval of certain transactions and actions of the Company, including the approval of related party transactions that require approval by the audit committee under the Companies Law; defining whether certain acts and transactions that involve conflict of interests are material or not and whether transactions that involve interested parties are extraordinary or not, and to approve such transactions; (iii)  recommending the appointment of the internal auditor and its compensation to the board of directors; (iv) examining the performance of our internal auditor and whether he is provided with the required resources and tools necessary for him to fulfill his role, considering, inter alia, the Company's size and special needs; (v) setting procedures for handling complaints made by the Company's employees in connection with management deficiencies and the protection to be provided to such employees; and (vi) perform such other duties that are or will be designated solely to the audit committee in accordance with the Companies Law and the Company's Articles of Association.

Non-Permitted Members shall not attend corporate audit committee's meetings or take part in its decisions, unless the chairman of the corporate audit committee has determined that such person is required for the presentation of a certain matter. Nevertheless an employee who is not a controlling shareholder or a relative thereof, may be present at the discussion part only, pursuant to the committee's request, and the company’s legal counsel and secretary, who are not controlling shareholders or relatives thereof, may be present during both the discussion and decision parts – pursuant to the committee's request.

The quorum for discussions and decisions shall be the majority of the members of the corporate audit committee, provided that the majority of the members present meet the independence criteria set forth in the Companies Law, and at least one of them is an external director.

Compensation Committee

General. According to Amendment 20 to the Companies Law (“Amendment 20”), the board of directors of any Israeli company whose shares are publicly traded, must appoint a compensation committee, comprised of at least three directors, including all of the external directors who shall be the majority of its members and one of which must serve as the chairman of the committee. The remaining members of the committee must satisfy the criteria for remuneration applicable to the external directors and qualified to serve as members of the audit committee pursuant to Companies Law requirements (Corporate Audit Committee), as described above (the “Compensation Committee Qualifications”). Our compensation committee is comprised of our two external directors, Messrs. Yair Orgler and Avi Patir, as well as our independent director, Mr. Shlomo Liran, whose remuneration is similar to the remuneration paid to our external directors. Mr. Patir is the Chairman of our compensation committee.
 
The compensation committee is responsible for: (i) making recommendations to the board of directors with respect to the approval of the compensation policy (see below) and any extensions thereto; (ii) periodically reviewing the implementation of the compensation policy and providing the board of directors with recommendations with respect to any amendments or updates thereto; (iii) reviewing and resolving whether or not to approve arrangements with respect to the terms of office and employment of office holders; and (iv) determining whether or not to exempt under certain circumstances a transaction with a candidate for chief executive officer, who is not affiliated with the Company or its controlling shareholders, from shareholder approval, and provided that the terms approved are consistent with the compensation policy.
 
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In addition, our compensation committee administers our Amended and Restated Share Option and RSU Plan. The Board has delegated to the compensation committee the authority to grant options and RSUs under this plan and to act as the share incentive committee pursuant to this plan, provided that such grants are within the framework determined by the Board, and that the grant of equity compensation to our office holders is also approved by our board.
 
The attendance and participation in the meetings of the compensation committee is subject to the same limitations that apply to the corporate audit committee.

The quorum for discussions and decisions shall be the majority of the compensation committee members, provided that the majority of the members present are independent directors and at least one of them is an external director.

Under Nasdaq Rules, the compensation payable to our executive officers must be determined or recommended to the board for determination either by a majority of the independent directors on the board, in a vote in which only independent directors participate, or by a compensation committee comprised solely of independent directors, subject to certain exceptions. We follow the provisions of the Companies Law with respect to matters in connection with the composition and responsibilities of our compensation committee, office holder compensation, and any required approval by the shareholders of such compensation. As stated above, Israeli law does not require that a compensation committee composed solely of independent members of our board of directors determine (or recommend to the board of directors for determination) an executive officer’s compensation; nor does it require that the Company adopt and file a compensation committee charter. Instead, our board of directors has determined that out compensation committee conduct itself in accordance with provisions governing the composition of and the responsibilities of a compensation committee as set forth in the Companies Law (see also under Item 16G. “CORPORATE GOVERNANCE”).
 
A recent amendment to the Companies Law, which became effective on February 17, 2016, allows Israeli public companies to elect to have their audit committee carry out all duties and responsibilities of the compensation committee under the Companies Law, provided that such audit committee meets the Compensation Committee Qualification. Although our Audit Committee meets the Compensation Committee Qualification, as of the date of this report, we have not elected to apply such amendment.
 
For information regarding our Nomination Committee see above under ”Terms and Skills of Directors“.

Approval of Office Holders Terms of Employment
 
The terms of office and employment of office holders (other than directors and the chief executive officer) require the approval of the compensation committee and then of the board of directors, provided such terms are in accordance with the Company's compensation policy. If terms of employment of such officer are not in accordance with the compensation policy then shareholder approval is also required. However, in special circumstances the compensation committee and then the board of directors may nonetheless approve such compensation even if such compensation was not approved by the shareholders, following a further discussion and for detailed reasoning.
 
The terms of office and employment of the chief executive officer, regardless of whether such terms conform to the Company's compensation policy, must be approved by the compensation committee, the board of directors and then by a special majority of the shareholders, including: (i) a majority of the shareholders, present and voting (abstentions are disregarded), who are not controlling shareholders and who do not have a personal interest in the matter; or (ii) the non-controlling shareholders and shareholders who do not have a personal interest in the matter who were present and voted against the matter hold two percent or less of the voting power of the Company.
 
Notwithstanding the above, in special circumstances the compensation committee and then the board of directors may nonetheless approve compensation for the chief executive officer, even if such compensation was not approved by the shareholders, following a further discussion and for detailed reasoning.

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In addition, amendment of existing terms of office and employment of office holders who are not directors requires the approval of the compensation committee only, if the compensation committee determines that the amendment is not material.

The terms of office and employment of our directors, regardless of whether such terms conform to the Company's compensation policy, must be approved by the compensation committee, the board of directors and then by the shareholders, but, in case that such terms are inconsistent with the company's compensation policy, such shareholders' approval must be obtained by the special majority detailed above with respect to the chief executive officer.

Compensation Policy

As required by Amendment 20, our shareholders, following the approval of the board of directors and the recommendations of the compensation committee, approved and adopted a revised compensation policy on August 11, 2015. The compensation policy sets forth the Company’s policy regarding the terms of office and employment of office holders, including compensation, equity awards, severance and other benefits, exemption from liability and indemnification, and which takes into account, among other things, providing proper incentives to directors and officers, management of risks by the Company, the officer’s contribution to achieving corporate objectives and increasing profits, and the function of the officer or director.  The policy provides our compensation committee and our board of directors with adequate measures and flexibility to tailor each of our office holder’s compensation package based, among other matters, on geography, tasks, role, seniority and capability. Moreover, the policy is intended to motivate our office holders to achieve ongoing targeted results in addition to a high level of business performance in the long term, all, without encouraging excessive risk taking.

Approval of Certain Transactions with Related Parties

The Companies Law requires the approval of the corporate audit committee or the compensation committee, thereafter, the approval of the board of directors and in certain cases — the approval of the shareholders, in order to effect specified actions and extraordinary transactions such as the following:
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transactions with office holders and third parties, where an office holder has a personal interest in the transaction;

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employment terms of office holders; and

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extraordinary transactions with controlling parties, and extraordinary transactions with a third party where a controlling party has a personal interest in the transaction, or any transaction with the controlling shareholder or his relative regarding terms of service provided directly or indirectly (including through a company controlled by the controlling shareholder) and terms of employment (for a controlling shareholder who is not an office holder). A “relative” is defined in the Companies Law as spouse, sibling, parent, grandparent, descendant, spouse’s descendant, sibling or parent and the spouse of any of the foregoing.

Such extraordinary transactions with controlling shareholders require the approval of the corporate audit committee or the compensation committee, the board of directors and the majority of the voting power of the shareholders present and voting at the general meeting of the company (not including abstentions), provided that either:
●
the majority of the shares of shareholders who have no personal interest in the transaction and who are present and voting, vote in favor; or

●
shareholders who have no personal interest in the transaction who vote against the transaction do not represent more than two percent of the aggregate voting rights in the company.

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Any shareholder participating in the vote on approval of an extraordinary transaction with a controlling shareholder must inform the company prior to the voting whether or not he or she has a personal interest in the approval of the transaction, and if he or she fails to do so, his or her vote will be disregarded.

Further, Such extraordinary transactions as well as any transactions with a controlling shareholder or his relative concerning terms of service or employment need to be re-approved once every three years, provided however that with respect to certain such extraordinary transactions the corporate audit committee may determine that a longer duration is reasonable given the circumstances related thereto and such extended period has been approved by the shareholders.

In accordance with regulations promulgated under the Companies Law, certain defined types of extraordinary transactions between a public company and its controlling shareholder(s) are exempt from the shareholder approval requirements.  However, such exemptions will not apply if one or more shareholders holding at least 1% of the issued and outstanding shares or voting rights, objects to the use of these exemptions in writing not later than 14 days from the date the company notifies the shareholders of the proposed adoption of such resolution approving the transaction.

In addition, the approval of the corporate audit committee, followed by the approval of the board of directors and the shareholders, is required to effect a private placement of securities, in which either: (i) 20% or more of the company’s outstanding share capital prior to the placement is offered, and the payment for which (in whole or in part) is not in cash, in tradable securities registered in a stock exchange or not under market terms, and which will result in an increase of the holdings of a shareholder that holds 5% or more of the company’s outstanding share capital or voting rights or will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s outstanding share capital or voting rights; or (ii) a person will become a controlling shareholder of the company.

A “controlling party” is defined in the Securities Law and in the Companies Law for purposes of the provisions governing related party transactions as a person with the ability to direct the actions of a company but excluding a person whose power derives solely from his or her position as a director of the company or any other position with the company, and with respect to approval of transactions with related parties also a person who holds 25% or more of the voting power in a public company if no other shareholder owns more than 50% of the voting power in the company, , and provided that two or more persons holding voting rights in the company, who each have a personal interest in the approval of the same transaction, shall be deemed to be one holder for the purpose of evaluating their holdings with respect to approvals of transactions with related parties.

Compensation committee approval is also required (and thereafter, the approval of the board of directors and in certain cases – the approval of the shareholders) to approve the grant of an exemption from the responsibility for a breach of the duty of care towards the company, for the provision of insurance and for an undertaking to indemnify any office holder of the company; see below under “Exemption, Insurance and Indemnification of Directors and Officers.”

Duties of Office Holders and Shareholders

Duties of Office Holders

Fiduciary Duties. The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company, including directors and officers. 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 loyalty includes avoiding any conflict of interest between the office holder's position in the company and his personal affairs, avoiding any competition with the company, avoiding exploiting any business opportunity of the company in order to receive personal advantage for himself or others, and revealing to the company any information or documents relating to the company's affairs which the office holder has received due to his position as an office holder.

The company may approve an action by an office holder from which the office holder would otherwise have to refrain due to its violation of the office holder’s duty of loyalty if: (i) the office holder acts in good faith and the act or its approval does not cause harm to the company, and (ii) the office holder discloses the nature of his or her interest in the transaction to the company a reasonable time before the company’s approval.

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Each person listed in the table under “Directors and Senior Management” above is considered an office holder under the Companies Law.

Disclosure of Personal Interests of an Office Holder. The Companies Law requires that an office holder of a company promptly disclose any personal interest that he or she may have and all related material information and documents known to him or her relating to any existing or proposed transaction by the company. If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by the office holder's spouse, siblings, parents, grandparents, descendants, spouse’s siblings, parents and descendants and the spouses of any of these people, or any corporation in which the office holder: (i) holds at least  5% of the company’s outstanding share capital of voting rights; (ii) is a director or general manager; or (iii) has the right to appoint at least one director or the general manager. An extraordinary transaction is defined as a transaction that is either: (i) not in the ordinary course of business; (ii) not on market terms; or (iii) likely to have a material impact on the company’s profitability, assets or liabilities.

In the case of a transaction which is not an extraordinary transaction, after the office holder complies with the above disclosure requirements, only board approval is required unless the articles of association of the company provide otherwise. The transaction must be for the benefit of the company. If a transaction is an extraordinary transaction, or a with respect to terms of office and employment, then, in addition to any approval stipulated by the articles of association, it also must be approved by the company's audit committee (or with respect to terms of office and employment, the compensation committee) and then by the board of directors, and, under certain circumstances, by a meeting of the shareholders of the company. A director who has a personal interest in a transaction, may be present if a majority of the members of the board of directors or the audit committee (or with respect to terms of office and employment, the compensation committee), as the case may be, has a personal interest. If a majority of the board of directors has a personal interest, then shareholders’ approval is also required.

Duties of Shareholders

Under the Companies Law, a shareholder has a duty to act in good faith toward the company and other shareholders and to refrain from abusing his or her power in the company, including, among other things, voting in a general meeting of shareholders on any amendment to the articles of association, an increase of the company's authorized share capital, a merger or approval of interested party transactions which require shareholders' approval.

In addition, any controlling shareholder, any shareholders who knows that it possess power to determine the outcome of a shareholder vote and any shareholder who, pursuant to the provisions of a company's articles of association, has the power to appoint or prevent the appointment of an office holder in the company, is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty but states that the remedies generally available upon a breach of contract, will also apply in the event of a breach of the duty of fairness, taking into account such shareholder's position.

Exculpation, Insurance and Indemnification of Directors and Officers

Pursuant to the Companies Law and the Securities Law, the Israeli Securities Authority (“ISA”) is authorized to impose administrative sanctions, including monetary fines, against companies like ours and their officers and directors for certain violations of the Securities Law or the Companies Law (for further details see in “Administrative Enforcement” below); and the Companies Law provides that companies like ours may indemnify their officers and directors and purchase an insurance policy to cover certain liabilities, if provisions for that purpose are included in their articles of association.
 
Our Articles of Association allow us to indemnify and insure our office holders to the fullest extent permitted by law.
 
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Office Holders' Exemption
 
Under the Companies Law, an Israeli company may not exempt an office holder from liability for a breach of his or her duty of loyalty, but may exempt in advance an office holder from his or her liability to the company, in whole or in part, for a breach of his or her duty of care (except in connection with distributions), provided that the Articles of Association allow it to do so. Our Articles of Association allow us to exempt our office holders to the fullest extent permitted by law.

Office Holders’ Insurance

Our Articles of Association provide that, subject to the provisions of the Companies Law, we may enter into a contract for the insurance of all or part of the liability of any of our office holders imposed on the office holder in respect of an act performed by him or her in his or her capacity as an office holder for, in respect of each of the following:
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a breach of his or her duty of care to us or to another person;

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a breach of his or her 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 liability imposed upon him or her in favor of another person; and

●
any other event, occurrence or circumstance in respect of which we may lawfully insure an office holder.

Without derogating from the aforementioned, subject to the provisions of the Companies Law and the Securities Law, we may also enter into a contract to insure an office holder, in respect of expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative proceeding instituted against such office holder or payment required to be made to an injured party, pursuant to certain provisions of the Securities Law.

Office Holder's Indemnification

Our Articles of Association provide that, subject to the provisions of the Companies Law and the Securities Law, we may indemnify any of our office holders in respect of an obligation or expense specified below, imposed on or incurred by the office holder in respect of an act performed in his capacity as an office holder, as follows:
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a financial liability imposed on him or her in favor of another person by any judgment, including a settlement or an arbitration award approved by a court.

●
reasonable litigation expenses, including attorney’s fees, incurred by the office holder as a result of an investigation or proceeding instituted against him by a competent authority which concluded without the filing of an indictment against him and without the imposition of any financial liability in lieu of criminal proceedings, or  which concluded without the filing of an indictment against him but with the imposition of a financial liability in lieu of criminal proceedings concerning a criminal offense that does not require proof of criminal intent or  in connection with a financial sanction (the phrases “proceeding concluded without the filing of an indictment” and “financial liability in lieu of criminal proceeding” shall have the meaning ascribed to such phrases in section 260(a)(1a) of the Companies Law);

●
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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●
expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative proceeding instituted against such office holder, or payment required to be made to an injured party,  pursuant to certain provisions of the Securities Law; and

●
any other event, occurrence or circumstance in respect of which we may lawfully indemnify an office holder.

The Company may undertake to indemnify an office holder as aforesaid: (a) prospectively, provided that, in respect of the first act (financial liability) 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 amount or criteria are set forth in the indemnification undertaking; and (b) retroactively.

Limitations on Insurance and Indemnification

The Companies Law provides that a company may not exculpate or indemnify an office holder nor enter into an insurance contract which would provide coverage for any monetary liability incurred as a result of any of the following:
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a breach by the office holder of his or her duty of loyalty, except that the company may enter into an insurance contract or indemnify an office holder if 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 or her duty of care, if such breach was  intentional or reckless, but unless such breach was solely negligent;

●
any act or omission intended to derive an illegal personal benefit; or

●
any fine levied against the office holder.

In addition, under the Companies Law, exculpation and indemnification of, and procurement of insurance coverage for, our office holders must be approved by our compensation committee and our board of directors and, with respect to an office holder who is chief executive officer or a director, also by our shareholders. However, according to the Relief Regulations, shareholders’ approval for the procurement of directors’ insurance is not required if the insurance policy is approved by our compensation committee and: (i) the terms of such policy are within the framework for insurance coverage as approved by our shareholders and set forth in our compensation policy; (ii) the premium paid under the insurance policy is at fair market value; and (iii) the insurance policy does not and may not have a substantial effect on the Company’s profitability, assets or obligations; provided however that no holder of 1% or more of the issued and outstanding share capital or voting rights in the company objects to such exemption from the shareholders’ approval requirement, such objection to be submitted to the company in writing not later than 14 days from the date the company notifies its shareholders regarding the adoption of such resolution by the company. If such objection is duly and timely submitted, then the remuneration arrangement of the directors will require shareholders’ approval as detailed above.
 
Indemnification letters, covering indemnification and insurance of those liabilities imposed under the Companies Law and the Securities Law discussed above, were granted to each of our present office holders and were approved for future office holders. Hence, we indemnify our office holders to the fullest extent permitted under the Companies Law.
 
We currently hold directors’ and officers’ liability insurance for the benefit of our office holders, which include our directors. This policy was approved by our compensation committee, after confirming that its terms are within the framework set forth for insurance coverage under our compensation policy.

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Insofar as indemnification for liabilities arising under the United States Securities Act of 1933, as amended, may be permitted to our directors, officers and controlling persons, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

Administrative Enforcement
 
The Israeli Securities Law includes an administrative enforcement procedure to be used by the Israeli Securities Authority, to enhance the efficacy of enforcement in the securities market in Israel. This administrative enforcement procedure may be applied to any company or person (including director, officer or shareholder of a company) performing any of the actions specifically designated as breaches of law under the Securities Law. Furthermore, the Securities Law requires that the chief executive officer of a company supervise and take all reasonable measures to prevent the company or any of its employees from breaching the Israeli Securities Law. The chief executive officer is presumed to have fulfilled such supervisory duty if the company adopts internal enforcement procedures designed to prevent such breaches, appoints a representative to supervise the implementation of such procedures and takes measures to correct the breach and prevent its reoccurrence.
 
As detailed above, under the Securities Law, a company cannot obtain insurance against or indemnify a third party (including its officers and/or employees) for any administrative procedure and/or monetary fine (other than for payment of damages to an injured party). The Securities Law permits insurance and/or indemnification for expenses related to an administrative procedure, such as reasonable legal fees, provided that it is permitted under the company's articles of association.
 
We have adopted and implemented an internal enforcement plan to reduce our exposure to potential breaches of the Israeli Securities Law. Our Articles of Association and letters of indemnification permit, among others, insurance and/or indemnification as contemplated under the Securities Law (see “Exculpation, Insurance and Indemnification of Directors and Officers" above).

Internal Auditor

Under the Israeli Companies Law, the board of directors of a public company must appoint an internal auditor proposed by the corporate audit committee (see under “Committees of the Board of Directors” – “Corporate Audit Committee”, above). The internal auditor may be an employee of the company but may not be an interested party, an office holder or a relative of the foregoing, nor may the internal auditor be the company’s independent accountant or its representative. The role of the internal auditor is to examine, among other things, whether the company’s conduct complies with applicable law, integrity and orderly business procedure.  The internal auditor has the right to request that the chairman of the corporate audit committee convene a corporate audit committee meeting, and the internal auditor may participate in all corporate audit committee meetings.

We have appointed the firm of Chaikin, Cohen, Rubin & Co., Certified Public Accountants (Isr.) as our internal auditor. Our internal auditor meets the independence requirements of the Companies Law, as detailed above.
D.
Employees
 
As of December 31, 2015, we had 871 employees worldwide, of whom 190 were employed in research, development and engineering, 523 in sales and marketing including supporting functions, 72 in management and administration and 86 in operations.  Of these employees, 309 were based in Israel, 42 were based in the United States, 232 were based in EMEA (not including Israel), 192 were based in Latin America and 96 were based in Asia Pacific.
 
We and our Israeli employees are not parties to any collective bargaining agreements. However, with respect to such employees, we are subject to Israeli labor laws, regulations and collective bargaining agreements applicable to us by extension orders of the Israeli Ministry of Social Affairs and Social Services, as are in effect from time to time. Generally, we provide our employees with benefits and working conditions above the legally required minimums.

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Israeli law generally and applicable extension orders require severance pay upon the retirement or death of an employee or termination without due cause, payment to pension funds or similar funds in lieu thereof and require us and our employees to make payments to the National Insurance Institute, which is similar to the U.S. Social Security Administration. Such amounts also include payments by the employee for mandatory health insurance.

Substantially all of our employment agreements include employees’ undertakings with respect to non-competition, assignment to us of intellectual property rights developed in the course of employment and confidentiality. However, it should be noted that the enforceability of non-competition undertakings is rather limited under the local laws in certain jurisdictions, including Israel.

To date, we have not experienced labor-related work stoppages and believe that our relations with our employees are good.

The employees of our other subsidiaries are subject to local labor laws and regulations that vary from country to country.

Share Ownership
 
The following table sets forth certain information regarding the ordinary shares owned, and stock options held, by our directors and senior management as of March 16, 2016.  The percentage of outstanding ordinary shares is based on 77,660,983 ordinary shares outstanding as of March 16, 2016.
 
Name
  
Number of Ordinary
Shares(1)
    
Percentage of
Outstanding
Ordinary Shares
    
Number of Stock Options Held (2)
    
Range of exercise prices per share of stock options
    
Number of RSUs Held (2)
  
Zohar Zisapel(3)
     10,788,341       13.9       250,000       $1.08-$11.75       -  
Ira Palti
     803,313       1.0       1,357,124       $1.16-$13.04       37,124  
All directors and senior management as a group consisting of 15 people(4)
     12,572,105       16.2               3,291,458         $1.08-$13.04               40,124  
 
(1)
Consists of ordinary shares and options to purchase ordinary shares which are vested or shall become vested within 60 days as of March 16, 2016.
 
(2)
Each stock option is exercisable into one ordinary share, and expires between 6 and 10 years from the date of its grant. Of the number of stock options listed, 250,000, 801,250 and 2,030,701 options, are vested or shall become vested within 60 days of March 16, 2016 for Mr. Zisapel, Mr. Palti and all directors and senior management as a group, respectively. Of the number of RSU’s listed, 0, 2,063 and 3,063, respectively, are vested or expected to vest within 60 days as of March 16, 2016, for Mr. Zisapel, Mr. Palti and all directors and senior management as a group, respectively.
 
 (3)
The number of ordinary shares held by Zohar Zisapel includes 10,717 shares held by RAD Data Communications Ltd., of which Mr. Zisapel is a principal shareholder and chairman of the board.
 
(4)
Each of the directors and senior managers other than Messrs. Zohar Zisapel and Ira Palti beneficially owns less than 1% of the outstanding ordinary shares as of March 16, 2016 (including options held by each such person and which are vested or shall become vested within 60 days as of March 16, 2016) and have therefore not been separately disclosed.
 
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Stock Option Plan
 
The Amended and Restated Share Option and RSU Plan
 
In September 2003, our shareholders approved and adopted our 2003 share option plan. This plan complies with changes in Israeli tax law that was introduced in 2003 with respect to share options. The plan is designed to grant options pursuant to Section 102 or 3(i) of the Ordinance. It is also intended to be a “qualified plan” as defined by U.S. tax law. Our worldwide employees, directors, consultants and contractors are eligible to participate in this plan. The compensation committee of our board of directors administers the plan. Generally, the options expire between six to ten years from the date of grant. In addition, our board of directors has sole discretion to determine, in the event of a transaction with other corporation, as defined in the plan, that each option shall either: (i) be substituted for an option to purchase securities of the other corporation; (ii) be assumed by the other corporation; or (iii) automatically vest in full. In the event that all or substantially all of the issued and outstanding share capital of the company shall be sold, each option holder shall be obligated to participate in the sale and to sell his/her options at the price equal to that of any other share sold.
 
In September, 2010, our board of directors amended the share option plan so as to enable the grant of restricted share units (“RSUs”) pursuant to such plan (the “Amended and Restated Share Option and RSU Plan”, or “the Plan”).
 
In December 2012, our board of directors extended the Plan for an additional ten-year period through December 31, 2022.  The Plan has been approved by the Israeli Tax Authority as required by applicable law. The following tables present information regarding option and RSU grants under the Plan as of December 31, 2015.
 
Cumulative Ordinary Shares Reserved for Option Grants
    
Remaining Reserved Shares Available for Option Grants
    
Options Outstanding
    
Weighted Average Exercise Price
  
20,051,126     1,884,425     6,465,782     $4.81  
 
Cumulative Ordinary Shares Reserved for RSU Grants
    
Remaining Reserved Shares Available for RSU Grants
    
RSUs Outstanding
    
Weighted Average Exercise Price
  
1,544,562
     ---     99,449     $0.00  
                                                                                                                                         
The following table presents certain option and RSU grant information concerning the distribution of options and RSUs (granted under the Plan) among directors and employees of the Company as of December 31, 2015:

   
Options and RSUs Outstanding
    
Unvested Options and RSUs
  
             
Directors and senior management
     3,294,649       1,514,068  
                 
All other grantees
     3,270,582       1,851,280  

Amendment of the Plan
 
Subject to applicable law, our board of directors may amend the Plan, provided that any action by our board of directors which will alter or impair the rights or obligations of an option holder requires the prior consent of that option holder. Our board last amended the Plan in August 2014, extending the authority originally granted to our compensation committee to provide grantees, in their notice of grant, with a “Double Trigger" acceleration mechanism upon the occurrence of certain events.
 
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ITEM 7.                     MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 
Major Shareholders
 
The following table sets forth stock ownership information as of February 15, 2016 (unless otherwise noted below) with respect to each person who is known by us to be the beneficial owner of more than 5% of our outstanding ordinary shares, based on information provided to us by the holders or disclosed in public filings with the SEC.
 
Except where otherwise indicated, and except pursuant to community property laws, we believe, based on information furnished by such owners, that the beneficial owners of the ordinary shares listed below have sole investment and voting power with respect to such shares. The shareholders listed below do not have any different voting rights from any of our other shareholders.  We know of no arrangements which would, at a subsequent date, result in a change of control of our company.
 
Total shares beneficially owned in the table below include shares that may be acquired upon the exercise of options that are exercisable within 60 days.  The shares that may be issued under these options are treated as outstanding only for purposes of determining the percent owned by the person or group holding the options but not for the purpose of determining the percentage ownership of any other person or group.  Each of our directors and officers who is also a director or officer of an entity listed in the table below disclaims ownership of our ordinary shares owned by such entity.
 
Name
  
Number of Ordinary Shares
    
Percentage of
Outstanding Ordinary Shares(1)
  
Zohar Zisapel
     10,788,341       13.9 %

 
(1)
Based on 77,660,983 ordinary shares issued and outstanding as of March 16, 2016.
 
Zohar Zisapel’s address is 24 Raoul Wallenberg St., Tel Aviv 69719, Israel. The ordinary shares held by Zohar Zisapel include 10,717 shares held by RAD Data Communications Ltd., of which Mr. Zisapel is a principal shareholders and the chairman of the board.
 
As of February 15, 2016, approximately 95.1% of our ordinary shares were held in the United States and there were 30 record holders with addresses in the United States. These numbers are not representative of the number of beneficial holders of our shares nor are they representative of where such beneficial holders reside due to the fact that many of these ordinary shares were held of record by brokers or other nominees (including one U.S. nominee company, CEDE & Co., which held approximately 95.08% of our outstanding ordinary shares as of said date).
 
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Related Party Transactions
 
The RAD-BYNET Group of Companies
 
Yehuda Zisapel is a principal shareholder who, together with Nava Zisapel, as of February 15, 2016, beneficially owns 4.61% of our ordinary shares. Zohar Zisapel, the Chairman of our board of directors and a principal shareholder of our company, beneficially owns 13.9% of our ordinary shares as of February 15, 2016.  Zohar and Yehuda Zisapel are brothers who do not vote as a group and do not have a voting agreement.  Individually or together, and with Nava Zisapel, they are also founders, directors or principal shareholders of several other companies which, together with us and the other affiliates, are known as the RAD-BYNET group.  These corporations include the following, as well as several other real estate, holding, biotech, medical devices and pharmaceutical companies:
 
AB-NET Communications Ltd.
Internet Binat Ltd.
RADWIN Ltd.
BYNET Data Communications Ltd.
Packetlight Networks Ltd.
SecurityDam Ltd.
BYNET Electronics Ltd.
RAD-Bynet Properties and Services (1981) Ltd.
RADBIT Computers, Inc.
BYNET SEMECH (Outsourcing) Ltd.
RADCOM Ltd.
SILICOM Ltd.
BYNET Software Systems Ltd.
RAD Data Communications Ltd. and its subsidiaries
RADiflow Ltd. 
BYNET Systems Applications Ltd.
RADWARE Ltd.
BINAT Business Ltd.
RADHEAR Ltd.
    
 
The above list does not constitute a complete list of the investments of Yehuda, Nava and Zohar Zisapel.
 
In addition to the above list, Zohar Zisapel is either a director or shareholder (or both) in the following companies: Amdocs Ltd., ARGUS Cyber security Ltd., CyberInt Technologies Ltd., TopSpin Security Ltd., Armis Security Ltd., Satixfy Ltd., Nucleix Ltd. and Innoviz Technologies Ltd.
 
Ms. Langer, one of our directors, acts as general counsel for several companies in the RAD-BYNET group and serves as a director of RADWARE Ltd.
 
In addition to engaging in other businesses, members of the RAD-BYNET group are actively engaged in designing, manufacturing, marketing and supporting data communications products, none of which currently compete with our products. Some of the products of members of the RAD-BYNET group are complementary to, and may be used in connection with, our products.
 
Members of the RAD-BYNET group provide us on an as-needed basis with management information systems, marketing, and administrative services, and we reimburse each company for its costs in providing these services. Members of the RAD-BYNET provide us and other RAD-BYNET companies with logistics services such as transportation and cafeteria facilities. The aggregate amount of these expenses was approximately $1.1 million in 2015.
 
The Company purchases certain property and equipment from members of the RAD-BYNET group, the aggregate purchase price of these assets was approximately $50 thousand in 2015.
 
We generally ascertain the market prices for goods and services that can be obtained at arms’ length from unaffiliated third parties before entering into any transaction with a member of the RAD-BYNET group for those goods and services.  In addition, all of our transactions to date with members of the RAD-BYNET group were approved by our audit committee and then our board of directors.  As a result, we believe that the terms of the transactions in which we have engaged and are currently engaged with other members of the RAD-BYNET group are beneficial to us and no less favorable to us than terms which might be available to us from unaffiliated third parties.  Any future transaction and arrangement with entities, including other members of the RAD-BYNET group, in which our office holders have a personal interest will require approval by our audit committee, our board of directors and, if applicable, our shareholders.
 
Lease Arrangements
 
We lease most of our office space for our current headquarters and principal administrative, finance, marketing and sales operations from real estate holding companies controlled by Yehuda and Zohar Zisapel.  The leased facility, located in Tel Aviv, Israel is approximately 7,000 square feet in size. The leases for the majority of this facility will expire in December 2017. The aggregate amount of rent and maintenance expenses related to these properties was approximately $2.2 million in 2015.
 
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Supply Arrangement
 
We purchase components and products from RAD Data Communications Ltd., RADWIN Ltd. and other members of the RAD-BYNET group which we integrate into our products or product offerings.  The aggregate purchase price of these components was approximately $3.0 million for the year ended December 31, 2015.
 
Registration Rights
 
In connection with the private placement of preferred shares before our initial public offering in August 2000, several of our shareholders were granted registration rights with respect to ordinary shares which resulted following conversion of their preferred shares immediately prior to the completion of our initial public offering.  The agreement grants registration rights to each of:
 
●
the holders of the ordinary shares resulting from the conversion of such preferred shares; and
 
●
Yehuda Zisapel and Zohar Zisapel.
 
Under the agreement, each of these shareholders has the right to have its ordinary shares included in certain of our registration statements.
 
ITEM 8.                      FINANCIAL INFORMATION
 
Consolidated Statements and Other Financial Information
 
The annual financial statements required by this item are found at the end of this annual report, beginning on Page F-1.
 
Export Sales
 
In 2015, our sales to end users located outside of Israel amounted to $347.6 million, or 99.5% of our $349.4 million revenues for this year.
 
Legal Proceedings
 
On January 5, 2015, a motion to approve a purported class action, naming the Company, its chief executive officer and its directors as defendants, was filed with the District Court of Tel-Aviv (Economic Department), on behalf of holders of ordinary shares, including those who purchased shares during the period following the Company’s follow on public offering in July 2014.
 
The purported class action is based on Israeli law and alleges breaches of duties by the company and its management, by making false and misleading statements in the company’s SEC filings and public statements, during the period between July and October 2014. The plaintiff's principal claim is that immediately prior to the follow on public offering, the defendants presented misleading guidance concerning the expected financial results for the third quarter of 2014, indicating an anticipated improvement in the rate of gross profit based on orders which were already received by the Company at the time of such presentation. Although the plaintiff admits that, in accordance with the actual results for the third quarter, the Company did meet the guidance as far as revenues were concerned, the actual rate of gross profit turned out to be much lower than the one anticipated. Plaintiff argues that at the time such guidance was presented by the defendants, they already knew, or should have known, that it was incorrect. The plaintiff seeks specified compensatory damages in a sum of up to $75,000,000, as well as attorneys’ fees and costs.
 
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The motion was received by the Company on January 6, 2015 and the Company filed its defense on June 21, 2015. The parties are now debating the Plaintiffs right for discovery. The Company filed its response to the plaintiff’s request for discovery on January 25, 2016 and the plaintiffs submitted their response on February 24, 2016. Once the court decides in relation to discovery, it is expected that a date for submission of plaintiff’s response to the Company’s defense will be set. The initial procedure, i.e. until the District Court decides whether to approve the motion or to deny it, has been conducted for over a year now, and it is difficult to estimate how long it is expected to last. The Company believes that the District Court should deny the motion.
 
We are not a party to any other material legal proceedings.
 
Dividends
 
We have never declared or paid any dividend on our ordinary shares and we do not anticipate paying any dividends on our ordinary shares in the future, except for the share dividend that was paid as a result of a 250-for-1 share recapitalization that took place immediately prior to our initial public offering.  We currently intend to retain all future earnings to finance our operations and to expand our business. In connection with the 2013 credit facility, we undertook not to distribute dividends (unless certain terms are met) without the Bank’s prior written consent.
 
Significant Changes
 
See Item 5. “OPERATING AND FINANCIAL REVIEW AND PROSPECTS -Liquidity and Capital Resources” for a description of the April 2014 amendment to the credit facility.

In April 2014, we signed an agreement with Eltek ASA, to settle all claims, counter claims, legal proceedings, and any other contingent or potential claims regarding alleged breaches of representations and warranties contained in the purchase agreement governing the Nera Acquisition in January 2011. Pursuant to the settlement agreement, we received $17 million in cash.

ITEM 9.                      THE OFFER AND LISTING
 
Offer and Listing Details
 
Our ordinary shares have been listed on the Nasdaq Global Market since August 4, 2000 and until January 2, 2011 and on the Nasdaq Global Select Market as of January 3, 2011. In addition, our ordinary shares are listed on the Tel Aviv Stock Exchange (TASE), since September 12, 2004 - in both exchanges under the symbol “CRNT.”
 
The table below sets forth for the periods indicated the high and low market (sale) prices of our ordinary shares as reported on Nasdaq:
 
     
Ordinary Shares
  
Annual
    
High
    
Low
  
2011
     $ 14.34     $ 7.25  
2012
       9.76       3.91  
2013
       5.15       2.35  
2014
       3.84       0.93  
2015       2.00       0.88  
                   
Quarterly 2013
                  
First Quarter
     $ 5.15     $ 4.25  
Second Quarter
       4.38       3.11  
Third Quarter
       4.30       3.00  
Fourth Quarter
       4.35       2.35  
                   
Quarterly 2014
            
First Quarter
   $ 3.84     $ 2.8  
Second Quarter
     2.95       2.13  
Third Quarter
     2.69       2.0  
Fourth Quarter
     2.39       0.93  
                 
Quarterly 2015
            
First Quarter
   $ 1.35     $ 0.88  
Second Quarter
     1.47       1.02  
Third Quarter
     1.74       0.93  
Fourth Quarter
     2.00       1.09  

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Monthly
  
High
    
Low
  
October 2015
   $ 2.00     $ 1.41  
November 2015
     1.73       1.09  
December 2015
     1.43       1.11  
January 2016
     1.28       0.89  
February 2016
     1.30       1.03  

ITEM 10.                    ADDITIONAL INFORMATION
 
Memorandum and Articles of Association - General
 
A description of our memorandum and articles of association was previously provided in our registration statement on Form F-1 (Registration Statement 333-12312) filed with the SEC on August 3, 2000, and is incorporated herein by reference. The memorandum and articles of association as amended in October 2007, September 2011, December 2012 and July 2014 were previously provided in our annual reports on Form 20-F for the years 2007, 2011 2012 and 2014, respectively, and are incorporated herein by reference.
 
In July 2014 we revoked our memorandum, in a procedure required by Israeli law in order to effect such a revocation; a detailed description of such procedure was previously provided in our annual report on Form 20-F for the year 2014 and is incorporated herein by reference.
 
Articles of Association
 
Objects and purposes

Our registration number with the Israeli Registrar of Companies is 51-235244-4. Our purpose as set forth in article 1 to our articles of association (the "Articles") is to engage, directly or indirectly, in any lawful undertaking or business whatsoever.
 
Meetings of Shareholders, Quorum and Voting Rights

According to the Companies Law and the Articles, an annual general meeting of our shareholders shall be held once every calendar year and provided it is within a period of not more than fifteen (15) months after the preceding annual general meeting. Our board of directors may, whenever it deems fit, convene a special general meeting at such time and place as may be determined by the board, and, pursuant to the Companies Law, must convene a meeting upon the demand of: (a) two directors or one quarter of the directors in office; or (b) the holder or holders of: (i) 5% or more of the Company’s issued share capital and one percent 1% or more of its voting rights; or (ii) 5% or more of the Company’s voting rights.

Pursuant to the Articles, the quorum required for a meeting of shareholders consists of at least two shareholders and holding shares conferring in the aggregate thirty-three and a third percent (33.3%) or more of the voting power of the Company. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened by the Board of Directors upon the demand of shareholders or upon the demand of less than 50% of the directors then in office or directly by such shareholders or directors, shall be cancelled. If a meeting is otherwise called and no quorum is present within half an hour from the time appointed for such meeting it shall stand adjourned to the same day in the following week at the same time and place or to such other day, time and place as the Board of Directors may determine. At the adjourned meeting, the required quorum consists of any two shareholders.

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Subject to the provisions of the Articles, holders of ordinary shares have one vote for each ordinary share held by such shareholder of record, on all matters submitted to a vote of shareholders. Shareholders may vote in person, by proxy or by proxy card. Alternatively, as of June 2015, shareholders who hold shares through members of the Tel Aviv Stock Exchange may vote electronically via the electronic voting system of the Israel Securities Authority ("Electronic Vote"). These voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. As our ordinary shares do not have cumulative voting rights in the election of directors, the holders of the majority of the shares present and voting at a shareholders meeting generally have the power to elect all of our directors, except the external directors whose election requires a special majority.
 
Unless otherwise prescribed in our Articles and/or under the Companies Law, shareholders resolutions are deemed adopted if approved by the holders of a majority of the voting power represented at the meeting in person, by proxy, by proxy card or by Electronic Vote, and voting on the matter.  

Share Ownership Restrictions
 
The ownership or voting of ordinary shares by non-residents of Israel is not restricted in any way by the Articles or the laws of the State of Israel, except that citizens of countries that are in a state of war with Israel may not be recognized as owners of ordinary shares.
 
Transfer of Shares
 
Our ordinary shares which have been fully paid-up are transferable by submission of a proper instrument of transfer together with the certificate of the shares to be transferred and such other evidence of title, as the Board of Directors may require, unless such transfer is prohibited by another instrument or by applicable securities laws.
 
Modification of Class Rights
 
Pursuant to our Articles, If at any time the share capital is divided into different classes of shares, the rights attached to any class, unless otherwise provided by our 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 the shares of such class present and voting at a separate general meeting of the holders of the shares of such class.
 
Dividends
 
Under the Companies law, dividends may be distributed only out of profits available for dividends as determined by the Companies Law, provided that there is no reasonable concern that the distribution will prevent the Company from being able to meet its existing and anticipated obligations when they become due. If the company does not meet the profit requirement, a court may nevertheless allow the company to distribute a dividend, as long as the court is convinced that there is no reasonable concern that such distribution will prevent the company from being able to meet its existing and anticipated obligations when they become due. Pursuant to our Articles, no dividend shall be paid otherwise than out of the profits of the Company. Generally, under the Companies Law, the decision to distribute dividends and the amount to be distributed is made by a company’s board of directors.
 
Our Articles provide that our board of directors, may, subject to the Companies Law, from time to time, declare and cause the Company to pay such dividends as may appear to the Board of Directors to be justified by the profits of our Company. Subject to the rights of the holders of shares with preferential, special or deferred rights that may be authorized in the future, our profits which shall be declared as dividends shall be distributed according to the proportion of the nominal (par) value paid up or credited as paid up on account of the shares held at the date so appointed by the Company and in respect of which such dividend is being paid, without regard to the premium paid in excess of the nominal (par) value, if any. The declaration of dividends does not require Shareholders’ approval.
 
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To date, we have not declared or distributed any dividend and we currently do not intend to pay cash dividends on our ordinary shares in the foreseeable future; see above under Item 8. “Financial Information – Dividends.”
 
Liquidation Rights
 
In the event of our winding up or liquidation or dissolution, subject to applicable law, our assets available for distribution among the shareholders shall be distributed to the holders of ordinary shares in proportion to the amount paid up or credited as paid up on account of the nominal value of the shares held by them respectively and in respect of which such distribution is being made, without regard to any premium paid in excess of the nominal value, if any. This liquidation right may be affected by the grant of limited or preferential rights as to liquidation to the holders of a class of shares that may be authorized in the future.
 
Mergers and Acquisitions under Israeli Law
 
In general, a merger of a company, that was incorporated before the enactment of the Companies Law, requires the approval of the holders of a majority of 75% of the voting power represented at the annual or special general meeting in person or by proxy or by a written ballot, as shall be permitted, and voting thereon in accordance with the provisions of the Companies Law. However, in accordance with our Articles of Association a shareholder resolution approving a merger 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. Upon the request of a creditor of either party of the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, a merger may not be completed unless at least: (i) 50 days have passed from the time that the requisite proposal for the merger has been filed by each party with the Israeli Registrar of Companies; and (ii) 30 days have passed since the merger was approved by the shareholders of each party.

The Companies Law also provides that, an acquisition of shares in a public company must be made by means of a tender offer : (a) if there is no existing shareholder, or a group of shareholders holding shares together, in the company holding shares conferring 25% or more of the voting rights at the general meeting (a "control block") and as a result of the acquisition the purchaser would become a holder of a control block; or (b) if there is no existing shareholder, or a group of shareholders holding shares together, in the company holding shares conferring 45% or more of the voting rights at the general meeting and as a result of the acquisition the purchaser would become a holder of 45% or more of the voting rights at the general meeting. Notwithstanding, the abovementioned requirements do not apply if, the acquisition: (1) was made in a private placement that received shareholders’ approval (which includes an explicit approval of the purchaser becoming a holder of a “control block,” or 45% or more, of the voting power in the company, unless there is already a holder of a “control block” or 45% or more, respectively, of the voting power in the company); (2) was from a holder of a “control block” in the company and resulted in the acquirer becoming a holder of a “control block,”; or (3) was from a holder of 45% or more of the voting power in the company and resulted in the acquirer becoming a holder of 45% or more of the voting power in the company. The tender offer must be extended to all shareholders, but the offeror is not required to purchase more than 5% of the company's outstanding shares, regardless of how many shares are tendered by shareholders. The tender offer may be consummated only if: (i) at least 5% of the company’s outstanding shares will be acquired by the offeror; and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.

If as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of a tender offer for all of the outstanding shares. If as a result of such full tender offer the acquirer would own more than 95% of the outstanding shares, then all the shares that the acquirer offered to purchase will be transferred to it. The law provides for appraisal rights if any shareholder files a request in court within six months following the consummation of a full tender offer, but the acquirer will be entitled to stipulate that tendering shareholders forfeit their appraisal rights. If as a result of a full tender offer the acquirer would own 95% or less of the outstanding shares, then the acquirer may not acquire shares that will cause his shareholding to exceed 90% of the outstanding shares.

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Furthermore, certain provisions of other Israeli laws may have the effect of delaying, preventing or making more difficult an acquisition of or merger with us; see Item 3. “KEY INFORMATION - Risk Factors – Risks Related to Operations in Israel - Provisions of our Articles of Association, Israeli law and financing documents could delay, prevent or make difficult a change of control andtherefore depress the price of our shares.”

Material Contracts
 
None.
 
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 the shares, except for the obligation of 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.
 
The ownership or voting of our ordinary shares by non-residents of Israel, except with respect to citizens of countries which are in a state of war with Israel, is not restricted in any way by our memorandum of association or articles of association or by the laws of the State of Israel.
 
Taxation
 
The following is a short summary of the tax environment to which shareholders may be subject.  The following is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.  Each individual should consult his or her own tax or legal advisor.
 
This summary is based on the current provisions of tax law and, except for the foregoing, does not anticipate any possible changes in law, whether by legislative, regulatory, administrative or judicial action.  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.
 
General Corporate Tax Structure in Israel
 
The corporate tax rate in 2015 was 26.5%. The corporate tax rate as from January 1, 2016 is 25%.
 
However, the effective tax rate payable by a company that derives income from an approved enterprise and beneficiary enterprise, discussed further below, may be considerably lower.  See “The Law for the Encouragement of Capital Investments, 1959” below.
 
The Law for the Encouragement of Capital Investments, 1959
 
Tax Benefits before the 2005 amendment
 
The Law for the Encouragement of Capital Investments, 1959, commonly referred to as the Investments Law, provides that a proposed capital investment in eligible facilities may be designated as an approved enterprise. See “Tax Benefits under the 2005 Amendment” below regarding an amendment to the Investments Law that came into effect in 2005 and the amendments to the Investments Law that came into effect in 2011.
 
Each certificate of approval for an approved enterprise, received upon application to the Investment Center of the Ministry of Economy and Industry, Trade and Labor of the State of Israel, or the Investment Center, relates to a specific investment program delineated both by its financial scope, including its capital sources, and by its physical characteristics, for example, the equipment to be purchased and utilized under the program.  The tax benefits derived from any certificate of approval relate only to taxable income attributable to the specific approved enterprise.  If a company has more than one approval or only a portion of its capital investments is approved, its effective tax rate is the result of a weighted average of the applicable rates.
 
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Taxable income of a company derived from an approved enterprise is subject to reduced corporate tax at the rate of 10% to 25% for the benefit period.  This period is ordinarily seven or ten years depending upon the geographic location of the approved enterprise within Israel, and whether the company qualifies as a foreign investors’ company as described below, commencing with the year in which the approved enterprise first generates taxable income after the commencement of production. Tax benefits under the Investments Law may also apply to income generated by a company from the grant of a usage right with respect to know-how developed by the approved enterprise, income generated from royalties, and income derived from a service which is auxiliary to such usage right, provided that such income is generated within the approved enterprise’s ordinary course of business.
 
A company owning an approved enterprise may elect to forego certain government grants extended to an approved enterprise in return for an alternative package of benefits.  Under the alternative package of benefits, a company’s undistributed income derived from an approved enterprise will be exempt from corporate tax for a period of between two and ten years from the first year of taxable income after the commencement of production, depending on the geographic location of the approved enterprise within Israel, and the company will be eligible for a reduced tax rate for the remainder of the benefits period. However, this period is limited to twelve years from commencement of production or fourteen years from the date of approval, whichever is earlier. This limitation does not apply to the exemption period.
 
A company that has an approved enterprise program is eligible for further tax benefits if it qualifies as a foreign investors’ company.  A foreign investors’ company is a company in which more than 25% of its share capital and combined share and loan capital is owned by non-Israeli residents.  A company that qualifies as a foreign investors’ company and has an approved enterprise program is eligible for tax benefits for a ten-year benefit period (instead of seven).  Depending on the geographic location of the approved enterprise within Israel, income derived from the approved enterprise program may be exempt from tax on its undistributed income for a period of between two and ten years and will be subject to a reduced tax rate for rest of the benefits period (up to eight years).  The tax rate for the additional benefits period is 25%, unless the level of foreign investment exceeds 49%, in which case the tax rate is 20% if the foreign investment is 49% or more and less than 74%; 15% if 74% or more and less than 90%; and 10% if 90% or more. A company that has elected the alternative package of benefits and that subsequently pays a dividend out of income derived from the approved enterprise during the tax exemption period will be subject to tax on the gross amount distributed.  The tax rate will be the rate which would have been applicable had the company not elected the alternative package of benefits.  This rate is generally 10% to 25%, depending on the percentage of the company’s shares held by foreign shareholders.  The dividend recipient is subject to withholdings of tax at the source by the company at the reduced rate applicable to dividends from approved enterprises, which is 20% if the dividend is distributed during the tax exemption period or within 12 years after the period. This limitation does not apply to a foreign investors’ company.
 
The benefits available to an approved enterprise are conditional upon the fulfillment of conditions stipulated in the Investments Law and its regulations and the criteria in the specific certificate of approval, as described above.  If a company does not meet these conditions, in whole or in part, it would be required to refund the amount of tax benefits, with the addition of the consumer price index linkage adjustment and interest.
 
The Investment Center has granted approved enterprise status to three investment programs at our former facility in Tel Aviv and we have derived and expect to continue to derive a substantial portion of our income from these programs.  We have elected the alternative package of benefits under these approved enterprise programs.  The portion of our income derived from these approved enterprise programs will be exempt from tax for a period of two years commencing in the first year in which there is taxable income after the commencement of production and will be subject to a reduced company tax of between 10% and 25% for the subsequent period of five years, or up to eight years if the percentage of non-Israeli investors who hold our ordinary shares exceeds 25%.  The period of tax benefits for our approved enterprise programs has not yet commenced, because we have yet to realize taxable income.
 
Tax Benefits under the 2005 Amendment
 
On April 1, 2005, an amendment to the Investments Law (the “Amendment”) came into force. The Amendment includes revisions to the criteria for investments qualified to receive tax benefits as an approved enterprise. The Amendment applies to new investment programs and investment programs commencing after 2004, and does