Ceragon Networks Annual Report 2016

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 20-F ☐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 1934For the fiscal year ended December 31, 2016 OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934OR☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 ClassOrdinary Shares, Par Value NIS 0.01Name of Exchange of Which RegisteredNasdaq 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 77,768,929 Ordinary Shares, NIS0.01 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 suchshorter 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 ☐ 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 pursuantto 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 ☐ 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 ofthe Exchange Act. (Check one) Large accelerated filer ☐Accelerated filer ☑Non-accelerated filer ☐ 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 ☑ TABLE OF CONTENTS PagePART I 1ITEM 1.Identity of Directors, Senior Management and Advisers1ITEM 2.Offer Statistics and Expected Timetable1ITEM 3.Key Information1ITEM 4.Information on the Company24ITEM 4AUnresolved Staff Comments39ITEM 5.Operating and Financial Review and Prospects39ITEM 6.Directors, Senior Management and Employees55ITEM 7.Major Shareholders and Related Party Transactions75ITEM 8.Financial Information77ITEM 9.The Offer and Listing78ITEM 10.Additional Information79ITEM 11.Quantitative and Qualitative Disclosures about Market Risk93ITEM 12.Description of Securities Other than Equity Securities93PART II 93ITEM 13.Defaults, Dividend Arrearages and Delinquencies93ITEM 14.Material Modifications to the Rights of Security Holders and Use of Proceeds93ITEM 15.Controls and Procedures94ITEM 16.[RESERVED]95ITEM 16AAudit Committee Financial Expert95ITEM 16BCode of Ethics95ITEM 16CPrincipal Accountant Fees and Services95ITEM 16DExemptions from the Listing Standards for Audit Committees96ITEM 16EPurchases of Equity Securities by the Issuer and Affiliated Purchasers96ITEM 16FChange in Registrant's Certifying Accountant96ITEM 16GCorporate Governance96ITEM 16HMine Safety Disclosure97PART III 97ITEM 17.Financial Statements97ITEM 18.Financial Statements97ITEM 19.Exhibits97 - 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 ofthe 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 similarexpressions, 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 financialcondition 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 reasonableand 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-lookingstatements 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. Ouractual 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 inthis 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 noobligation 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. 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 2012 to 2016. The selectedconsolidated statement of operations data for the years 2014, 2015 and 2016, and the selected consolidated balance sheet data at December 31, 2015 and 2016, have been derived from our auditedconsolidated financial statements set forth in Item 18. "FINANCIAL STATEMENTS." The selected consolidated statement of operations data for the years 2012 and 2013 and the selectedconsolidated balance sheet data at December 31, 2012, 2013 and 2014, have been derived from our previously published audited consolidated financial statements, which are not included in thisannual report. This selected financial data should be read in conjunction with our consolidated financial statements and are qualified entirely by reference to such consolidated financialstatements. 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 theconsolidated financial data with the section of this annual report entitled Item 5. "OPERATING AND FINANCIAL REVIEW AND PROSPECTS" and our consolidated financial statements and thenotes to those financial statements included elsewhere in this annual report. 1 Year ended December 31, 2012 2013 2014 2015 2016 Consolidated Statement of Operations Data: (In thousands, except share and per share data) Revenues $446,651 $361,772 $371,112 $349,435 $293,641 Cost of revenues 308,354 249,543 286,670 246,487 194,479 Gross profit 138,297 112,229 84,442 102,948 99,162 Operating expenses: Research and development 47,487 42,962 35,004 22,930 21,695 Selling and marketing 77,326 67,743 56,059 40,816 39,515 General and administrative. 27,519 26,757 23,657 21,235 20,380 Restructuring costs 4,608 9,345 6,816 1,225 - Goodwill impairment -- -- 14,765 -- -- Other income -- (7,657) (19,827) (4,849) (1,921) Total operating expenses 156,940 139,150 116,474 81,357 79,669 Operating income (loss) (18,643) (26,921) (32,032) 21,591 19,493 Financial expenses, net (3,547) (14,018) (37,946) (14,738) (6,303)Income (loss) before taxes (22,190) (40,939) (69,978) 6,853 13,190 Tax on income (1,201) (6,539) (6,501) (5,842) (1,761)Net income (loss) (23,391) (47,478) (76,479) 1,011 11,429 Basic net earnings (loss) per share $(0.64) $(1.23) $(1.22) $0.01 $0.15 Diluted net earnings (loss) per share $(0.64) $(1.23) $(1.22) $0.01 $0.15 Weighted average number of shares used in computing basic earnings (loss)per share 36,457,989 38,519,606 62,518,602 77,239,409 77,702,788 Weighted average number of shares used in computing diluted earnings(loss) per share 36,457,989 38,519,606 62,518,602 77,296,681 78,613,528 2 At December 31 2012 2013 2014 2015 2016 (In thousands) Consolidated Balance Sheet Data: Cash and cash equivalents, short and long term bank deposits, short andlong term marketable securities $51,589 $52,337 $42,371 $36,318 $36,338 Working capital 129,407 106,765 87,748 81,957 95,950 Total assets 393,596 365,971 341,873 267,249 244,225 Total long term liabilities 69,767 52,498 31,822 19,915 17,555 Shareholders' equity 143,709 135,078 104,552 102,821 116,164 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 inforward-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 carefullyconsider 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 unknown risks and uncertainties that we currently deem immaterial may also affect our business. Our business, financial condition and results of operations could be seriously harmedif any of the events underlying any of these risks or uncertainties actually occur. In such an event, the market price for our ordinary shares could decline. Risks Relating to Our Business We have been focusing on the "best-of-breed" segment of the wireless backhaul market, which we believe has the most profit potential. Focusing on one segment of the market has led to adecline in our revenues, and should such a decline in sales continue, this may negatively affect our business, financial condition and results of operations. We mainly attribute our improvement in profitability to the continued implementation of our business strategy, a key element of which is the focus on the best-of-breed segment of thewireless backhaul market. However, focusing on this one market segment led to a decline in our sales in 2016, and if such market segment or our share in it shrinks, our sales and revenues maydecline even further and our results of operations and cash flow may be significantly and adversely affected. In such a case, we may need to take cost reduction measures, which may adverselyimpact our R&D, operations, marketing and sales activities and our ability to effectively compete in the market. A significant portion of our business concentrates in certain geographic regions. Such concentration may negatively affect our business, financial condition and results of operations,should the amount of business coming from such regions decrease. In general, concentration of business in specific geographic regions entails risks in case certain events occur in these regions, such as a slowdown in investments and expansion ofcommunication networks due to the cyclical characteristic of the investment in this industry, as well as changes in local legislation, changes in governmental controls and regulations, includingthose specifically related to the communication industry, changes in tariffs and taxes, trade restrictions, a downturn in economic or financial conditions, an outbreak of hostilities, political oreconomic instability as well as any other extraordinary events having an adverse effect on the economy or business environment in this region, which will harm the operations of our customers inthese regions, and result in a significant decline of business coming from that region. For example, in 2015 and 2016 we increased our business in terms of revenue compared to prior periods,coming from India to 30.3% and 27.3%, respectively and expect that our revenues from sale of products in India will continue to constitute a significant portion of our business in the future. Wehave experienced some of these risks in that region in previous years, and further realization of any of these or other risks could result in a material reduction in orders and could adversely affectour results of operations, including cash flow, and our financial condition.3It is difficult to predict our gross margin as it is exposed to significant fluctuations as a result of potential changes in the geographical mix of our revenues. Our revenues are derived from multiple regions, each of which may consist of a number of countries. Gross margin percentages may vary significantly between different regions and evenamong different countries within the same region. A significant change in the actual ratio of our revenues among the different regions/countries, whereby the actual ratio of revenues from ahigher gross margin region/country exceeds our expectations, may cause our gross margin to significantly increase, while in case the actual ratio of revenues from a lower gross-marginregion/country exceeds our expectations, may cause our gross-margin to significantly decrease.A single customer and customer group represent a significant portion of our revenues, and if we were to lose this single customer or customer group or experience any material reduction inorders from this single customer or customer group, our revenues and operating results may be adversely affected.In 2016 we had revenue from a single customer of approximately 16.6% of our total revenues. In 2015 we had revenue from a single customer group of affiliated companies that accountedfor approximately 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. Our sales are generally made fromstandard 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 fromus, 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, as inthe past, an adverse effect on our reported revenues, profitability and cash flow. In addition, the loss of these customers or any material reduction in orders, in the absence of gaining newsignificant customers replacing them, could adversely affect different aspects of our results of operations, including cash flow and financial condition.We face intense competition from other wireless backhaul equipment providers. If we fail to compete effectively, our business, financial condition and result of operations would bematerially adversely affected.The market for wireless backhaul equipment is rapidly evolving, highly competitive and subject to rapid change.Our primary competitors include companies such as Huawei Technologies Co., Ltd., L.M. Ericsson Telephone Company, NEC Corporation, Nokia and ZTE Corporation, commonlyreferred to as "generalists", each providing a vast wireless solutions portfolio, which includes a wireless backhaul solution within their portfolio. These generalists may also compete with us onbest-of-breed projects, in which operators invest resources and efforts to select the best wireless backhaul solution. In addition to these primary competitors, a number of smaller microwavecommunications equipment suppliers, including Aviat Networks Inc., DragonWave Inc., and SIAE Microelectronica S.p.A., offer or are developing competing products.In addition, the industry generalists are substantially larger than us and have longer operating history and greater financial, sales, service, marketing, distribution, technical,manufacturing and other resources. Moreover, the market for wireless backhaul equipment is expected to go through significant consolidation. These generalists have greater name recognition, alarger customer base, may be able to respond more quickly to changes in customer requirements and evolving industry standards, and have greater resources to invest in the development,promotion and sale of their products. Many of these generalists also have well-established relationships with our current and potential customers and have extensive knowledge of our targetmarkets, which may possibly give them additional competitive advantages. In addition, as these generalists have begun to focus more on selling services and bundling 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 areusually financially stronger than us, they may be able to offer customers more significant financing packages and more attractive pricing, which may increase the appeal of their products incomparison to ours.4Additionally, even where these generalists resell Ceragon products as part of their own portfolio – selling through them may negatively impact our margins and result in our businesssuccess possibly depending on these competitors to some extent.Moreover, current and potential competitors may make strategic moves such as mergers, acquisitions or establishing cooperative relationships among themselves or with third partiesthat 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 materiallyadversely affected. For more information on the best-of-breed market, please refer to Item 4: INFORMATION ON THE COMPANY; B. Business Overview – "Wireless Backhaul; Short-haul, Long-haul and Small Cells Backhaul."Between 2011 and 2014, we incurred substantial losses and negative cash flows. Although we were profitable and generated cash from our operations during 2015 and 2016, we cannotassure you that we will be able to maintain 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 2014 we incurred a net loss of $76.5 million, and negative cash flowfrom operations of $32.3 million. Our losses in prior periods were impacted by decreases in revenues, decreased gross margins and the significant expenses and charges associated withorganizational restructuring activities. In 2015 and 2016 we incurred a net income of $1.0 million and $11.4 million, respectively, and generated cash from operating activities of $16.1 million and$25.8 million, respectively. However, there is no assurance that we will be able to maintain or improve such results, which may require the implementation of additional cost reduction measures.Our failure to maintain profitability or to continue to have positive operating cash flows may impact our ability to compete in the market for the short and long term and impair our financialcondition.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 several banks. Our credit agreement contains financial and other covenants requiring that we maintain,among other things, 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 workingcapital 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 creditfacility 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 creditfacilities, 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 anevent in which a current or future shareholder acquires control (as defined under the Israeli Securities Law) of us. For more information, please refer to Item 5: "OPERATING AND FINANCIALREVIEW AND PROSPECTS; Liquidity and Capital Resources."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 theterms 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 onits obligation to fund its commitment, the portion of the committed facility provided by such defaulting bank would not be available to us.5Due 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.A majority of our sales are made in emerging economies in Latin America, India, Asia Pacific and Africa. For each of the years ended December 31, 2015 and 2016, sales in these regionsaccounted for approximately 73% and 71%, respectively, of our revenues. As a result, the occurrence of any international, political, regulatory or economic events in these regions could adverselyaffect 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 in Argentina, which require us to obtain approval from tax and customs authorities forimporting activities. To date, we have been able to obtain all required approvals and Argentina has begun to lift import controls, but we cannot assure you that more stringent requirements willnot be imposed in the future.In addition, during 2016 there has been significant economic deterioration in Africa, primarily in Nigeria. This resulted in a significant erosion of the local currencies valuation relative tothe U.S. Dollar, as well as foreign currency scarcity and to the adoption of some new restrictions, which have created difficulties in collection, cash repatriation, and a general slow-down ofbusiness activities. 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 affectour sales in these countries or our ability to collect and repatriate the proceeds from such sales in the future.Below are some of the risks and challenges that we face as a result of 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 manufacture or purchase locally. Business practices in emerging markets may expose us to legal and business conduct regulatory risks.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 laws and 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 andregulatory requirements, our business and reputation may be harmed.6Our 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 inproduct delivery or completion of related services can cause our revenues, net income and operating cash flow to deviate significantly from anticipated levels, especially as a large portion of ourrevenues 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 maydiffer significantly from our expectations, and thus impact our revenue recognition timing, gross margins, costs and expenses, as well as cash flow from operations. In addition, the spendingdecisions of our customers throughout the year may also create unpredictable fluctuations in the timing in which we receive orders and can recognize revenues, which may impact our quarterlyresults. Such unpredictable fluctuations could be very large in cases where these spending decisions are made by our largest customers or regarding significant deals.The quarterly variation of our operating results may in turn create volatility in the market price for our shares.We experience high-volatility in the supply needs of our customers, which from time to time lead to delivery pressures. If we fail to effectively cope with such volatility and growing supplydemands of our customers, we may be unable to timely fulfill our customer commitments, which would adversely affect our business and results of operations.The delivery requirements of our customers are unevenly spread throughout the year. In addition, we offer our customers a wide variety of products and configurations. Our inability toforecast the quantities or mix of the delivery demands for our products, may result in underestimating our material purchasing needs, as well as production capacity requirements. If we fail toeffectively manage our deliveries to the customers in a timely manner, or otherwise fulfill our contractual obligations to them, or if we are unable to synchronize our supply chain and productionprocess when rapidly increasing production, the cost of our material purchasing, manufacturing and logistics will increase and we may also be obligated to pay penalties to our customers fordelays, all of which would adversely affect our business, financial results and our relationship with our customers.We may encounter technical difficulties with our products, which could impair our ability to fulfill our commitments to our customers in a timely manner and negatively impact our businessand results of operations.During 2016 we faced some technical problems with our IP-20 Platform, which we are currently completing to resolve. If we continue to experience these or similar problems, this maycause delays in product delivery, increase our costs, adversely affect customer satisfaction and damage our results of operation. In addition, in our competitive market, we launch new versions ofexisting products and new products from time to time. New products and new versions of existing products are more prone to technical problems which, may, among other things, adversely affectour ramping up ability and ability to meet delivery commitments to our customers in a timely manner, and may cause us to incur additional manufacturing, development and repair costs. This mayhave a material adverse effect on our business and results of operation.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 orstop, which could harm our business.We are exposed to changing network models that affect operator spending on infrastructure as well as trends in investment cycles of telecom operators and other service providers. Theemergence of "over-the-top services" - which make use of the operators' network to deliver rich content to users but do not generate revenue to operators - are causing operators to lose asubstantial portion of their voice/SMS revenues. In addition, changes in regulatory requirements in certain jurisdictions around the world are allowing smaller operators to enter the market, whichmay 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, which will allow them to break the linearity of cost and capacity through more efficient use of existinginfrastructure 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 investfurther 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 financialcondition.7Global competition and current market conditions, including those specifically impacting the telecommunications industry, have resulted in downward pressure on the prices for ourproducts, which could result in reduced revenues, gross margins, profitability and demand for our products and services.We and other manufacturers of telecommunications equipment are experiencing, and are likely to continue to experience, increased downward price pressure, particularly as we increaseour 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 decliningaverage 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 continueto design to cost and introduce new lower-cost products and product enhancements. Since customers frequently negotiate supply arrangements far in advance of delivery dates, we may berequired 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 ourpart 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 conditionand 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. A Tier 1 customer is atelecom operator, which has national or multinational service coverage and that can reach every other network without purchasing network resources from other network communicationproviders.In recent years, we have increased our sales in India, a region typically characterized as being price-sensitive, resulting in pressure on our profitability. During 2013 and 2014, 7% and24.8% of our revenues, respectively, were earned in India, while during 2015 and 2016, 30.3% and 27.3% of our revenues, respectively, were earned in India. We expect that our revenues from saleof products in India will continue to constitute a significant portion of our business in the future. In addition, we anticipate continued demand for our products and/or services in Latin America, amarket 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, which couldresult in reduced revenues, gross margins and profitability. The telecommunications industry has experienced downturns in the past in which operators substantially reduced their capital spending on new equipment. Continued adverseeconomic conditions, which still exist in certain jurisdictions, including certain countries in Europe, Latin America and Africa, could cause network operators to postpone investments or initiateother 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 cooperationagreements 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 whobuy our products and services can change quickly and can vary over short periods, including from month to month.If the current global economic situation deteriorates, or if the uncertainty and variations in the telecommunications industry continues, our business could be negatively impacted. Forexample, we could experience reduced demand for our products and services, slowed customer buying decisions, pricing pressures, possible withdrawal of global operators from somegeographies in which they currently operate and in which we sell and supplier or customer disruptions. Furthermore, insolvency of some of our key distributors, resellers, original equipmentmanufacturers (OEMs) and systems integrators, could impair our distribution channels. Any of these contingencies 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.8If we fail to develop and market new products that keep pace with technological developments, the changing industry standards and our customers' needs, we may not be able to grow orsustain 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 makeexisting 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 timelymanner 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 widespreaduse by operators, could either render our products obsolete or require us to modify our products necessitating significant investment, both in time and cost, in new technologies, products andsolutions. 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 orproduction 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 wecontinue to enhance with newer products and capabilities. Developing new products and product enhancements requires research and development resources. We may not be successful inenhancing 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 based on the IP-20 Platform will beaccepted in the market or will result in profitable sales or that such products will not require additional quality assurance and defect-fixing processes.Relying on third-party manufacturers, suppliers and service providers may disrupt the proper and timely management of deliveries of our products, a risk that is intensified in case of asingle source supplier.We substantially outsource our manufacturing and logistics operations, and purchase ancillary equipment for our products, from contract and other independent manufacturers.Disruption in deliveries or in operations of these and other third party suppliers or service providers, as a result - for example - of capacity constraints, production disruptions, price increases,force majeure events, decreased availability of raw materials or commodities, as well as quality control problems related to components, may all cause such third parties not to comply with theircontractual obligations to us. This could have an adverse effect on our ability to meet our commitments to customers and could increase our operating costs.In addition, although we believe that our contract manufacturers and logistics service providers have sufficient economic incentive to perform our manufacturing and logistics servicesrequirements, the resources devoted to these activities are not within our control. We cannot assure you that manufacturing or logistics problems will not occur in the future due to insufficientresources devoted to our requirements by such manufacturers and logistics service providers. These delays, disruptions, quality control problems, loss in capacity and problems in logistics processes could result in delays in deliveries of our product to our customers, which couldsubject us to penalties payable to our customers, increased warranty costs, possible cancellation of orders, as well as damage our reputation. If any of these problems occur, we may be requiredto seek alternate manufacturers or logistics service providers and we may not be able to secure such alternate manufacturers or logistics service providers that meet our needs and standards in atimely and cost-effective manner. The above-mentioned risks are exacerbated in the case of raw materials or component parts that are purchased from a single-source supplier.In addition, some of our contract manufacturers have granted us licenses with respect to certain technology, which is used in a number of our products. If we change contractmanufacturers, 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. Further,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 customerrelationships may suffer.9Our acquisition activities expose us to risks and liabilities, which could also result in integration problems and adversely affect our business.Following the acquisition of Nera Network AS in 2011 (the "Nera Acquisition") and other smaller acquisitions, we have increased the size of our operations and worldwide presence.While we intend to continue to explore potential merger or acquisition opportunities within our market or in other markets, which we may deem to be suitable for our business growth strategy, weare 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 mayrequire 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 befully realized, 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 cash flow and financialcondition as well as the price of our ordinary shares.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 thismarket would cause our revenues to decreaseWe 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 indemand for high-capacity point-to-point wireless backhaul products in comparison to companies that also sell multiple and diversified product lines and solutions to customers. If technologies ormarket conditions change, resulting in a decreased demand for our specific technology, we could likely have a material adverse effect on our business, financial results and financial condition aswe attempt to address these issues.Consolidation of our potential customer base could harm our business.The increasing trend towards mergers in the telecommunications industry has resulted in the consolidation of our potential customer base. In situations where an existing customerconsolidates 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 theconsolidated entity decides to adopt the competing products. Further, consolidation of our potential customer base could result in purchasing decision delays as consolidating customersintegrate 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 potentialcustomers have agreed to share networks, resulting in a decreased requirement for network equipment and associated services, and thus a decrease in the overall size of the market. Networkoperators have started to share parts of their network infrastructure through cooperation agreements rather than legal consolidations, which may adversely affect demand for network equipmentand could harm our business and results of operations.We face intense competition from other communications solutions that compete with our high-capacity point-to-point wireless products, which could reduce demand for our products andhave a material adverse effect on our business and results of operations.Our products compete with other high-speed communications solutions, including fiber optic lines and other wireless technologies. Some of these technologies utilize existing installedinfrastructure and have achieved significantly greater market acceptance and penetration than high-capacity point-to-point wireless technologies. Moreover, as more and more data demands areimposed on existing network frameworks, and due to consolidation of fixed and mobile operators, operators may be more motivated to invest in more expensive high-speed fiber optic networks tomeet 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 extremeweather conditions and limitations in connection with the need to establish line of sight between antennas.10In addition, customers may decide to use transmission frequencies for which we do not offer products.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 effecton our business and results of operations.Our international operations expose us to the risk of fluctuations in currency exchange 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 other than 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, which could have anegative 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 Americaand in Africa. 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 materialadverse effect on our business, reputation, financial condition and results of operations." A substantial portion of our operating expenses are denominated in New Israeli Shekels ("NIS"), and to a lesser extent, other non-U.S. dollar currencies. Our NIS-denominated expensesconsist 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 2016, the NIS continued tofluctuate in comparison to the U.S. dollar, with the NIS appreciating by 1.4% against the U.S. dollar. If the U.S. dollar weakens against the NIS in the future, there will be a negative impact on ourresults 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 cashbalances 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, and thereforecould 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 inthese 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 our balance sheet accounts and forecastcash flows. We do not use derivative financial instruments or other "hedging" techniques to cover all our potential exposure and may not purchase derivative instruments adequate enough toinsulate 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 certaingovernment restricted currencies. During 2016, we incurred losses in the amount of $2.8 million as a result of exchange rate fluctuations that have not been fully offset by our hedging strategy. Inaddition, during 2016 we recorded income of $0.9 million in the other comprehensive loss in our shareholders' equity as a result of the appreciation 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.Furthermore, 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 theU.S. dollar strengthens against these currencies these competitors might offer their products and services for a lower price and capture market share from us, which might adversely affect ourbusiness and negatively influence our results of operation and financial condition.11We are engaged in supplying installation or rollout projects for our customers. Such long-term projects have inherent additional risks. Problems in executing these rollout projects,including delays or failure in acceptance testing procedures and other items beyond our control, could have a material adverse effect on our results of operations.We are engaged in supplying rollout projects, which typically include services such as installation and commissioning, involving fixed-price contracts. We assume greater financial riskson these fixed-price projects, versus equipment–only sales, which do not similarly require us to provide services and usually do not require customer acceptance certificates in order for us torecognize 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 wouldnegatively impact our financial condition and results of operations.In a significant number of our projects, 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 the prime contractor and equipment supplier for network build-out projects, providing installation, supervision and commissioning services required for these projects, or we mayprovide 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 involvingsignificant 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 anysignificant 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 theinstallation 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 ourcontrol, 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 toexperience 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 bear the risks of lossand 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 theseprojects and in such cases, the acceptance may be delayed even further since it depends on the acceptance of other network elements not in our control. The early deployment of our productsduring 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 damagedor 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 could refuseto pay us any balance owed and we would incur substantial costs, including fees owed to our installation subcontractors, increased insurance premiums, transportation costs and expensesrelated to repairing or manufacturing the products. Moreover, in such a case, we may not be able to repossess the equipment, thus suffering additional losses.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 ofoperation and financial condition. Our failure to establish and maintain effective internal control over financial reporting could result in material misstatements in our financial statements or a failure to meet our reportingobligations. This may cause investors to lose confidence in our reported financial information, which could result in the trading price of our shares 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. Underthe 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 theeffectiveness of our internal control over financial reporting as of December 31, 2016, using the criteria established in "Internal Control - Integrated Framework" set forth by the Committee ofSponsoring Organizations of the Treadway Commission (2013 framework) (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 ofthe Company's annual or interim financial statements will not be prevented or detected in a timely manner.12At the end of 2014, based on the Company's evaluation, our management, including the CEO and CFO, identified a material weakness related to our legal entity in Brazil, which accountedfor approximately 10% of our total revenue for the year ended December 31, 2014, and approximately 9% of our total assets as of the year ended December 31, 2014, finding that we did notmaintain 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 supervisorypersonnel 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 deficiencycould 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 and 2016, we had no material weakness in our internal controls over our financial reporting.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 financialstatements 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 beadversely affected and potentially resulting in a decline in the market price of our shares. Even if we conclude that our internal controls over financial reporting are adequate, any internal controlor 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 misconductor 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 allocationof 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 taxexposures 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 aresubject 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 achange 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 accountingprinciples, changes in the valuation of deferred tax assets and liabilities, the results of audits and examinations of previously filed tax returns and continuing assessments of our taxexposures. 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 impose additionaltaxes. 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 indirector withholding taxes as well as different interpretations applied by the governing tax authorities to those regulations may expose us to additional tax payments and penalties. These would have amaterial 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 shouldunexpected 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 arelower 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 willhave 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 beadversely 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, whichcould adversely affect our results of operations.13Alternatively, if we underestimate our requirements and actual orders are significantly larger than our planned forecast, we may be required to accelerate production and purchase ofsupplies, 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 andour 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, topartially assemble components, in order to shorten our delivery time in case of an increase in demand for our products. In the absence of such increased demand, we may need to make advancepayments 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 inthe manufacturing of our products.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, andwe 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 · 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 orrefuse 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 ofeconomic downturn.Our sales cycles in connection with competitive bids or to prospective customers 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. Insome 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 madeby the customer. In addition, even after the initial decision is made, there may be a lengthy testing and integration phase or 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 particularsale, as events that impact customers' decisions occur during such cycle and in turn, increase the difficulty of forecasting our results of operations.Our contract manufacturers obtain some of the components included in our products from a limited group of suppliers and, in some cases, single or sole source suppliers. The loss of orproblems in any of these suppliers could cause us to experience production and shipment delays as well as additional costs, which may result in a substantial cost increase or loss ofrevenue.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. Ourcontract manufacturers' dependence on a single or sole source supplier, or on a limited number of suppliers, subjects us to the following risks: · The component suppliers may experience shortages in components and interrupt or delay their shipments to our contract manufacturers. Consequently, these shortages coulddelay the manufacture of our products and shipments to our customers, which could result in penalties or cancellation of orders for our products. 14 · 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 unableto develop alternative sources for the components necessary to manufacture our products, which could force us to redesign our products or buy a large stock of the componentinto 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. · The component suppliers may increase component prices significantly at any time and with immediate effect, particularly if demand for certain components increasesdramatically in the global market. These price increases would increase component procurement costs and could significantly reduce our gross margins and profitability.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 asvarious 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 maybe exposed to potential tax liabilities worldwide, which could result in a substantial cost. We also undertook certain exposures for penalties and other financial risks posed by a few of Nera'scustomers 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 priceallocation.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. Ifwe are required to make any actual payment on such potential liabilities, this could materially adversely affect our results of operations, cash flow and financial condition.If we fail to obtain regulatory approval for our products, or if sufficient radio frequency spectrum is not allocated for use by our products, our ability to market our products may berestricted.Generally, our products must conform to a variety of regulatory requirements and international treaties established to avoid interference among users of transmission frequencies and topermit interconnection of telecommunications equipment. Any delays in compliance with respect to our future products could delay the introduction of those products. Also, these regulatoryrequirements 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, which may not beaffected as much from such changes. Delays in allocation of new spectrum for use with wireless backhaul communications, such as the E and V bands in various countries, at prices which arecompetitive for our customers, 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 theapplicable 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 frequencyspectrum 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 ourproducts. 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 willneed 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 inhibitedthe 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 amaterially adverse effect on our business, financial condition and results of operations. Additionally, regulatory decisions allocating spectrum for use in wireless backhaul at frequencies used byour competitors' products could increase the competition we face.15Other 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 us to significant liability claims.Since our products are used in critical communications networks, we may be subject to significant liability claims if our products do not work properly. The terms of agreements with ourcustomers do not always provide sufficient protection from liability claims. In addition, any insurance policies we have may not adequately cover our exposure with respect to such claims. Wewarrant to our current customers that our products will operate in accordance with our product specifications, but if our products fail to conform to these specifications, our customers couldrequire 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 suchclaims, successful or not, would be costly and time-consuming to defend, and could divert management's attention and seriously damage our reputation and our business.Our international wireless backhaul operations subject us to various regulations. Liabilities for failure to comply with these regulations could materially impact our business, results ofoperations 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 includingthe following:oOur business is subject to numerous laws and regulations designed to protect the environment, including with respect to discharges management of hazardous substances. Although webelieve that we comply with these requirements and that such compliance does not have a material adverse effect on our results of operations, financial condition or cash flows, thefailure 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 andenvironmental risks, we cannot provide assurance that any such material liability will not arise in the future.oOur wireless communications products emit electromagnetic radiation. While we are currently unaware of any negative effects associated with our products, there has been publicityregarding the potentially negative direct and indirect health and safety effects of electromagnetic emissions from wireless telephones and other wireless equipment sources, includingallegations 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 additionalregulation of our products, and we may be required to modify our technology without the ability to do so. Even if these concerns prove to be baseless, the resulting negative publicitycould 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 serviceproviders could adversely affect the demand for our backhaul solutions. Breaches of network or information technology security could have an adverse effect on our business.Cyber-attacks or other breaches of network or IT security may cause equipment failures or disrupt our systems and operations. We may be subject to attempts to breach the security ofour networks and IT infrastructure through cyber-attacks, malware, computer viruses and other means of unauthorized access. While we maintain insurance coverage for some of these events,the potential liabilities associated with these events could exceed the insurance coverage we maintain. Our inability to operate our facilities as a result of such events, even for a limited period oftime, may result in significant expenses or loss of market share to our competitors. In addition, a failure to protect the privacy of customer or employee confidential data against breaches ofnetwork or IT security could result in damage to our reputation. 16Maintaining the security of our products, computers and networks is a critical issue for us and our customers. Security researchers, criminal hackers and other third parties regularlydevelop new techniques to penetrate computer and network security measures. In addition, hackers also develop and deploy viruses, worms and other malicious software programs, some ofwhich may be specifically designed to attack our products, systems, computers or networks. Additionally, external parties may attempt to fraudulently induce our employees or users of ourproducts to disclose sensitive information in order to gain access to our data or our customers' data. These potential breaches of our security measures and the accidental loss, inadvertentdisclosure or unauthorized dissemination of proprietary information or sensitive, personal or confidential data about us, our employees or our customers, including the potential loss or disclosureof such information or data as a result of hacking, fraud, trickery or other forms of deception, could expose us, our employees, our customers or the individuals affected to a risk of loss or misuseof this information, result in litigation and potential liability or fines for us, damage our brand and reputation or otherwise harm our business.We sell other manufacturers' products as an original equipment manufacturer, or OEM, which subjects us to various risks 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. Our sale of OEM products exposes us to the risk that these manufacturersmight terminate their relationships with us, experience technical and financial problems, decide to promote their products through other channels, fail to deliver their products or discontinueproduction of their products. If we cannot develop alternative sources for OEM products, we could lose certain customers and our revenues could decline.If we are unable to protect our intellectual property rights, our competitive position 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 combinationof 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 patentapplications. 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 incounterclaiming 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, andenter 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 takenby 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.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 thoseestablished 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 onour business, results of operations and financial condition.Defending against intellectual property infringement claims could be expensive and 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. Wehave been exposed to infringement allegations in the past, and we may in the future be notified that we or our vendors, allegedly infringe certain patent or other intellectual property rights ofothers. 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 substantialdamages (including potentially treble damages and attorney's fees should a court find such infringement willful), or to cease the use and licensing of allegedly infringing technology and the saleof 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 theinfringing 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 theinfringing 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.17If we fail to attract and retain qualified personnel, our business, operations and 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 retainqualified 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 theseareas, 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 thehighly-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. Ifwe 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 Ordinary SharesHolders of our ordinary shares who are U.S. residents may be required to pay additional U.S. income taxes if we are classified as a personal foreign investment company ("PFIC") for U.S.federal income tax purposes.There is a risk that we may be classified as a PFIC. Our treatment as a PFIC could result in a reduction in the after-tax return for U.S. holders of our ordinary shares and may cause areduction in the value of our shares. For U.S. federal income tax purposes, we will generally be classified as a PFIC for any taxable year in which either: (1) 75% or more of our gross income ispassive income, or (2) at least 50% of the average value (determined on a quarterly basis) of our total assets for the taxable year produce or are held for the production of passive income. Basedon our analysis of our income, assets, activities and market capitalization, we do not believe that we were a PFIC for the taxable year ended December 31, 2016. However, there can be no assurancethat the United States Internal Revenue Service ("IRS") will not challenge our analysis or our conclusion regarding our PFIC status. There is also a risk that we were a PFIC for one or more priortaxable years or that we will be a PFIC in future years, including 2017. If we were a PFIC during any prior years, U.S. shareholders who acquired or held our ordinary shares during such years willgenerally be subject to the PFIC rules. The tests for determining PFIC status are applied annually and it is difficult to make accurate predictions of our future income, assets, activities and marketcapitalization, which are relevant to this determination. If we were determined to be a PFIC for U.S. federal income tax purposes, highly complex rules would apply to U.S. holders owning ourordinary shares and such U.S. holders could suffer adverse U.S. tax consequences.For more information, please see Item 10. ADDITIONAL INFORMATION – E. Taxation - "U.S. Federal Income Tax Considerations" – "Tax Consequences if We Are a Passive ForeignInvestment Company."The price of our ordinary shares is subject to volatility. Such volatility could limit investors' ability to sell our shares at a profit, could limit our ability to successfully raise funds and mayexpose 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 operatingperformance. The price of our ordinary shares has experienced volatility in the past and may continue to do so in the future, which may make it difficult for investors to predict the value of theirinvestment, to sell shares at a profit at any given time, or to plan purchases and sales in advance. In the two-year period ended December 31, 2016, the price of our ordinary shares has rangedfrom a high of $2.94 per share to a low of $0.88 per share. On December 31, 2015 and 2016, the closing prices of our ordinary shares were $1.21 per share and $2.62 per share, respectively. A varietyof factors may affect the market price of our ordinary shares, including:·announcements of technological innovations by us or by others; ·competitors' positions and other events related to this market; 18·changes in the Company's estimations regarding forward looking statements and/or announcement of actual results that vary significantly from such estimations; ·announcement of corporate transactions or other events impacting our revenues; ·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 a particular emphasis on the technology and Israeli sectors thereof); ·the general state of the credit markets, the volatility of which could have an adverse effect on our investments; and ·global macroeconomic developments. 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 to 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, has been highly volatile and at times thinlytraded. These broad market and industry factors may seriously harm the market price of our ordinary shares, regardless of our operating performance. Investors may not be able to resell theirshares following periods of volatility.Further, as a result of the volatility of our stock price, we could be subject, and are currently subject, to securities litigation, which could result in substantial costs and divertmanagement's attention and Company resources from business. On January 6, 2015 the Company was served with a motion to approve a purported class action, naming the Company, its CEO andits directors as defendants. The motion was filed with the District Court of Tel-Aviv. The purported class action is based on Israeli law and alleges breaches of duties by making false andmisleading statements in the Company's SEC filings and public statements during the period between July and October 2014. The plaintiff seeks specified compensatory damages in a sum of up to$75,000,000, as well as attorneys' fees and costs (see below in Item 8. "FINANCIAL INFORMATION"). Although the Company believes it has a strong defense against these allegations and thatthe 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. Furthermore, there is a risk thatthis litigation will divert the time and energy of the Company's executives and lead to damages and expenditures that may not be covered by insurance. This may adversely affect the Company'sfinancial condition and results of operations.We may need to raise additional funds in the future; to the extent any such funding will be based on sales under shelf registration statements, our existing shareholders willexperience dilution of their shareholdings.On August 15, 2012, we filed a shelf registration statement on Form F-3 with the SEC under which we were able to offer and sell from time to time, in one or more offerings, our ordinaryshares, rights, warrants, debt securities and units comprising any combination of these securities, having an aggregate offering price of up to $150 million (the "2012 Shelf"). Under the 2012Shelf, we raised $37.4 million in November 2013 by selling 14,000,000 of our ordinary shares at a price of $2.40 per share, and raised $41.5 million in July 2014 by selling 21,250,000 ordinary shares ata price of $2.00 per share. Since the effectiveness of the 2012 Shelf expired in September 2015, we are planning to file a new shelf registration statement on Form F-3 with the SEC, immediatelyfollowing the filing of this annual report. While there is no assurance that we will sell any shares, including shares underlying securities convertible into, exchangeable for, or exercisable forshares, under such new shelf registration statement, any such sales in the future will result in dilution to existing shareholders.19Due to the size of their shareholdings, Yehuda and Zohar Zisapel have influence over matters requiring shareholder approval.As of March 28, 2017, Zohar Zisapel, our Chairman of the Board of Directors, beneficially owned, directly or indirectly, 13.9% of our outstanding ordinary shares and Yehuda and NavaZisapel beneficially owned, directly or indirectly, 4.61% of our outstanding ordinary shares. Such percentages include options which are exercisable within 60 days of March 28, 2017. Yehuda andZohar 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 andNava 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 Tel Aviv Stock Exchange ("TASE"). Trading in our ordinary shares on thesemarkets takes 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 UnitedStates 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 couldcause a decrease in the trading price of our ordinary shares on the other market.Being a foreign private issuer exempts us from certain SEC and Nasdaq requirements, which may result in less protection than is afforded to investors under rules applicable to domesticissuers.We are a "foreign private issuer" within the meaning of rules promulgated by the SEC. As such, we are exempt from certain provisions applicable to U.S. public companies, including:·The rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q and immediate reports on Form 8-K;·The sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of securities registered under the Exchange Act;·The provisions of regulation FD aimed at preventing issuers from making selective disclosures of material information; and·The sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profit realized from any"short-swing" trading transaction (a purchase and sale, or sale and purchase, of the issuer's equity securities within less than six months). In addition, we are permitted to follow certain home country corporate governance practices and laws instead of those rules and practices otherwise required by Nasdaq for domesticissuers, including with respect to approval of equity-based incentive plans for our employees and the requirement to have a formal charter for our Compensation Committee. Following our homecountry governance practices as opposed to the requirements thatwould otherwise apply to a U.S. company listed on the Nasdaq may provide less protection to investors than is accorded under the Nasdaq Listing Rules applicable to domestic issuers. For moreinformation regarding specific exemptions we chose to adopt, please see "Item 16G. Corporate Governance."We are subject to regulations related to "conflict minerals," which could adversely impact our business.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 duediligence 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. While 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 productsof ours contain minerals not determined to be conflict free, or if we are unable to verify with sufficient accuracy the origins of all conflict minerals potentially used in our products.20Risks 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 andmilitary 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 conditions in Israel; and ·A full or partial mobilization of the reserve forces of the Israeli army. 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 andJordan, Israel has no peace arrangements with any other neighboring countries. Furthermore, all efforts to improve Israel's relationship with the Palestinian Authority have failed to result in apermanent solution, and there have been numerous periods of hostility in recent years. The uncertainty maintained in the region intensified in 2016 with the continuation of the civil war and state of chaos in Syria, adjacent to Israel's northern border, which followed theviolent uprisings in recent years in other Arab countries in the Middle East and North Africa, such as Egypt and Jordan, which also border Israel. The significant increase of hostile activities ofthe Islamic State in Syria and in the Sinai Peninsula, also contributes to the tension in the region. In addition, relations between Israel and Iran continue to be seriously strained, especially withregard to Iran's nuclear program and also due to the fact that Iran is perceived as having strong influence among extremist organizations in the region, such as Hamas in Gaza, Hezbollah inLebanon, and various rebel military groups in Syria. All of the above, as well as further deterioration of relations with the Palestinian Authority, Hamas or countries in the Middle East, raise a concern as to the stability in the region, whichmay affect the political and security situation in Israel and therefore could adversely affect our business, financial condition and results of operations. Furthermore, certain countries, as well as certain companies and organizations, primarily in the Middle East, continue to participate in a boycott of Israeli firms and others doing businesswith Israel and Israeli companies. The boycott, restrictive laws, policies or practices directed towards Israel or Israeli businesses could, individually or in the aggregate, have a material adverseeffect on our business in the future. 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 reservemilitary service periodically, 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 forlonger periods of time. 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 materiallyadversely 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. 21We have received Israeli government grants for research and development expenditures, which restrict our ability to manufacture products and transfer technologies or know-how outsideof Israel. We have received grants from the Israel Innovation Authority (formerly and more commonly known as the Office of Chief Scientist – "OCS") for the financing of a significant portion ofour 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 neverthelesscontinue 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-howdeveloped 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 bythe 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 ourtechnology 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 toour 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 thatwe are required to pay to the OCS. 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 - TheIsrael Innovation Authority, formerly – the Israeli Office of Chief Scientist." The tax benefits to which we are currently entitled from our approved enterprise program and our beneficiary enterprise program, require us to satisfy specified conditions, which, if we failto meet, would deny us from these benefits in the future. Further, if such tax benefits are reduced or eliminated in the future, we may be required to pay increased taxes. The Company has capital investment programs that have been granted approved enterprise status by the Israeli government ("Approved Programs"), and a program under beneficiaryenterprise status pursuant to Israel's Law for the Encouragement of Capital Investments, 1959 ("Beneficiary Program"). When we begin to generate taxable income from these approved orbeneficiary enterprise programs, the portion of our income derived from these programs will be tax exempt for a period of two years, and will be subject to a reduced tax for an additional eightyears 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 conditionsstipulated 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 whichwe 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 differencebetween 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 anytaxable 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 Programand 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 fullycompensate 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 dependupon 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 regarding "PreferredEnterprise" 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 and directors, or to assert U.S. securities laws claims in Israel. 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 toobtain 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 judgmentobtained in the United States against us or any of our directors and officers may not be collectible within the United States. 22Additionally, 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 allegedviolation 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 if Israeli lawor 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 andcostly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. 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 andresponsibilities 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 actin 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'sauthorized 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 discriminatingagainst 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 orprevent 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 thesubstance 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 beinterpreted 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 (subjectto certain conditions). 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 doesnot 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 deferralcontingent 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 theparticipating 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 noactual disposition of the shares has occurred. See "Item 10.B. - Mergers and Acquisitions under Israeli Law."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 berequired in certain circumstances. For more information regarding such required approvals please see Item 4. "INFORMATION ON THE COMPANY - B. Business Overview - The IsraelInnovation Authority, formerly – the Israeli Office of Chief Scientist."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 or for our shareholders toelect 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 ourordinary shares.23ITEM 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 theIsraeli Companies Law, and our registered office is located at 24 Raoul Wallenberg Street, Tel Aviv, Israel 69719, and the telephone number is +972-3-543-1000. Our web address iswww.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. B. Business OverviewWe are the leading wireless backhaul specialist company in terms of unit shipments and global distribution of our business, providing innovative wireless backhaul solutions to globalwireless 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 toother 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 transferlarge 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 theservice 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 services, including advanced network and radio planning, site survey, solutionsdevelopment, network rollout, maintenance, and training. Our services include powerful project management tools that streamline deployments of complex wireless networks, thereby reducingtime 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 projecttrack record includes hundreds of thousands of links already installed and operational 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 connectivityfor 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-switchingtechnologies. Our solutions support all wireless access technologies, including LTE-Advanced, LTE, HSPA, EV-DO, CDMA, W-CDMA, WiFi and GSM. These solutions allow wireless serviceproviders 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 agrowing 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, energyutilities 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 in2011 (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 temporary consent for lessrestrictive financial covenants. Most of the less restrictive financial covenants were in effect until October 1, 2014, except for one which was in effect until March 31, 2015. After each date, therespective original covenants again apply. On March 31, 2015 we signed an additional amendment with the bank syndicate that primarily included changes in our credit line structure, in some ofour 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. OnMarch 10, 2016 we signed another amendment to the credit facility agreement, which extended the credit facility repayment date until March 31, 2017 under the same terms of the previousamendment. On March 30, 2017 we signed an additional amendment to the credit facility agreement, which extended the credit facility repayment date until March 31, 2018. Following this lastamendment, the credit facility provides for loans and an extension of credit up to an aggregate of $100.2 million. See Item 5. "OPERATING AND FINANCIAL REVIEW AND PROSPECTS; B.Liquidity and Capital Resources," for a more detailed discussion.24In December 2014, we announced a significant restructuring of our operations to reduce our operational costs. As part of the restructuring effort, we realigned operations, reduced headcount and implemented other cost reduction measures in order to lower our break-even point and improve profitability. The restructuring plan included consolidating or relocating certain officesand reduction of staff functions and several operations positions, as well as other measures. In connection with this restructuring announcement, we incurred restructuring charges of $5.8 millionand $1.2 million in the fourth quarter of 2014 and the first quarter of 2015, respectively. Wireless Backhaul; Short-haul, Long-haul and Small Cells BackhaulDeployed 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 thesehigh-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 providefor 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, thistranslates 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 backhaulsolution 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 ofexperience. 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 ismade 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 isreferred 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 hundredfeet to 10 miles. Short-haul links are deployed in access applications (macro cells and small cells) wirelessly connecting the individual base-stations and cellular towers to the corenetwork. Short-haul solutions are also used in a range of non-carrier "vertical" applications such as state and local government, public safety, education and off-shore communicationfor 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 carryservices at distances of 10 to 50 miles, and, using the right planning, configuration and equipment, can also bridge distances of 100 miles. Long-haul solutions are also used in a rangeof non-carrier "vertical" applications such as broadcast, state and local government, public safety, utilities and off-shore communication for oil and gas platforms.25Ceragon has, on more than one occasion, 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 andModulation (ACM) technology (2007); first native Ethernet multi-channel long-haul radio with ACM (2010); unique asymmetric transfer mode and multi-layer compression (2011); and 1024QAMLong-Haul IP radio with 9 step ACM (2012); the industry's first multicore radio solution supporting 2048 QAM and 4x4 MIMO (2012) and the industry's first and only "Advanced FrequencyReuse" technology (2015). This technology, based on the Company's multicore technology allows operators to flexibly deploy the wireless base stations exactly where those are needed, withoutbeing 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. Industry BackgroundThe market demand for wireless backhaul is being generated primarily by cellular operators, wireless broadband service providers, businesses and public institutions that operate privatenetworks. 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/LTEwireless service technology.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 becarried 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-Advanced/Pro, which provides even higher subscriber capacity, cellular operators are seeking strategies for new services, using newtechnologies which will allow further business growth, by facilitating quick and cost efficient enablement of new services for more connected subscribers (either human or machine). Among thoseare 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 beratified before 2018 or to be deployed until at least 2020, 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 forsupporting 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 andswitches) and centralizing the control functions, traditionally performed by these dedicated network devices, within an SDN network controller. This change will leave the network devices tohandle 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 networkimplementation 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 highdegree 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 useof SDN technologies with wireless backhaul optimization applications, which shall exploit network intelligence gathered by SDN controllers within the network.26Cellular OperatorsIn 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 deployingwireless 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. Layingnew 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 toadd 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 byanticipation 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 indensely 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 invarious microwave and millimeter-wave spectral bands. As operators transition to 4G/LTE and LTE-Advanced/Pro, all of which are IP-based wireless access technologies, they look for ways tobenefit from IP technology in the backhaul while maintaining support for their primary legacy services.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 theadvanced 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 ProvidersFor wireless broadband service providers, which offer alternate high data access, high-capacity backhaul is essential for ensuring continuous delivery of rich media service across theirhigh-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 sufficientcapacity, 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, manywireless 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-capacitydata traffic, scalability and lower cost-per-bit compared to wire-line alternatives.Other Vertical MarketsMany 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 anddefense contractors. These customers continue to invest in their private communications networks for numerous reasons, including security concerns, the need to exercise control over networkservice 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 theircommunications infrastructure, including backhaul equipment. Like wireless service providers, customers in this market demand a highly reliable, cost-effective backhaul solution that can beeasily installed and scaled to their bandwidth requirements. Approximately 20% of our business is associated with private network operators.Wireless vs. Fiber BackhaulThough 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 canbecome 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 foreseeablefuture.27Wireless microwave and millimeter-wave backhaul solutions on the other hand are capable of delivering high bandwidth, carrier-grade Ethernet and TDM services. Our wireless backhaulsolutions are suitable for all capacities, carrying multi Gbps of the operators' traffic over a single radio connection (or "link"). Unlike fiber, wireless solutions can be set up quickly and are morecost 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-cutsand 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 variouscountries, at acceptable costs.Licensed vs. License-exempt Wireless BackhaulService providers select the optimal available transmission frequency based on the rainfall intensity in the transmission area and the desired transmission range. The regulated, orlicensed, 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 usethereby eliminating any interference issues. A licensed microwave spectrum is typically the choice of leading operators around the world because it matches the bandwidth and interferenceprotection they require. Our products operate from 4GHz microwave to 86GHz millimeter-wave bands, the principal licensed bands currently available for commercial use throughout the world, aswell as in the E-band spectrum, for use in ultra-high (beyond 1 Gbps capacity) for relatively short-distance links, required for the radio access network backhaul, as well as small cell backhaulwithin 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 tolimited 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 becausethese 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 orprivate, 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-exemptspectrum 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 spectrum is being considered for providing a backhaul solution for small cells situated on street-level fixtures such as lamp poles in urban locations. Thoughprone 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 ofnetwork 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 theSDN network architecture. Our SDN architecture is envisioned to provide a set of applications that can achieve end-to-end wireless backhaul network optimization by intelligentlymaking use of the scarce network resources, such as spectrum and power consumption.28·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/LTEnetworks, 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, Ceragonalready offers tailored solutions for forward looking mobile operators. Our small-cell wireless backhaul portfolio includes a variety of compact all-outdoor solutions that provide operatorswith optimal flexibility in meeting their unique physical, capacity, networking, and regulatory requirements.·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 anever-growing capacity crunch. Network sharing can be particularly effective in the backhaul portion of mobile networks, especially as conventional macro cells evolve into super-sizedmacro 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 witha 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, aswell as the policing for ensuring that each operator's service level agreement is maintained.·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 fitnew 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 enhancedperformance, 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 indeployment. 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-timeduring 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, which require a unique set ofsolutions 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 efficientalternative to fiber, or as a backup for fiber installations; and Smart Grid networks for utilities, as well as local and national governments that seek greater energy efficiency, reliability andscale.·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 4Gmobile value added 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 ofNokia Siemens Networks. ·Subscriber growth continues mainly in emerging markets such as India, Africa and Latin America. Our SolutionsWe offer a broad product portfolio of innovative, field-proven, high capacity wireless backhaul solutions, which incorporate our unique multicore technology. Our multicore technologyis a key element in our differentiation within the wireless backhaul market, serving the best-of-breed market segment. Our multicore technology is comprised of a high order of digital signal carriersimbedded in modems having multiple baseband cores, designed for microwave and millimeter-wave communications, and RF integrated circuits (RFIC), which support the entire availablemicrowave 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 ourapproach 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 companiesand 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 neededotherwise, double network capacity without adding more equipment simply by remotely expanding wireless link capacity, significantly reduce energy related expenses by utilizing ourenergy efficient products, use smaller antennas thereby reducing telecommunication tower leasing costs, and improve their staff productivity with the use of a single wireless backhaulplatform 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, LTE-Advanced/Pro, which significantly contribute to our customers' ability to modernize and expand their service networks.29Our wireless backhaul solutions are offered across the widest range of frequencies - from 4GHz microwaves to 86GHz millimeter-waves. This provides our customer more flexibility indeploying 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 networktopology 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 to deliver services with the flexibility to deploy wireless bases stations and othertypes 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 theinterference between wireless backhaul links, thereby allowing more flexibility for deploying wireless backhaul wherever needed.·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 integratedcircuits), and use the latest advances in SMT (Surface-mount technologies)-based manufacturing – allowing our customers to benefit from the highest service availability across theirCeragon-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 arenot 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 onlythe low labor-consuming indoor (sheltered) units - thus benefiting from the latest wireless backhaul performance of our latest technology across their Ceragon-installed base. Moreover, oursolutions support multiple technologies within the same wireless backhaul equipment, providing our customers with high flexibility in network transition from legacy circuit-based connectivityto 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, seekingwireless 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 drivingcost 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 ofunits 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, weachieve 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 radiocomponents. 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 automatedtesting 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-systemcost 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 todeploy their networks, while meeting operational efficiency targets.30As 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 radiounit, and not a full system. This achievement could not have been possible without our full control of the entire design and production process.Strategic Partnerships. Ceragon maintains strategic partnerships with third party solution vendors and network integrators. Through these relationships Ceragon develops interoperableecosystems, enabling operators to profitably evolve mobile networks by using complementary backhaul alternatives.Our ProductsOur portfolio of products utilizes microwave and millimeter-wave radio technologies that provide our customers with a wireless connectivity that dynamically adapts to weatherconditions 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, anindoor 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 productsinclude 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:Ø Indoor units which are used to convert the transmission signals from digital to intermediate frequency signals and vice versa, process and manage information transmittedto and from the outdoor unit, aggregate multiple transmission signals and provide a physical interface to wire-line networks.Ø Outdoor units or Radio Frequency Units (RFU), which are used to control power transmission, convert intermediate frequency signals to radio frequency signals and viceversa, and provide an interface between antennas and indoor units. They are contained in compact weather-proof enclosures fastened to antennas. Indoor units areconnected 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 connectiontransports 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 ortwo 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 networklevel 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 extendacross 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 rainpatterns 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 areavailable in both split-mount, including an indoor and outdoor unit, all-indoor and all-outdoor installations.31The IP-20 Platform provides a wide range of solutions for any configuration requirement and diverse networking scenarios. Composed of high-density multi-technology nodes andintegrated 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 providinghigh performance terminals for all-indoor, split-mount and all-outdoor configurations. Short-HaulLong-Haul ProductFibeAir IP-20G& IP-20GXFibeAir IP-20N /IP-20A*FibeAir IP-20CFibeAir IP-20SFibeAir IP-20EFibeAir IP-20CHPFibeAir IP-20LHEvolution IP-20LHPointLinkDescriptionMulti-RadioTechnologyEdge Node Multi-RadioTechnologyAggregation NodeCompact All-Outdoor Multi-CoreNode Compact All-Outdoor Node Compact All-Outdoor Node forE-band (70-80GHz)Compact, highpower, multi-carrier trunkUltra-high powermulti-carrier trunkwith HP-radioODUsUltra-highpower multi-carrier trunkwith EvolutionODUsHigh capacityoffshorecommunicationInterfaces1GE, FE, andE1/T110GE, 1GE, FE,E1/T11GE1GE1GE10GE, 1GE, STM-1/OC-3, E1/T1Note: support forsome interfacesrequires use of IP-20N/IP-20A IDU 10GE, 1GE, FE,STM-1/OC-3,E1/T110GE, 1GE, , FE,STM-1/OC-3,E1/T1 SiteConfigurationSplit-mountAll-outdoor All-outdoor / SplitMount (with IP-20N or IP-20AIDU)All-indoor /Split-mountSplit mountTransportTechnologyHybrid and/or all-packetAll-packetAll-packet and/orHybridHybrid and/or all-packet TypicalApplicationsCellularoperators,Wirelessserviceproviders,Incumbent localexchangecarriers, PrivateNetworks(Public Safety,FirstResponders,state/local gov.institutions andUtilityCompanies)Cellular operators,Wireless serviceproviders,Incumbent localexchange carriers,Private Networks(Public Safety,First Responders,state/local gov.institutions andUtility Companies)Cellularoperators,Wireless ISPs,Private Networks(Public Safety, FirstResponders,state/local gov.institutions andUtility Companies)Cellularoperators,Wireless ISPs,Private Networks(Public Safety,FirstResponders,state/local gov.institutions andUtilityCompanies)Cellularoperators,Wireless ISPs,Private Networks(Public Safety,First Responders,state/local gov.institutions andUtilityCompanies)Cellular operators,Wireless ISPs,Private Networks(Public Safety,First Responders,state/local gov.institutions andUtility Companies)Cellular operators,Wireless serviceproviders,Incumbent localexchangecarriers, PrivateNetworks (PublicSafety, FirstResponders,state/local gov.institutions andUtility Companies)Cellularoperators,Wirelessserviceproviders,Incumbentlocal exchangecarriers PrivateNetworks(Public Safety,FirstResponders,state/local gov.institutions andUtilityCompanies)Offshore oil/gasrigs in highvibrationenvironmentType ofCustomersCellularoperators,Wireless ISPs,Private Networkproviders,GovernmentinstitutionsCellular operators,Wireless ISPs,Private Networkproviders,GovernmentinstitutionsCellular operators,Wireless ISPs,Private Networkproviders,Governmentinstitutions Cellularoperators,Wireless ISPs,Private Networkproviders,GovernmentinstitutionsCellular operators,Wireless ISPs,Private Networkproviders,GovernmentinstitutionsCellular operators,Wireless serviceproviders, Incumbent localexchange carriers,Private NetworkprovidersCellular operators,Wireless serviceproviders,Incumbent localexchange carriers,Private NetworkprovidersCellularoperators,Wirelessserviceproviders,Incumbentlocal exchangecarriers, PrivateNetworkprovidersOil and gasdrillingcompanies,shipping industryOperatingsystemUnified operating system (CeraOS), uniformly supporting End-to-End networking, services and radio capabilities across the entire IP-20 platform series ofproducts * ANSI version32Our network management system (NMS) can be used to monitor network element status, provide statistical and inventory reports, download software and configuration to elements inthe 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 productsthrough a single user interface.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 TDMtraffic 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 existingcircuit-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 andefficient 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 longdistances 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 needbe it cellular, backbone, rural or private backhaul networks.Our ServicesSince 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 wellas 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 acomprehensive set of turn-key services including: advanced network and radio planning, site survey, solutions development, installation, maintenance, training and more. Our services includeutilization 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 allowingfaster 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 alreadyinstalled 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 withcustomers, system integrators and others to coordinate network design and ensure successful deployment of our solutions.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 ourproducts 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 controlcenters.Our CustomersWe 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 arewireless service providers that use our products to expand backhaul network capacity, reduce backhaul costs and support the provision of advanced telecommunications services. In 2016, wecontinued to maintain our position 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 doreach 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 communicationsnetworks through system integrators, resellers and distributors. Our customer base is diverse in terms of both size and geographic location.33 Year Ended December 31, 2014 2015 2016 Region North America 11% 13% 14%Europe 16% 14% 15%Africa 15% 10% 7%India 25% 30% 27%APAC (excluding India) 11% 9% 10%Latin America 22% 24% 27%In 2016, customers from the Europe region contributed 15% of total yearly revenue. Our sales in Latin America and Africa were 27% and 7% of yearly revenue in 2016, respectively. Oursales in Asia Pacific (excluding India), North America and India in 2016 were 10%, 14% and 27%, 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, 2014, 2015 and 2016:Sales and MarketingWe sell our products through a variety of channels, including direct sales, OEMs, resellers, distributors and system integrators. Our sales and marketing staff, including supportingfunctions, includes approximately 513 employees in many 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 6% of our revenues in 2016. System integrators, distributors and resellers accounted for approximately19% of our revenues for 2016. We are focusing our efforts on direct sales, which accounted for approximately 75% of our revenues for 2016. We also plan to develop additional strategicrelationships with equipment vendors, system integrators, distributors, resellers, networking companies and other industry suppliers with the goal of gaining greater access to our target markets.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 packagingand shipping. With the goal of streamlining all manufacturing and assembly processes, we have implemented an outsourced, just-in-time manufacturing strategy that relies on contractmanufacturers 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 advancedsupply 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 signeda contract with a certain contract manufacturer to outsource our production facility in Slovakia and the production transfer to that manufacturer in Ukraine was carried out during 2015. Most ofour warehouse operations are outsourced to subcontractors in Israel, the Netherlands, USA and Singapore. The raw materials for our products come primarily from the United States, Europe andAsia Pacific.34We comply with standards promulgated by the International Organization for Standardization and have received certification under the ISO 9001, ISO 14001, ISO 27001 and OHSAS 18001standards. These standards define the procedures required for the manufacture of products with predictable and stable performance and quality, as well as environmental guidelines for ouroperations 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 DevelopmentWe place considerable emphasis on research and development to improve and expand the capabilities of our existing products, to develop new products, with particular emphasis onequipment 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 personneland 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 defineappropriate product specifications. In addition, we intend to continue to comply with industry standards and we are full members of the European Telecommunications Standards Institute in orderto participate in the formulation of European standards.Our research and development activities are conducted mainly at our facilities in Tel Aviv, Israel, but also at our subsidiaries in Greece and Romania. As part of the restructuring activitiesin 2013, we closed our research and development activities in Bergen, Norway. As of December 31, 2016, our research, development and engineering staff consisted of 204 employees. Ourresearch 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 bothapplication 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-basednetworking 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 ofimproving their manufacturability and testability while reducing costs.Intellectual PropertyTo safeguard our proprietary technology, we rely on a combination of patent, copyright, trademark and trade secret laws, confidentiality agreements and other contractual arrangementswith 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 executeemployment agreements which contain confidentiality provisions.To date, we have 16 patents granted in the United States and other foreign jurisdictions including the EPO (European Patent Office) and 4 patent applications pending in the UnitedStates and other foreign jurisdictions including the EPO.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; ·for the standard character mark Ceragon Networks in Canada; 35·for the standard character mark CERAGON in Russia, Morocco, Israel, Mexico, Malaysia, United States, South Africa, the Philippines, Argentina, Venezuela and Colombia andInternational Registration (protection granted in Australia, Iceland, Bosnia & Herzegovina, Switzerland, Croatia, Norway, Russia, South Korea, Ukraine, CTM (European Union),Turkey, Singapore, Egypt, Kenya and Macedonia); ·for our design mark for FibeAir in the United States, Israel and the European Union; ·for the standard character mark FibeAir in the United States; ·for the standard character mark CeraView in Israel and the European Union. We have pending trademark applications as follows:·for the standard character mark CERAGON in Japan, Brazil, Indonesia, India, Nigeria, and International Registration (protection pending in China and Vietnam).CompetitionThe market for wireless equipment is rapidly evolving, fragmented, highly competitive and subject to rapid technological change. We expect competition, which may differ from region toregion, 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-speedaccess 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 largewireless equipment manufacturers referred to as generalists, such as Huawei Technologies Co., Ltd., L.M. Ericsson Telephone Company, NEC Corporation, Nokia and ZTE Corporation. In additionto 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 developproducts 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 bea 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.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 ofthe wireless backhaul market. Examples of such previous consolidations are our acquisition of Nera in 2011, the acquisition by Dragonwave of the wireless division of Nokia (formerly NSN), andthe 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 jointventure 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:·our focus on the mobile market and active involvement in shaping next generation standards and technologies, which deliver best customer value; ·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; 36·product performance, reliability and functionality, which assist our customers to achieve the highest value; ·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, aswell 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; ·cost structure; ·focus on high-capacity, point-to-point microwave technology, which allows us to quickly adapt to our customers' evolving needs; ·range of rollout services offering for faster deployment of an entire network and reduced total cost of ownership; and ·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 Israel Innovation Authority (formerly – the Israeli Office of Chief Scientist).The Government of Israel encourages research and development projects in Israel through the Israel Innovation Authority, formerly and more commonly known as the Israeli Office ofChief Scientist (the "OCS"), pursuant to and subject to the provisions of the R&D Law. We received grants from the OCS for several projects, and may receive additional grants in the future. Under the terms of the certain grants, a company may be required to pay royalties ranging between 3% to 5% of the revenues generated from its products or services incorporating knowhow developed with funds received from the OCS, until grant is repaid (along with interest). The R&D Law requires that a product developed under a grant program be manufactured in Israel, in accordance with such manufacturing volume as was detailed in the original grantapplication. 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, andentails repayment of increased royalties equal to up to 300% of the total grant amount, plus applicable interest, depending on the extent of the manufacturing that is to be conducted outside ofIsrael, and an increase of 1% in the royalty rate.The R&D Law also provides that know-how (and its derivatives) 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, providedthat 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 ofknow-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 amountof the OCS grants, plus applicable interest (in case of transfer outside of Israel), and three (3) times of such total amount (in case sufficient 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. The grant recipient, its controlling shareholders, and foreigninterested parties must notify the OCS of any change in control of the grant recipient or the holdings of the "means of control" of the recipient that result in a non-Israeli becoming an interestedparty directly in the recipient. The R&D Law also requires the new interested party to undertake to comply with the R&D Law. For this purpose, "control" means the ability to direct the activitiesof 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 shareholderholds 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 companyincludes 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 leastone 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% ormore 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 anundertaking 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.37The R&D Law has been amended effective as of January 1, 2016. Under the amendment, the new Israel Innovation Authority has been established and is in charge of implementing thegovernmental 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 existingprovisions 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 orreceived prior to such date.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 2013and 2014 we received approval for new R&D grants from the Government of Israel through the OCS in amounts of approximately $0.7 million and $0.9 million respectively. In 2015 and 2016 wereceived approval for additional R&D grants in a total amount for the two years, of approximately $1.2 million, part of which have already been received (together the "Generic Plan"). The GenericPlan 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 productsbased 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 knowhow developed withthe Generic Plan, to the extent such is sold and/or transferred. In addition, we may manufacture part of the products developed under the program outside of Israel, up to the percentages declaredin our applications for such grants.In addition to the grants described above, in March 2014, we agreed to participate in two "Magnet" Consortium Programs (the "Magnet Programs") sponsored by the OCS, which grantsdo not bear any royalty obligations. In the framework of the Magnet Programs, intended to support innovative generic industry-oriented technologies, we are to cooperate with additionalcompanies and research institutes. With respect to each of the years 2015 and 2016 we received an approval from the OCS for a sum of $2.5 million in the aggregate under the Magnet Programs,most of which was already received. In 2017 we expect to receive additional sum of approximately $0.8 million, subject to our compliance with the terms of the Magnet Programs. The R&D Lawapplies to the Magnet Programs, including the restrictions on transfer of know how or manufacturing outside of Israel, as described above.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%Ceragon Networks S.A. de CV Mexico 100% 38 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 andapproximately 7500 square feet of warehouse space, in Tel Aviv, Israel. The leases of this space will expire December 31, 2017. We also lease the following space at the following properties: ·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 squarefeet of office space in Richardson, Texas expiring May 2018. ·in Norway we lease approximately 12,000 square feet of office space in Bergen, expiring in May 2019; ·in India, we lease approximately 11,737 square feet of office space in New Delhi expiring in October 2019. ·In Mexico we lease approximately 4,306 square feet of office space in Mexico City, Mexico, expiring in March 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 with our consolidated financial statements, the notes to those financial statements, and other financial data thatappear elsewhere in this annual report. In addition to historical information, the following discussion contains forward-looking statements based on current expectations that involverisks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors, includingthose set forth in "Risk Factors" and elsewhere in this annual report. Our consolidated financial statements are prepared in conformity with U.S. GAAP.A. Operating ResultsOverviewWe 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 cellularoperators 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 and millimeter wave technology to transfer large amounts of telecommunication traffic between base stations andsmall-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 privatenetworks, in nearly 130 countries.39In 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 banksyndicate'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 wasamended 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 March10, 2016 we signed an additional amendment to the credit facility agreement, which extended the credit facility repayment date until March 31, 2017 under the same terms of the previousamendment. On March 30, 2017 we signed another amendment to the credit facility agreement, which extended the credit facility repayment date until March 31, 2018. Following this lastamendment, the credit facility stands at a total sum of $100.2 million. 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 headcount 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, theywere 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 operationspositions, 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 2014restructuring 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 issuanceexpenses 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 ofrepresentations 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 TrendsMarket 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 sametime 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 moreaffordable wireless service, particularly in developing countries and emerging markets, and is being addressed by expanding wireless networks and by building new networks.·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 in particular markets (North America, Asia Pacific) present wireless backhaul challenges that differ from those of traditional macro-cells. Small cellsarchitectures can be used to provide a second layer of coverage in 4G networks, resulting in higher throughput and data rates for the end-user. While adoption by some service providersin North America and Asia Pacific, other service providers around the globe and which have previously considered the deployment of 4G small cells have come to the conclusion that thebenefit of additional coverage and capacity versus the required investment, does not provide significant value and hence have deferred the consideration of small cells radio accessnetwork to a time in which 5G radio access networks shall be considered.40·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-basedcore 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 ofnetwork 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-growingcapacity 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 thatrequire 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 inaggressive 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 31,2014, 2015 and 2016, 24.8%, 30.3% and 27.3%, respectively, of our revenues were earned in India. Sales of our products in these markets are generally at lower gross margins incomparison to other regions. Recently, network operators have started to share parts of their network infrastructure through cooperation agreements, which may adversely affectdemand for network equipment.·Transaction Size. Competition for larger equipment orders is increasingly intensifying due to the fact that the number of large equipment orders in any year is limited. Consequently, wegenerally 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. Asan 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 the prime contractor and equipment supplier for network build-out projects, providing installation, supervision and commissioning services required for these projects, or we mayprovide 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 anacceptance 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 thesystem 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 andother 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.After a significant decrease in our revenues in 2013 compared to 2012, there were no material differences in 2014 and 2015, however, in 2016, our revenues experienced an additionaldecrease. 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, seekingrevised pricing, payment and other terms in certain new orders and our business focus on service providers that seek to resolve their wireless backhaul challenges through solutions, which createhigher business value and are willing to pay a premium in order to create this value.41Results of OperationsRevenues. 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 aresold, 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 asinventory 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 withrespect to our products.Significant ExpensesResearch 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 developmentis 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 intangibleassets, 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 andhuman 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 oftransactions and balances denominated in non-dollar currencies into dollars, gains and losses from our currency hedging activity, amortization of marketable securities premium, net, and otherfees 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 deferred assets and liabilities, as well as reserves for uncertain tax positions.Critical Accounting Policies and EstimatesOur consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require management to make certain estimates, judgments andassumptions 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. Theseestimates, 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 andexpenses during the periods presented.42Our management believes the accounting policies that affect its more significant judgments and estimates used in the preparation of its consolidated financial statements and which arethe most critical to aid in fully understanding and evaluating our reported financial results include the following:·Revenue recognition; ·Inventory valuation; and ·Provision for doubtful accounts.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"), whendelivery 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 relatedrevenues 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, weallocate 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 accountingfor 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 thefunctionality 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 delivereditem 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 arerecognized 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 amountcontingent 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.When sale arrangements include a customer acceptance provision, revenue is recognized when we demonstrate that the criteria specified in the acceptance provision has been satisfiedor 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 transactionsdid not meet the revenue recognition criteria.43Inventory 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, weevaluate 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 maybe required and would be reflected in cost of revenues in the period the revision is made.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 ourability 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, weanalyze 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 ourcustomers. 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, additionalallowances might be required. Historically, our provision for doubtful accounts has been sufficient to account for our bad debts.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 assessingthe 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 basedon 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, propertyand 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 thatwould 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 atwo-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, anindication 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 carryingamount 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 ofthe 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 assumptionscould 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 NeraAcquisition.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 incircumstances 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 overallbusiness, 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 animpairment in 2014.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 carryingamount 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, werecognized 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 and 2016 no impairment wasrecognized.44Impact of recently issued Accounting Standards:In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-17 Income Taxes (Topic 740): Balance SheetClassification of Deferred Taxes ("ASU 2015-17"). ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separate classification of deferred income tax liabilities andassets into current and noncurrent amounts in the consolidated balance sheet statement of financial position. The amendments in the update require that all deferred tax liabilities and assets beclassified as noncurrent in the consolidated balance sheet. The amendments in this update are effective for annual periods beginning after December 15, 2016 and interim periods therein and maybe applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. The Company has adopted early this standard in the fourth quarter of 2016 on aretrospective basis. Prior periods have been retrospectively adjusted. As a result of the adoption of ASU 2015-17, the Company made the following adjustments to the December 31, 2015 balancesheet: a $1.6 million decrease to current deferred tax assets and a corresponding increase to noncurrent deferred tax asset.In February 2016, FASB issued ASU 2016-02-Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for lessees andlessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively afinanced purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease,respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of their classification. Leases with a termof twelve months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantiallyequivalent to existing guidance for sales-type leases, direct financing leases and operating leases. This ASU supersedes the previous leases standard, FASB Accounting Standards CodificationTopic 840. The standard is effective on January 1, 2019, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidatedfinancial statements.In March 2016, the FASB issued ASU 2016-05,"Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships ("ASU 2016-05"), which clarifies that a change in the counter party to a derivative instrument designated as a hedging instrument does not require de-designation of that hedging relationship, provided thatall other hedge accounting criteria are met. The new guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within this fiscal year. The Company iscurrently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.In March 2016, FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), whichaffects all entities that issue share-based payment awards to their employees. The amendments in this ASU cover such areas as the recognition of excess tax benefits and deficiencies, theclassification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualifyfor equity classification and the classification of those taxes paid on the statement of cash flows. ASU 2016-09 is effective for annual and interim periods beginning after December 15, 2016. Thisguidance can be applied either prospectively, retrospectively or using a modified retrospective transition method. Early adoption is permitted. The Company does not expect that this newguidance will have a material impact on the Company's consolidated financial statements.In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU2016-13"). ASU 2016-13amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU2016-13 also applies to employee benefit plan accounting, with an effective date of the first quarter of fiscal 2022. The amendments in this update are effective for fiscal years beginning afterDecember 31, 2019, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements,footnote disclosures and employee benefit plans' accounting.45In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). ASU 2016-15 eliminatesthe diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement ofcontingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financialasset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments amongoperating, investing and financing activities. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of theamendments, in which case those amendments would be prospectively as of the earliest date practicable. The standard is effective on January 1, 2019. The Company is currently assessing theimpact of the adoption of this standard on its consolidated financial statements and footnote disclosures.In October 2016, FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory ("ASU-2016-16"), which requires entities to recognize the income taxconsequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The standard is effective for fiscal years beginning after December 15, 2017, including interimperiods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year. The new standard should be adopted on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently in the process of evaluating the impact of this new pronouncement on itsconsolidated financial statements and related disclosures.In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU-2016-18"). This standard requires the presentation of the statement of cashflows to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. The standard is effective for fiscal years and the interim periods within thosefiscal years beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the timing of adoption and the effects of the adoption of this ASU on theconsolidated financial statements.In May 2014, the FASB issued a new standard related to revenue recognition. Under the new standard, revenue is recognized when a customer obtains control of promised goods orservices and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure ofthe nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issued several amendments to the standard, includingclarification on identifying performance obligations.The guidance permits two methods of modification: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect ofinitially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company currently anticipates adopting the standard using themodified retrospective method rather than full retrospective method. However, the Company is continuing to evaluate the impact of the standard, and the adoption method is subject to change.The new standard will be effective for the Company beginning January 1, 2018, and adoption as of the original effective date of January 1, 2017 is permitted. The Company will adopt thenew standard as of January 1, 2018.The Company has made progress toward completing its evaluation of the potential changes from adopting this new standard on its financial reporting and disclosures. The Company hasevaluated the impact of the standard on majority of its revenue streams and associated contracts. The Company formed an implementation work group and expects to complete the evaluation ofthe impact of the accounting and disclosure changes on its business processes, controls and systems throughout 2017, design any changes to such business processes, controls and systems,and implement the changes before the end of 2017.Currently, the Company is analyzing the impact that the adoption of the standard will have on specific performance obligations and variable consideration transactions. In additionincremental costs that are related to sales from contracts signed during the period would require capitalization. The company also will consider if there is a significant financing component if thetime between payment and delivery is more than one year.46The Company continues to assess all potential impacts under the new revenue standard. Comparison of Period to Period Results of OperationsThe following table presents consolidated statement of operations data for the periods indicated as a percentage of total revenues. Year Ended December 31 2014 2015 2016 Revenues 100% 100% 100%Cost of revenues 77.2 70.5 66.2 Gross profit 22.8 29.5 33.8 Operating expenses: Research and development, net 9.4 6.6 7.4 Selling and marketing 15.1 11.7 13.5 General and administrative 6.4 6.1 6.9 Restructuring costs 1.8 0.4 - Goodwill impairment 4.0 - - Other income (5.3) (1.5) (0.7)Total operating expenses 31.4 23.3 27.1 Operating income (loss) (8.6) 6.2 6.7 Financial expenses, net 10.2 4.2 2.1 Taxes on income 1.8 1.7 0.6 Net income (loss) (20.6) 0.3 4.0 Year ended December 31, 2015 compared to year ended December 31, 2016 Revenues. Revenues totaled $293.6 million in 2016 as compared with $349.4 million in 2015, a decrease of $55.8 million, or 16.0%. Revenues in India decreased to $80.2 million in 2016 from$106.0 million in 2015 mainly due to a completion of a significant rollout phase in the network of one of our customers. Revenues in the Africa region decreased to $19.9 million in 2016, from $35.0million in 2015 primarily due to a slowdown in microwave solutions procurement of a customer group in this region. The global decline in commodity and oil prices have led to a decline ineconomic growth in the African continent, reducing demand for telecommunications infrastructure. Revenues in the APAC region decreased to $29.7 million in 2016 from $31.9 million in 2015.Revenues in Europe decreased to $43.5 million in 2016 from $48.6 million in 2015. Revenues in North America decreased to $40.2 million in 2016 from $45.9 million in 2015. Revenues in LatinAmerica decreased to $80.1 million in 2016 from $82.3 million in 2015.Cost of Revenues. Cost of revenues totaled $194.5 million in 2016 as compared with $246.5 million in 2015, a decrease of $52.0 million, or 21%, attributed mainly to:·lower direct material and services costs primarily resulting from lower volume of revenues; ·lower other direct and supply chain costs primarily resulting from lower volume of revenues; and ·the Company's continued product-cost improvement. 47Gross Profit. Gross profit as a percentage of revenues increased to 33.8% in 2016 from 29.5% in 2015. This increase is mainly attributed to product cost improvement as well as pursuing amore selective deal approach. Research and Development Expenses, Net. Our net research and development expenses totaled $21.7 million in 2016 as compared with $22.9 million in 2015, a decrease of $1.2 million, or5.4% primarily as a result of decrease of $0.8 million in depreciation expenses, an increase of $0.8 million in OCS (Office of the Chief Scientist) grants, a decrease of $0.6 million in stock basedcompensation expenses, partially offset by an increase of $1.0 million in salary and salary related expenses. Our research and development efforts are a key element of our strategy and are essential to our success. We intend to maintain or slightly increase our commitment to research anddevelopment, 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. Asa percentage of revenues, research and development expenses increased to 7.4% in 2016 compared to 6.6% in 2015. Selling and Marketing Expenses. Selling and marketing expenses totaled $39.5 million in 2016 as compared with $40.8 million 2015, a decrease of $1.3 million, or 3.2%, resulting mainlyfrom a decrease of $0.9 million in office expenses, a decrease of $0.6 million in depreciation expenses, a decrease of $0.3 million in travel expenses, partially offset by an increase of $0.5 million insalary and salary related expenses. As a percentage of revenues, selling and marketing expenses were increased to 13.5% in 2016 from 11.7% in 2015.General and Administrative Expenses. General and administrative expenses totaled $20.4 million in 2016 as compared with $21.2 million in 2015, a decrease of $0.8 million, or 4.0%. Thisdecrease is attributable primarily to a decrease of $1.5 million in doubtful debt expenses, a decrease of $0.4 million in IT expenses and a decrease of $0.4 million in depreciation expenses, partiallyoffset by an increase in of $1.3 million in salary and salary related expenses and an increase of $0.2 million in stock based compensation expenses. As a percentage of revenues, general andadministrative expenses increased to 6.9% in 2016 from 6.1% in 2015.Restructuring costs. There were no restructuring costs in 2016 as compared with $1.2 million in 2015. Restructuring costs in 2015 were related to completion of the 2014 restructuring plan.Other income. Other income for 2015 and 2016 included $4.8 million and $1.9 million, respectively, related to the expiration of certain pre-acquisition indirect tax exposures in connectionwith the Nera Acquisition.Financial expenses, Net. Financial expenses, net totaled $6.3 million in 2016 as compared with $14.7 million in 2015, a decrease of $8.4 million. This decrease is primarily attributable to adecrease in financial expenses incurred from the re-measurement of assets denominated in or linked to the U.S. dollar in the amount of $6.3 million, mainly related to the change of $3.9 million inthe devaluation of assets and liabilities in local currency in Venezuela from $3.0 million in 2015, to appreciation of $0.9 million in 2016, related to currency fluctuations in Venezuela and Venezuelangovernment limitations on payments for imported goods on foreign currency, in addition to a $1.9 million decrease in bank charges and interest on loans, mainly related to the significantrepayment of loans during the year. As a percentage of revenues, financial expenses, net decreased to 2.1% in 2016 compared to 4.2% in 2015.Taxes on income. Taxes on income, totaled $1.8 million in 2016 as compared with $5.8 million in 2015, a decrease of $4.0 million, mainly attributed to the decrease in our deferred taxexpenses of $1.6 million, due to a significant deferred tax assets utilization in 2015, and decrease in FIN 48 reserves of $2.8 million, related to a relative change in our tax exposures, partially offsetby an increase of $0.3 million in our current taxes on income, primarily due to our sales and distribution subsidiaries, where the local activities were more profitable.Net profit. In 2016 the company had $11.4 million in net profit as compared with net profit of $1.0 million in 2015. As a percentage of revenues, net profit increased to 4% in 2016 from aloss of 0.3% in 2015. The increase in net profit was mainly attributable to the decrease in our operating expenses and to the decrease in our financial and tax expenses.48Year 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 several customers, the majority driven by a single customer, offset by a decrease in revenue from our 2014primary 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 inmicrowave 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 ofdeployment cycles several 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 inNorth 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. 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%, mainly attributed to:·Lower direct material costs primarily resulting from lower volume of revenues; ·The Company's continued product-cost improvement; and ·Lower employee 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 product cost improvement as well as pursuing amore 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, or34.5%, 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 insubcontractors 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. As a percentage ofrevenues, 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 mainlyfrom 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 expensesprimarily 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 from15.1% 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%. Thisdecrease is primarily attributable 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 subcontractorexpenses, $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 basedcompensation 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 from6.1% 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 the2013 and 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 incomefor 2014 included $16.8 million related to a settlement agreement with Eltek ASA related to the Nera Acquisition and $3.0 million related to the expiration of certain pre-acquisition indirect taxexposures in connection with the Nera Acquisition.49Financial 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 adecrease 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 percentageof revenues, financial expenses, net decreased to 4.2% in 2015 compared to 10.2% in 2014.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 expensesof $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 toexpiration 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, wherethe local activities are profitable.Net profit (loss). In 2015 the Company had a $1.0 million net profit as compared with a net loss of $76.5 million in 2014. As a percentage of revenues, net profit increased to 0.3% in 2015from loss of 20.6 % in 2014. The increase in net profit was mainly attributable to the improvement in our gross profit and the decrease in our operating expenses, which were mainly attributable tothe 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.Impact of Currency FluctuationsThe majority of our revenues are denominated in U.S. dollars, and to a lesser extent, in Euro, INR (Indian Rupee) and other currencies. Our cost of revenues are primarily denominated inU.S. dollars as well, while a major part of our operating expenses are in New Israeli Shekel (NIS), and to a lesser extent, in Indian INR (Indian Rupee), Euro, NOK (Norwegian Kroner), BRL (BrazilianReal) and other currencies. We anticipate that a material portion of our operating expenses will continue to be in NIS.Fluctuation in the exchange rates between any of these currencies (other than U.S. dollars) and the U.S. dollar could significantly impact our results of operations as well as thecomparability of these results in different periods. Even in cases where our revenues or our expenses in a certain currency are relatively modest, high volatility of the exchange rates with the U.S.dollar can still have a significant impact on our results of operations. For example, in recent years we have suffered a significant adverse impact on our financial results due to fluctuation in theexchange rates of the U.S. dollar compared to the NGN (Nigerian Naira), the ARS (Argentine Peso) and the VEB (Venezuelan bolivar. We partially reduce this currency exposure by entering intohedging 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 Item11."QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK."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 andlosses arising from re-measurement are recorded as financial income or expense, as applicable.Effects of Government Regulations and Location on the Company's BusinessFor 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 inIsrael" in Item 4 and the "Risks Relating to Israel" as well as the Risk Factor "Our international operations expose us to the risk of fluctuation in currency exchange rates and restrictionsrelated to cash repatriation" in Item 3, above.B. Liquidity and Capital ResourcesSince our initial public offering in August 2000, we have financed our operations primarily through the proceeds of that initial public offering, follow-on offerings and royalty-bearinggrants from the OCS. In the initial public offering, we raised $97.8 million. 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. Through December 31, 2006, we received a total of $21.0 million in grants from the OCS.50In March 2013, the Company entered into a revolving credit facility with four financial institutions (the "Lenders"), under which a sum of up to $ 40.2 million was available in the form ofbank guarantees and $73.5 million in the form of loans. The agreement replaced all of the Company's previous credit facilities. Each Lender operated its own portion of the credit facility.The credit facility is secured by a floating charge over all Company assets as well as several customary fixed charges on specific assets, and was subject to certain financial covenants. The Lenders are able to accelerate repayments in certain events of default including insolvency, failure to comply with financial covenants or a change of control (as defined under theIsrael Securities Law) of the Company. During 2014 and 2015 the Company amended its credit facility arrangements. The loan facility was reduced gradually to $50 million and adjustments were made to several financialcovenants, interest rates and fees in light of the Company's performance during that period of time. In addition the Company was allowed to discount a letter of credit from one of its customers upto $54 million which was in addition to an existing $20 million receivables factoring limit. In March 2016 the agreement with the Lenders was extended until March 2017 and in December 2016 the Company signed another amendment to its agreement with the Lenders toincrease the allowed discounting activities of letter of credit to $94 million.In March 2017 the Company signed an additional amendment to its agreement with the Lenders to extend the credit facility repayment date to March 31, 2018. Under this amendment, oneof the four banks had to terminate its participation in the agreement because of regulatory constraints and its share in the credit facility was re-distributed by the other three on a pro-rata basis. Inaddition, the credit facility for bank guarantees was increased to $50.2 million. Other change adjusted the fees and interest spread to the same levels of the original agreement from March 2013,reflecting the Company's return to profitability.In the past few years we have initiated several restructuring plans - during the fourth quarter of 2012 we initiated a restructuring plan to improve our operating efficiency and during thefourth 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 newrestructuring 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 asum of $1.2 million, related to the 2014 restructuring plan. All three restructuring plans referred to above contributed significantly to the reduction in our operating expenses for the years ended2014, 2015 and 2016. In the year ended December 31, 2016 our capital expenditures were $8.2 million, primarily for the development of our new IP-20 product family and its production lines.As of December 31, 2016, our debt from financial institutions amounted to $17.0 million.As of December 31, 2016, we had approximately $36.3 million in cash and cash equivalents, out of which $0.4 million is located in Venezuela. It may be difficult to transfer foreign currencyoutside of Venezuela due to foreign currency restrictions.As of December 31, 2016, our cash investments were comprised entirely of short-term, highly liquid investments with original maturities of up to three months. Most of these investmentsare in U.S. dollars.In 2016, our $25.8 million in cash provided by operating activities was affected by the following principal factors:·our net income of $11.4 million;51·a $15.7 million decrease in trade and other receivables, net;·$10.0 million of depreciation and amortization expenses; and·a $4.7 million decrease in inventories. These factors were offset by:·a $11.4 million decrease in trade payables and accrued expenses, net; and·a $6.2 million decrease in deferred revenues paid in advance.In 2015, our $16.1 million in cash provided by operating activities was affected by the following principal factors:·our net income of 1.0 million;·a $40.2 million decrease in trade and other receivables, net;·$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 in 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;·$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.Net cash used in investing activities was approximately $8.2 million for the year ended December 31, 2016, as compared to net cash used in investing activities of approximately $4.7million for the year ended December 31, 2015, and net cash used in investing activities of approximately $7.5 million for the year ended December 31, 2014. In the year ended December 31, 2016, ourpurchase of property and equipment of $8.2 million and our investment in marketable securities of $0.2 million, were partially offset by proceeds from maturities of short-term bank deposits of $0.2million. 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.52Net cash used in financing activities was approximately $17.8 million for the year ended December 31, 2016 as, compared to approximately $15.8 million net cash used in financingactivities for the year ended December 31, 2015 and net cash provided by financing activities of $38.8 million for the year ended December 31, 2014. In the year ended December 31, 2016, our netcash used in financing activities was primarily due to our repayment of a bank loan of $17.9 million. In the year ended December 31, 2015, our net cash used in financing activities was primarilydue to our 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.For more details concerning the Company's commitments, please see below ITEM 5. "OPERATING AND FINANCIAL REVIEW AND PROSPECTS - F. Tabular Disclosure of ContractualObligations." 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 toresearch and development, marketing and sales activities. We plan on continuing to raise capital as we may require, subject to changes in our business activities.We believe that current cash and cash equivalent balances together with the credit facility available with the Lenders will be sufficient for our requirements through at least the next 12months.C. Research and DevelopmentWe place considerable emphasis on research and development to improve and expand the capabilities of our existing products, to develop new products (with particular emphasis onequipment 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 andfinancial 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 defineappropriate 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 membersof 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, 2016, ourresearch, development and engineering staff consisted of 204 employees. Our research and development team includes highly specialized engineers and technicians with expertise in the fields ofmillimeter-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 ASICsand 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 newtechnologies to support future product concepts. In addition, our engineers continually work to redesign our products with the goal of improving their manufacturability and testability whilereducing costs.Our research and development expenses were approximately $21.7 million or 7.4% of revenues in 2016, $22.9 million or 6.6% of revenues in 2015, and $35.0 million or 9.4% of revenues in2014.53Intellectual PropertyFor a description of our intellectual property see Item 4. "INFORMATION ON THE COMPANY – B. Business Overview - Intellectual Property."D. Trend InformationFor 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 ArrangementsWe 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 materialcontingent 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 8,326 4, 612 3,557 157 Purchase obligations2 23,126 23,126 Other long-term commitment3 4,622 4,622 Uncertain income tax positions4 3,939 3,939 Total 40,013 27,738 3,557 157 8,561 (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, 2016 was approximately $6.8 million, of which approximately $4.6 million was funded throughdeposits 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 accrualsin 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 Note13g of our Consolidated Financial Statements for further information regarding the Company's liability under ASC 740-10. Effect of Recent Accounting PronouncementsSee 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 accountingpronouncements, including the expected dates of adoption and estimated effects on financial condition and results of operations, which is incorporated herein by reference. 54ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA. Directors and Senior ManagementThe following table lists the name, age and position of each of our current directors and executive officers: NameAgePositionZohar Zisapel 68Chairman of the Board of DirectorsIra Palti 59President and Chief Executive OfficerDoron Arazi 53Deputy Chief Executive Officer & Chief Financial OfficerNurit Kruk-Zilca 43Executive Vice President, Human ResourcesYuval Reina 50Executive Vice President, Global ProductsOz Zimerman 53Executive Vice President, Global Corporate DevelopmentFlavio Perrucchetti 49Regional President, EuropeRam Prakash Tripathi 50Regional President, IndiaAmit Ancikovsky 46Regional President, Latin America & AfricaCharles Meyo 53Regional President, North AmericaShlomo Liran 66DirectorYael Langer 52DirectorYair E. Orgler 77DirectorAvi Patir68Director 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 chairmanor 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 theTel 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 Siemenscompany 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 forsales, marketing, customer support and product development. Among the positions he held before joining VocalTec was founder of Rosh Intelligent Systems, a company providing softwaremaintenance 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. During 2016 Mr. Arazi was appointed as Deputy CEO while continuing to carry the role ofChief Financial Officer. Mr. Arazi joined Ceragon as CFO after a long, successful career with Amdocs where he managed the business relationship with a U.S. Tier 1 mobile operator and wasresponsible for hundreds of employees. Prior to Amdocs, Mr. Arazi looked after the financial and growth activities of other high-tech companies in the telecommunications sector, includingserving 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 Financeand Insurance, both from the Tel Aviv University. 55Nurit 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 ourhuman 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 and Services since joining Ceragon in 2015. He is responsible for the conception, creation and delivery ofleading-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 ofexperience 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 theBen-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 globalexecutive 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 hiswork 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 University (summacum laude) and a Master's degree in Business Administration & Industrial Engineering from Columbia University. Flavio Perrucchetti has served as our Regional President, Europe since 2015. Mr. Perrucchetti joined Ceragon in August 2011 from SIAE Microelettronica, where he was the Head ofSales & 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 theHead 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 wasresponsible 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 Universitàdegli Studi di Milano. Ram Prakash Tripathi has served as our Regional President, India since 2002. Prior to joining Ceragon, Mr. Tripathi held senior managerial positions at several companies includingStratex 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. BabasahebAmbedkar 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 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 andHead 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 HebrewUniversity 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 AmericasSales 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 andAT&T. Mr. Meyo holds a B.A. and B.Sc. from the Ohio State University in Columbus, Ohio.56Shlomo Liran joined Ceragon's Board of Directors in August 2015, after gaining experience in senior management positions, including in the telecommunication industry. In October 2016Mr. Liran was appointed as the CEO of Spuntech Industries Ltd. 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., and from 2004 to 2007he served as Chief Executive Officer of TRE (Scandinavian cellular network) in Sweden and in Denmark. From 2000 to 2003, he served 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 IndustrialEngineering 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. Liranis 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 andSecretary 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 PoalimCapital 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 AvivUniversity (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 InternationalOptions 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 yearsinclude: 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'sfirst 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 beforethat 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 Professorof 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. inindustrial 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 theNasdaq Rules and one of our external directors for purposes of the Companies Law. Avi 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 SeniorVice 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 GroupCOO 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 wasPresident and CEO of American Israel Paper Mills Ltd., a manufacturer and marketer of paper and paper products. From 1996 to 2003, he was the President and CEO of Barak InternationalTelecommunication Corporation Ltd., a leading provider of international telecommunications services in Israel, and from 1992 to 1996, he was Executive Vice President Engineering and Operationsat 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 andelectronic 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 managementprogram 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. 57Arrangements 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, thereare no family relationships among any of the individuals listed in this Section A (Directors and Senior Management). B. Compensationa)Aggregate Executive Compensation During 2016, 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 executiveofficers who served as such during the year 2016 and have terminated their service with us, consisted of approximately $3.5 million in salary, fees, bonuses, commissions and directors' fees andapproximately $0.4 million in amounts set aside or accrued to provide pension, retirement or similar benefits, but excluding amounts 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 inIsrael. During 2016, we granted to our directors and executive officers, in the aggregate, options to purchase 676,668 ordinary shares under our Amended and Restated Share Option and RSUPlan. No restricted share units (RSUs) were granted during 2016. The exercise price of the options ranges from $1.14 to $2.41 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 individualperformance. A non-material portion of the performance objectives of our executive officers are qualitative. The measurable performance objectives can change year over year, and are acombination of financial parameters, such as revenues, booking, gross profit, regional operating profit, operating income, net income and collection. The plan of our executive officers is reviewedand approved by our Compensation Committee and Board of Directors annually (and with respect to our CEO, also by our shareholders), as are any bonus payments to our executive officers madeunder such plan. Our three independent directors are compensated in accordance with regulations promulgated under the Companies Law concerning the remuneration of external directors (the"Remuneration Regulations"). Our independent directors are also reimbursed for expenses and are awarded share options, as further described below. We 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 theRemuneration Regulations, based on the classification of the Company according to the size of its capital; currently – the sum of NIS 52,059 (approximately $13,588) as annual fee and the sum ofNIS 1,839 (approximately $480) as an in-person participation fee, NIS 1,104 (approximately $288) for conference call participation and NIS 920 (approximately $240) for participating in a writtenresolution. These cash amounts are subject to an annual adjustment for changes in the Israeli consumer price index and to an annual adjustment in accordance with the classification of theCompany according to the size of its capital. For more information, please see "Remuneration of Directors" and "The Share Option Plan" below and Note 14 to our consolidated financialstatements included as Item 18 in this annual report. As consideration for their contributions and efforts as independent directors of the Company, in August 2015 our shareholders approved annual equity grants to 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, on the date of the original appointment, or re-appointment, as applicable for each such director, with an additional one third, which were granted upon the firstanniversary thereof, and the remaining options which shall be granted upon the second anniversary thereof; i.e., for Mr. Liran, 16, 667 options were granted on August 11, 2015, 16,667 additionaloptions were granted on August 11, 2016 and the remaining 16,666 options shall be granted on August 11, 2017, provided that he is still a director of the Company at the time of such last grant. Foreach of Mr. Patir and Mr. Orgler, 16,667 options were granted on March 25, 2016 (the commencement date of their fourth term of service - see below under C. Board Practices - "External Directors"),16,667 additional options have been 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 atthe time of such respective grant. 58As remuneration for their contribution and efforts as directors of the Company, in August 2015 our shareholders approved annual equity grants to Mr. Zohar Zisapel and Ms. YaelLanger, 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, an additional one third of which were granted upon the first anniversary thereof, with the remaining options to be granted on the second anniversary thereof (i.e., 50,000 options areto be granted on August 11 2017), provided he is still a director of the Company at the time such last grant. The Compensation Committee and Board of Directors believed it would be appropriateto 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 considering, among others, theconsiderable amount of time required from him 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, an additional one third of which were granted on the first anniversary thereof, and the remaining options to be granted on the second anniversary thereof (i.e., 16,667 options to begranted on August 11, 2017), provided she is still a director of the Company at the time of such last grant. All options granted each year, as detailed above, vest on their date of grant. The exercise price of such options equals to the average closing price of the Company's Shares on theNasdaq 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'sAmended 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 toZohar Zisapel, Chairman of the Board of Directors, which are granted under Section 3(i) 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); with respect to the yearended December 31, 2016. 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 theCompany, 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 OfficeHolder's, payments, contributions and/or allocations for pension, severance, car or car allowance, medical insurance and risk insurance (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, 2016, paid in accordance with the Covered OfficeHolder's performance of targets as set forth in his bonus plan, as well as a proportionate amount of a retention bonus that is related to the reported year, and approved by the Company'sCompensation Committee and Board of Directors. ·Equity Costs represent the expense recorded in our financial statements for the year ended December 31, 2016, with respect to equity-based compensation granted in 2016 and inprevious years. For assumptions and key variables used in the calculation of such amounts see note 14c of our audited consolidated financial statements. (1)Ira Palti – CEO. Salary Costs - $334,138; Bonus Costs - $266,194; Equity Costs - $287,002. (2)Amit Ancikovsky – Regional President Latin America & Africa. Salary Costs - $293,931; Bonus Costs - $223,092; Equity Costs - $15,435. (3)Doron Arazi – Deputy CEO & CFO. Salary Cost - $ 257,679; Bonus Cost - $ 231,375; Equity Cost - $68,909. (4)Charles (Chuck) Meyo – Regional President North America. Salary Costs - $ 317,461; Bonus Costs - $173,855; Equity Costs -$ 28,658. (5)Flavio Perrucchetti – Regional President Europe. Salary Cost - $219,591; Bonus Cost - $80,322; Equity Cost - $21,109. 59C. Board Practices Corporate Governance PracticesWe are incorporated in Israel and therefore are generally subject to various corporate governance practices under the Companies Law, relating to matters such as external directors, auditcommittee (hereinafter referred to as "Corporate Audit Committee"), internal auditor and approvals of interested parties transactions. These matters are in addition to the ongoing listingconditions of the Nasdaq and other relevant provisions of U.S. securities laws. Under applicable Nasdaq Rules, a foreign private issuer (such as the Company) may generally follow its homecountry 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 itsmembers. See Item 3. "KEY INFORMATION – Risk Factors – Risks Related to Our Ordinary Shares - As a foreign private issuer we are permitted to follow certain home country corporategovernance 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." Forinformation regarding home country rules followed by us see Item 16G. "CORPORATE GOVERNANCE."General Board PracticesOur Board of Directors presently consists of five members, the minimum number authorized by our Articles of Association. The Board of Directors retains all the powers in managing ourCompany that are not specifically granted to the shareholders. For example, for whatever purposes it deems fit, the board may decide to borrow money or may set aside reserves out of our profits.The Board of Directors 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 isdefined 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 removedby the board members. Minutes of the board meetings are recorded and kept at our offices.The Board of Directors 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 itdeems 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 toany of its committees. Our Board of Directors has appointed a Corporate Audit Committee under the Companies Law, a Financial Audit Committee, a Compensation Audit Committee (each ofwhich has three members), and a Nomination Committee (which has two members).Our Articles of Association provide that any director may appoint as an alternate director, by written notice to us, any individual who is qualified to serve as director and who is not thenserving as a director or alternate director for any other director. An alternate director has all of the rights and obligations of a director, excluding the right to appoint an alternate for himself.Currently no alternate directors serve on our board. Terms and Skills of DirectorsOur 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 thegeneral 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 generalmeeting 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.60According 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 acompany, 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. Apublic 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 adeclaration 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 aforementionedskills 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/heroffice must inform the company immediately and his/her office shall terminate upon such notice.Independent DirectorsUnder the Nasdaq Rules, the majority of our directors are 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 the company or its affiliates; or (ii) an immediate family member of an executive officer (at any time during the past threeyears) of the company or its affiliates. Messrs. Yair Orgler, Avi Patir and Shlomo Liran currently serve as our independent directors.External DirectorsUnder 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 ofdirectors' authorities, is required to include at least one external director, and the corporate audit and compensation committees must include all of the external directors. A recent amendment toregulations promulgated under the Companies Law allows us, as a company whose shares are traded on Nasdaq, and does not have a controlling shareholder (within the meaning of theCompanies Law) to exempt ourselves from the requirement to have external directors on our Board of Directors and from related obligations concerning such external directors imposed by theCompanies Law, provided that we continue to comply with applicable U.S. securities laws and Nasdaq listing rules. Implementation of such exemption will probably require shareholder approvaland is not currently planned.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 entityunder 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 onthe 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 thatdoes 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 timeof appointment or thereafter, is the chairman, the CEO, 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 term "Office Holder" as defined in the Companies Law includes a director, the CEO, an executive vice president, a vice president, any other personfulfilling or assuming any of the foregoing positions without regard to such person's title, and any manager who is directly subordinated to the CEO. 61"Control" is defined in the Securities Law as the ability to direct the actions of a company, excluding power that is solely derived from a position as a director of the company or any otherposition with the company; a person who holds 50% or more of the "controlling power" in the company (i.e., voting rights or the right to appoint a director or a general manager) is automaticallyconsidered 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 interest with the person's responsibilities as anexternal 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 shareholdermay 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 personalinterest 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 ofloyalty 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 andhis/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 re-electedby 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 theexpertise 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 theCompany.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 re-election of the nominee;2.the board of directors proposed the re-election of the nominee and the election was approved by the shareholders by the majority required to appoint external directors for theirinitial term; or3.the external director who is up for renewal has proposed himself or herself for re-election.With respect to mechanisms 1 and 3 above: (i) the re-election must be approved by a majority of the votes cast by the shareholders of the Company, excluding the votes of (a) controllingshareholders; and (b) shareholders who have a personal interest in approving such nomination resulting from their relations with the controlling shareholders; (ii) the re-election must includevotes cast in favor of the re-election by such non-excluded shareholders constituting more than two percent of the voting rights in the Company; and (iii) the external director cannot be a relatedor competing shareholder or a relative of such a related or competing shareholder at the time of the appointment, and cannot have any affiliation with a related or competing shareholder, at thetime of the appointment or within the two years preceding the appointment. A 'related or competing shareholder' exists where: (a) a shareholder proposing the re-appointment or a shareholderholding 5% or more of the outstanding shares or voting rights of the company; and (b) at the time of the re-appointment, such shareholder, a controlling shareholder thereof or a companycontrolled by such shareholder or by a controlling shareholder thereof, either has business relationships with the Company or is a competitor of the Company.62Financial and Accounting Expertise. Pursuant to the Companies Law and regulations promulgated thereunder, (1) each external director must have either "accounting and financialexpertise" 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 adirector 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'sfinancial 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 followingcriteria: (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 arearelevant 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 twoof 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, directlyor 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 December 2012, atthe respective annual meeting of shareholders, Messrs. Orgler and Patir were re-appointed for second and third terms as external directors. In the annual general meeting held on August 11, 2016,the shareholders approved the extension of terms of service of Messrs. Orgler and Patir for an additional period of three years each. These terms commenced on March 25, 2016, followingapprovals by our Corporate Audit Committee and Board that re-appointment was beneficial to the Company considering the expertise and special contribution of Messrs. Orgler and Patir to thework 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 DirectorsDirectors' remuneration should be consistent with our compensation policy for office holders (see below) and generally requires the approval of the Compensation Committee, the Boardof 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 our compensationpolicy, 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 aredisregarded), 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 personalinterest in the matter who were present and voted against the matter hold two percent or less of the voting power of the Company. According to the Remuneration Regulations, external directors are generally entitled to an annual fee, a participation fee for board or committee meetings and reimbursement of travelexpenses 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 setforth in the Remuneration Regulations, and are based on the classification of the Company according to the size of its capital. Remuneration of an external director in an amount which is less thanthe fixed annual fee or the fixed participation fee requires the approval of the Compensation Committee, the Board of Directors and the shareholders (in that order). A candidate for externaldirectors must be informed about the terms of remuneration prior to his/her appointment and, subject to certain exceptions, these terms cannot be amended throughout the three-year periodduring 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. 63Additionally, 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 inthe regulations applicable to companies whose shares are traded outside of Israel. Further, according to the Relief Regulations, shareholders' approval for directors' compensation andemployment arrangements is not required if (i) both the compensation committee and the board of directors resolve that such terms are not more beneficial than the former terms, or are essentiallythe same in their effect, and are in line with the company's compensation policy; and (ii) such terms are brought for shareholder approval at the next general meeting of shareholders. Neither we nor any of our subsidiaries has entered into a service contract with any of our current directors that provides 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 a) Aggregate Executive Compensation." Committees of the Board of DirectorsFinancial Audit CommitteeIn 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 atleast three directors, each of whom (i) is independent; (ii) does not receive any compensation from the Company (other than directors' fees); (iii) is not an affiliated person of the Company or anyof 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) is financially literate and one of whomhas been determined by the board to be the Corporate Audit Committee financial expert. Currently, Messrs. Yair Orgler, Avi Patir and Shlomo Liran serve on our Financial Audit Committee, each ofwhom 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 theappointment of the Company's independent auditor to the Board of Directors, determining its compensation and overseeing the work performed by it;(ii) pre-approving all services of theindependent auditor; (iii) overseeing our accounting and financial reporting processes and the audits of our financial statements; and (iv) handling complaints relating to accounting, internalcontrols and auditing matters.Corporate Audit CommitteeUnder 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 and allthe 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 anyrelative 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) anydirector whose main income is provided by a controlling shareholder ("Non-Permitted Members"). The chairman of such audit committee must be an external director. Our Corporate AuditCommittee follows such composition requirements, although as a company whose shares are traded on Nasdaq, and does not have a controlling shareholder (within the meaning of theCompanies Law), we are allowed to exempt ourselves from such requirements and only follow the composition requirements under the Nasdaq Listing Rules (see above). Messrs. Yair Orgler andAvi Patir serve as our two external directors. Both of them, as well as Mr. Shlomo Liran, meet the independence criteria defined in the Companies Law. Mr. Orgler is the chairman of our CorporateAudit Committee.64The duties and responsibilities of our Corporate Audit Committee include: (i) identifying of irregularities and deficiencies in the management of our business, in consultation with theinternal auditor and our independent auditor, and suggesting appropriate courses of action to amend such irregularities; (ii) reviewing and approving certain transactions and actions of theCompany, 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 involveconflicts of interest are material or not and whether transactions that involve interested parties are extraordinary or not, and to approve such transactions; (iii) recommending the appointment ofthe internal auditor and its compensation to the Board of Directors; (iv) examining the performance of our internal auditor and whether it is provided with the required resources and toolsnecessary for him to fulfill its role, considering, inter alia, the Company's size and special needs; (v) setting procedures for handling complaints made by the Company's employees in connectionwith management deficiencies and the protection to be provided to such employees; and (vi) performing such other duties that are or will be designated solely to the audit committee inaccordance with the Companies Law and the Company's Articles of Association.Non-Permitted Members shall not attend Corporate Audit Committee meetings or take part in its decisions, unless the chairman of the Corporate Audit Committee has determined thatsuch 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 discussion of the committee,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 voteof the committee, 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 theindependence criteria set forth in the Companies Law, and at least one of them is an external director.Compensation CommitteeGeneral. According to the Companies Law, the board of directors of any Israeli company whose shares are publicly traded, must appoint a compensation committee, comprised of at leastthree directors, including all of the external directors. The majority of the compensation committee must be comprised of external directors and an external director who must serve as the chairmanof 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 committeepursuant to Companies Law requirements (Corporate Audit Committee), as described above (the "Compensation Committee Qualifications"). Our Compensation Committee is comprised of ourtwo 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 anyextensions thereto; (ii) periodically reviewing the implementation of the compensation policy and providing the Board of Directors with recommendations with respect to any amendments orupdates 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 toexempt under certain circumstances a transaction with a candidate for CEO, who is not affiliated with the Company or its controlling shareholders, from shareholder approval, and provided thatthe terms approved are consistent with the compensation policy. 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 togrant 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 thatthe grant of equity compensation to our office holders is also approved by our board. 65The 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 is the majority of the Compensation Committee members, provided that the majority of the members present are independent directors and atleast 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 independentdirectors 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. Wefollow 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 anyrequired approval by the shareholders of such compensation. (see also under Item 16G. "CORPORATE GOVERNANCE").Under recent amendments to the Companies Law and regulations promulgated there under: (a) an Israeli public company whose shares are traded on Nasdaq, and does not have acontrolling shareholder (within the meaning of the Companies Law), is permitted to exempt itself from the above-mentioned composition requirements set forth under the Companies Law, and tofollow only the composition requirements under the Nasdaq Listing Rules. As of the date of this report, we have not elected to apply such exemption; and (b) an Israeli public company may electto have its audit committee carry out all the duties and responsibilities conferred by the Companies Law upon the compensation committee, provided that such audit committee meets theCompensation Committee Qualifications. Although our Audit Committee meets the Compensation Committee Qualifications, as of the date of this report, we have not elected to adopt suchchange, and did not combine these two committees.Nomination CommitteeThe 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, which recommends director nominees for our board's approval.Approval of Office Holders Terms of Employment The terms of office and employment of office holders (other than directors and the CEO) require the approval of the Compensation Committee and then of the board of directors, providedsuch 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 isalso required. However, in special circumstances the compensation committee and then the board of directors may nonetheless approve such terms of office and employment even if they were notapproved by the shareholders, following a further discussion and for detailed reasoning. The terms of office and employment of the CEO, 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 controllingshareholders 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 presentand 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 CEO, even if suchcompensation was not approved by the shareholders, following a further discussion and for detailed reasoning. In addition, under certain circumstances, a company may be exempt from receivingshareholder approval with respect to the terms of office and employment of a candidate for the position of CEO.66Amendment 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 Committeedetermines 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 CompensationCommittee, 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 beobtained by the special majority detailed above with respect to the CEO.However, and as referred to above with respect to remuneration of directors, according to the Relief Regulations, a company's Compensation Committee and Board of Directors arepermitted to approve terms of office and employment of a CEO or of a director, without convening a general meeting of shareholders, provided however, that such terms: (i) are not more beneficialthan the former terms, or are essentially the same in their effect; (ii) are in line with the Compensation Policy; and (iii) are brought for shareholder approval at the next general meeting ofshareholders.Compensation PolicyAs required by the Companies Law, our shareholders, following the approval of the Board of Directors and the recommendations of the Compensation Committee, approved and adopteda compensation policy, which was last revised in August 2015. The compensation policy sets forth the Company's policy regarding the terms of office and employment of office holders, includingcompensation, equity awards, severance and other benefits, exemption from liability and indemnification, and which takes into account, among other things, providing proper incentives todirectors and officers, management of risk by the Company, the officer's contribution to achieving corporate objectives and increasing profits, and the function of the officer or director. Thepolicy 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 othermatters, 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 ofbusiness performance in the long term, all, without encouraging excessive risk taking.The Companies Law originally required that all variable compensation of office holders be based on measurable criteria, except for a non-material portion thereof. Accordingly, ourCompensation Policy allows for a non-substantial portion of up to 20% of the bonus objectives for each year to be based on non-measurable criteria, and if and to the extent permissible pursuantto the Companies Law - our Compensation Committee and Board of Directors (and with respect to our CEO and directors with the approval of our shareholders as well) - may increase the portionof targets that are based on non-measurable criteria above the rate of 20%, up to the maximum portion permissible pursuant to the Companies Law, but not to more than 50%. An amendment tothe Companies Law from 2016 allows 100% of the variable compensation of office holders, who are not directors or the CEO, to be based on non-measurable criteria. The amendment furtherclarified that variable compensation of the CEO and directors that does not exceed three monthly base salaries, is considered to be non-material for the purpose thereof. Accordingly, ourCompensation Committee and Board of Directors now have the authority to increase the portion of the targets of our office holders (who are not directors and CEO) that are based on non-measurable criteria - to 50%.Approval of Certain Transactions with Related PartiesThe 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 theapproval of the shareholders, in order to effect specified actions and extraordinary transactions such as the following:·transactions with office holders and third parties, where an office holder has a personal interest in the transaction;·employment terms of office holders; and·extraordinary transactions with controlling parties, and extraordinary transactions with a third party where a controlling party has a personal interest in the transaction, or anytransaction with the controlling shareholder or his relative regarding terms of service provided directly or indirectly (including through a company controlled by the controllingshareholder) 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.67Further, such extraordinary transactions with controlling shareholders require the approval of the corporate audit committee or the compensation committee, the board of directors andthe 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, not taking into account any abstentions, 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 thecompany.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 shehas 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 onceevery 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 thecircumstances 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.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 whicheither: (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 ina stock exchange or not under market terms, and which will result in: (a) an increase of the holdings of a shareholder that holds 5% or more of the company's outstanding share capital or votingrights; or (b) 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 acontrolling 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 directthe 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 toapproval 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 thecompany, 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 oneholder 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 ofan 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."68Duties of Office Holders and ShareholdersDuties of Office HoldersFiduciary 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 officeholder 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 conflictof interest between the office holder's position in the company and his personal affairs, avoiding any competition with the company, avoiding the exploitation of any business opportunity of thecompany 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 hasreceived 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) theoffice 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 thecompany a reasonable time before the company's approval.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 andall 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 officeholder 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 ofany 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) hasthe 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 marketterms; 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 thearticles 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 ofoffice 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 officeand 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 apersonal 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 compensationcommittee), 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 ShareholdersUnder 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 orapproval of interested party transactions which require shareholders' approval. In addition, any controlling shareholder, or any shareholder who knows that it possesses power to determine the outcome of a shareholder vote and any shareholder who, pursuant tothe 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 thecompany. 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 ofthe duty of fairness, taking into account such shareholder's position.69Exemption, Insurance and Indemnification of Directors and OfficersPursuant to the Companies Law and the Securities Law, the Israeli Securities Authority ("ISA") is authorized to impose administrative sanctions, including monetary fines, againstcompanies 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 theCompanies 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 areincluded 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. 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 hisor 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. OurArticles of Association allow us to exempt our office holders to the fullest extent permitted by law.Office Holders' InsuranceOur 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 officeholders 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:·a breach of his or her duty of care to us or to another person;·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 ourinterests;·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, inrespect 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 orpayment required to be made to an injured party, pursuant to certain provisions of the Securities Law.Office Holder's IndemnificationOur 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 obligationor 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:·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 authoritywhich 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 thefiling 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 criminalintent 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" shallhave the meaning ascribed to such phrases in section 260(a)(1a) of the Companies Law);70·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 holderby 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 wasconvicted of an offense that does not require proof of criminal intent;·expenses, including reasonable litigation expenses and legal fees, incurred by an office holder in relation to an administrative proceeding instituted against such office holder, orpayment 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 eventswhich 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 theBoard 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 IndemnificationThe 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 monetaryliability incurred as a result of any of the following:·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 ingood 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 CompensationCommittee and our Board of Directors and, with respect to an office holder who is CEO 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 frameworkfor 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 insurancepolicy does not and may not have a substantial effect on the Company's profitability, assets or obligations. Indemnification letters, covering indemnification and insurance of those liabilities imposed under the Companies Law and the Securities Law discussed above, were granted to each ofour present office holders and were approved for any future office holders. Hence, we indemnify our office holders to the fullest extent permitted under the Companies Law. 71We 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. 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 havebeen 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 marketin 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 specificallydesignated as breaches of law under the Securities Law. Furthermore, the Securities Law requires that the CEO of a company supervise and take all reasonable measures to prevent the companyor any of its employees from breaching the Israeli Securities Law. The CEO is presumed to have fulfilled such supervisory duty if the company adopts internal enforcement procedures designedto 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 administrativeprocedure 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 administrativeprocedure, 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 ofindemnification permit, among others, insurance and/or indemnification as contemplated under the Securities Law (see "Exculpation, Insurance and Indemnification of Directors andOfficers" above).Internal AuditorUnder 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 theBoard 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 theforegoing, 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'sconduct 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 acorporate 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 theCompanies Law, as detailed above.D. Employees As of December 31, 2016, we had 903 employees worldwide, of whom 204 were employed in research, development and engineering, 513 in sales and marketing including supportingfunctions, 81 in management and administration and 105 in operations. Of these employees, 329 were based in Israel, 49 were based in the United States, 216 were based in EMEA (not includingIsrael), 196 were based in Latin America and 113 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 andcollective 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 ouremployees with benefits and working conditions above the legally required minimums.72Israeli 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 orsimilar 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 alsoinclude 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 thecourse 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. In certain locations such as Brazil and Norway we are a party tocollective bargaining agreements.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 28, 2017. Thepercentage of outstanding ordinary shares is based on 77,837,607 ordinary shares outstanding as of March 28, 2017. Name Number ofOrdinaryShares(1) Percentage ofOutstandingOrdinary Shares Number of StockOptions Held (2) Range of exerciseprices per share ofstock options Number of RSUsHeld (2) Zohar Zisapel(3) 10,838,341 13.9 300,000 $1.08 - $11.75 - Ira Palti 1,003,253 1.3 1,470,000 $1.16 - $13.04 20,622 All directors and senior management as a group consisting of 14 people(4) 13,121,430 16.3 3,716,336 $1.08-$13.04 22,622 (1)Consists of ordinary shares and options to purchase ordinary shares which are vested or shall become vested within 60 days as of March 28, 2017. (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, 300,000, 1,003,253 and 2,583,089options, are vested or shall become vested within 60 days of March 28, 2017 for Mr. Zisapel, Mr. Palti and all directors and senior management as a group, respectively. No RSU's listed arevested or expected to vest within 60 days as of March 28, 2017, 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 theboard. (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 28, 2017 (includingoptions held by each such person and which are vested or shall become vested within 60 days as of March 28, 2017) and have therefore not been separately disclosed. 73Stock 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 toshare 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 worldwideemployees, 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 expirebetween 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 another 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 eventthat 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 theprice 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 RSUs pursuant to such plan (the "Amended and Restated Share Option and RSUPlan", 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 asrequired by applicable law. The following tables present information regarding option and RSU grants under the Plan as of December 31, 2016. Cumulative Ordinary SharesReserved for Option Grants Remaining Reserved Shares Availablefor Option Grants OptionsOutstanding Weighted AverageExercise Price 20,051,126 779,327 7,490,173 $3.86 Cumulative Ordinary SharesReserved for RSU Grants Remaining Reserved SharesAvailable for RSU Grants RSUsOutstanding Weighted AverageExercise Price 1,544,562 --- 47,535 $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 theCompany as of December 31, 2016: Options and RSUsOutstanding Unvested Optionsand RSUs Directors and senior management 3,857,687 1,449,190 All other grantees 3,680,021 2,066,877 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 optionholder 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 providegrantees, in their notice of grant, with a "Double Trigger" acceleration mechanism upon the occurrence of certain events. 74 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Major Shareholders The following table sets forth stock ownership information as of March 28, 2017 (unless otherwise noted below) with respect to each person who is known by us to be the beneficialowner 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 theordinary 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 othershareholders. 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 issuedunder 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 thepercentage 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 ordinaryshares owned by such entity. Name Number of OrdinaryShares(2) Percentage ofOutstanding OrdinaryShares(1) Zohar Zisapel (3) 10,838,341 13.9%Joseph D. Samberg (4) 4,600,000 5.9%(1)Based on 77,768,929 ordinary shares issued and outstanding as of March 28, 2017.(2)Consists of ordinary shares and options to purchase ordinary shares, which are vested or shall become vested within 60 days as of March 28, 2017.(3)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., ofwhich Mr. Zisapel is a principal shareholders and the chairman of the board.(4)Joseph D. Samberg's address is 1091 Boston Post Road, Rye, NY 10580.As of March 28, 2017, approximately 96.9% of our ordinary shares were held in the United States and there were 30 record holders with addresses in the United States. These numbers arenot 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 wereheld of record by brokers or other nominees (including one U.S. nominee company, CEDE & Co., which held approximately 96.8% of our outstanding ordinary shares as of said date). Related Party Transactions 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 March 28, 2017. Yehuda Zisapel,the brother of Zohar Zisapel, is also a shareholder, who together with Nava Zisapel beneficially owns 4.61% of our ordinary shares as of March 28, 2017. Zohar and Yehuda Zisapel do not vote asa group and do not have a voting agreement. Zohar Zisapel is the Chairman of the board of, and holds shares in, RADWIN Ltd., RADIFLOW Ltd., ARGUS Cyber Security Ltd. and Innoviz Ltd. He also serves as a director in thefollowing companies, in a few of which he holds shares: RADCOM Ltd., Amdocs Ltd., RADHEAR Ltd., RAD Data Communications Ltd., RAD-Bynet Properties and Assets (1981) Ltd.,Packetlight Networks Ltd., CyberInt Technologies Ltd., TopSpin Security Ltd., Armis Security Ltd., Satixfy Ltd., Nucleix Ltd. and several other private holdings, real estate and medical devices companies. The above list does not constitute a complete list of Zohar Zisapel's holdings. 75Yehuda Zisapel holds shares and serves as a director in a few of the above-mentioned companies, as well as in additional companies, including: RADWARE Ltd., Bynet DataCommunications Ltd., Bynet Electronics Ltd., Bynet Semech (Outsourcing) Ltd., Bynet Systems Applications Ltd., Ab-Net Communications Ltd., BYNET Software Systems Ltd., Internet BinatLtd., SecurityDam Ltd., Binat Business Ltd and several other private holdings, real estate and medical devices companies. The above list does not constitute a complete list of Yehuda Zisapel'sholdings.Some of the companies referred to above are known as the "RAD-BYNET Group". Members of RAD-BYNET sometimes share expenses with us on an as-needed basis for informationsystems infrastructure, administrative services, medical insurance, as well as in connection with logistics services, such as transportation and cafeteria facilities, by arm's length transactions. Inaddition, the Company purchases certain equipment, other services, software and licenses from members of the RAD-BYNET. The aggregate amount of such purchases and shared expenses wasapproximately $2.7 million in 2016. We, as well as other companies of the RAD-BYNET Group, market through the same distribution channels. In addition, the Company markets and sells some products of other membersof the RAD-BYNET Group, which are complementary to our products, while some members of the RAD-BYNET Group market and sell part of our products, which are complimentary to theirproducts. Certain products of members of the RAD-BYNET Group may be used in place of (and thus may be deemed to be competitive with) our products. Ms. Langer, one of our directors, acts as general counsel for several RAD-BYNET Group companies and serves as a director in RADWARE Ltd. 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 relatedparty. In addition, all of our related-party transactions with members of RAD-BYNET are approved by our Audit Committee and then our Board of Directors. As a result, we believe that the termsof the transactions in which we have engaged and are currently engaged with other members of the RAD-BYNET are beneficial to us and no less favorable to us than terms, which might beavailable to us from unaffiliated third parties. Any future transaction and arrangement with entities in which our office holders have a personal interest will require approval by our AuditCommittee, 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 byYehuda and Zohar Zisapel. The leased facility, located in Tel Aviv, Israel is approximately 65,000 square feet of office space and approximately 7500 square feet of warehouse space. The leases forthis facility will expire in December 2017. The aggregate amount of rent and maintenance expenses related to these properties was approximately $1.9 million in 2016. Supply Arrangement We purchase products from certain RAD-BYNET, which we integrate into our products or product offerings. The aggregate purchase price of these components was approximately $2.9million for the year ended December 31, 2016. 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 toordinary shares that were converted from preferred shares immediately prior to the completion of our initial public offering. The registration rights were granted to each of: ·the holders of the ordinary shares resulting from the conversion of such preferred shares; and 76 ·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 2016, our sales to end users located outside of Israel amounted to $291.9 million, or 99.4% of our $293.6 million revenues for this year. Legal ProceedingsOn January 5, 2015, a motion to approve a purported class action, naming the Company, its CEO and its directors as defendants, was filed with the District Court of Tel-Aviv (EconomicDepartment), 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 "Motion"). The purported class action is based on Israeli law and alleges breaches of duties by the Company and its management on account of false and misleading statements in the Company'sSEC 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 defendantspresented 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 werealready 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 theguidance 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 bythe 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 andcosts. The Motion was served to the Company on January 6, 2015 and the Company filed its response on June 21, 2015. On October 22, 2015, the plaintiff filed a request for discovery ofspecific documents. The Company filed its response to the plaintiffs' request for discovery on January 25, 2016, and the plaintiffs submitted their response on February 24, 2016. On June 8, 2016,the District Court partially accepted the plaintiff's request for discovery, and ordered the Company to disclose some of the requested documents. The Company's request to appeal this decisionwas denied by the Supreme Court on October 25, 2016, and the Company disclosed the required documents to the plaintiffs. The plaintiffs filed their reply to the Company's response to themotion on April 2, 2017. A preliminary hearing has been set for May 8, 2017. Since the initial procedure, (i.e. the District Court decision whether to approve the Motion or to deny it), has been inprocess for over two years now, it is difficult to estimate how long this litigation will last. The Company believes that it has a strong defense against the above-mentioned allegations and that theDistrict 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 except for the share dividend that was paid as a result of a 250-for-1 share recapitalization that took placeimmediately prior to our initial public offering. We do not anticipate paying any dividends on our ordinary shares in the future. We currently intend to retain all future earnings to finance ouroperations 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 Lender's prior writtenconsent. 77Significant 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 ofrepresentations 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 are listed on the Nasdaq Global Select Market since January 3, 2011 and the 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 2012 $9.76 $3.91 2013 5.15 2.35 2014 3.84 0.93 2015 2.00 0.88 2016 2.94 0.89 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 Quarterly 2016 First Quarter $1.30 $0.89 Second Quarter 1.84 1.11 Third Quarter 2.94 1.58 Fourth Quarter 2.89 1.95 Monthly High Low October 2016 $2.89 $1.95 November 2016 2.61 2.21 December 2016 2.84 2.21 January 2017 . 3.88 2.70 February 2017 4.23 3.43 March 2017 3.77 3.20 78ITEM 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 SECon 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 werepreviously provided in our annual reports on Form 20-F for the years 2007, 2011, 2012 and 2014, respectively, and are incorporated herein by reference. Our Articles of Association as amended onSeptember 20, 2016 are included as Exhibit 1.2 to this annual report. In July 2014, we revoked our Memorandum pursuant to procedures provided by Israeli law; a detailed description of such procedure was previously provided in our annual report onForm 20-F for the year 2014 and is incorporated herein by reference. Articles of Association Objects and purposesOur 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 is to engage, directly or indirectly, in anylawful undertaking or business whatsoever. Meetings of Shareholders, Quorum and Voting RightsAccording to the Companies Law and our Articles of Association, an annual general meeting of our shareholders shall be held once every calendar year, provided it is within a period ofnot 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 maybe 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 orholders 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.As of September 20, 2016, pursuant to an amendment to our Articles of Association, the quorum required for a meeting of shareholders consists of at least two shareholders holdingshares conferring in the aggregate twenty five percent (25%) 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 ordirectors, 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 thefollowing 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 twoshareholders.Subject to the provisions of the Articles of Association, holders of ordinary shares have one vote for each ordinary share held by such shareholder of record, on all matters submitted toa vote of shareholders. Shareholders may vote in person, by proxy or by proxy card. Alternatively, shareholders who hold shares through members of the Tel Aviv Stock Exchange may voteelectronically 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 ofa 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 ofthe 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.79Unless otherwise prescribed in our Articles of Association and/or under the Companies Law, shareholders resolutions are deemed adopted if approved by the holders of a majority of thevoting power represented at the meeting in person, by proxy, by proxy card or by Electronic Vote, and voting on the matter. Share Ownership RestrictionsThe ownership or voting of ordinary shares by non-residents of Israel is not restricted in any way by the Articles of Association or the laws of the State of Israel, except that citizens ofcountries 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 suchother 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 of Association, if at any time the share capital is divided into different classes of shares, the rights attached to any class, unless otherwise provided by ourArticles of Association, may be modified or abrogated by the Company, by shareholders resolution, subject to the requirement that such resolution is also approved by a majority of the holdersof the shares of such applicable class, who are 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 concernthat 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 courtmay 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 beingable to meet its existing and anticipated obligations when they become due. Pursuant to our Articles of Association, 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 of Association 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 mayappear 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 inthe 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 heldat 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 ofdividends does not require Shareholders' approval. 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 ofordinary 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 isbeing 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 theholders of a class of shares that may be authorized in the future. 80Mergers 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 powerrepresented 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 CompaniesLaw. 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 ofthe 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 themerger 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. Inaddition, 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 ofCompanies; 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 ofshareholders 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 thepurchaser 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% ormore 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 was: (1) made by way of a private placement that received shareholders' approval (which includes an explicitapproval that the purchaser will become, as a result of such acquisition, a holder of a "control block," or of 45% or more of the voting power in the company, and unless there is already a holder ofa "control block" or of 45% or more of the voting power in the company, respectively); (2) was from a holder of a "control block" in the company and resulted in the acquirer becoming a holder ofa "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 tenderedby 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 acquired in theoffer 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 theoutstanding 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 (i.e. all of the shares not owned by the acquirer) 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 fulltender 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 theoutstanding shares, then the acquirer may not acquire shares that will cause his shareholding to exceed 90% of the outstanding shares.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. "KEYINFORMATION - 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 achange of control and therefore 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 beimposed by administrative action at any time. 81The 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 wayby our Memorandum 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 taxadvice 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 anddisposition 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%. In December 2016 the Israeli Parliament approved a reduction in the corporate income taxrate to 24% effective from January 1, 2017 and 23% for 2018 and thereafter. However, the effective tax rate payable by a company that derives income from an approved enterprise, beneficiary enterprise, or preferred enterprise discussed further below, may beconsiderably 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 bedesignated 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 tothe 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 ofIsrael, 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, theequipment 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. 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 orten 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, commencingwith 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 generatedby 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 isauxiliary 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 thealternative 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 firstyear 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 taxrate 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. 82A 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 whichmore 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 approvedenterprise 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 fromthe 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 benefitsperiod (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 is49% 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 adividend 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 havebeen 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 foreignshareholders. 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 thedividend 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 specificcertificate 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 theconsumer 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 asubstantial 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 fromthese 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 willbe 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 sharesexceeds 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 taxbenefits as an approved enterprise. The Amendment applies to new investment programs and investment programs commencing after 2004, and does not apply to investment programs approvedprior to December 31, 2004, whose benefits will remain as they were on the date of such approval. However, a company that was granted benefits according to section 51 of the Investments Law(prior to the amendment) would not be allowed to choose a new tax year as a year of election (as described below) under the new amendment for a period of 2 years from the company's previousyear of commencement under the old Investments Law. The Company will continue to enjoy its current tax benefits in accordance with the provisions of the Investment Law prior to its revision. However, if the Company is granted any newbenefits in the future, they will be subject to the provisions of the amended Investments Law. Therefore, the above discussion is a summary of the Investment Law prior to its amendment and thefollowing is a discussion of the relevant changes contained in the 2005 Amendment. The 2005 Amendment simplifies the approval process: according to the Amendment, only approved enterprises receiving cash grants require the approval of the Investment Center. 83Tax benefits are available under the Amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% of their business income fromexport (referred to as a "Beneficiary Enterprise"). In order to receive the tax benefits, the 2005 Amendment states that the company must make an investment in the Benefited Enterprise exceedinga certain percentage or a minimum amount specified in the Investments Law. Such investment may be made over a period of no more than three years ending at the end of the year in which thecompany requested to have the tax benefits apply to the Beneficiary Enterprise (the "Year of Election"). A company wishing to receive the tax benefits afforded to a Beneficiary Enterprise isrequired to select the tax year from which the period of benefits under the Investments Law are to commence by notifying the Israeli Tax Authority within 12 months of the end of that year.Companies are also granted the right to approach the Israeli Tax Authority for a pre-ruling regarding their eligibility for benefits under the Amendment. Where the company requests to have thetax benefits apply to an expansion of existing facilities, then only the expansion will be considered a Beneficiary Enterprise and the company's effective tax rate will be the result of a weightedcombination of the applicable rates. In this case, the minimum investment required in order to qualify as a Beneficiary Enterprise is required to exceed a certain percentage or a minimum amount ofthe company's production assets before the expansion. The duration of tax benefits is subject to a limitation of the earlier of 7 to 10 years from the Commencement Year, or 12 years from the first day of the Year of Election. The tax benefitsgranted to a Benefited Enterprise are determined, as applicable to its geographic location within Israel, according to one of the following tax routes, which may be applicable to us: ·Similar to the available alternative route, exemption from corporate tax on undistributed income for a period of two to ten years, depending on the geographic location of theBenefited Enterprise within Israel, and a reduced corporate tax rate of 10% to 25% for the remainder of the benefits period, depending on the level of foreign investment in each year. Benefits may be granted for a term of seven to ten years, depending on the level of foreign investment in the company. If the company pays a dividend out of income derived fromthe Benefited Enterprise during the tax exemption period, such income will be subject to corporate tax at the applicable rate (10%-25%) in respect of the gross amount of the dividendthat we may distribute. The company is required to withhold tax at the source at a rate of 20% from any dividends distributed from income derived from the Benefited Enterprise; and ·A special tax route, which enables companies owning facilities in certain geographical locations in Israel to pay corporate tax at the rate of 11.5% on income of the BenefitedEnterprise. The benefits period is ten years. Upon payment of dividends, the company is required to withhold tax at source at a rate of 20% for Israeli residents and at a rate of 4% forforeign residents. Generally, a company that is Abundant in Foreign Investment (owned by at least 74% foreign shareholders and has undertaken to invest a minimum sum of $20 million in the BeneficiaryEnterprise) is entitled to an extension of the benefits period by an additional five years, depending on the rate of its income that is derived in foreign currency. The 2005 Amendment changed the definition of "foreign investment" in the Investments Law so that the amended definition requires a minimal investment of NIS 5 million by foreigninvestors. Furthermore, such definition also includes the purchase of shares of a company from another shareholder, provided that the company's outstanding and paid-up share capital exceedsNIS 5 million. Such changes to the definition of "foreign investment" took effect retroactively from 2003. Among the results of the Amendment are that (a) tax-exempt income generated under the provisions of the 2005 Amendment will subject us to taxes upon distribution or liquidation and(b) we may be required to record a deferred tax liability with respect to such tax-exempt income. As of December 31, 2016, we did not generate income under the provisions of the new law. Tax Benefits under the 2011 AmendmentOn January 1, 2011, legislation amending the Investment Law came into effect. The new legislation introduced a new status of "Preferred Company" and "Preferred Enterprise," replacingthe existing status of "Beneficiary Company" and "Beneficiary Enterprise." Similarly to "Beneficiary Company," a Preferred Company is an industrial company owning a Preferred Enterprise whichmeets certain conditions (including a minimum threshold of 25% export). However, under the 2011 Amendment the requirement for a minimum investment in productive assets was cancelled.84Under the 2011 Amendment, a uniform corporate tax rate will apply to all qualifying income of the Preferred Company, as opposed to the former law, which was limited to income from theApproved Enterprises during the benefits period. The uniform corporate tax rate is 9% in areas in Israel designated as Development Zone A and 16% elsewhere in Israel. Certain "SpecialIndustrial Companies" that meet certain criteria can enjoy further reduced tax rates of 5% in Development Zone A and 8% elsewhere.Dividend distributed from income which is attributed to "Preferred Enterprise"/ "Special Preferred Enterprise" earned after January 1, 2014 will be subject to withholding tax at source atthe following rates: (i) Israeli resident corporation – 0%, (ii) Israeli resident individual –20% (iii) non-Israeli resident at 20%, subject to a reduced tax rate under the provisions of an applicabledouble tax treaty. The provisions of the 2011 Amendment shall not apply to a company already owning "Beneficiary Enterprise" or "Approved Enterprise" which will continue to benefit from the taxbenefits under the Investment Law in effect prior to the new legislation, unless such company has otherwise elected to implement the 2011 Amendment.We examined the possible effect of the amendment on our financial statements, if at all, and at this time do not believe we will opt to apply the amendment.In December 2016, an additional amendment to the Law was passed, which provides for:(1)A reduction in the tax rate for Preferred Enterprises in Development Zone A from 9% to 7.5%; and (2)Additional benefits to Preferred Technological Enterprises by reducing the tax rate on preferred Technological Enterprise income (as such is defined in Amendment 73) to 12%(the "Amendment"). However, the Amendment has not yet come into effect as regulations for its implementation with regards to the Preferred Technological Enterprise have not yet been promulgated by theMinister of Finance and therefore the Company cannot yet evaluate the effect of the Amendment on its financial statements. Tax Benefits and Grants for Research and DevelopmentIsraeli tax law allows, under specific conditions, a tax deduction in the year incurred for expenditures, including capital expenditures, relating to scientific research and developmentprojects, for the year in which they are incurred if: ·the expenditures are approved by the relevant Israeli government ministry, determined by the field of research; ·the research and development is for the promotion or development of the company; and ·the research and development is carried out by or on behalf of the company seeking the deduction. However, the amount of such deductible expenses shall be reduced by the sum of any funds received through government grants for the finance of such scientific research anddevelopment projects. Expenditures not so approved are deductible over a three-year period if the R&D is for the promotion or development of the company. Tax Benefits under the Law for the Encouragement of Industry (Taxes), 1969 According to the Law for the Encouragement of Industry (Taxes), 1969, generally referred to as the Industry Encouragement Law, an industrial company is a company incorporated andresident in Israel, at least 90% of the income of which, in a given tax year, determined in Israeli currency exclusive of income from specified government loans, capital gains, interest and dividends,is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity. 85Under the Industry Encouragement Law, industrial companies are entitled to the following preferred corporate tax benefits, among others: ·deduction of purchases of know-how, patents and the right to use a patent over an eight-year period for tax purposes; ·deduction over a three-year period of specified expenses incurred with the issuance and listing of shares on the Tel Aviv Stock Exchange or on a recognized stock exchange outsideof Israel (including Nasdaq); ·the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies; and ·accelerated depreciation rates on equipment and buildings. Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority. We believe that we currently qualify as an industrial company within the definition of the Industry Encouragement Law. We cannot assure you that we will continue to qualify as anindustrial company or that the benefits described above will be available to us in the future. Special Provisions Relating to Taxation under Inflationary Conditions Under the Income Tax (Inflationary Adjustments) Law, 1985, results for tax purposes were measured in real terms in accordance with the changes in the Israeli Consumer Price Index("Israeli CPI"). Accordingly, until 2002, results for tax purposes were measured in terms of earnings in NIS after certain adjustments for increases in the Israeli CPI. Commencing in fiscal year 2003,we have elected to measure our taxable income and file our tax return under the Israeli Income Tax Regulations (Principles Regarding the Management of Books of Account of Foreign InvestedCompanies and Certain Partnerships and the Determination of Their Taxable Income), 1986. Such an election obligated us for three years. Accordingly, commencing with fiscal year 2003, resultsfor tax purposes are measured in terms of earnings in dollars. Since 2006, we file for extensions on an annual basis. Beginning January 1, 2008, the Inflationary Adjustments Law was repealed. Israeli Capital Gains Tax on Sales of Shares Israeli law imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, includingshares in Israeli companies, by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder's country of residence provides otherwise.The law distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain that is equivalent to the increase of the relevant asset's purchaseprice which is attributable to the increase in the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of sale. Thereal gain is the excess of the total capital gain over the inflationary surplus. Generally, the tax rate applicable to capital gains derived from the sale of shares, whether listed on a stock market or not, is 25% for Israeli individuals. Additionally, if such individualshareholder is considered a "significant shareholder" at any time during the 12-month period preceding such sale (i.e. such shareholder holds directly or indirectly, including jointly with others, atleast 10% of any means of control in the company) the tax rate is 30%. Israeli companies are subject to the corporate tax rate on capital gains derived from the sale of publicly-traded shares. 86Capital gains accrued on the sale of an asset purchased prior to January 1, 2003 will be subject to tax at a blended rate. The marginal tax rate for individuals (48% in 2016) will be applied tothe portion of the gain amount which bears the same ratio to the total gain realized as the ratio which the holding period commencing at the acquisition date and terminating on January 1, 2003bears to the total holding period. The remainder of the gain realized will be subject to capital gains tax at the rates applicable to an asset purchased after January 1, 2003 (see the above). Furthermore, beginning on January 1, 2013, an additional tax liability at the rate of 2% was added to the applicable tax rate on the annual taxable income of the individuals (whether anysuch individual is an Israeli resident or non-Israeli resident) exceeding NIS 803,520 (in 2016) (hereinafter: "Added Tax"). Effective January 1, 2017 the Added Tax rate has increased to 3% and thethreshold taxable income was reduced to NIS 640,000. Generally, non-Israeli residents are exempt from Israeli capital gains tax on any gains derived from the sale of shares publicly traded on the TASE, provided such gains did not derive froma permanent establishment of such shareholders in Israel, and are exempt from Israeli capital gains tax on any gains derived from the sale of shares of Israeli companies publicly traded on arecognized stock market outside of Israel (including Nasdaq). However, non-Israeli corporations will not be entitled to such exemption if an Israeli resident (i) has a controlling interest of 25% ormore in such non-Israeli corporation, or (ii) is the beneficiary of or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. Suchexemption is not applicable to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income. In some instances where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli taxat the source. Under the convention between the United States and Israel concerning taxes on income, as amended (the "U.S.-Israel Tax Treaty"), generally, Israeli capital gains tax will not apply to thesale, exchange or disposition of ordinary shares by a person who: ·holds the ordinary shares as a capital asset; ·qualifies as a resident of the United States within the meaning of the U.S.-Israel tax treaty; and ·is entitled to claim the benefits available to the person by the U.S.-Israel tax treaty. However, this exemption will not apply if (i) the treaty U.S. resident holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-monthperiod preceding the sale, exchange or disposition, subject to specified conditions, or (ii) the capital gains from such sale, exchange or disposition can be allocated to a permanent establishmentin Israel. In this case, the sale, exchange or disposition would be subject to Israeli tax, to the extent applicable. However, under the U.S.-Israel tax treaty, the treaty U.S. resident would be permittedto claim a credit for the taxes against the U.S. federal income tax imposed on the sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel tax treaty does not relate to U.S. state or local taxes. Israeli Taxation of Dividends Distributed to Non-Resident Holders of Our Shares Non-residents of Israel are subject to income tax on income accrued or derived from sources in Israel. These sources of income include passive income, including dividends, royaltiesand interest, as well as non-passive income from services provided in Israel. On distributions of dividends other than bonus shares or stock dividends, income tax is withheld at source at thefollowing rates: 25% or 30% for a shareholder that is considered a significant shareholder at any time during the 12-month period preceding such distribution; unless a different rate is provided ina treaty between Israel and the shareholder's country of residence. According to the U.S.-Israel Tax Treaty, the tax withholding rate on dividends distributed by an Israeli corporation to a U.S.individual and a U.S. corporation is 25%. If the U.S. company holds 10% or more of the voting power of the Israeli company during the part of the tax year which precedes the date of payment ofthe dividend and during the whole of the preceding tax year, the tax withholding rate is reduced to 12.5%. Dividends received by the U.S. company or the U.S. individual distributed from incomegenerated by an approved enterprise and beneficiary enterprise are subject to withholding tax at a rate of 15%. 87Israeli Transfer Pricing Regulations On November 29, 2006, Income Tax Regulations (Determination of Market Terms), 2006, promulgated under Section 85A of the Tax Ordinance, came into effect (the "TP Regs"). Section85A of the Tax Ordinance and the TP Regs generally requires that all cross-border transactions carried out between related parties be conducted on an arm's length principle basis and will be taxedaccordingly. The TP Regs have not had a material effect on the Company. U.S. Federal Income Tax Considerations Subject to the limitations described below, the following discussion summarizes certain U.S. federal income tax consequences of the purchase, ownership and disposition of our ordinaryshares to a U.S. holder that owns our ordinary shares as a capital asset (generally, for investment). A U.S. holder is a holder of our ordinary shares that is for U.S. federal income tax purposes: ·an individual citizen or resident of the United States; ·a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, anypolitical subdivision thereof or the District of Columbia; ·an estate, the income of which is subject to U.S. federal income tax regardless of its source; or ·a trust if (i) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of itssubstantial decisions or (ii) that has in effect a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person. If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our ordinary shares, the tax treatment of the entity and an equity owner insuch entity will generally depend on the status of the equity owner and the activities of the entity. Such an equity owner or entity should consult its own tax advisor as to its taxconsequences. Certain aspects of U.S. federal income taxes relevant to a holder of our ordinary shares (other than a partnership) that is not a U.S. holder (a "Non-U.S. holder") are also discussedbelow. This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), current and proposed Treasury Regulations, and administrative andjudicial decisions as of the date of this annual report, all of which are subject to change, possibly on a retroactive basis. This discussion does not address all aspects of U.S. federal incometaxation that may be relevant to any particular U.S. holder in light of such holder's individual circumstances. In particular, this discussion does not address the potential application of the U.S.federal income tax consequences to U.S. holders that are subject to special treatment, including U.S. holders that: ·are broker-dealers or insurance companies; ·have elected mark-to-market accounting; ·are tax-exempt organizations or retirement plans; ·are grantor trusts; ·are S corporations; ·are certain former citizens or long-term residents of the United States; ·are financial institutions; ·hold ordinary shares as part of a straddle, hedge or conversion transaction with other investments; ·acquired their ordinary shares upon the exercise of employee stock options or otherwise as compensation; ·are real estate investment trusts or regulated investment companies; ·own directly, indirectly or by attribution at least 10% of our voting power; or ·have a functional currency that is not the U.S. dollar. 88This discussion is not a comprehensive description of all of the tax considerations that may be relevant to each person's decision to purchase our ordinary shares. For example, thisdiscussion does not address any aspect of state, local or non-U.S. tax laws, the possible application of the alternative minimum tax or United States federal gift or estate taxes. Each holder of our ordinary shares is advised to consult his or her own tax advisor with respect to the specific tax consequences to him or her of purchasing, owning or disposing of ourordinary shares, including the applicability and effect of federal, state, local and foreign income and other tax laws to his or her particular circumstances. Taxation of Distributions Paid on Ordinary Shares Subject to the discussion below under "Tax Consequences if We Are a Passive Foreign Investment Company," a U.S. holder will be required to include in gross income as dividendincome the amount of any distribution paid on our ordinary shares, including any non-U.S. taxes withheld from the amount paid, to the extent the distribution is paid out of our current oraccumulated earnings and profits as determined for U.S. federal income tax purposes. Distributions in excess of earnings and profits will be applied against and will reduce the U.S. holder's taxbasis in its ordinary shares and, to the extent in excess of that basis, will be treated as gain from the sale or exchange of ordinary shares. The dividend portion of such distribution generally willnot qualify for the dividends received deduction otherwise available to corporations. Dividends that are received by U.S. holders that are individuals, estates or trusts will be taxed at the rate applicable to long-term capital gains (currently a maximum rate of 20%), providedthat such dividends meet the requirements of "qualified dividend income." Subject to the holding period and risk-of-loss requirements discussed below generally, dividends paid by a non-U.S.corporation that is not a passive foreign investment company (as discussed below) will generally be qualified dividend income if either the stock with respect to which the dividend is paid isreadily tradable on an established securities market in the United States (such as the Nasdaq Global Select Market) or such corporation is eligible for the benefits of an income tax treaty with theIRS determines is satisfactory and which includes an exchange of information program. The IRS has determined that the U.S.-Israel income tax treaty is satisfactory for this purpose and includesan exchange of information program. Dividends that fail to meet such requirements, and dividends received by corporate U.S. holders, are taxed at ordinary income rates. No dividend received bya U.S. holder will be a qualified dividend if (1) the U.S. holder held the ordinary share with respect to which the dividend was paid for less than 61 days during the 121-day period beginning onthe date that is 60 days before the ex-dividend date with respect to such dividend, excluding for this purpose, under the rules of Code Section 246(c), any period during which the U.S. holder hasan option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwisediminished its risk of loss by holding other positions with respect to, such ordinary share (or substantially identical securities) or (2) the U.S. holder is under an obligation (pursuant to a shortsale or otherwise) to make related payments with respect to positions in property substantially similar or related to the ordinary share with respect to which the dividend is paid. If we were to be apassive foreign investment company (as such term is defined in the Code) for any year, dividends paid on our ordinary shares in such year or in the following year would not be qualifieddividends. In addition, a non-corporate U.S. holder will be able to take a qualified dividend into account in determining its deductible investment interest (which is generally limited to its netinvestment income) only if it elects to do so; in such case the dividend will be taxed at ordinary income tax rates.investment income) only if it elects to do so; in such case the dividend will be taxed at ordinary income tax rates. Distributions of current or accumulated earnings and profits paid in foreign currency to a U.S. holder (including any non-U.S. taxes withheld from the distributions) will generally beincludible in the income of a U.S. holder in a dollar amount calculated by reference to the exchange rate on the date of the distribution. A U.S. holder that receives a foreign currency distributionand converts the foreign currency into dollars after the date of distribution may have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currencyagainst the dollar, which will generally be U.S. source ordinary income or loss. U.S. holders generally will have the option of claiming the amount of any non-U.S. income taxes withheld at source either as a deduction from gross income or as a dollar-for-dollar creditagainst their U.S. federal income tax liability. Individuals who do not claim itemized deductions, but instead utilize the standard deduction, may not claim a deduction for the amount of the non-U.S. income taxes withheld, but the amount may be claimed as a credit against the individual's U.S. federal income tax liability. The amount of non-U.S. income taxes that may be claimed as a creditin any year is subject to complex limitations and restrictions, which must be determined on an individual basis by each holder. These limitations include rules which limit foreign tax creditsallowable for specific classes of income to the U.S. federal income taxes otherwise payable on each such class of income. The total amount of allowable foreign tax credits in any year generallycannot exceed the pre-credit U.S. tax liability for the year attributable to non-U.S. source taxable income. Distributions of current or accumulated earnings and profits generally will be non-U.S.source passive income for U.S. foreign tax credit purposes. A U.S. holder will be denied a foreign tax credit for non-U.S. income taxes withheld from a dividend received on the ordinary shares (1) if the U.S. holder has not held the ordinary sharesfor at least 16 days of the 31-day period beginning on the date which is 15 days before the ex-dividend date with respect to such dividend or (2) to the extent the U.S. holder is under an obligationto make related payments with respect to positions in substantially similar or related property. Any days during which a U.S. holder has substantially diminished its risk of loss on the ordinaryshares are not counted toward meeting the required 16-day holding period. 89Taxation of the Disposition of Ordinary Shares Subject to the discussion below under "Tax Consequences if We Are a Passive Foreign Investment Company," upon the sale, exchange or other disposition of our ordinary shares (otherthan in certain non-recognition transactions), a U.S. holder will recognize capital gain or loss in an amount equal to the difference between the U.S. holder's basis in the ordinary shares, which isusually the cost to the U.S. holder of the ordinary shares, and the amount realized on the disposition. Capital gain from the sale, exchange or other disposition of ordinary shares held more thanone year will be long-term capital gain and may, in the case of non-corporate U.S. holders, be subject to a reduced rate of taxation (long-term capital gains are currently taxable at a maximum rate of20% for U.S. holders that are individuals, estates or trusts). Gain or loss recognized by a U.S. holder on a sale, exchange or other disposition of ordinary shares will generally be treated as U.S.source income for U.S. foreign tax credit purposes. The deductibility of a capital loss recognized on the sale, exchange or other disposition of ordinary shares may be subject to limitations. A U.S. holder that uses the cash method of accounting calculates the dollar value of the proceeds received on the sale as of the date that the sale settles. However, a U.S. holder thatuses the accrual method of accounting is required to calculate the value of the proceeds of the sale as of the trade date and may therefore realize foreign currency gain or loss. An accrual methodU.S. holder may avoid realizing such foreign currency gain or loss by electing to use the settlement date to determine the proceeds of sale for purposes of calculating the foreign currency gain orloss. In addition, a U.S. holder that receives foreign currency upon disposition of ordinary shares and converts the foreign currency into dollars after the settlement date or trade date (whicheverdate the U.S. holder is required to use to calculate the value of the proceeds of sale) may have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreigncurrency against the dollar, which will generally be U.S. source ordinary income or loss. Net Investment Income Tax Certain non-corporate U.S. holders may also be subject to an additional 3.8% tax on all or a portion of their "net investment income," which may include dividends on, or capital gainsrecognized from the disposition of, our ordinary shares, subject to certain limitations and exceptions. U.S. holders are urged to consult their own tax advisors regarding the implications of the NetInvestment income tax on their investment in our ordinary shares. Tax Consequences if We Are a Passive Foreign Investment Company For U.S. federal income tax purposes, we will be classified as a passive foreign investment company, or PFIC, for any taxable year in which, after applying certain look-through rules,either (i) 75% or more of our gross income is passive income or (ii) at least 50% of the average value of our total assets (determined on a quarterly basis) for the taxable year produce, or are heldfor the production of, passive income. For this purpose, cash is considered to be an asset which produces passive income. Passive income includes dividends, interest, royalties, rents, annuitiesand the excess of gains over losses from the disposition of certain assets which produce passive income. 90Based on our income, assets, activities and market capitalization, we do not believe that we were a PFIC for the taxable year ended December 31, 2016. However, there can be noassurances that the IRS will not challenge this conclusion. If we were not a PFIC for 2016, U.S. holders who acquired our ordinary shares in 2016 will not be subject to the PFIC rules describedbelow (regardless of whether we were a PFIC in any prior year) unless we are classified as a PFIC in future years. The tests for determining PFIC status are applied annually and it is difficult tomake 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. If we are a PFIC, a U.S. holder of our ordinary shares could be subject to increased tax liability upon the sale or other disposition (including gain deemed recognized if the ordinary sharesare used as security for a loan) of its ordinary shares or upon the receipt of distributions that are treated as "excess distributions", which could result in a reduction in the after-tax return to suchU.S. holder. In general, an excess distribution is the amount of distributions received during a taxable year that exceed 125% of the average amount of distributions received by a U.S. holder inrespect of the ordinary shares during the preceding three taxable years, or if shorter, during the U.S. holder's holding period prior to the taxable year of the distribution. Under these rules, thedistributions that are excess distributions and any gain on the disposition of ordinary shares would be allocated ratably over the U.S. holder's holding period for the ordinary shares. The amountallocated to the current taxable year and any taxable year prior to the first taxable year in which we were a PFIC would be taxed as ordinary income. The amount allocated to each of the othertaxable years would be subject to tax at the highest marginal rate in effect for the applicable class of taxpayer for that taxable year, and an interest charge for the deemed deferral benefit would beimposed on the resulting tax allocated to such other taxable years. The tax liability with respect to the amount allocated to taxable years prior to the year of the disposition or distribution cannotbe offset by net operating losses. In addition, holders of stock in a PFIC may not receive a "step-up" in basis on shares acquired from a decedent. Furthermore, if we are a PFIC, each U.S. holdergenerally will be required to file an annual report with the IRS. As an alternative to the tax treatment described above, a U.S. holder could elect to treat us as a "qualified electing fund" ("QEF"), in which case the U.S. holder would be required toinclude in income, for each taxable year that we are a PFIC, its pro rata share of our ordinary earnings as ordinary income and its pro rata share of our net capital gains as capital gain, subject to aseparate election to defer payment of taxes where such deferral is subject to an interest charge. We may supply U.S. holders that make a request in writing with the information needed to reportincome and gain under a QEF election, if we are a PFIC. Any income inclusion will be required whether or not such U.S. holder owns our ordinary shares for an entire taxable year or at the end ofour taxable year. The amount so includible will be determined without regard to our prior year losses or the amount of cash distributions, if any, received from us. Special rules apply if a U.S.holder makes a QEF election after the first year in its holding period in which we are a PFIC. A U.S. holder's basis in its ordinary shares will increase by any amount included in income anddecrease by any amounts distributed to the extent such amounts were previously taxed under the QEF rules. So long as a U.S. holder's QEF election is in effect beginning with the first taxableyear in its holding period in which we were a PFIC, any gain or loss realized by such holder on the disposition of its ordinary shares held as a capital asset ordinarily would be capital gain or loss.Such capital gain or loss ordinarily would be long-term if such U.S. holder had held such ordinary shares for more than one year at the time of the disposition. The QEF election is made on ashareholder-by-shareholder basis, applies to all ordinary shares held or subsequently acquired by an electing U.S. holder and can be revoked only with the consent of the IRS. As an alternative to making a QEF election, a U.S. holder of PFIC stock which is "marketable stock" (e.g., "regularly traded" on the Nasdaq Global Select Market) may in certaincircumstances avoid certain of the tax consequences generally applicable to holders of stock in a PFIC by electing to mark the stock to market as of the beginning of such U.S. holder's holdingperiod for the ordinary shares. As a result of such election, in any taxable year that we are a PFIC, a U.S. holder generally would be required to report gain or loss to the extent of the differencebetween the fair market value of the ordinary shares at the end of the taxable year and such U.S. holder's tax basis in its ordinary shares at that time. Any gain under this computation, and anygain on an actual disposition of the ordinary shares in a year in which we are a PFIC, would be treated as ordinary income. Any loss under this computation, and any loss on an actual dispositionof the ordinary shares in a year in which we are a PFIC, generally would be treated as ordinary loss to the extent of the cumulative net-mark-to-market gain previously included. Any remainingloss from marking ordinary shares to market will not be allowed, and any remaining loss from an actual disposition of ordinary shares generally would be capital loss. A U.S. holder's tax basis in itsordinary shares is adjusted annually for any gain or loss recognized under the mark-to-market election. There can be no assurances that there will be sufficient trading volume with respect to theordinary shares in order for the ordinary shares to be considered "regularly traded" or that our ordinary shares will continue to trade on the Nasdaq Global Select Market. Accordingly, there areno assurances that the ordinary shares will be marketable stock for these purposes. As with a QEF election, a mark-to-market election is made on a shareholder-by-shareholder basis, applies to allordinary shares held or subsequently acquired by an electing U.S. holder and can only be revoked with consent of the IRS (except to the extent the ordinary shares no longer constitute"marketable stock"). 91The U.S. federal income tax consequences to a U.S. holder if we were to be classified as a PFIC in 2016 or any previous taxable year are complex. A U.S. holder should consult with his orher own advisor with regard to those consequences, as well as with regard to whether he or she should make either of the elections described above. Tax Consequences for Non-U.S. Holders of Ordinary Shares Except as described in "Information Reporting and Back-up Withholding" below, a non-U.S. holder of our ordinary shares will not be subject to U.S. federal income or withholding tax onthe payment of dividends on, and the proceeds from the disposition of, our ordinary shares, unless, in the case of U.S. federal income taxes: ·the item is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States and in the case of a resident of a country which has a treaty withthe United States, the item is attributable to a permanent establishment, or in the case of an individual, the item is attributable to a fixed place of business in the United States; or ·the non-U.S. holder is an individual who holds the ordinary shares as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition,and certain other conditions are met. Information Reporting and Back-up Withholding U.S. holders generally are subject to information reporting requirements with respect to dividends on, or proceeds from the disposition of, our ordinary shares. In addition, a U.S. holdermay be subject, under certain circumstances, to backup withholding at a current rate of up to 28% with respect to dividends paid on, or proceeds from the disposition of, our ordinary sharesunless the U.S. holder provides proof of an applicable exemption or correct taxpayer identification number, and otherwise complies with the applicable requirements of the backup withholdingrules. A U.S. holder of our ordinary shares who provides an incorrect taxpayer identification number may be subject to penalties imposed by the IRS. Amounts withheld under the backupwithholding rules are not an additional tax and may be refunded or credited against the U.S. holder's U.S. federal income tax liability, provided the required information is furnished to the IRS. Non-U.S. holders generally are not subject to information reporting or back-up withholding with respect to dividends paid in the United States on, or proceeds from the disposition of,our ordinary shares, provided that the non-U.S. holder provides a taxpayer identification number, certifies to its foreign status, or establishes another exemption from the information reporting orback-up withholding requirements. Certain U.S. holders (and to the extent provided in IRS guidance, certain non-U.S. holders) who hold interests in "specified foreign financial assets" (as defined in Section 6038D of theCode) are generally required to file an IRS Form 8938 as part of their U.S. federal income tax returns to report their ownership of such specified foreign financial assets, which may include ourordinary shares, if the total value of those assets exceed certain thresholds. Substantial penalties may apply to any failure to timely file IRS Form 8938. In addition, in the event a holder that isrequired to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such holder for the related tax year may not closeuntil three years after the date that the required information is filed. Holders should consult their own tax advisors regarding their tax reporting obligations. 92Documents on Display We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, applicable to foreign private issuers and fulfill these requirements by filing reportswith the SEC. These reports include certain financial and statistical information about us, and may be accompanied by exhibits. You may read and copy any document we file with the SEC at theSEC's Public Reference Room at100 F Street, N.E., Room 1580, Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. The SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy statements, information statements and other material that are filed through the SEC's ElectronicData Gathering, Analysis and Retrieval ("EDGAR") system. You may also visit us on the Internet at www.ceragon.com. However, information contained on our website does not constitute a part of this annual report. ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We do not use derivative financial instruments for trading purposes. Accordingly, we have concluded that there is no material market risk exposure of the type contemplated by Item 11,and that no quantitative tabular disclosures are required. We are exposed to certain other types of market risks, as described below. Foreign Currency Risk As the majority of our revenues and cost of revenues, as well as a significant portion of our operating expenses, are in U.S. dollars, we have determined that our functional currency isthe U.S. dollar. However, a significant portion of our revenues, costs of revenue as well as major portion of our operating expenses are denominated in other currencies, mainly in NIS, INR, EUR,BRL and NOK. As our financial results are reported in U.S. dollars, fluctuations in the exchange rates between the U.S. dollar and applicable non-dollar currencies may have an effect on ourresults of operations. In order to reduce such effect, we hedge a portion of certain cash flow transactions denominated in non-dollar currencies as well as a portion of certain monetary items in thebalance sheet, such as trade receivables and trade payables, denominated in non-dollar currencies. The following sensitivity analysis illustrates the impact on our non-dollar net monetary assetsassuming an instantaneous 10% change in foreign currency exchange rates from year-end levels, with all other variables held constant. At December 31, 2016, a 10% strengthening of the U.S.dollar versus other currencies would have resulted in an increase of approximately $2.2 million in our net monetary assets position, while a 10% weakening of the dollar versus all other currencieswould have resulted in a decrease of approximately $2.2 million in our net monetary assets position. The counter-parties to our hedging transactions are major financial institutions with high credit ratings. As of December 31, 2016, we had outstanding forward contracts in the amount of$18.9 million for a period of up to twelve months. We do not invest in interest rate derivative financial instruments. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. Not applicable. PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. None. ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. Use of Proceeds None 93ITEM 15. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures The Company performed an evaluation of the effectiveness of its disclosure controls and procedures that are designed to provide reasonable assurance that the material financial andnon-financial information required to be disclosed to the SEC is recorded, processed, summarized and reported timely. Based on the Company’s evaluation, the Company’s management, includingthe CEO and CFO, has concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as ofthe end of the period covered by this report are effective in reaching such reasonable assurance. Notwithstanding the foregoing, there can be no assurance that the Company’s disclosurecontrols and procedures will detect or uncover all failures of persons within Ceragon to disclose material information otherwise required to be set forth in the Company’s reports. (b) Management's Annual Report on Internal Control Over Financial Reporting The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company performed an evaluation of the effectiveness of its internal control over financial reporting that is designed by, or under the supervision of, the Company's principalexecutive and principal financial officers, and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effecton the financial statements. Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financialreporting as of December 31, 2016 based on the framework for Internal Control - Integrated Framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013framework) (COSO). Based on our assessment under that framework and the criteria established therein, our management concluded that the Company's internal control over financial reportingwas effective as of December 31, 2016 in providing reasonable assurance regarding the reliability of the Company's financial reporting. Notwithstanding the foregoing, there can be no assurancethat the Company's financial reporting controls and procedures will detect or uncover all failures of persons within the Company to do all the required activities properly, which may impact the fairpresentation of the financial statements of the Company otherwise required to be set forth in the financial reports. (c) Attestation Report of Independent Registered Public Accounting FirmKost Forer Gabbay & Kasierer, a Member of Ernst & Young Global, our independent registered public accounting firm, has issued an attestation report on the effectiveness of ourinternal control over financial reporting, appearing under Item 18: "Financial Statements" on pages F-3 – F-4, and such report is incorporated herein by reference.94(d) Changes in Internal Controls Over Financial Reporting There were no changes in the Company's internal control over financial reporting that occurred during the year ended December 31, 2016 that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting. ITEM 16. [RESERVED] ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT The Company's Board of Directors has determined that Mr. Shlomo Liran is the Audit Committee financial expert. Mr. Liran is one of our independent directors for the purposes of theNasdaq Rules. ITEM 16B. CODE OF ETHICS In November 2003, the Company's Board of Directors adopted a Code of Ethics that applies to the CEO, chief financial officer and controller. In October 2008, we amended our Code ofEthics in order to update it and expand its applicability to additional senior officers. In December 2009, we combined the Code of Ethics together with certain Standards of Business Conduct tostrengthen the Company's Ethics Compliance Program. In October 2014, and again in December 2016, we amended and expanded the Company's Ethics Compliance Program, in order to strengthencertain provisions thereunder. A copy of the Company's updated Code of Ethics may be obtained, without charge, upon a written request addressed to the Company's investor relationsdepartment, 24 Raoul Wallenberg Street, Tel Aviv 69719, Israel (Telephone no. +972-3-645-5733) (e-mail: ir@ceragon.com). In addition, it is also available on the Internet at www.ceragon.com.However, information contained on our website does not constitute a part of this annual report. ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Fees Paid to Independent Auditors The following table sets forth, for each of the years indicated, the fees billed by Kost, Forer, Gabbay & Kasierer, a member firm of Ernst & Young Global, our auditors, and the percentageof each of the fees out of the total amount billed by them. Year Ended December 31, 2015 2016 Services Rendered Fees Percentages Fees Percentages Audit Fees (1) $605,518 71 $735,556 73%Tax Fees (2) $176,341 21 $190,646 19%Other Services(3) $63,607 8 $83,726 8%Total $845,466 100 $1,009,928 100%(1)Audit fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements, including services that generally only the independentaccountant can reasonably provide.(2)Tax fees relate to tax compliance, planning and advice(3)Other consulting servicesPolicies and Procedures Our Financial Audit Committee is in charge of a policy and procedures for approval of audit and non-audit services rendered by our independent auditors. The policy requires theFinancial Audit Committee's approval of the scope of the engagement of our independent auditor. The policy prohibits retention of the independent auditors to perform the prohibited non-auditfunctions defined in Section 201 of the Sarbanes-Oxley Act of 2002 or the rules of the SEC, and also considers whether proposed services are compatible with the independence of the publicauditors. All of the fees listed in the table above were approved by our Financial Audit Committee. 95ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES None. ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS There were no purchases of our ordinary shares by affiliates during the year ended December 31, 2016. ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G.CORPORATE GOVERNANCE The Nasdaq Rules provide that foreign private issuers may follow home country practice in lieu of certain Nasdaq rules, subject to certain exceptions and except to the extent that suchexemptions would not be contrary to U.S. federal securities laws, so long as the foreign issuer discloses that it does not follow such listing requirement and describes the home country practicefollowed in its reports filed with the SEC. The practices we follow in lieu of Nasdaq Rules are described below:-We have opted out of the requirement to adopt and file a compensation committee charter as set forth in Nasdaq Rule 5605(d)(1). Instead, our Compensation Committee conducts itself inaccordance with provisions governing the establishment and the responsibilities of a compensation committee as set forth in the Companies Law.-We have opted out of the requirement for shareholder approval of stock option plans and other equity based compensation arrangements as set forth in Nasdaq Rule 5635 and Nasdaq Rule5605(d), respectively. Nevertheless, as required under the Companies Law, shareholder voting procedures are followed for the approval of equity-based compensation of certain office holdersor employees, such as our CEO and members of our Board of Directors. Equity based compensation arrangements with other office holders are approved by our Compensation Committee andour Board of Directors, provided they are consistent with our Compensation Policy, and in special circumstances in deviation therefrom, taking into account certain considerations as setforth in the Companies Law.-We have opted out of the requirement for conducting annual meetings as set forth in Nasdaq Rule 5620(a), which requires Ceragon to hold its annual meetings of shareholders within twelvemonths of the end of its fiscal year end. Instead, Ceragon is following home country practice and law in this respect. The Companies Law requires that an annual meeting of shareholders beheld every year, and not later than 15 months following the last annual meeting (see in Item 10.B above –"Additional Information –Voting, Shareholders' Meetings and Resolutions"). Further,we have opted out of the requirement set under Rule 5620(c) of the Nasdaq Rules, which requires the presence of two or more shareholders holding at least 33 1/3%, and in lieu follow ourhome country practice and Israeli law, according to which the quorum for any shareholders meeting will be the presence of two or more shareholders holding at least 25% of the voting rightsin the aggregate - within half an hour from the time set for opening the meeting.-We have chosen to follow our home country practice in lieu of the requirements of Nasdaq Rule 5250(d)(1), relating to an issuer's furnishing of its annual report to shareholders. Specifically,we file annual reports on Form 20-F, which contain financial statements audited by an independent accounting firm, electronically with the SEC and post a copy on our website.96ITEM 16H.MINE SAFETY DISCLOSURE Not Applicable. PART III ITEM 17. FINANCIAL STATEMENTS Not applicable. ITEM 18. FINANCIAL STATEMENTS The Consolidated Financial Statements and related notes thereto required by this item are contained on pages F-1 through F-51 hereof. Page Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting FirmF-2 - F-4 Consolidated Balance SheetsF-5 - F-6 Consolidated Statements of OperationsF-7 Consolidated Statements of Comprehensive Income (loss)F-8 Consolidated Statements of Changes in Shareholders' EquityF-9 Consolidated Statements of Cash FlowsF-10 - F-11 Notes to Consolidated Financial StatementsF-12 - F-51 ITEM 19. EXHIBITS 1.2Articles of Association, as amended September 20, 20164.4Credit facility, dated as of March 14, 2013 ("Credit Facility") by and among the Company and Bank Hapoalim B.M., HSBC Bank Plc, Bank Leumi Le'Israel Ltd. and First International Bank ofIsrael Ltd. (English summary of the material terms) (1)4.5Amendment, effective as of October 1, 2013, to the Credit Facility (English summary of the material terms) (2)4.6Amendment No. 2, effective as of April 29, 2014, to the Credit Facility (English summary of the material terms) (3)4.7Amendment No. 3, effective as of March 31, 2015, to the Credit Facility (English summary of the material terms) (3)4.8Amended and Restated Share Option and RSU Plan, as Amended August 10, 2014(3)4.9Amendment No. 4, effective as of March 10, 2016, to the Credit Facility (English summary of the material terms) (4)4.10Amendment No. 5, executed in December 2016, to the Credit Facility (English summary of the material terms) 4.11Amendment No. 6, effective as of March 30, 2017, to the Credit Facility (English summary of the material terms)8.1List of Significant Subsidiaries10.1Consent of Independent Registered Public Accounting Firm12.1Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 97101The following financial information from Ceragon Networks Ltd.'s Annual Report on Form 20-F for the year ended December 31, 2016, formatted in XBRL (Extensible Business ReportingLanguage): (i) Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014; (ii) Consolidated Statements of Comprehensive Income (Loss) at December 31,2016, 2015 and 2014; (iii) Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2016, 2015 and 2014; (iv) Consolidated Statements of Cash Flowsfor the years ended December 31, 2016, 2015 and 2014; and (v) Notes to Consolidated Financial Statements. Users of this data are advised, in accordance with Rule 406T of Regulation S-Tpromulgated by the SEC, that this Interactive Data File is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, isdeemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.(1) Previously filed as exhibit 4.4 to the Company's Annual Report on Form 20-F for the year 2012 and incorporated herein by reference.(2) Previously furnished as exhibit 99.3 in a Report on Form 6-K which exhibit was incorporated by reference into the Company's Registration Statement on Form F-3 (No. 333-183316), andincorporated herein by reference.(3) Previously filed as exhibits 4.6, 4.7 and 4.8 to the Company's Annual Report on Form 20-F for the year 2014 and incorporated herein by reference.(4) Previously filed as exhibits 4.9 to the Company's Annual Report on Form 20-F for the year 2015 and incorporated herein by reference.98SIGNATURE The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on itsbehalf. CERAGON NETWORKS LTD. By: /s/ Ira PaltiName: Ira PaltiTitle: President and Chief Executive Officer Date: April 7, 201799 CERAGON NETWORKS LTD. AND SUBSIDIARIESCONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016IN U.S. DOLLARSINDEX Page Reports of Independent Registered Public Accounting FirmF-2 - F-4 Consolidated Balance SheetsF-5 - F-6 Consolidated Statements of OperationsF-7 Consolidated Statements of Comprehensive Income (loss)F-8 Consolidated Statements of Changes in Shareholders' EquityF-9 Consolidated Statements of Cash FlowsF-10 - F-11 Notes to Consolidated Financial StatementsF-12 - F-51 Kost Forer Gabbay & Kasierer3 Aminadav St.Tel-Aviv 6706703, Israel Tel: +972-3-6232525Fax: +972-3-5622555ey.com REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders ofCERAGON NETWORKS LTDWe have audited the accompanying consolidated balance sheets of Ceragon Networks Ltd. (the "Company") and subsidiaries as of December 31, 2015 and 2016, and the relatedconsolidated statements of operations, statements of comprehensive income (loss), changes in shareholders' equity and cash flows for each of the three years in the period ended December 31,2016. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements basedon our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material respects, the consolidated financial position of the Company and subsidiaries as of December 31,2015 and 2016, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally acceptedaccounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as ofDecember 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)and our report dated April 7, 2017 expressed an unqualified opinion thereon. Tel-Aviv, IsraelKOST FORER GABBAY & KASIERERApril 7, 2017A Member of Ernst & Young Global F - 2 Kost Forer Gabbay & Kasierer3 Aminadav St.Tel-Aviv 6706703, Israel Tel: +972-3-6232525Fax: +972-3-5622555ey.com REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders of CERAGON NETWORKS LTD We have audited Ceragon Networks Ltd.'s (the "Company") internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the "COSO criteria"). The Company's management is responsible for maintainingeffective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying management's report oninternal control over financial reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditto obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internalcontrol over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periodsare subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.F - 3 In our opinion, the Company maintained in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company andsubsidiaries as of December 31, 2015 and 2016, and the related consolidated statements of operations, statements of comprehensive income (loss) changes in shareholders' equity and cash flowsfor each of the three years in the period ended December 31, 2016 and our report dated April 7, 2017 expressed an unqualified opinion thereon. Tel-Aviv, IsraelKOST FORER GABBAY & KASIERERApril 7, 2017A Member of Ernst & Young Global F - 4 CERAGON NETWORKS LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETSU.S. dollars in thousands December 31, Note 2015 2016 ASSETS CURRENT ASSETS: Cash and cash equivalents $36,318 $36,338 Trade receivables (net of allowance for doubtful accounts of $12,229 and $12,162 at December 31, 2015 and 2016,respectively) 116,683 107,395 Other accounts receivable and prepaid expenses 3 23,779 17,076 Inventories 4 49,690 45,647 Total current assets 226,470 206,456 NON-CURRENT ASSETS: Deferred tax assets, net 13c 1,822 1,344 Severance pay and pension fund 4,681 4,575 Other accounts receivable 2,178 2,746 PROPERTY AND EQUIPMENT, NET 5 28,906 27,560 INTANGIBLE ASSETS, NET 6 3,192 1,544 Total long-term assets 40,779 37,769 Total assets $267,249 $244,225 The accompanying notes are an integral part of the consolidated financial statementsF - 5CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETSU.S. dollars in thousands (except share and per share data) December 31, Note 2015 2016 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term loans 8 $34,922 $17,000 Trade payables 73,638 68,408 Deferred revenues 8,901 2,673 Other accounts payable and accrued expenses 7 27,052 22,425 Total current liabilities 144,513 110,506 LONG-TERM LIABILITIES: Accrued severance pay and pensions 9,276 9,198 Other long-term liabilities 10,639 8,357 Total long-term liabilities 19,915 17,555 COMMITMENTS AND CONTINGENT LIABILITIES 11 SHAREHOLDERS' EQUITY: 12 Share capital - Ordinary shares of NIS 0.01 par value - Authorized: 120,000,000 shares at December 31, 2015 and 2016; Issued: 81,118,387 and 81,250,452 shares at December 31,2015 and 2016, respectively; Outstanding: 77,636,864 and 77,768,929 shares at December 31, 2015 and 2016, respectively 214 214 Additional paid-in capital 408,174 409,320 Treasury shares at cost – 3,481,523 ordinary shares as of December 31, 2015 and 2016 (20,091) (20,091)Accumulated other comprehensive loss (8,616) (7,848)Accumulated deficit (276,860) (265,431) Total shareholders' equity 102,821 116,164 Total liabilities and shareholders' equity $267,249 $244,225 The accompanying notes are an integral part of the consolidated financial statements. F - 6CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONSU.S. dollars in thousands (except share and per share data) Year endedDecember 31, Note 2014 2015 2016 Revenues 14b $371,112 $349,435 $293,641 Cost of revenues 286,670 246,487 194,479 Gross profit 84,442 102,948 99,162 Operating expenses: Research and development, net 35,004 22,930 21,695 Selling and marketing 56,059 40,816 39,515 General and administrative 23,657 21,235 20,380 Restructuring costs 6,816 1,225 - Goodwill impairment 14,765 - - Other income (19,827) (4,849) (1,921) Total operating expenses 116,474 81,357 79,669 Operating income (loss) (32,032) 21,591 19,493 Financial expenses, net 15 37,946 14,738 6,303 Income (loss)before taxes on income (69,978) 6,853 13,190 Taxes on income 13b 6,501 5,842 1,761 Net income (loss) $(76,479) $1,011 $11,429 Net Income (loss) per share: Basic net income (loss) per share $(1.22) $0.01 $0.15 Diluted net income (loss) per share $(1.22) $0.01 $0.15 Weighted average number of ordinary shares used in computing basic net income (loss) per share 62,518,602 77,239,409 77,702,788 Weighted average number of ordinary shares used in computing diluted net income (loss) per share 62,518,602 77,296,681 78,613,528 F - 7CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)U.S. dollars in thousands Year endedDecember 31, 2014 2015 2016 Net income (loss) $(76,479) $1,011 $11,429 Other comprehensive income (loss): Change in foreign currency translation adjustment (1,853) (4,149) 861 Available-for-sale investments: Change in net unrealized gain (losses) 260 (423) - Amounts reclassified from AOCI (735) 330 - Net change (475) (93) - Cash flow hedges: Change in net unrealized gains (losses) (709) (153) 168 Amounts reclassified from AOCI 495 (110) (261) Net change (214) (263) (93) Other comprehensive income (loss), net (2,542) (4,505) 768 Total of comprehensive income (loss) $(79,021) $(3,494) $12,197 The accompanying notes are an integral part of the condensed consolidated financial statements.F - 8CERAGON NETWORKS LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITYU.S. dollars in thousands (except share and per share data) Ordinaryshares Sharecapital Additionalpaid-incapital Treasurysharesat cost Accumulatedothercomprehensiveloss Accumulateddeficit Totalshareholders'equity Balance as of January 1, 2014 52,457,168 $141 $357,989 $(20,091) $(1,569) $(201,392) $135,078 Exercise of options andRSU's 573,698 1 - - - - 1 Issuance of shares, net of $400 issuance expenses 24,100,000 70 45,079 - - - 45,149 Share-based compensationexpense - - 3,345 - - - 3,345 Other comprehensive loss,net - - - - (2,542) - (2,542)Net loss - - - - - (76,479) (76,479) Balance as of December 31,2014 77,130,866 212 406,413 (20,091) (4,111) (277,871) 104,552 Exercise of options andRSU's 505,998 2 136 - - - 138 Share-based compensationexpense - - 1,625 - - - 1,625 Other comprehensive loss,net - - - - (4,505) - (4,505) Net income - - - - - 1,011 1,011 Balance as of December 31,2015 77,636,864 214 408,174 (20,091) (8,616) (276,860) 102,821 Exercise of options andRSU's 132,065 *)- 75 - - - 75 Share-based compensationexpense - - 1,071 - - - 1,071 Other comprehensiveincome, net - - - - 768 - 768 Net income - - - - - 11,429 11,429 Balance as of December 31,2016 77,768,929 214 409,320 (20,091) (7,848) (265,431) 116,164 *) Represent an amount lower than $1.The accompanying notes are an integral part of the consolidated financial statements.F - 9CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWSU.S. dollars in thousands Year endedDecember 31, 2014 2015 2016 Cash flows from operating activities: Net income (loss) $(76,479) $1,011 $11,429 Adjustments required to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 13,498 12,203 10,037 Share-based compensation expense 3,345 1,625 1,071 Impairment of long-lived assets 2,367 - - Impairment of goodwill 14,765 - - Other than temporary impairment and loss from sale of marketable securities 3,471 330 - Accrued severance pay and pensions, net (787) (1,188) 28 Decrease (increase) in trade receivables, net (33,876) 39,545 11,051 Decrease in other accounts receivable and prepaid expenses 11,283 (1,291) 4,747 Decrease in inventories 1,792 10,240 4,706 Increase (decrease) in trade payables 25,155 (28,444) (2,355)Increase (decrease) in deferred revenues 9,699 (8,766) (6,228)Decrease in deferred tax asset, net 9,788 1,975 478 Decrease in other accounts payable and accrued expenses (including other long term liabilities) (16,300) (11,119) (9,193) Net cash provided by (used in) operating activities (32,279) 16,121 25,771 Cash flows from investing activities: Purchase of property and equipment (12,691) (5,266) (8,190)Investment in short-term bank deposits (36) (19) (153)Proceeds from maturities of short-term bank deposits 69 432 153 Proceeds from sale of marketable securities 5,161 122 - Net cash used in investing activities (7,497) (4,731) (8,190) The accompanying notes are an integral part of the consolidated financial statements. F - 10CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWSU.S. dollars in thousands Year endedDecember 31, 2014 2015 2016 Cash flows from financing activities: Proceeds and loans from financial institutions 22,691 4,200 - Repayment of bank loan (29,012) (20,182) (17,922)Proceeds from issuance of shares, net 45,149 - - Proceeds from exercise of options - 138 75 Net cash provided by (used in) financing activities 38,828 (15,844) (17,847) Effect of exchange rate changes on cash (36) (651) 286 Decrease in cash and cash equivalents (984) (5,105) 20 Cash and cash equivalents at the beginning of the year 42,407 41,423 36,318 Cash and cash equivalents at the end of the year $41,423 $36,318 $36,338 Supplemental disclosure of cash flow information: Cash paid during the year for income taxes $2,572 $1,509 $1,370 Cash paid during the year for interest $3,541 $2,820 $1,739 The accompanying notes are an integral part of the consolidated financial statements.F - 11CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 1:-GENERALa.Ceragon Networks Ltd. ("the Company") is a wireless backhaul specialist. It provides wireless backhaul solutions that enable cellular operators and other wireless serviceproviders to deliver voice and data services, enabling smart-phone applications such as internet browsing, social networking applications, image sharing, music and videoapplications. Its wireless backhaul solutions use microwave radio technology to transfer large amounts of telecommunication traffic between base stations and small-cellsand the core of the service provider's network. The Company also provides wireless fronthaul solutions that use microwave technology for ultra-high speed, ultra-lowlatency communication between LTE/LTE-Advanced base band digital units stations and remote radio heads. The Company's solutions support all wireless access technologies, including LTE-Advanced, LTE, HSPA, EV-DO, CDMA, W-CDMA and GSM. The Company's systems alsoserve evolving network architectures including all-IP long haul networks.The Company sells its products through a direct sales force, systems integrators, distributors and original equipment manufacturers.The Company's wholly owned subsidiaries provide research and development, marketing, manufacturing, distribution, sales and technical support to the Company'scustomers worldwide.As to principal markets and major customers, see notes 14b and 14c.b.Acquisitions: On January 19, 2011 ("Acquisition Date"), the Company completed the acquisition of Nera Networks AS (now called Ceragon Networks AS) and its subsidiaries (the "Nera")from Eltek ASA. The consideration for all of the shares of Nera was $ 57,175. January 19, 2011 was considered to be the Acquisition Date, as control was obtained, assetswere received and liabilities assumed. Eltek ASA undertook not to compete with the Company for a period of five years. In April 2014, the Company signed an agreementwith Eltek ASA, to settle all claims, counter claims, legal proceedings, and any other contingent or potential claims regarding alleged breaches of representations andwarranties contained in the purchase agreement governing the Nera Acquisition from Eltek in January 2011. In May 2014, the Company received $ 16,800 in cash, net ofassociated legal expenses and recorded it as part of other income in the consolidated statements of operations.F - 12CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 1:-GENERAL (Cont.)c.Cost reduction plan:During the fourth quarter of 2014, in addition to previous restructuring plans, the Company initiated another restructuring plan to reduce its operating cost and improve itsefficiency, mainly by relocating certain offices and reducing staff functions and some operations positions, as well as other measures. The restructuring expenses includemainly post termination benefits, write-off of property and equipment that is related to activities that were terminated and facilities related expenses for warehouse and officeclosing and relocations. The total restructuring costs in 2014 and 2015 associated with exiting activities of the Company were $ 5,838 and $ 1,225, respectively, recorded inoperating expenses, as restructuring costs. Additional restructuring cost of $978 included in 2014 expenses is related to previous restructuring plan. NOTE 2:-SIGNIFICANT ACCOUNTING POLICIESa.Basis of presentation:The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP").b.Use of estimates:The preparation of the financial statements and related disclosures in conformity with U.S. GAAP requires the Company to make judgments, assumptions, and estimates thataffect the amounts reported in the consolidated financial statements and the accompanying notes. The Company bases its estimates and assumptions on current facts,historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are notreadily apparent from other sources. To the extent there are material differences between the Company's estimates and the actual results, the Company's future consolidatedresults of operation may be affected.c.Financial statements in U.S. dollars:A majority of the revenues of the Company and certain of its subsidiaries are generated in U.S. dollars ("dollars"). In addition, a substantial portion of the Company's andcertain of its subsidiaries' costs is incurred in dollars. Since management believes that the dollar is the currency of the primary economic environment in which the Companyand its subsidiaries operate and considers the non-U.S. subsidiaries to be a direct, integral extension of the parent company's operations, the dollar is its functional andreporting currency. Accordingly, amounts in currencies other than U.S dollars have been re-measured in accordance with ASC topic 830, "Foreign Currency Matters" ("ASC830") as follows:Monetary balances - at the exchange rate in effect on the balance sheet date. Consolidated statements of operations items - average exchange rates prevailing during theyear.All exchange gains and losses from the re-measurement mentioned above are reflected in the statement of operations in financial expenses, net.The financial statements of the Company's Brazilian subsidiaries, whose functional currency is not the dollar, have been re-measured and translated into dollars. All amountson the balance sheets have been translated into the dollar using the exchange rates in effect on the relevant balance sheet dates. All amounts in the statements of operationshave been translated into the dollar using the average exchange rate for the relevant periods. The resulting translation adjustments are reported as a component ofaccumulated other comprehensive loss in shareholders' equity.d.Principles of consolidation:The consolidated financial statements include the accounts of the Company and its subsidiaries ("the Group"). Intercompany balances and transactions including profitsfrom intercompany sales not yet realized outside the Group, have been eliminated upon consolidation.F - 13 % Computers, manufacturing and peripheral equipment6 – 33Enterprise Resource Planning systems ("ERP")10Office furniture and equipment Mainly 15Leasehold improvementsOver the shorter of the term of thelease or useful life of the assetCERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)e.Cash equivalents:Cash equivalents include short-term, highly liquid investments that are readily convertible to cash with original maturities of three months or less.f.Short-term bank deposits:Short-term bank deposits are deposits with maturities of more than three months and up to one year. The short-term bank deposits are presented at their cost, includingaccrued interest.As of December 31, 2015, and 2016, the Company had no short-term bank deposits.g.Inventories:Inventories are stated at the lower of cost or net releasable value. Inventory write-downs are provided to cover risks arising from slow-moving items, technologicalobsolescence, excess inventories, discontinued products, and for market prices lower than cost, if any. The Company periodically evaluates the quantities on hand relative tohistorical and projected sales volume (which is determined based on an assumption of future demand and market conditions) and the age of the inventory. At the point of theloss recognition, a new lower cost basis for that inventory is established. In addition, if required the Company records a liability for firm non-cancelable and unconditionalpurchase commitments with contract manufacturers for quantities in excess of the Company's future demands forecast consistent with its valuation of excess and obsoleteinventory. Inventory includes costs of products delivered to customers and not recognized as cost of sales, where revenues in the related arrangements were not recognized.Cost is determined for all types of inventory using the moving average cost method plus indirect costs.h.Property and equipment:Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of theassets, at the following annual rates: F - 14CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)i.Impairment of long-lived assets:The Company's and its subsidiaries' long-lived assets are reviewed for impairment in accordance with ASC topic 360," Property Plant and Equipment", ("ASC 360"),whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measuredby a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If an asset is considered to be impaired, theimpairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. During 2014 the Company recognized impairmentexpenses in the amount of $ 2,367. During 2015 and 2016, no impairment losses have been recognizedj.Income taxes:The Company and its subsidiaries account for income taxes in accordance with ASC topic 740, "Income Taxes", ("ASC 740"). This Statement prescribes the use of theliability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets andliabilities and for carry forward losses deferred taxes are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. TheCompany and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value if it is more likely than not that someportion or all of the deferred tax asset will not be realized. For more information see note 13c.The Company adopted ASC topic 740-10, "Income Taxes", ("ASC 740-10"). ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positionsaccounted for in accordance with ASC 740. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of availableevidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any relatedappeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. TheCompany elected to classify interest expenses and penalties recognized in the financial statements as income taxes. For more information see note 13g.k.Goodwill and other intangible assets:Goodwill and certain other purchased intangible assets have been recorded in the Company's financial statements as a result of acquisitions. Goodwill represents excess ofthe costs over the net tangible and intangible assets acquired of businesses acquired under ASC topic 350, "Intangible - Goodwill and Other", ("ASC 350") according towhich goodwill is not amortized.F - 15CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)According to ASC 350, goodwill impairment testing is a two-step process. The first step involves comparing the fair value of a company's reporting units to their carryingamount. If the fair value of the reporting unit is determined to be greater than its carrying amount, there is no impairment. If the reporting unit's carrying amount is determinedto be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill bydeducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. Theimplied fair value of the goodwill in this step is compared to the carrying value of goodwill. If the implied fair value of the goodwill is less than the carrying value of thegoodwill, an impairment loss equivalent to the difference is recorded. During 2014, the Company identified indicators of goodwill impairment and accordingly performed thetwo-step impairment which resulted in recording an impairment charge of its goodwill. Intangible assets that are considered to have definite useful life are amortized using the straight-line basis over their estimated useful lives, 7 years for Technology andCustomer relations. The carrying amount of these assets is reviewed whenever events or changes in circumstances indicate that the carrying value of an asset may not berecoverable. Recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected togenerate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impairedasset. l.Revenue recognition:The Company and its subsidiaries 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", ("ASC605"), when delivery has occurred, persuasive evidence of an arrangement exists, the vendor's fee is fixed or determinable, no future obligation exists and collectability isprobable. When required, the Company complies with ASC 605-25, "Multiple-Deliverable Revenue Arrangements". This standard changes the requirements for establishing separateunits of accounting in a multiple element arrangement by elimination of the residual method and requires the allocation of arrangement consideration to each deliverable to bebased on using the relative selling price method.F - 16CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)Pursuant to the guidance of ASC 605-25, when a sales arrangement contains multiple elements, such as equipment and services, the Company allocates revenues to eachelement 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 estimatedselling 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 thedeliverables based on the aforementioned selling price hierarchy.The Company considers 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 thefunctionality 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 returnrelative to the delivered item or delivery or performance of the undelivered item is considered probable and substantially in the control of the Company. In such 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 inwhich 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 basedon the aforementioned selling price hierarchy.The Company determines the selling price in its multiple-element arrangements by reviewing historical transactions, and considering internal factors including, but notlimited to, pricing practices including discounting, margin objectives, and competition. The determination of estimated selling price ("ESP") is made through consultationwith management, taking into consideration the pricing model and strategy.When sale arrangements include a customer acceptance provision, revenue is recognized when the Company has demonstrated that the criteria specified in the acceptanceprovision have been satisfied or as the acceptance provision has lapsed and deemed to be attained.To assess the probability of collection for revenue recognition purposes, the Company analyzes historical collection experience, current economic trends and the financialposition of its customers. On the basis of these criterions, the Company concludes whether revenue recognition should be deferred and recognized on a cash basis.When applicable, the Company records a provision for estimated sale returns, stock rotation and credits granted to customers on products in the same period the relatedrevenues are recorded in accordance with ASC 605. These estimates are based on historical sales returns, stock rotations and other known factors.Deferred revenue includes unearned amounts received in its arrangements, and amounts received from customers but not recognized as revenues due to the fact that thesetransactions did not meet the revenue recognition criteria.F - 17CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.) m.Research and development expenses, net: Research and development expenses, net are charged to the statement of operations as incurred.n.Warranty costs:The Company generally offers a standard limited warranty, including parts and labor for an average period of 1-3 years for its products. The Company estimates the coststhat may be incurred under its basic limited warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect theCompany's warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assessesthe adequacy of its recorded warranty liability and adjusts the amounts as necessary. The Company recorded income from decrease of warranty provision for the yearsended December 31, 2014, 2015 and 2016 in the amount of $ 133, $ 139 and $ 252, respectively. As of December 31, 2015 and 2016, the warranty provision was $ 2,712 and$ 2,460, respectively.o.Derivative instruments:The Company has instituted a foreign currency cash flow hedging program using foreign currency forward contracts ("derivative instruments") in order to hedge theexposure to variability in expected future cash flows resulting from changes in related foreign currency exchange rates. These transactions are designated as cash flowhedges, as defined under ASC topic 815, "Derivatives and Hedging".ASC 815 requires companies to recognize all of their derivative instruments as either assets or liabilities in the financial statements at fair value. The Company measured thefair value of the contracts in accordance with ASC topic 820, "Fair value Measurement and Disclosures" at Level 2 (see also note 2v). The accounting for changes in the fairvalue (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type ofhedging relationship.For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure beinghedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation.For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to aparticular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss), net of taxes andreclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The non-effective portion of the derivative's change in fairvalue is recognized in earnings.F - 18CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)For derivative instruments that are designated as fair value hedges to hedge foreign currency risks for our exposure denominated in currencies other than the U.S. dollar. Gains and losses on these forward contracts are recognized in earnings.The Company's cash flow hedging program is to hedge against the risk of overall changes in cash flows resulting from forecasted foreign currency salary payments duringthe year. The Company hedges portions of its forecasted expenses denominated in NIS with forward exchange contracts. These forward exchange contracts are designatedas cash flow hedges, as defined by ASC 815 and Derivative Implementation Group No. G20, "Cash Flow Hedges: Assessing and Measuring the Effectiveness of a Purchasedoption Used in a Cash Flow Hedge" ("DIG 20") and are all effective.p.Concentrations of credit risk:Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, short-termbank deposits, marketable securities, trade receivables and trade payables.The majority of the Company's cash and cash equivalents and short-term bank deposits are invested in U.S. dollar instruments with major banks worldwide. Such cash andcash equivalents and deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Generally, these cash and cash equivalentsand deposits may be redeemed upon demand and, therefore, bear minimal risk. Management believes that the financial institutions that hold the Company's and itssubsidiaries' investments are institutions with high credit standing, and accordingly, minimal credit risk exists with respect to these investments.The Company's trade receivables are geographically diversified and derived from sales to customers mainly in the Europe, Latin America and Asia. The Company and itssubsidiaries generally do not require collateral; however, in certain circumstances, the Company and its subsidiaries may require letters of credit, additional guarantees oradvance payments.The Company and its subsidiaries perform ongoing credit evaluations of their customers and insure certain trade receivables under credit insurance policies.F - 19CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.) q.Allowance for doubtful debt:An allowance for doubtful accounts is determined with respect to specific receivables, of which the collection may be doubtful. The Company charges off receivables whenthey are deemed uncollectible.r.Transfers of financial assets:ASC 860 "Transfers and Servicing", ("ASC 860"), establishes a standard for determining when a transfer of financial assets should be accounted for as a sale. TheCompany's arrangements are such that the underlying conditions are met for the transfer of financial assets to qualify for accounting as a sale. The transfers of financialassets are typically performed by the factoring of receivables to three financial institutions.As of December 31, 2015 and 2016, the Company sold trade receivables to several different financial institutions in a total net amount of $ 14,443 and $ 14,306, respectively.Control and risk of those trade receivables were fully transferred in accordance with ASC 860.The agreements, pursuant to which the Company sells its trade receivables, are structured such that the Company (i) transfers the proprietary rights in the receivable fromthe Company to the financial institution; (ii) legally isolates the receivable from the Company's other assets, and presumptively puts the receivable beyond the lawful reachof the Company and its creditors, even in bankruptcy or other receivership; (iii) confers on the financial institution the right to pledge or exchange the receivable; and(iv) eliminates the Company's effective control over the receivable, in the sense that the Company is not entitled and shall not be obligated to repurchase the receivable otherthan in case of failure by the Company to fulfill its commercial obligation.s.Severance pay:The Company's severance pay liability for its Israeli employees is calculated pursuant to Israel's Severance Pay Law based on the most recent salary of the employeesmultiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month's salary for each year of employment or a portion thereof.The Company's liability for all of its employees in Israel is fully covered by monthly deposits with pension funds, insurance policies and an accrual. The value of the fundsdeposited into pension funds and insurance policies is recorded as an asset - severance pay fund - in the Company's balance sheet.The severance pay fund includes the deposited funds and accumulated adjustments to the Israeli Consumer Price Index up to the balance sheet date. The deposited fundsmay be withdrawn only upon the fulfillment of the obligation pursuant to Israel's Severance Pay Law or labor agreements. The value of the deposited funds in insurancepolicies, is based on the cash surrendered value of these policies, and includes profits / losses.F - 20 December 31, 2014 2015 2016 Dividend yield 0% 0% 0%Volatility 49%-65% 48%-70% 51%-73%Risk free interest 0.1%-2.40% 0.1%-2.40% 0.2%-2.1%Early exercise multiple 2.20-2.80 2.60-3.40 2.20-3.40CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)Starting April 2009, the Company's agreements with new employees in Israel are under section 14 of the Severance Pay Law -1963. The Company's contributions forseverance pay shall replace its severance obligation, no additional calculations shall be conducted between the parties regarding the matter of severance pay and noadditional payments shall be made by the Company to the employee. Further, the related obligation and amounts deposited on behalf of such obligation are not stated on thebalance sheet, as the Company is legally released from obligation to employees once the deposit amounts have been paid.As of December 2015 and 2016, accrued severance pay amounted to $ 6,914 and $ 6,825, respectively. Severance expense for the years ended December 31, 2014, 2015 and2016, amounted to approximately $ 1,964, $ 2,130 and $ 1,662, respectively.t.Pension accrual:The Company accounts, for its obligations for pension and other postretirement benefits, in accordance with ASC 715, "Compensation - Retirement Benefits". For moreinformation refer to note 10.u.Accounting for stock-based compensation:ASC topic 718, "Compensation - Stock Compensation", ("ASC 718"), requires companies to estimate the fair value of equity-based payment awards on the date of grantusing 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 theCompany's consolidated statements of operations.The Company estimates the fair value of stock options granted under ASC 718 using the binomial model with the following weighted-average assumptions for 2014, 2015 and2016:Risk-free interest rates are based on the yield from U.S. Treasury zero-coupon bonds with a term equivalent to the contractual life of the options; volatility of price of theCompany's shares based upon actual historical stock price movements. The Early exercise factor is representing the value of the underlying stock as a multiple of the exerciseprice of the option which, if achieved, results in exercise of the option. F - 21CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)Early exercise multiple is based on actual historical exercise activity. The expected term of the options granted is derived from output of the option valuation model andrepresents the period of time that options granted are expected to be outstanding.The Company recognizes compensation expense using the accelerated method for all awards ultimately expected to vest. Estimated forfeitures are based on historical pre-vesting forfeitures and on management's estimates. ASC topic 718 requires forfeitures to be estimated and revised, if necessary, in subsequent periods if actual forfeituresdiffer from those estimates.v.Fair value of financial instruments:The Company applies ASC 820, "Fair Value Measurements and Disclosures". Under this standard, fair value is defined as the price that would be received to sell an asset orpaid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use ofobservable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs thatmarket participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs areinputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best informationavailable in the circumstances.The hierarchy is broken down into three levels based on the inputs as follows:Level 1 -Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discountsare not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation ofthese products does not entail a significant degree of judgment.Level 2 -Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.Level 3 -Valuations based on inputs that are unobservable and significant to the overall fair value measurement.F - 22CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, theliquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservablein the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.The following methods and assumptions were used by the Company and its subsidiaries in estimating their fair value disclosures for financial instruments:The carrying amounts of cash and cash equivalents, short-term bank deposits, trade receivables, other accounts receivable, trade payables, and other accounts payable andaccrued expenses approximate their fair values due to the short-term maturities of such instruments.The derivative instruments are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.w.Restructuring costs:The Company accounts for restructuring activities in accordance to ASC topic 420, "Exit or Disposal Cost Obligations" and ASC 712 "Compensation-NonretirementPostemployment Benefits" ("ASC 712"), which requires that a liability for a cost associated with an exit or disposal activity be recognized and measured, initially at fair value,only when the liability is incurred and for contractual postemployment benefits under ASC 712 when it is probable that the employees will be entitled to the benefits, theamount is estimable. For more information regarding impairment of long lived assets related to the restructuring plan, see note 2i. x.Comprehensive income:The Company accounts for comprehensive income in accordance with ASC topic 220, "Comprehensive Income". This statement establishes standards for the reporting anddisplay of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income generally represents all changes instockholders' equity during the period except those resulting from investments by, or distributions to, stockholders.F - 23 UnrealizedGains (Losses)onCash FlowHedges ForeignCurrencyTranslationAdjustments Total Balance as of January 1, 2016 $(163) $(8,453) $(8,616) Other comprehensive income (loss) before reclassifications 168 861 1,029 Amounts reclassified from AOCI (261) - (261) Other comprehensive income (loss) (93) 861 768 Balance as of December 31, 2016 (256) (7,592) (7,848)CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.)The components of AOCI, net of tax, were as follows:The effects on net income of amounts reclassified from AOCI for the year ended December 31, 2016 derive from realized gains on Cash Flow Hedges, included in operatingexpenses.y.Treasury shares:The Company repurchased its ordinary shares on the open-market and holds such shares as Treasury shares. The Company presents the cost of repurchased treasuryshares as a reduction of shareholders' equity.z.Basic and diluted net earnings per share:Basic net earnings per share are computed based on the weighted average number of ordinary shares outstanding during each year. Diluted net earnings per share iscomputed based on the weighted average number of ordinary shares outstanding during each year, plus dilutive potential ordinary shares considered outstanding during theyear, in accordance with ASC topic 260, "Earnings Per Share" ("ASC 260").The total weighted average number of shares related to the outstanding options excluded from the calculations of diluted net earnings per share due to their anti-dilutiveeffect was 6,895,891, 5,679,468 and 3,848,290 for the years ended December 31, 2014, 2015 and 2016, respectively.aa.Going concern: In 2016, the Company adopted ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern (ASU 2014-15), that provides guidance onmanagement's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and to provide related footnotedisclosures. The adoption of ASU 2014-15 don't have any impact on the consolidated financial statements or related disclosures.F - 24CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.) ab.Reclassifications: Certain amounts in prior years' financial statements have been reclassified to conform to the current year's presentation. The reclassification had no effect on previouslyreported net income (loss) or shareholders' equity. ac.Impact of recently issued Accounting Standards: In November 2015, the FASB issued Accounting Standards Update No. 2015-17 (ASU 2015-17) “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”.ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separate classification of deferred income tax liabilities and assets into current andnoncurrent amounts in the consolidated balance sheet statement of financial position. The amendments in the update require that all deferred tax liabilities and assets beclassified as noncurrent in the consolidated balance sheet. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interimperiods therein and may be applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. The Company has early adopted thisstandard in the fourth quarter of 2016 on a retrospective basis. Prior periods have been retrospectively adjusted. As a result of the adoption of ASU 2015-17, the Companymade the following adjustments to the December 31, 2015 balance sheet: a $1,633 decrease to current deferred tax assets and a corresponding increase to noncurrent deferredtax asset. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02-Leases (ASC 842), which sets out theprinciples for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lesseesto apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by thelessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease,respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of theirclassification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors toaccount for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASC 842supersedes the previous leases standard, ASC 840. The standard is effective on January 1, 2019, with early adoption permitted. The Company is currently evaluating theimpact of the adoption of this standard on its consolidated financial statements. In March 2016, the FASB issued ASU 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships”(“ASU 2016-05”), which clarifies that a change in the counter party to a derivative instrument designated as a hedging instrument does not require de-designation of thathedging relationship, provided that all other hedge accounting criteria are met. The new guidance is effective for fiscal years beginning after December 15, 2016, includinginterim periods within this fiscal year. The Company is currently in the process of evaluating the impact of the adoption of ASU 2016-05 on its consolidated financialstatements. In March 2016, the FASB issued ASU 2016-09, "Compensation – Stock Compensation", which effects all entities that issue share-based payment awards to their employees.The amendments in this ASU cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement ofcash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and theclassification of those taxes paid on the statement of cash flows. This ASU is effective for annual and interim periods beginning after December 15, 2016. This guidance canbe applied either prospectively, retrospectively or using a modified retrospective transition method. Early adoption is permitted. The Company does not expect that this newguidance will have a material impact on the Company's Consolidated Financial Statements.F - 25CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 2:-SIGNIFICANT ACCOUNTING POLICIES (Cont.) In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amendsthe impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition oflosses. ASU 2016-13 also applies to employee benefit plan accounting, with an effective date of the first quarter of fiscal 2022. The amendments in this update are effectivefor fiscal years beginning after December 31, 2019, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of thisstandard on its consolidated financial statements, footnote disclosures and employee benefit plans’ accounting. In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates thediversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, thesettlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees andbeneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certaincomponents of these cash receipts and payments among operating, investing and financing activities. The retrospective transition method, requiring adjustment to allcomparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively as of the earliestdate practicable. The standard is effective on January 1, 2019. The Company is currently assessing the impact of the adoption of this standard on its consolidated financialstatements and footnote disclosures. In October 2016, the Financial Accounting Standards Board, ("FASB") issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory, whichrequires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The standard is effective forfiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of a fiscal year. The newstandard should be adopted on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period ofadoption. The Company is currently in the process of evaluating the impact of this new pronouncement on its consolidated financial statements and related disclosures. In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This standard requires the presentation of the statement of cash flowsto show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. The standard is effective for fiscal years and the interim periodswithin those fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the timing of adoption and the effects of theadoption of this ASU on the consolidated financial statements. In May 2014, the FASB issued a new standard related to revenue recognition. Under the new standard, revenue is recognized when a customer obtains control of promisedgoods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, thestandard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has recently issuedseveral amendments to the standard, including clarification on identifying performance obligations. The guidance permits two methods of modification: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with thecumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Company currentlyevaluating the method of adoption. The new standard will be effective for the Company beginning January 1, 2018, and adoption as of the original effective date of January 1, 2017 is permitted. The Companywill adopt the new standard as of January 1, 2018. The Company has made progress toward completing its evaluation of the potential changes from adopting this new standard on its financial reporting and disclosures. TheCompany has evaluated the impact of the standard on majority of its revenue streams and associated contracts. The Company formed an implementation work group andexpects to complete the evaluation of the impact of the accounting and disclosure changes on its business processes, controls and systems throughout 2017, design anychanges to such business processes, controls and systems, and implement the changes before the end of 2017. Currently, the Company is analyzing the impact that the adoption of the standard will have on specific performance obligations and variable consideration transactions. Inaddition, incremental costs that are related to sales from contracts signed during the period would require capitalization. The company also will consider if there is asignificant financing component if the time between payment and delivery is more than one year. The Company continues to assess all potential impacts under the new revenues standard. F - 26 December 31, 2015 2016 Government authorities $6,219 $7,856 Advances to suppliers 3,593 668 Deferred charges and prepaid expenses 8,379 4,304 Financial institutions 3,411 3,493 Other 2,177 755 $23,779 $17,076 December 31, 2015 2016 Raw materials $6,984 $7,651 Work in progress 252 232 Finished products 42,454 37,764 $49,690 $45,647 CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 3:-OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES NOTE 4:-INVENTORIES During the year ended December 31, 2014, 2015 and 2016, the Company recorded inventory write-offs for excess inventory and slow moving inventory in a total amount of $ 3,515,$ 5,124 and $ 4,503, respectively that have been included in cost of revenues. F - 27 December 31, 2015 2016 Cost: Computers, manufacturing, peripheral equipment $86,244 $90,397 Office furniture and equipment 2,903 2,938 Leasehold improvements 1,161 1,079 90,308 94,414 Accumulated depreciation: Computers, manufacturing, peripheral equipment 58,469 63,656 Office furniture and equipment 2,084 2,435 Leasehold improvements 849 763 61,402 66,854 Depreciated cost $28,906 $27,560 CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 5:- PROPERTY AND EQUIPMENT, NETDepreciation expenses for the years ended December 31, 2014, 2015 and 2016 were $ 11,377, $ 10,338 and $ 8,389 respectively. Changes of property and equipment not resulted in cash flow outflows as of December 31, 2015 and 2016 amounted of $ (1,013) and $ (1,221), respectively.F - 28 December 31, 2015 2016 Original amounts: Technology $8,600 $8,600 Trademarks 800 800 Customer relationships 7,970 7,970 17,370 17,370 Accumulated amortization: Technology 6,082 7,314 Trademarks 800 800 Customer relationships 7,296 7,712 14,178 15,826 Intangible assets, net $3,192 $1,544 CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 6:- INTANGIBLE ASSETS, NETa. Intangible assets:The following table sets forth the components of intangible assets associated with the Nera Acquisition: Customer relationships represent relationships with customer through whom Nera generates its revenue, capable of being separated or divided from the entity and sold, ortransferred.Technology includes Nera's internally developed proprietary technologies, features, platforms, and offerings, capable of being separated or divided from the entity and sold,transferred, or licensed.Trade names value consists of the right to use for two years Nera's trade names, trademarks, logos and URLs, capable of being separated or divided from the entity and sold,transferred, or licensed.b.Amortization expense for the years ended December 31, 2014, 2015 and 2016 amounted to $ 2,121, $ 1,865 and $1,648 respectively.c.The estimated future amortization expense of purchased intangible assets as of December 31, 2016 is $ 1,544 which will be charged in 2017.F - 29 December 31, 2015 2016 Employees and payroll accruals $11,352 $11,099 Provision for warranty costs 2,712 2,460 Government authorities 4,820 3,655 Accrued expenses 5,035 4,128 Other accounts payables 3,133 1,083 $27,052 $22,425 CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 7:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSESF - 30CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 8:- LOAN AND CREDIT LINESIn March 2013, the Company was provided with a revolving Credit Facility by four financial institutions, under which a sum of up to $ 40,200 in the form of bank guarantees and$ 73,500 in the form of loans was available. The agreement replaced all of the Company's previously existing credit facilities. Each portion of the Credit Facility was operated by itsfurnishing financial institution.The Credit Facility was secured by a floating charge over all Company assets as well as several customary fixed charges on specific assets and subject to certain financialcovenants.Repayment could have been accelerated by the financial institutions in certain events of default including in insolvency events, failure to comply with financial covenants or anevent in which a current or future shareholder acquires control (as defined under the Israel Securities Law) of the Company.During 2014 and 2015 the Company amended its Credit Facility arrangements. The loan facility was reduced gradually to $ 50,000 and few financial covenants, interest rates and feeswere adjusted. In addition, the Company was allowed to discount LC (Letter of Credit) from one of its customers up to $ 54,000 which was in addition to the existing $ 20,000receivables factoring limit. 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 (fromJune 30, 2016).In December 2016, the Company signed a further amendment to its agreement with the four financial institutions to increase the allowed discounting activities of LC receivables to$ 94,000.In March 2017, the Company signed a further amendment to its agreement with the four financial institutions to extend the credit facility repayment date to March 31, 2018. One ofthe four bank had to terminate its participation in the agreement because of regulatory constraints and its share in the Credit Facility was re-distributed by the other three on a pro-rata basis. In addition the credit facility for bank guarantees was increased to $ 50,200. Other change adjusted the fees and interest spread to the same levels of the originalagreement from March 2013.As of December 31, 2016 the Company utilized $ 17,000 out of $ 50,200 of available credit lines from several banks. The credit lines carry interest rates in the range of Libor+3.3% andLibor+3.4%.The credit agreement contains financial and other covenants requiring that the Company maintains, among other things, minimum shareholders’ equity value and financial assets, acertain 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 andaccounts receivable. As of December 31, 2016 and 2015, the Company met all of its covenants.F - 31 Loss recognizedin Statements ofComprehensiveloss Gain (loss) recognizedin consolidated statements of operations December 31, Statement of Year ended December 31, 2016 Operations item 2014 2015 2016 Derivatives designated as hedging instruments: Foreign exchange option and forward contract $(256)Operating expenses $(495) $110 $261 Derivatives not designated as hedging instruments: Foreign exchange forward contracts - Financial expenses (240) 705 (452) Total $(256) $(735) $815 $(191) December 31, Balance sheet 2015 2016 Derivatives designated as hedging instruments: Foreign exchange forward contracts"Other account receivables and prepaid expenses" $- $21 "Other account payables and accrued expenses" $(163) $(277) "Other comprehensive income (loss)" $(163) $(256) Derivatives not designated as hedging instruments: Foreign exchange forward contracts and other derivatives"Other receivables and prepaid expenses" $138 $176 "Other account payables and accrued expenses" $(395) $(79)CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 9:-DERIVATIVE INSTRUMENTSAs of December 31, 2015, the Company had outstanding forward exchange contracts designated as cash flow hedge for the acquisition of NIS 122,407 in consideration for $ 31,686maturing, in a period of up to one year. As of December 31, 2016, the Company had outstanding forward exchange contracts designated as cash flow hedge for the acquisition ofNIS 71,274 in consideration for $ 18,890 maturing in a period of up to one year. The Company also enters into forward exchange contracts to hedge a portion of its certain monetary items in the balance sheet, such as trade receivables and trade payablesdenominated in foreign currencies for a period of up to one month (the "Fair Value Hedging Program"). The purpose of the Company's Fair Value Hedging Program is to protect thefair value of the monetary assets from foreign exchange rates fluctuations. Gains and losses from derivatives related to the Fair Value Hedging Program are not designated ashedging instruments.F - 32 December 31, 2015 2016 Accumulated benefit obligation $2,362 $2,444 Change in projected benefit obligation Projected benefit obligation at beginning of year 3,243 2,362 Liability assumed at the acquisition date of Nera Service cost 16 18 Interest cost 53 55 Expenses paid (315) (322)Exchange rates differences (417) 56 Actuarial loss (gain) (218) 204 Projected benefit obligation at end of year $2,362 $2,373 Fair value of plan assets at end of year $- $- CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 10:- PENSION LIABILITIES, NETThe Norwegian subsidiary Ceragon Networks AS (formerly "Nera Networks AS") has defined contribution schemes and 4 unfunded pension plans.Under the defined contributions scheme Ceragon Networks AS makes a payment to the insurance company who administer the fund on behalf of the employee. Ceragon NetworksAS has no liabilities relating to such schemes after the payment to the insurance company. As of December 31, 2016, almost all active employees are in this scheme. Thecontribution and the corresponding social security taxes are recognized as payroll expenses in the period to which the employee's services are rendered. The defined pensioncontribution schemes meet the requirements of the law on compulsory occupational pension. Defined benefit scheme was stopped for admission from December 1, 2007, and persons that were employed after that date were automatically entered into the defined contributionscheme. The schemes give right to defined future benefits. These are mainly dependent on the number of qualifying employment years, salary level at pension age, and the amountof benefits from the national insurance scheme. The commitment related to the pension scheme is covered through an insurance company. As of December 31, 2016 the pensionscheme has 0 members.AFP-scheme - in force from 1 January 2011, the AFP-scheme is a defined benefit multi-enterprise scheme, but is recognized in the accounts as a defined contribution scheme untilreliable and sufficient information is available for the group to recognize its proportional share of pension cost, pension liability and pension funds in the scheme. CeragonNetworks AS's liabilities are therefore not recognized as liability in the balance sheet.The liabilities in respect of Ceragon Networks AS's pension plans have been recalculated based on updated employee numbers as at December 31, 2016. These plans togetherrepresent 100% of the PBO of the entire group.The following tables provide a reconciliation of the changes in the plans' benefits obligation for the year ended December 31, 2016, and the statement of funds status as ofDecember 31, 2016:F - 33 December 31, 2015 2016 Weighted-average assumptions Discount rate 2.70% 2,30%Rate of compensation increase 2.50% 2.25% December 31, 2015 2016 Components of net periodic benefit cost Service cost $16 $18 Interest cost 53 55 Net periodic benefit cost $69 $73 December 31, 2015 2016 2016 290 - 2017 240 270 2018 150 200 2019 and thereafter 700 740 $1,380 $1,210 CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 10:- PENSION LIABILITIES, NET (Cont.)The assumptions used in the measurement of the Company' benefits obligations as of December 31, 2016 is as follows:The amounts reported for net periodic pension costs and the respective benefit obligation amounts are dependent upon the actuarial assumptions used. The Company reviewshistorical trends, future expectations, current market conditions and external data to determine the assumptions. The discount rate is the covered bond. For purposes of calculatingthe 2016 net periodic benefit cost and the 2016 benefit obligation, the Company has used a discount rate of 2.30%. The rate of compensation increase is determined by theCompany, based upon its long-term plans for such increases.The following table provides the components of net periodic benefits cost for the years ended December 31, 2015 and 2016:Benefit payments are expected to be paid as follows:Regarding the policy for amortizing actuarial gains or losses for pension and post-employment plans, the Company has chosen to charge the actuarial gains or losses to statementof operations. For the years ended December 31, 2014, 2015 and 2016, an actuarial gain (loss) of $ (533), $ 174 and $ (204) respectively, was recognized in statements of income (loss).F - 34CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIESa.Lease commitments:The Company and its subsidiaries lease their facilities and motor vehicles under various operating lease agreements that expire on various dates. Aggregate minimum rentalcommitments under non-cancelable leases at December 31, 2016, are as follows:2017 $4,612 2018 1,781 2019 1,185 2020 591 2021 and thereafter 157 $8,326 Expenses for lease of facilities for the years ended December 31, 2014, 2015 and 2016 were approximately $ 5,426, $ 3,797 and $ 4,235, respectively.Expenses for the lease of motor vehicles for the years ended December 31, 2014, 2015 and 2016 were approximately $ 1,174, $ 1,175 and $ 735, respectively.b.During 2015 and 2016, the Company received several grants from the Israeli Innovation Authority("IIA"). The grants require the Company to comply with the requirements ofthe Research and Development Law, however, the Company is not obligated to pay royalties on sales of products based on technology or know how developed from thegrants. In a case involving the transfer of technology or know how developed from the grants outside of Israel, the Company may be required to pay royalties related to pastsales of products based on the technology or the developed know how. The Company recorded income from IIA grants for the years ended December 31, 2014, 2015 and 2016in the amount of $ 1,092, $ 1,318 and $ 2,536, respectively.c.Charges and guarantees:As of December 31, 2015 and 2016, the Company provided bank guarantees in an aggregate amount of $ 25,410 and $ 32,203, respectively, with respect to tender offerguarantees and performance guarantees to its customers.d.Litigations:The Company is currently involved in various claims and legal proceedings. The Company reviews the status of each matter and assesses its potential financial exposure. Ifthe potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimatedloss.F - 35CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)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 asdefendants. 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 theCompany's SEC filings and public statements. The Company filed its defense on June 21, 2015, and on October 22, 2015 the plaintiff filed a request for discovery of specificdocuments. The Company filed its response to the plaintiffs' request for discovery on January 25, 2016 and the plaintiffs submitted their response on February 24, 2016. OnJune 8, 2016, the District Court partially accepted the plaintiff's request for discovery, and ordered the Company to disclose some of the requested documents. TheCompany's request to appeal this decision was denied by the Supreme Court on October 25, 2016, and the Company disclosed the required documents to the plaintiff. Theplaintiff filed his reply to the Company’s response to the motion on April 2, 2017. A preliminary hearing has been set to May 8, 2017. The plaintiff seeks specifiedcompensatory damages in a sum of up to $75,000,000, as well as attorneys’ fees and costs. The initial procedure (i.e. until the District Court decides whether to approve the motion or to deny it) has been conducted for over 2 years now. The Company is unable toestimate how long it is expected to last. The Company believes that the District Court should deny the motion. There is no assurance that the Company's position will beaccepted 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 expenses that may bebeyond 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.The Company believes it has strong defense claims and intends to vigorously defend its position. The Company cannot assess the outcome of this claim due its early stage.Therefore, the company did not record a provision as of December 31, 2016.NOTE 12:- SHAREHOLDERS' EQUITYThe ordinary shares of the Company are traded on Nasdaq Global Market and on the Tel Aviv Stock Exchange, under the symbol "CRNT".a.General:The ordinary shares entitle their holders to receive notice to participate and vote in general meetings of the Company, the right to share in distributions upon liquidation ofthe Company, and to receive dividends, if declared.F - 36CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 12:- SHAREHOLDERS' EQUITY (Cont.)b.In August 2014, the Company completed a public offering of its shares on NASDAQ. The Company issued 21,250,000 of its ordinary shares, nominal value NIS 0.01 per shareat a price of $ 1.89 per share before issuance expenses. The Company also granted to the underwriters the option to purchase up to 2,850,000 additional ordinary shareswithin 30 days, which was fully exercised. Total net proceeds from the issuance amounted to approximately $ 45,149, net of issuance expenses in the amount of $ 400.c.Stock options plans:1.In 2003, the Company adopted a share option plan (the "Plan"). Under the Plan, options and RSU’s may be granted to officers, directors, employees and consultants ofthe Company or its subsidiaries. The options vest primarily over four years. The options expire ten years from the date of grant. In December 2012, the Companyextended the term of the Plan for an additional period of ten years.Upon adoption of the Plan, the Company reserved for issuance 8,639,000 ordinary shares in accordance with the respective terms thereof. Any options or RSU’s, whichare canceled or forfeited before the expiration date, become available for future grants. As of December 31, 2016, the Company has 779,327 Ordinary shares available forfuture grant under the Plan.2.On September 6, 2010, the Company's board of directors amended the Plan so as to enable to grant Restricted Share Units ("RSUs") pursuant to such Plan.F - 37 Year endedDecember 31, 2016 Numberof options Weightedaverageexerciseprice Weightedaverageremainingcontractualterm(in years) Aggregateintrinsicvalue Outstanding at beginning of year 6,465,782 $4.81 4.76 $88 Granted 1,777,875 $1.43 Exercised (72,832) $1.18 Forfeited or expired (680,652) $6.78 Outstanding at end of the year 7,490,173 $3.86 4.33 $6,003 Options exercisable at end of the year 4,021,641 $6.01 3.92 $1,639 Vested and expected to vest 6,611,066 $4.20 4.26 $4,842 Year endedDecember 31, 2016 Numberof RSUs Aggregateintrinsicvalue Outstanding at beginning of year 106,768 $120 Granted - Exercised (59,233) Forfeited - Outstanding at end of the year 47,535 $125 Vested and expected to vest 43,118 $113 CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 12:- SHAREHOLDERS' EQUITY (Cont.) 3.The following is a summary of the Company's stock options and RSUs granted among the various plans: The Company's options are generally granted at exercise prices which are equal to the average market value of the ordinary shares in the period of 30 trading days priorto the grant date. The weighted average grant date fair value of the options granted during 2014, 2015 and 2016 were $ 0.96, $ 0.54 and $ 0.78, respectively. No RSUs weregranted during 2015 and 2016. The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the Company's closing stock price on the last trading day ofthe year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercisedtheir options on the last day of the year.F - 38CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES Exercise price(range) Options and RSUsoutstandingas ofDecember 31, 2016 Weightedaverageremainingcontractuallife (years) Weightedaverageexerciseprice Options and RSUsexercisableas ofDecember 31, 2016 Remainingcontractual life(years forexercisable options Weightedaverageexerciseprice $ $ $ RSUs 0.0 47,535 0.00 - 0.01-2.00 4,015,854 4.65 1.19 1,064,599 4.36 1.19 2.01-4.00 921,522 4.72 2.49 420,067 4.37 2.62 4.01-6.00 933,139 2.94 5.22 917,317 2.88 5.23 6.01-8.00 41,500 5.39 6.84 41,500 5.39 6.84 8.01-10.00 845,074 4.17 9.07 845,074 4.17 9.07 10.01-13.04 733,084 3.94 12.35 733,084 3.94 12.35 7,537,708 4,021,641 Year endedDecember 31, 2014 2015 2016 Cost of revenues $215 $73 $30 Research and development 1,625 736 151 Selling and marketing 674 495 369 General and administrative 831 321 521 Total stock-based compensation expenses $3,345 $1,625 $1,071 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 12:- SHAREHOLDERS' EQUITY (Cont.) This amount is impacted by the changes in the fair market value of the Company's shares. Total intrinsic value of options and RSUs exercised during the years endedDecember 31, 2015 and 2016 were $ 480 and $ 238, respectively. As of December 31, 2016, there was $ 1,085 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. This cost is expected to be recognized over a weighted-average period of 0.92 years. The following is a summary of the Company's stock options and RSUs granted separated into ranges of exercise price: The total equity-based compensation expense related to all of the Company's equity-based awards, recognized for the years ended December 31, 2014, 2015 and 2016,was comprised as follows:F - 39CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)d.Dividends:In the event that cash dividends are declared in the future, such dividends will be paid in NIS or in foreign currency subject to any statutory limitations. The Company doesnot intend to pay cash dividends in the foreseeable future.NOTE 13:- TAXES ON INCOMEa.Israeli taxation:1.Measurement of taxable income:The Company has elected to file its tax return under the Israeli Income Tax Regulations 1986 (Principles Regarding the Management of Books of Account of ForeignInvested Companies and Certain Partnerships and the Determination of Their Taxable Income). Accordingly, starting tax year 2003, results of operations in Israel aremeasured in terms of earnings in U.S. dollars.2.Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the "Law"):According to the Law, the Company is entitled to various tax benefits by virtue of the "approved enterprise" and/or " benefited enterprise" status granted to part oftheir enterprises, as implied by this Law. The principal benefits by virtue of the Law are:According to the provisions of the Law, the Company has chosen to enjoy the "Alternative" track. Under this track, the Company is tax exempt in the first two yearsof the benefit period and subject to tax at the reduced rate of 10%-25% for the remaining benefit period.For receiving the benefits under the alternative track, there is a minimum qualifying investment. This condition requires an investment in the acquisition of productiveassets such as machinery and equipment which must be carried out within three years.The minimum qualifying investment required for setting up a plant is NIS 300 thousand. As for plant expansions, the minimum qualifying investment is the higher ofNIS 300 thousand and an amount equivalent to the "qualifying percentage" of the value of the productive assets. Productive assets that are used by the plant but notowned by it will also be viewed as productive assets. The Company was eligible under the terms of minimum qualifying investment and elected 2006 and 2009 as its"years of election".F - 40The value of productiveassets before the expansion(NIS in millions) The new proportion that therequired investment bears to thevalue of productive assets Up to NIS 140 12%NIS 140 - NIS 500 7%More than NIS 500 5%CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 13:- TAXES ON INCOME (Cont.)The qualifying percentage of the value of the productive assets is as follows:The income qualifying for tax benefits under the alternative track is the taxable income of a company that has met certain conditions as determined by the Law ("aBenefited company"), and which is derived from an industrial enterprise. The Law specifies the types of qualifying income that is entitled to tax benefits under thealternative track with respect of an industrial enterprise, whereby income from an industrial enterprise includes, among others, revenues from the production anddevelopment of software products and revenues from industrial research and development activities performed for a foreign resident (and approved by the Head ofthe Administration of Industrial Research and Development).The benefit period starts with the first year the Benefited enterprise earns taxable income, provided that 14 years have not passed since the approval was granted and12 years have not passed since the enterprise began operating. In respect of expansion programs pursuant to Amendment No. 60 to the Law, the benefit period startsat the later of the year elected and the first year the Company earns taxable income provided that 12 years have not passed since the beginning of the year of election.The respective benefit period has not yet begun.The above benefits are conditional upon the fulfillment of the conditions stipulated by the Law, regulations published thereunder and the letters of approval for theinvestments in the approved enterprises, as above. Non-compliance with the conditions may cancel all or part of the benefits and refund of the amount of thebenefits, including interest. As of December 31, 2016, the management believes that the Company is in compliance with all of the aforementioned conditions.The Company is also a "foreign investors' company", as defined by the Capital Investments Law, and, as such, is entitled to a 10-year period of benefits and may beentitled to reduced tax rates of between 10% to 25% (depending on the percentage of foreign ownership in each tax year).The Company has three capital investment programs that have been granted approved enterprise status, under the Law and two programs under benefited enterprisestatus pursuant to Amendment 60.F - 41CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 13:- TAXES ON INCOME (Cont.)Income from sources other than the "Approved Enterprise" and "Benefited Enterprise" during the benefit period will be subject to the tax at the regular tax rate. Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 68):Effective January 1, 2011, the "Knesset" (Israeli Parliament) enacted the Law for Economic Policy for 2011 and 2012 (Amended Legislation), and among other things,amended the Law, ("Amendment 68"). According to the Amendment, the benefit tracks in the Investment Law were modified and a flat tax rate applies to preferredenterprise entire preferred income. The Company can elect to apply Amendment by waiving its benefits under the approved enterprise and benefited enterpriseprograms. According to the Amendment, the tax rate on preferred income form a preferred enterprise in 2014 and thereafter will be 16% (in development area A - 9%).The Amendment also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise's earnings in 2014 and thereafter willbe subject to tax at a rate of 20%. The Company has evaluated the effect of the adoption of the Amendment on its financial statements, and as of the date of the approval of the financial statements,the Company believes that it will not apply the Amendment. Accordingly, the Company has not adjusted its deferred tax balances as of December 31, 2016. TheCompany may change its position in the future. In December 2016, the Knesset passed an additional amendment to the Law which provides for additional benefits to Preferred Technological Enterprises by reducingthe tax rate on preferred Technological Enterprise income (as such is defined in Amendment 73) to 12% (the "Amendment"). However, the Amendment has not yetcome into effect as regulations for implementation of have not yet been promulgated by the Minister of Finance and therefore the Company cannot yet evaluate theeffect of the Amendment on its financial statements.3.Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:The Encouragement Law provides several tax benefits for industrial companies. An industrial company is defined as a company resident and located in Israel, at least90% of the income of which in a given tax year exclusive of income from specified Government loans, capital gains, interest and dividends, is derived from anindustrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity.F - 42 Year endedDecember 31, 2014 2015 2016 Current $(3,382) $3,895 $1,418 Deferred 9,883 1,947 343 $6,501 $5,842 $1,761 Domestic (Israel) $335 $(606) $968 Foreign 6,166 6,448 793 $6,501 $5,842 $1,761 CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 13:- TAXES ON INCOME (Cont.)Management believes that the Company is currently qualified as an "industrial company" under the Encouragement Law and, as such, enjoys tax benefits, including:(1) deduction of purchase of know-how and patents and/or right to use a patent over an eight-year period; (2) the right to elect, under specified conditions, to file aconsolidated tax return with additional related Israeli industrial companies and an industrial holding company; (3) accelerated depreciation rates on equipment andbuildings; and (4) expenses related to a public offering on the Tel-Aviv Stock Exchange and on recognized stock markets outside of Israel, are deductible in equalamounts over three years.Eligibility for benefits under the Encouragement Law is not subject to receipt of prior approval from any Governmental authority. No assurance can be given that theIsraeli tax authorities will agree that the Company qualifies, or, if the Company qualifies, that the Company will continue to qualify as an industrial company or that thebenefits described above will be available to the Company in the future.4.Tax rates:Taxable income of Israeli companies was subject to tax at the rate of 26.5% in the years ended December 31, 2014 and 2015 and 25% in 2016. In December 2016 the Knesset approved amendment 235 to the Income Tax Ordinance which further reduces the corporate tax rate to 24% in 2017 and 23% in 2018 andthereafter. The effective tax rate payable by a company which is taxed under the Investment Law may be considerably lower (see also Note 13.a2 above). Israeli corporations are generally taxed at the corporate income tax rate on their capital gains.b.The income tax expense (benefit) for the years ended December 31, 2014, 2015 and 2016 consisted of the following: F - 43 December 31, 2015 2016 Deferred tax assets: Net operating loss carry forward $64,476 $79,860 Research and Development 5,147 3,843 Other temporary differences mainly relating to reserve and allowances 30,283 28,012 Deferred tax asset before valuation allowance 99,906 111,715 Valuation allowance (97,899) (110,143) Deferred tax asset 2,007 1,572 Deferred tax liabilities: Acquired intangibles (185) (228) Deferred tax asset, net $1,822 $1,344 CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 13:- TAXES ON INCOME (Cont.)c.Deferred income taxes:Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and theamounts used for income tax purposes.Significant components of the Company's deferred tax assets and liabilities are as follows:In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not berealized in each tax jurisdiction. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in whichtemporary differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded a valuation allowance amounting $97,899 and $110,143 at December 31, 2015 and 2016, respectively.d.Net operating loss carry forward and capital loss:The Company has accumulated net operating losses and capital loss for Israeli income tax purposes as of December 31, 2016 in the amount of approximately $ 211,187 and$ 7,870, respectively. The net operating losses may be carried forward and offset against taxable income in the future for an indefinite period.F - 44 Year endedDecember 31, 2014 2015 2016 Domestic $(81,227) $14,479 $(518)Foreign 11,249 (7,626) 13,708 $(69,978) $6,853 $13,190 CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 13:- TAXES ON INCOME (Cont.)As of December 31, 2016, the Company's U.S. subsidiary had a U.S. federal net operating loss carry forward of approximately $ 845 that can be carried forward and offsetagainst taxable income and that expires during the years 2017 to 2031. Utilization of U.S. net operating losses may be subject to substantial annual limitations due to the"change in ownership" provisions of the Internal Revenue Code of 1986 and similar state law provisions. The annual limitations may result in the expiration of net operatinglosses before utilization.As of December 31, 2016, the Company's Norwegian subsidiary had a net operating loss carry forward of approximately $ 12,700 that can be carried forward. The netoperating losses may be carried forward and offset against taxable income in the future for an indefinite period.As of December 31, 2016, the Company's Brazilian subsidiary had a net operating loss carryforward of approximately $ 74,196 that can be carried forward. The net operatinglosses may be carried forward and offset against taxable income in the future for an indefinite period. The offset is limited to a maximum 30% of the annual taxable income.e.Income (Loss) before taxes is comprised as follows:f.Reconciliation of the theoretical tax expense to the actual tax expense:Reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company and the actual tax expense asreported in the Statement of Income (Loss) is as follows:F - 45 Year endedDecember 31, 2014 2015 2016 Income (Loss) before taxes as reported in the consolidated statements of operations $(69,978) $6,853 $13,190 Statutory tax rate 26.5% 26.5% 25% Theoretical tax income on the above amount at the Israeli statutory tax rate $(18,544) $1,816 $3,298 Non-deductible expenses 2,741 1,527 467 Non-deductible expenses related to employee stock options 886 430 268 Changes in tax rate - - 8,900 Losses in respect of which no deferred taxes were generated (including changes in valuation allowance) 20,286 2,003 (10,055)Other 1,132 66 (1,117) Actual tax expense $6,501 $5,842 $1,761 December 31, 2015 2016 Uncertain tax positions, beginning of year $4,659 $6,942 Decreases in tax positions for prior years (3,722) (4,362)Increases in tax positions for prior years 2,875 620 Increase in tax position for current year 3,130 1,486 Uncertain tax positions, end of year $6,942 $4,686 CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 13:- TAXES ON INCOME (Cont.)g.The Company adopted the provisions of ASC topic 740-10, "Income Taxes". A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:The Company has further accrued $ 902 due to interest and penalty related to uncertain tax positions as of December 31, 2016. As of December 31, 2016, the Company is undergoing income and indirect tax audits in Africa. In addition, during 2016, the Company reached an arrangement with theNorwegian IRS resulted in a reduction of $650 in tax positions.F - 46 Year endedDecember 31, 2014 2015 2016 Revenues from sales to unaffiliated customers: North America $40,353 $45,934 $40,236 Europe 58,537 48,637 43,457 Africa 55,954 34,642 19,872 Asia-Pacific and Middle East 42,095 31,929 29,743 India 92,066 105,990 80,247 Latin America 82,107 82,303 80,086 $371,112 $349,435 $293,641 Property and equipment, net, by geographic areas: Israel $26,127 $23,162 Others 2,779 4,398 $28,906 $27,560 CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 14:- SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATIONa.The Company applies ASC topic 280, "Segment Reporting", ("ASC 820"). The Company operates in one reportable segment (see note 1 for a brief description of theCompany's business). The total revenues are attributed to geographic areas based on the location of the end customer.b.The following tables present total revenues for the years ended December 31, 2014, 2015 and 2016 and long-lived assets as of December 31, 2014, 2015 and 2016:c.Major customer data as a percentage of total revenues:In 2014 the company had revenue from a single customer that accounted for approximately 16.1% of total revenues. In 2015, the Company had revenue from a singlecustomer group of affiliated companies equaling 17.7% of total revenues, in 2016 the company had revenue from a single customer that accounted for approximately 16.6% oftotal revenues.F - 47 Year endedDecember 31, 2014 2015 2016 Financial income: Interest on marketable securities and bank deposits $140 $101 $242 Foreign currency translation differences and derivatives 1,567 1,273 966 1,707 1,374 1,208 Financial expenses: Bank charges and interest on loans (7,691) (5,885) (3,794)Foreign currency translation differences (*) (28,491) (9,897) (3,717)Impairment and amortization of premium on marketable securities (*) (3,471) (330) - (39,653) (16,112) (7,511) $(37,946) $(14,738) $(6,303)CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 15:- SELECTED STATEMENTS OF OPERATIONS DATAa.Financial income, net:(*)The amounts for the years ended December 2014 and 2015 include expenses of $ 20,452 and $1,634, respectively, resulting from the devaluation of the local currency inVenezuela, pursuant to SICAD II, and the related realization of certain assets denominated in or linked to the U.S. dollar due to restrictive government policies onpayments in foreign currency. During 2016, the Company recorded $ 907 income upon collection of trade receivables balances at a rate which is higher than the SICADII. In addition, for the year ended December 31, 2014 this amount also includes $ 2,170 related to certain transactions to expatriate cash from Venezuela and Argentina.F - 48 Year endedDecember 31, 2014 2015 2016 Numerator: Numerator for basic and diluted net income (loss) per share - income (loss) available to shareholders ofOrdinary shares $(76,479) $1,011 $11,429 Denominator: Denominator for basic net income (loss) per share - weighted average number of shares 62,518,602 77,239,409 77,702,788 Effect of dilutive securities: Employee stock options and RSU *)- 57,272 910,740 Denominator for diluted net income (loss) per share - adjusted weighted average number of shares 62,518,602 77,296,681 78,613,528 Year endedDecember 31, 2016 Fair value measurementsusing input type Level 2 Total Derivatives instruments $(159) $(159) Total liabilities $(159) $(159)CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 15:- SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)b.Net income per share:The following table sets forth the computation of basic and diluted net earnings per share:*) Anti-dilutive NOTE 16:- FAIR VALUE MEASUREMENT:The Company's financial assets (liabilities) measured at fair value on a recurring basis, excluding accrued interest components, consisted of the following types of instruments:F - 49 Year endedDecember 31, 2015 Fair value measurementsusing input type Level 2 Total Derivatives instruments $(420) $(420) Total liabilities $(420) $(420)CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousands NOTE 16:- FAIR VALUE MEASUREMENT (Cont.) NOTE 17:- RELATED PARTY BALANCES AND TRANSACTIONSMost of the related party balances and transactions are with related companies and principal shareholders. Yehuda Zisapel is a principal shareholder of the Company. Zohar Zisapelis the Chairman of the Board of Directors and a principal shareholder of the Company. Yehuda and Zohar Zisapel are brothers who do not have a voting agreement between them.Jointly or severally, they are also founders, directors and principal shareholders of several other companies that are known as the RAD-BYNET group.Members of the RAD-BYNET group provide the Company on an as-needed basis with information systems, marketing, and administrative services, the Company reimburses eachcompany for its costs in providing these services. The aggregate amount of these expenses was approximately $ 1,699, $ 1,060 and $ 1,668 in 2014, 2015 and 2016, respectively.The Company leases its offices in Israel from real estate holding companies controlled by Yehuda and Zohar Zisapel. The leases for the majority of this facility expire in December2017, with an option to terminate early after three years.Additionally, the Company leases the U.S. subsidiary's office space from a real estate holding company controlled by Yehuda and Zohar Zisapel. The lease for this facility wasterminated in April 2015.The aggregate amount of rent and maintenance expenses related to these properties was approximately $ 2,046 in 2014, $ 2,182 in 2015 and $ 1,963 in 2016.F - 50 Year endedDecember 31, 2014 2015 2016 Cost of revenues $4,613 $3,343 $3,561 Research and development expenses $1,244 $1,465 $1,093 Selling and marketing expenses $914 $737 $733 General and administrative expenses $1,123 $606 $1,109 Purchase of property and equipment $100 $51 $1,019 December 31, 2015 2016 Trade payables, other accounts payable and accrued expenses $1,915 $1,209 CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTSU.S. dollars in thousandsNOTE 17:- RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)The Company has an OEM arrangement with RADWIN, a member of RAD-BYNET group, according to which the Company purchases RADWIN products which are then resold tothe Company's customers. In addition, the Company purchases certain inventory components from other members of the RAD-BYNET group, which are integrated into its products.The aggregate purchase price of these components was approximately $ 4,149, $ 2,911 and $ 2,866 for the years ended December 31, 2014, 2015 and 2016, respectively.The Company purchases certain property and equipment from members of the RAD-BYNET group, the aggregate purchase price of these assets was approximately $ 100, $ 51 and$ 1,019 for the years ended December 31, 2014, 2015 and 2016, respectively.Transactions with related parties: Balances with related parties: F - 51Exhibit 1.2 THE COMPANIES LAW A COMPANY LIMITED BY SHARES ARTICLES OF ASSOCIATION OF CERAGON NETWORKS LTD.(as amended and restated on September 20, 2016) GENERAL PROVISIONS 1. Object and Purpose of the Company (a) The object of the Company is to engage, directly or indirectly, in any lawful undertaking or business whatsoever. (b) In accordance with Section 11(a) of the Companies Law 5759-1999 (the "Companies Law"), the Company may contribute a reasonable amount to a worthy cause. 2. Limitation of Liability The liability of the shareholders is limited to the payment of the nominal value of the shares in the Company allotted to them and which remains unpaid, and only to that amount. If theCompany's share capital shall include at any time shares without a nominal value, the shareholders' liability in respect of such shares shall be limited to the payment of up to NIS 0.01 for eachsuch share allotted to them and which remains unpaid, and only to that amount. 3. Interpretation (a) Unless the subject or the context otherwise requires: words and expressions defined in the Companies Law in force on the date when these Articles or any amendment thereto,as the case may be, first became effective shall have the same meanings herein; words and expressions importing the singular shall include the plural and vice versa; words and expressionsimporting the masculine gender shall include the feminine gender; and words and expressions importing persons shall include bodies corporate. (b) The captions in these Articles are for convenience only and shall not be deemed a part hereof or affect the construction of any provision hereof. 3A Amendment The approval of a resolution adopted in a General Meeting approved by a simple majority of the voting power represented at the meeting in person or by proxy and voting thereon("Shareholders' Resolution") is required to approve any amendment to these Articles of Association.SHARE CAPITAL 4. Share Capital The registered share capital of the Company is One Million Two Hundred Thousand New Israeli Shekels (NIS 1,200,000) divided into One Hundred and Twenty Million (120,000,000)Ordinary Shares of a nominal value of One Agora (NIS 0.01) each. 5. Increase of Share Capital (a) The Company may, from time to time, by a Shareholders Resolution, whether or not all the shares then authorized have been issued, and whether or not all the shares theretoforeissued have been called up for payment, increase its share capital by the creation of new shares. Any such increase shall be in such amount and shall be divided into shares of such nominalamounts, and such shares shall confer such rights and preferences, and shall be subject to such restrictions, as such resolution shall provide. (b) Except to the extent otherwise provided in such resolution, such new shares shall be subject to all the provisions applicable to the shares of the original capital. 6. Special Rights; Modifications of Rights (a) Without prejudice to any special rights previously conferred upon the holders of existing shares in the Company, the Company may, from time to time, by a Shareholders'Resolution, provide for shares with such preferred or deferred rights or rights of redemption or other special rights and/or such restrictions, whether in regard to dividends, voting, repayment ofshare capital or otherwise, as may be stipulated in such resolution. (b) (i) If at any time the share capital is divided into different classes of shares, the rights attached to any class, unless otherwise provided by these Articles, may be modified orabrogated 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 separateGeneral Meeting of the holders of the shares of such class. (ii) The provisions of these Articles relating to General Meetings shall, mutatis mutandis, apply to any separate General Meeting of the holders of the shares of a particularclass. (iii) Unless otherwise provided by these Articles, the enlargement of an existing class of shares, or the issuance of additional shares thereof, shall not be deemed, for purposesof this Article 6(b), to modify or abrogate the rights attached to the previously issued shares of such class or of any other class. 7. Consolidation, Subdivision, Cancellation and Reduction of Share Capital (a) The Company may, from time to time, by Shareholders Resolution (subject, however, to the provisions of Article 6(b) hereof and to applicable law): (i) consolidate and divide all or any of its issued or unissued share capital into shares of larger nominal value than its existing shares, - 2 - (ii) subdivide its shares (issued or unissued) or any of them, into shares of smaller nominal value than is fixed by these Articles of Association (subject, however, to theprovisions of the Companies Law), and the Shareholders Resolution whereby any share is subdivided may determine that, as among the holders of the shares resulting from such subdivision,one or more of the shares may, as compared with the others, have any such preferred or deferred rights or rights of redemption or other special rights, or be subject to any such restrictions, asthe Company has power to attach to unissued or new shares. (iii) cancel any shares which, at the date of the adoption of such resolution, have not been taken or agreed to be taken by any person, and diminish the amount of its sharecapital by the amount of the shares so canceled, or (iv) reduce its share capital in any manner, and with and subject to any incident authorized, and consent required, by law. (b) With respect to any consolidation of issued shares into shares of larger nominal value, and with respect to any other action which may result in fractional shares, the Board ofDirectors may settle any difficulty which may arise with regard thereto, as it deems fit, including, inter alia, resort to one or more of the following actions: (i) determine, as to the holder of shares so consolidated, which issued shares shall be consolidated into each share of larger nominal value; (ii) allot, in contemplation of or subsequent to such consolidation or other action, such shares or fractional shares sufficient to preclude or remove fractional share holdings; (iii) redeem, in the case of redeemable preference shares, and subject to applicable law, such shares or fractional shares sufficient to preclude or remove fractional shareholdings; (iv) cause the transfer of fractional shares by certain shareholders of the Company to other shareholders thereof so as to most expediently preclude or remove any fractionalshareholdings, and cause the transferees to pay the transferors the fair value of fractional shares so transferred, and the Board of Directors is hereby authorized to act as agent for thetransferors and transferees with power of substitution for purposes of implementing the provisions of this sub-Article 7(b)(iv). SHARES 8. Issuance of Share Certificates; Replacement of Lost Certificates (a) Share certificates shall be issued under the seal or stamp of the Company and shall bear the signatures of two Directors, or of any other person or persons authorized thereto bythe Board of Directors.- 3 -(b) Each member shall be entitled to one numbered certificate for all the shares of any class registered in his name, and if reasonably requested by such member, to severalcertificates, each for one or more of such shares. (c) A share certificate registered in the names of two or more persons shall be delivered to the person first named in the Registrar of Members in respect of such co-ownership. (d) If a share certificate is defaced, lost or destroyed, it may be replaced, upon payment of such fee, and upon the furnishing of such evidence of ownership and such indemnity, asthe Board of Directors may think fit. 9. Registered Holder Except as otherwise provided in these Articles, the Company shall be entitled to treat the registered holder of any share as the absolute owner thereof, and, accordingly, shall not,except as ordered by a court of competent jurisdiction, or as required by statute, be bound to recognize any equitable or other claim to, or interest in such share on the part of any other person. 10. Allotment of Shares The unissued shares from time to time shall be under the control of the Board of Directors, who shall have the power to allot shares or otherwise dispose of them to such persons, onsuch terms and conditions (including inter alia terms relating to calls as set forth in Article 12(f) hereof), and either at par or at a premium, or, subject to the provisions of the Companies Law, at adiscount, and at such times, as the Board of Directors may think fit, and the power to give to any person the option to acquire from the Company any shares, either at par or at a premium, or,subject as aforesaid, at a discount, during such time and for such consideration as the Board of Directors may think fit. 10A. Authority to pay Underwriters' Fees & Commissions Subject to the provisions of the Companies Law the Company is authorized to pay underwriters' fees and commissions. 11. Payment in Installments If by the terms of allotment of any share, the whole or any part of the price thereof shall be payable in installments, every such installment shall, when due, be paid to the Company bythe then registered holder(s) of the share of the person(s) entitled thereto. 12. Calls on Shares (a) The Board of Directors may, from time to time, make such calls as it may think fit upon members in respect of any sum unpaid in respect of shares held by such members which isnot, by the terms of allotment thereof or otherwise, payable at a fixed time, and each member shall pay the amount of every call so made upon him (and of each installment thereof if the same ispayable in installments), to the person(s) and at the time(s) and place(s) designated by the Board of Directors, as any such time(s) may be thereafter extended and/or such person(s) or place(s)changed. Unless otherwise stipulated in the resolution of the Board of Directors (and in the notice hereafter referred to), each payment in response to a call shall be deemed to constitute a prorata payment on account of all shares in respect of which such call was made. - 4 -(b) Notice of any call shall be given in writing to the member(s) in question not less than fourteen (14) days prior to the time of payment, specifying the time and place of payment,and designating the person to whom such payment shall be made, provided, however, that before the time for any such payment, the Board of Directors may, by notice in writing to suchmember(s), revoke such call in whole or in part, extend such time, or alter such person and/or place. In the event of a call payable in installments, only one notice thereof need be given. (c) If, by the terms of allotment of any share or otherwise, any amount is made payable at any fixed time, every such amount shall be payable at such time as if it were a call dulymade by the Board of Directors and of which due notice had been given, and all the provisions herein contained with respect to such calls shall apply to each such amount. (d) The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof and all interest payable thereon. (e) Any amount unpaid in respect of a call shall bear interest from the date on which it is payable until actual payment thereof, at such rate (not exceeding the then prevailingdebitory rate charged by leading commercial banks in Israel), and at such time(s) as the Board of Directors may prescribe. (f) Upon the allotment of shares, the Board of Directors may provide for differences among the allottees of such shares as to the amount of calls and/or the times of paymentthereof. 13. Prepayment With the approval of the Board of Directors, any member may pay to the Company any amount not yet payable in respect of his shares, and the Board of Directors may approve thepayment of interest on any such amount until the same would be payable if it had not been paid in advance, at such rate and time(s) as may be approved by the Board of Directors. The Boardof Directors may at any time cause the Company to repay all or any part of the money so advanced, without premium or penalty. Nothing in this Article 13 shall derogate from the right of theBoard of Directors to make any call before or after receipt by the Company of any such advance. 14. Forfeiture and Surrender (a) If any member fails to pay any amount payable in respect of a call, or interest thereon as provided for herein, on or before the day fixed for payment of the same, the Company, byresolution of the Board of Directors, may at any time thereafter, so long as the said amount or interest remains unpaid, forfeit all or any of the shares in respect of which said call had been made.Any expense incurred by the Company in attempting to collect any such amount or interest, including, inter alia, attorneys' fees and costs of suit, shall be added to, and shall, for all purposes(including the accrual of interest thereon), constitute a part of the amount payable to the Company in respect of such call. - 5 -(b) Upon the adoption of a resolution of forfeiture, the Board of Directors shall cause notice thereof to be given to such member, which notice shall state that, in the event of thefailure to pay the entire amount so payable within a period stipulated in the notice (which period shall not be less than fourteen (14) days and which may be extended by the Board of Directors),such shares shall be ipso facto forfeited, provided, however, that, prior to the expiration of such period, the Board of Directors may nullify such resolution of forfeiture, but no such nullificationshall estop the Board of Directors from adopting a further resolution of forfeiture in respect of the non-payment of the same amount. (c) Whenever shares are forfeited as herein provided, all dividends theretofore declared in respect thereof and not actually paid shall be deemed to have been forfeited at the sametime. (d) The Company, by resolution of the Board of Directors, may accept the voluntary surrender of any share. (e) Any share forfeited or surrendered as provided herein shall become the property of the Company, and the same, subject to the provisions of these Articles, may be sold, re-allotted or otherwise disposed of as the Board of Directors thinks fit. (f) Any member whose shares have been forfeited or surrendered shall cease to be a member in respect of the forfeited or surrendered shares, but shall, notwithstanding, be liable topay, and shall forthwith pay, to the Company, all calls, interest and expenses owing upon or in respect of such shares at the time of forfeiture or surrender, together with interest thereon from thetime of forfeiture or surrender until actual payment, at the rate prescribed in Article 12(e) above, and the Board of Directors, in its discretion, may enforce the payment of such moneys, or anypart thereof, but shall not be under any obligation to do so. In the event of such forfeiture or surrender, the Company, by resolution of the Board of Directors, may accelerate the date(s) ofpayment of any or all amounts then owing by the member in question (but not yet due) in respect of all shares owned by such member, solely or jointly with another, and in respect of any othermatter or transaction whatsoever. (g) The Board of Directors may at any time, before any share so forfeited or surrendered shall have been sold, re-allotted or otherwise disposed of, nullify the forfeiture or surrenderon such conditions as it thinks fit, but no such nullification shall estop the Board of Directors from re-exercising its powers of forfeiture pursuant to this Article 14. 15. Lien (a) Except to the extent the same may be waived or subordinated in writing, the Company shall have a first and paramount lien upon all the shares registered in the name of eachmember (without regard to any equitable or other claim or interest in such shares on the part of any other person), and upon the proceeds of the sale thereof, for his debts, liabilities andengagements arising from any cause whatsoever, solely or jointly with another, to or with the Company, whether the period for the payment, fulfillment or discharge thereof shall have actuallyarrived or not. Such lien shall extend to all dividends from time to time declared in respect of such share. Unless otherwise provided, the registration by the Company of a transfer of shares shallbe deemed to be a waiver on the part of the Company of the lien (if any) existing on such shares immediately prior to such transfer. - 6 -(b) The Board of Directors may cause the Company to sell any shares subject to such lien when any such debt, liability or engagement has matured, in such manner as the Board ofDirectors may think fit, but no such sale shall be made unless such debt, liability or engagement has not been satisfied within fourteen (14) days after written notice of the intention to sell shallhave been served on such member, his executors or administrators. (c) The net proceeds of any such sale, after payment of the costs thereof, shall be applied in or toward satisfaction of the debts, liabilities or engagements of such member (whetheror not the same have matured), or any specific part of the same (as the Company may determine), and the residue (if any) shall be paid to the member, his executors, administrators or assigns. 16. Sale after Forfeiture or Surrender or in Enforcement of Lien Upon any sale of shares after forfeiture or surrender or for enforcing a lien, the Board of Directors may appoint some person to execute an instrument of transfer of the shares so soldand cause the purchaser's name to be entered in the Register of Members in respect of such shares, and the purchaser shall not be bound to see to the regularity of the proceedings, or to theapplication of the purchase money, and after his name has been entered in the Register of Members in respect of such shares, the validity of the sale shall not be impeached by any person, andthe remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively. 17. Redeemable Shares The Company may, subject to applicable law, issue redeemable shares and redeem the same. 18. [reserved] TRANSFER OF SHARES 19. Effectiveness and Registration No transfer of shares shall be registered unless a proper instrument of transfer (in form and substance satisfactory to the Board of Directors) has been submitted to the Company or itsagent, together with any share certificate(s) and such other evidence of title as the Board of Directors may reasonably require. Until the transferee has been registered in the Register ofMembers in respect of the shares so transferred, the Company may continue to regard the transferor as the owner thereof. The Board of Directors, may, from time to time, prescribe a fee for theregistration of a transfer. - 7 -20. Record Date for General Meetings Notwithstanding any provision to the contrary in these Articles, for the determination of the members entitled to receive notice of and to participate in and vote at a General Meeting,or to express consent to or dissent from any corporate action in writing, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respectof shares of the Company, the Board of Directors may fix (or authorize the officer(s) to fix), in advance, a record date, which, subject to applicable law, shall not be earlier than ninety (90) daysprior to the General Meeting or other action, as the case may be. No persons other than holders of record of shares as of such record date shall be entitled to notice of and to participate in andvote at such General Meeting, or to exercise such other right, as the case may be. A determination of members of record with respect to a General Meeting shall apply to any adjournment ofsuch meeting, provided that the Board of Directors may fix a new record date for an adjourned meeting. TRANSMISSION OF SHARES 21. Decedents' Shares (a) In case of a share registered in the names of two or more holders, the Company may recognize the survivor(s) as the sole owner(s) thereof unless and until the provisions ofArticle 21(b) have been effectively invoked. (b) Any person becoming entitled to a share in consequence of the death of any person, upon producing evidence of the grant of probate or letters of administration or declarationof succession (or such other evidence as the Board of Directors may reasonably deem sufficient that he sustains the character in respect of which he proposes to act under this Article or of histitle), shall be registered as a member in respect of such share, or may, subject to the regulations as to transfer herein contained, transfer such share. 22. Receivers and Liquidators (a) The Company may recognize the receiver or liquidator of any corporate member in winding-up or dissolution, or the receiver or trustee in bankruptcy of any member, as beingentitled to the shares registered in the name of such member. (b) The receiver or liquidator of a corporate member in winding-up or dissolution, or the receiver or trustee in bankruptcy of any member, upon producing such evidence as theBoard of Directors may deem sufficient that he sustains the character in respect of which he proposes to act under this Article or of his title, shall with the consent of the Board of Directors(which the Board of Directors may grant or refuse in its absolute discretion), be registered as a member in respect of such shares, or may, subject to the regulations as to transfer hereincontained, transfer such shares.- 8 -GENERAL MEETINGS 23. Annual General Meeting An Annual General Meeting shall be held once in every calendar year at such time (within a period of not more than fifteen (15) months after the last preceding Annual GeneralMeeting) and at such place either within or without the State of Israel as may be determined by the Board of Directors. 24. Extraordinary General Meetings All General Meetings other than Annual General Meetings shall be called "Extraordinary General Meetings." The Board of Directors may, whenever it thinks fit, convene anExtraordinary General Meeting at such time and place, within or without the State of Israel, as may be determined by the Board of Directors, and shall be obliged to do so upon a requisition inwriting in accordance with Sections 63(b)(1) or (2) and 63(c) of the Companies Law. 25. Notice of General Meetings The Company shall publish notice of a General Meeting at least twenty one (21) days prior to a General Meeting or more, if and to the extent and in the manner required by applicablelaw. Notwithstanding the Companies Regulations (Publication of Notice of General Meeting and Class Meeting in a Public Company) –2000, the Company shall not be required to deliver thenotice to shareholders. The accidental omission to give notice of a meeting to any member or the non receipt of notice by one of the members shall not invalidate the proceedings at anymeeting. PROCEEDINGS AT GENERAL MEETINGS 26. Quorum (a) Two or more members (not in default in payment of any sum referred to in Article 32(a) hereof), present in person or by proxy and holding shares conferring in the aggregatetwenty-five percent (25%) of the voting power of the Company (subject to rules and regulations, if any, applicable to the Company), shall constitute a quorum at General Meetings. No businessshall be transacted at a General Meeting, or at any adjournment thereof, unless the requisite quorum is present when the meeting proceeds to business. (b) If within an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon requisition under Sections 63(b)(1) or (2), 64 or 65 of theCompanies Law, shall be dissolved, but in any other case it shall stand adjourned to the same day in the next week, at the same time and place, or to such day and at such time and place as theChairman may determine with the consent of the holders of a majority of the voting power represented at the meeting in person or by proxy and voting on the question of adjournment. Nobusiness shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting as originally called. At such adjourned meeting, any two (2)members (not in default as aforesaid) present in person or by proxy, shall constitute a quorum (subject to rules and regulations, if any, applicable to the Company). - 9 - (c) The Board of Directors may determine, in its discretion, the matters that may be voted upon at the meeting by proxy in addition to the matters listed in Section 87(a) to theCompanies Law. 27. Chairman The Chairman, if any, of the Board of Directors, or any other Director or Office Holder of the Company which may be designated for this purpose by the Board of Directors, shallpreside as Chairman at every General Meeting of the Company. If there is no such Chairman, or if at any meeting such Chairman is not present within fifteen (15) minutes after the time fixed forholding the meeting or is unwilling to act as Chairman, the members present shall choose someone of their number to be Chairman. The office of Chairman shall not, by itself, entitle the holderthereof to vote at any General Meeting nor shall it entitle such holder to a second or casting vote (without derogating, however, from the rights of such Chairman to vote as a shareholder orproxy of a shareholder if, in fact, he is also a shareholder or such proxy). 28. Adoption of Resolutions at General Meetings (a) Unless otherwise indicated herein, a Shareholders Resolution shall be deemed adopted if approved by the holders of a majority of the voting power represented at the meeting inperson or by proxy and voting thereon. (b) A Shareholders Resolution approving a merger (as defined in the Companies Law) of the Company shall be deemed adopted if approved by the holders of a majority of thevoting power represented at the meeting in person or by proxy and voting thereon. (c) Every question submitted to a General Meeting shall be decided by a show of hands, but if a written ballot is demanded by any member present in person or by proxy andentitled to vote at the meeting, the same shall be decided by such ballot. A written ballot may be demanded before the proposed resolution is voted upon or immediately after the declaration bythe Chairman of the results of the vote by a show of hands. If a vote by written ballot is taken after such declaration, the results of the vote by a show of hands shall be of no effect, and theproposed resolution shall be decided by such written ballot. The demand for a written ballot may be withdrawn at any time before the same is conducted, in which event another member maythen demand such written ballot. The demand for a written ballot shall not prevent the continuance of the meeting for the transaction of business other than the question on which the writtenballot has been demanded. (d) A declaration by the Chairman of the meeting that a resolution has been carried unanimously, or carried by a particular majority, or lost, and an entry to that effect in the minutebook of the Company, shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favor of or against such resolution. - 10 -29. Resolutions in Writing A resolution in writing signed by all members of the Company then entitled to attend and vote at General Meetings or to which all such members have given their written consent (byletter, facsimile telecopier, telegram, telex or otherwise), or their oral consent by telephone (provided that a written summary thereof has been approved and signed by the Chairman of the Boardof Directors of the Company) shall be deemed to have been unanimously adopted by a General Meeting duly convened and held. 30. Power to Adjourn (a) The Chairman of a General Meeting at which a quorum is present may, with the consent of the holders of a majority of the voting power represented in person or by proxy andvoting on the question of adjournment (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at anyadjourned meeting except business which might lawfully have been transacted at the meeting as originally called. (b) It shall not be necessary to give any notice of an adjournment, whether pursuant to Article 26(b) or Article 30(a), unless the meeting is adjourned for thirty (30) days or more inwhich event notice thereof shall be given in the manner required for the meeting as originally called. 31. Voting Power Subject to the provisions of Article 32(a) and subject to any provision hereof conferring special rights as to voting, or restricting the right to vote, every member shall have one votefor each share held by him of record, on every resolution, without regard to whether the vote hereon is conducted by a show of hands, by written ballot or by any other means. 32. Voting Rights (a) No member shall be entitled to vote at any General Meeting (or be counted as a part of the quorum thereat), unless all calls and other sums then payable by him in respect of hisshares in the Company have been paid, but this Article shall not apply to separate General Meetings of the holders of a particular class of shares pursuant to Article 6(b). (b) A company or other corporate body being a member of the Company may, by resolution of its directors or any other managing body thereof, authorize any person to be itsrepresentative at any meeting of the Company. Any person so authorized shall be entitled to exercise on behalf of such member all the power which the latter could have exercised if it were anindividual shareholder. Upon the request of the Chairman of the meeting, written evidence of such authorization (in form acceptable to the Chairman) shall be delivered to him. (c) Any member entitled to vote may vote either personally or by proxy (who need not be a member of the Company), or, if the member is a company or other corporate body, by arepresentative authorized pursuant to Article 32(b). (d) If two or more persons are registered as joint holders of any share, the vote of the senior who tenders a vote, in person or by proxy, shall be accepted to the exclusion of thevote(s) of the other joint holder(s); and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members. - 11 -PROXIES 33. Instrument of Appointment (a) The instrument appointing a proxy shall be in writing and shall be substantially in the following form: "I of (Name of Shareholder) (Address of Shareholder) being a member of hereby appoint (Name of the Company) of (Name of Proxy) (Address of Proxy) as my proxy to vote for me and on my behalf at the General Meeting of the Company to be held on the day of , 19 and at any adjournment(s) thereof. Signed this day of , 19 . (Signature of Appointer)" or in any usual or common form or in such other form as may be approved by the Board of Directors or required by applicable law. It shall be duly signed by the appointer or his duly authorizedattorney or, if such appointer is a company or other corporate body, under its common seal or stamp or the hand of its duly authorized agent(s) or attorney(s). (b) The instrument appointing a proxy (and the power of attorney or other authority, if any, under which such instrument has been signed) shall either be delivered to the Company(at its Registered Office, or at its principal place of business or at the offices of its registrar and/or transfer agent or at such place as the Board of Directors may specify) not less than twentyfour (24) hours (or not less than forty eight (48) hours with respect to a meeting to be held outside of Israel) before the time fixed for the meeting at which the person named in the instrumentproposes to vote, unless otherwise specified by the Board of Directors or required by applicable law. 34. Effect of Death of Appointor or Revocation of Appointment A vote cast pursuant to an instrument appointing a proxy shall be valid notwithstanding the previous death of the appointing member (or of his attorney-in-fact, if any, who signedsuch instrument), or the revocation of the appointment or the transfer of the share in respect of which the vote is cast, provided no written intimation of such death, revocation or transfer shallhave been received by the Company or by the Chairman of the meeting before such vote is cast and provided, further, that the appointing member, if present in person at said meeting, mayrevoke the appointment by means of a writing, oral notification to the Chairman, or otherwise; all of the above, unless otherwise specified by the Board of Directors or required by applicablelaw. - 12 -BOARD OF DIRECTORS 35. Powers of Board of Directors (a) In General The management of the business of the Company shall be vested in the Board of Directors, which may exercise all such powers and do all such acts and things as theCompany is authorized to exercise and do, and are not hereby or by law required to be exercised or done by the Company in General Meeting. The authority conferred on the Board of Directorsby this Article 35 shall be subject to the provisions of the Companies Law, of these Articles and any regulation or resolution consistent with these Articles adopted from time to time by theCompany in General Meeting, provided, however, that no such regulation or resolution shall invalidate any prior act done by or pursuant to a decision of the Board of Directors which wouldhave been valid if such regulation or resolution had not been adopted. (b) Borrowing Power The Board of Directors may from time to time, in its discretion, cause the Company to borrow or secure the payment of any sum or sums of money for the purposes of theCompany, and may secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions in all respects as it thinks fit, and, in particular,by the issuance of bonds, perpetual or redeemable debentures, debenture stock, or any mortgages, charges, or other securities on the undertaking or the whole or any part of the property ofthe Company, both present and future, including its uncalled or called but unpaid capital for the time being. (c) Reserves The Board of Directors may, from time to time, set aside any amount(s) out of the profits of the Company as a reserve or reserves for any purpose(s) which the Board ofDirectors, in its absolute discretion, shall think fit, and may invest any sum so set aside in any manner and from time to time deal with and vary such investments, and dispose of all or any partthereof, and employ any such reserve or any part thereof in the business of the Company without being bound to keep the same separate from other assets of the Company, and may subdivideor redesignate any reserve or cancel the same or apply the funds therein for another purpose, all as the Board of Directors may from time to time think fit. 36. Exercise of Powers of Directors (a) A meeting of the Board of Directors at which a quorum is present (in person, by means of a conference call or any other device allowing each director participating in suchmeeting to hear all the other directors participating in such meeting) shall be competent to exercise all the authorities, powers and discretions vested in or exercisable by the Board of Directors. - 13 -(b) A resolution proposed at any meeting of the Board of Directors shall be deemed adopted if approved by a majority of the Directors present when such resolution is put to avote and voting thereon. (c) A resolution in writing signed by all Directors then in office and lawfully entitled to vote thereon (as conclusively determined by the Chairman of the Audit Committee["Va'adat Bikoret"], and in the absence of such determination - by the Chairman of the Board of Directors) or to which all such Directors have given their consent (by letter, telegram, telex,facsimile telecopier or otherwise), or their oral consent by telephone (provided that a written summary thereof has been approved and signed by the Chairman of the Board of Directors of theCompany) shall be deemed to have been unanimously adopted by a meeting of the Board of Directors duly convened and held. 37. Delegation of Powers (a) The Board of Directors may, subject to the provisions of the Companies Law, delegate any or all of its powers to committees, each consisting of two or more persons (all ofwhose members must be Directors), and it may from time to time revoke such delegation or alter the composition of any such committee. Any Committee so formed (in these Articles referred toas a "Committee of the Board of Directors"), shall, in the exercise of the powers so delegated, conform to any regulations imposed on it by the Board of Directors. The meetings andproceedings of any such Committee of the Board of Directors shall, mutatis mutandis, be governed by the provisions herein contained for regulating the meetings of the Board of Directors, sofar as not superseded by any regulations adopted by the Board of Directors under this Article. Unless otherwise expressly provided by the Board of Directors in delegating powers to aCommittee of the Board of Directors, such Committee shall not be empowered to further delegate such powers. (b) Without derogating from the provisions of Article 50, the Board of Directors may, subject to the provisions of the Companies Law, from time to time appoint a Secretary to theCompany, as well as officers, agents, employees and independent contractors, as the Board of Directors may think fit, and may terminate the service of any such person. The Board of Directorsmay, subject to the provisions of the Companies Law, determine the powers and duties, as well as the salaries and emoluments, of all such persons, and may require security in such cases andin such amounts as it thinks fit.(c) The Board of Directors may from time to time, by power of attorney or otherwise, appoint any person, company, firm or body of persons to be the attorney or attorneys of theCompany at law or in fact for such purpose(s) and with such powers, authorities and discretions, and for such period and subject to such conditions, as it thinks fit, and any such power ofattorney or other appointment may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board of Directors may think fit, and may alsoauthorize any such attorney to delegate all or any of the powers, authorities and discretions vested in him. 38. Number of Directors The Board of Directors shall consist of up to 9 directors but no less than 5 directors unless otherwise determined by Shareholder Resolution of the Company. - 14 - 39. Election and Removal of Directors (a) If at any time, the Company shall be required to appoint independent or external directors such as a public director or directors of any other type as the may be required by law("External Directors") such directors shall serve on the Board according to the number required by law. External Directors will be appointed and removed pursuant to and shall be governed bythe relevant provisions of the law which applies to External Directors. If permitted by applicable law, External Directors will be appointed by the Board. (b) The members of the Board of Directors shall be called Directors, and other than External Directors (who will be chosen and appointed, and whose term will expire, inaccordance with applicable law), they shall be appointed in accordance with the provisions of this Article. (c) The Directors (other than the External Directors) shall be appointed by the Annual General Meeting and will serve for a term ending on the date of the third Annual GeneralMeeting following the General Meeting at which such Director was elected, unless earlier terminated in the event of such director's death, resignation or removal. . (d) Directors (other than External Directors) appointed in the 2012 Annual General Meeting, in which shareholders approve the amendment of the Articles concerning theelection and removal of directors (the "2012 Meeting"), shall be appointed for a term ending on the date of the third Annual General Meeting following the 2012 Meeting (the "2015Meeting"). Directors appointed in any Annual General Meeting following the 2012 Meeting and prior to the 2015 Meeting, shall be appointed for a term ending on the date of the 2015Meeting. From the 2015 Meeting and onwards, all directors (other than External Directors) shall be appointed together on the same Annual General meeting, subject to any earlier terminationof service, which shall be filled with an appointment of a substitute director for the remainder of such three-year term. (e) Subject to Section (g) below, a Director appointed by the Annual General Meeting shall commence serving at the conclusion of the Annual General Meeting in which he orshe was appointed. (f) Directors (other than External Directors) shall be elected at the Annual General Meeting by the vote of the holders of a majority of the voting power represented at suchmeeting in person or by proxy and voting on the election of Directors, and each Director shall serve, subject to Article 42 hereof, and according to the provisions of this Article 39. Theshareholders shall be entitled to remove any Director(s) (other than external directors) from office prior to the lapse of its full term in office all subject to applicable law. (g) Notwithstanding anything to the contrary herein, the term of a Director may commence at a later date than the date of the Shareholder Resolution electing such Director, if sospecified in such Shareholder Resolution. - 15 -40. Qualification of Directors No person shall be disqualified to serve as a Director by reason of his not holding shares in the Company or by reason of his having served as a Director in the past. 41. Continuing Directors in the Event of Vacancies In the event of one or more vacancies in the Board of Directors, the continuing Directors may continue to act in every matter, and may temporarily fill any such vacancy until the nextAnnual General Meeting, provided, however, that if they number less than the minimum number provided for pursuant to Article 38 hereof, they may only act in an emergency, and may call aGeneral Meeting of the Company for the purpose of electing Directors to fill any or all vacancies, so that at least a majority of the number of Directors provided for pursuant to Article38 hereof are in office as a result of said meeting. 42. Vacation of Office (a) The office of a Director shall be vacated, ipso facto, upon his death, or if he be found lunatic or become of unsound mind, or if he becomes bankrupt, or, if the Director is acompany, upon its winding-up. (b) The office of a Director shall be vacated by his written resignation. Such resignation shall become effective on the date fixed therein, or upon the delivery thereof to theCompany, whichever is later. 43. Remuneration of Directors No Director shall be paid any remuneration by the Company for his services as Director except as may be approved by the Company in accordance with applicable law, except forreimbursement of expenses incurred in relation to travelling to board meetings, and except for grant of options to acquire the Company's shares. 44. Conflict of Interests Subject to the provisions of the Companies Law, the Company may enter into any contract or otherwise transact any business with any Director in which contract or business suchDirector has a personal interest, directly or indirectly; and may enter into any contract of otherwise transact any business with any third party in which contract or business a Director has apersonal interest, directly or indirectly. 45. Alternate Directors (a) A Director may, by written notice to the Company, appoint a natural person who is not a Director as an alternate for himself (in these Articles referred to as "Alternate Director"),remove such Alternate Director and appoint another Alternate Director in place of any Alternate Director appointed by him whose office has been vacated for any reason whatsoever. Unlessthe appointing Director, by the instrument appointing an Alternate Director or by written notice to the Company, limits such appointment to a specified period of time or restricts it to a specifiedmeeting or action of the Board of Directors, or otherwise restricts its scope, the appointment shall be for an indefinite period, and for all purposes. - 16 -(b) Any notice given to the Company pursuant to Article 45(a) shall become effective on the date fixed therein, or upon the delivery thereof to the Company, whichever is later. (c) An Alternate Director shall have all the rights and obligations of the Director who appointed him, provided, however, that he may not in turn appoint an alternate for himself(unless the instrument appointing him otherwise expressly provides), and provided further that an Alternate Director shall have no standing at any meeting of the Board of Directors or anycommittee thereof while the Director who appointed him is present. (d) An Alternate Director shall alone be responsible for his own acts and defaults, and he shall not be deemed the agent of the Director(s) who appointed him. (e) The office of an Alternate Director shall be vacated under the circumstances, mutatis mutandis, set forth in Article 42, and such office shall ipso facto be vacated if the Directorwho appointed such Alternate Director ceases to be a Director. PROCEEDINGS OF THE BOARD OF DIRECTORS 46. Meetings (a) The Board of Directors may meet and adjourn its meetings and otherwise regulate such meetings and proceedings as the Board of Directors think fit. Notice of the meetings ofthe Board of Directors shall be given to each Director at the last address that the Director provided to the Company, or via telephone, facsimile or e-mail message; provided, however, that theBoard of Directors may convene without giving such prior notice to all or any of the Directors, in circumstances permitted under the Companies Law. (b) The Chairman of the Board of Directors may, at any time, convene a meeting of the Board of Directors, provided that a notice shall be given to all other Directors a reasonabletime prior to the time set for such meeting. Any Director who is not the Chairman of the Board of Directors, may at any time, and the Secretary, upon the request of such Director, shall, convenea meeting of the Board of Directors, provided a notice shall be given to all other Directors a reasonable time, but not less than four (4) days, prior to the time set for such meeting;. Subject to theterms of the Companies Law, and without derogating from provision of the last paragraph of Article 46(a) above), the failure to give notice to a Director in the manner required hereby may bewaived. 47. Quorum Until otherwise unanimously decided by the Board of Directors, a quorum at a meeting of the Board of Directors shall be constituted by the presence of a majority of the Directors thenin office who are lawfully entitled to participate in the meeting (as conclusively determined by the Chairman of the Audit Committee and in the absence of such determination - by the Chairmanof the Board of Directors), but shall not be less than two. - 17 -48. Chairman of the Board of Directors The Board of Directors may from time to time elect one of its members to be the Chairman of the Board of Directors, remove such Chairman from office and appoint another in its place.The Chairman of the Board of Directors shall preside at every meeting of the Board of Directors, but if there is no such Chairman, or if at any meeting he is not present within fifteen (15) minutesof the time fixed for the meeting, or if he is unwilling to take the chair, the Directors present shall choose one of their number to be the chairman of such meeting. 49. Validity of Acts Despite Defects Subject to the provisions of the Companies Law, all acts done bona fide at any meeting of the Board of Directors, or of a Committee of the Board of Directors, or by any person(s)acting as Director(s), shall, notwithstanding that it may afterwards be discovered that there was some defect in the appointment of the participants in such meetings or any of them or anyperson(s) acting as aforesaid, or that they or any of them were disqualified, be as valid as if there were no such defect or disqualification. GENERAL MANAGER 50. General Manager The Board of Directors may from time to time appoint one or more persons, whether or not Directors, as General Manager(s) of the Company and may confer upon such person(s), andfrom time to time modify or revoke, such title(s) (including Managing Director, Director General or any similar or dissimilar title) and such duties and authorities of the Board of Directors as theBoard of Directors may deem fit, subject to such limitations and restrictions as the Board of Directors may from time to time prescribe. Such appointment(s) may be either for a fixed term orwithout any limitation of time, and the Board of Directors may from time to time (subject to the provisions of the Companies Law and of any contract between any such person and theCompany) fix his or their salaries and emoluments, remove or dismiss him or them from office and appoint another or others in his or their place or places. MINUTES 51. Minutes (a) Minutes of each General Meeting and of each meeting of the Board of Directors shall be recorded and duly entered in books provided for that purpose. Such minutes shall, in allevents, set forth the names of the persons present at the meeting and all resolutions adopted thereat. (b) Any minutes as aforesaid, if purporting to be signed by the chairman of the meeting or by the chairman of the next succeeding meeting, shall constitute prima facia evidence ofthe matters recorded therein. - 18 -DIVIDENDS 52. Declaration and Payment of Dividends Subject to the provisions of the Companies Law, the Board of Directors may from time to time declare, and cause the Company to pay, such dividend as may appear to the Board ofDirectors to be justified. The Board of Directors shall determine, and may authorize, subject to applicable law, any of its directors and/or officers to determine, the time for payment of suchdividends and the record date for determining the shareholders entitled thereto. 53. [Deleted] 54. Amount Payable by Way of Dividends Subject to the rights of the holders of shares with special rights as to dividends, any dividend paid by the Company shall be allocated among the members entitled thereto inproportion to their respective holdings of the shares in respect of which such dividend is being paid. 55. Interest No dividend shall carry interest as against the Company. 56. Payment in Specie Upon the declaration of the Board of Directors, a dividend may be paid, wholly or partly, by the distribution of specific assets of the Company or by distribution of paid up shares,debentures or debenture stock of the Company or of any other companies, or in any one or more of such ways. 57. Capitalization of Profits, Reserves etc. Upon the resolution of the Board of Directors, the Company - (a) may cause any moneys, investments, or other assets forming part of the undivided profits of the Company, standing to the credit of a reserve fund, or to the credit of a reservefund for the redemption of capital, or in the hands of the Company and available for dividends, or representing premiums received on the issuance of shares and standing to the credit of theshare premium account, to be capitalized and distributed among such of the shareholders as would be entitled to receive the same if distributed by way of dividend and in the same proportion,on the footing that they become entitled thereto as capital, or may cause any part of such capitalized fund to be applied on behalf of such shareholders in paying up in full, either at par or atsuch premium as the resolution may provide, any unissued shares or debentures or debenture stock of the Company which shall be distributed accordingly, in payment, in full or in part, of theuncalled liability on any issued shares or debentures or debenture stock; and (b) may cause such distribution or payment to be accepted by such shareholders in full satisfaction of their interest in the said capitalized sum. - 19 - 58. Implementation of Powers under Articles 56 and 57 For the purpose of giving full effect to any resolution under Articles 56 or 57, and without derogating from the provisions of Article 7(b) hereof, and subject to applicable law, theBoard of Directors may settle any difficulty which may arise in regard to the distribution as it thinks expedient, and, in particular, may issue fractional certificates, and may fix the value fordistribution of any specific assets, and may determine that cash payments shall be made to any members upon the footing of the value so fixed, or that fractions of less value than the nominalvalue of one share may be disregarded in order to adjust the rights of all parties, and may vest any such cash, shares, debentures, debenture stock or specific assets in trustees upon suchtrusts for the persons entitled to the dividend or capitalized fund as may seem expedient to the Board of Directors. 59. Deductions from Dividends The Board of Directors may deduct from any dividend or other moneys payable to any member in respect of a share any and all sums of money then payable by him to the Company onaccount of calls or otherwise in respect of shares of the Company and/or on account of any other matter of transaction whatsoever. 60. Retention of Dividends (a) The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share on which the Company has a lien, and may apply thesame in or toward satisfaction of the debts, liabilities, or engagements in respect of which the lien exists. (b) The Board of Directors may retain any dividend or other moneys payable or property distributable in respect of a share in respect of which any person is, under Articles 21 or 22,entitled to become a member, or which any person is, under said Articles, entitled to transfer, until such person shall become a member in respect of such share or shall transfer the same. 61. Unclaimed Dividends All unclaimed dividends or other moneys payable in respect of a share may be invested or otherwise made use of by the Board of Directors for the benefit of the Company untilclaimed. The payment by the Directors of any unclaimed dividend or such other moneys into a separate account shall not constitute the Company a trustee in respect thereof, and any dividendunclaimed after a period of seven (7) years from the date of declaration of such dividend, and any such other moneys unclaimed after a like period from the date the same were payable, shall beforfeited and shall revert to the Company, provided, however, that the Board of Directors may, at its discretion, cause the Company to pay any such dividend or such other moneys, or any partthereof, to a person who would have been entitled thereto had the same not reverted to the Company. - 20 -62. Mechanics of Payment Any dividend or other moneys payable in cash in respect of a share may be paid by check or warrant sent through the post to, or left at, the registered address of the person entitledthereto or by transfer to a bank account specified by such person (or, if two or more persons are registered as joint holders of such share or are entitled jointly thereto in consequence of thedeath or bankruptcy of the holder or otherwise, to any one of such persons or to his bank account), or to such person and at such address as the person entitled thereto may by writing direct.Every such check or warrant shall be made payable to the order of the person to whom it is sent, or to such person as the person entitled thereto as aforesaid may direct, and payment of thecheck or warrant by the banker upon whom it is drawn shall be a good discharge to the Company. Every such check or warrant shall be sent at the risk of the person entitled to the moneyrepresented thereby. 63. Receipt from a Joint Holder If two or more persons are registered as joint holders of any share, or are entitled jointly thereto in consequence of the death or bankruptcy of the holder or otherwise, any one of themmay give effectual receipts for any dividend or other moneys payable or property distributable in respect of such share. ACCOUNTS 64. Books of Account The Board of Directors shall cause accurate books of account to be kept in accordance with the provisions of the Companies Law and of any other applicable law. Such books ofaccount shall be kept at the Registered Office of the Company, or at such other place or places as the Board of Directors may think fit, and they shall always be open to inspection by allDirectors. No member, not being a Director, shall have any right to inspect any account or book or other similar document of the Company, except as conferred by law or authorized by the Boardof Directors or by a Shareholders Resolution. 65. Audit At least once in every fiscal year the accounts of the Company shall be audited and the correctness of the profit and loss account and balance sheet certified by one or more dulyqualified auditors. 66. Auditors The appointment, authorities, rights and duties of the auditor(s) of the Company, shall be regulated by applicable law. The Audit Committee of the Company shall have the authority tofix, in its discretion, the remuneration of the auditor(s) for the auditing services. BRANCH REGISTERS 67. Branch Registers Subject to and in accordance with the provisions of the Companies Law and to all orders and regulations issued thereunder, the Company may cause branch registers to be kept in anyplace outside Israel as the Board of Directors may think fit, and, subject to all applicable requirements of law, the Board of Directors may from time to time adopt such rules and procedures as itmay think fit in connection with the keeping of such branch registers. - 21 -RIGHTS OF SIGNATURE, STAMP AND SEAL 68. Rights of Signature, Stamp and Seal (a) The Board of Directors shall be entitled to authorize any person or persons (who need not be Directors) to act and sign on behalf of the Company, and the acts and signature ofsuch person(s) on behalf of the Company shall bind the Company insofar as such person(s) acted and signed within the scope of his or their authority. (b) The Company shall have at least one official stamp. (c) The Board of Directors may provide for a seal. If the Board of Directors so provides, it shall also provide for the safe custody thereof. Such seal shall not be used except by theauthority of the Board of Directors and in the presence of the person(s) authorized to sign on behalf of the Company, who shall sign every instrument to which such seal is affixed. NOTICES 69. Notices (a) Any written notice or other document may be served by the Company upon any member either personally, or by facsimile transmission, or by sending it by prepaid mail (airmailor overnight air courier if sent to an address on a different continent from the place of mailing) addressed to such member at his address as described in the Register of Members or such otheraddress as he may have designated in writing for the receipt of notices and other documents. Such designation may include a broker or other nominee holding shares at the instruction of theshareholder. Proof that an envelope containing a notice was properly addressed, stamped and mailed shall be conclusive evidence that notice was given. A declaration of an authorized personon behalf of the stock transfer agent of the Company or other distribution agent stating that a notice was mailed to a shareholder will suffice as proof of notice for purposes of this Article. Anywritten notice or other document may be served by any member upon the Company by tendering the same in person to the Secretary or the General Manager of the Company at the principaloffice of the Company, or by facsimile transmission, or by sending it by prepaid registered mail (airmail or overnight air courier if posted outside Israel) to the Company at its RegisteredAddress. Any such notice or other document shall be deemed to have been served (i) in the case of mailing, two (2) business days after it has been posted (five (5) business days if sentinternationally), or when actually received by the addressee if sooner than two days or five days, as the case may be, after it has been posted; (ii) in the case of overnight air courier, on the thirdbusiness day following the day sent, with receipt confirmed by the courier, or when actually received by the addressee if sooner than three business days after it has been sent; (iii) in the caseof personal delivery, on the date such notice was actually tendered in person to such member (or to the Secretary or the General Manager); (iv) in the case of facsimile transmission, on the dateon which the sender receives automatic electronic confirmation by the recipient's facsimile machine that such notice was received by the addressee. If a notice is, in fact, received by theaddressee, it shall be deemed to have been duly served, when received, notwithstanding that it was defectively addressed or failed, in some respect, to comply with the provisions of thisArticle 69(a). - 22 -(b) All notices to be given to the members shall, with respect to any share to which persons are jointly entitled, be given to whichever of such persons is named first in the Registerof Members, and any notice so given shall be sufficient notice to the holders of such share. (c) Any member whose address is not described in the Register of Members, and who shall not have designated in writing an address for the receipt of notices, shall not be entitledto receive any notice from the Company. INSURAN CE AND INDEMNITY 70. Exculpation, Indemnity and Insurance (a) For purposes of these Articles, the term "Office Holder" shall mean every Director and every officer of the Company, including, without limitation, each of the persons definedas "Nosei Misra" in the Companies Law. (b) Subject to the provisions of the Companies Law, the Company may prospectively exculpate an Office Holder from all or some of the Office Holder's responsibility fordamage resulting from the Office Holder's breach of the Office Holder's duty of care to the Company. (c) Subject to the provisions of the Companies Law and the Securities Law, 5728-1968 (the "Securities Law"), the Company may indemnify an Office Holder in respect of anobligation 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: (i) a financial obligation imposed on him in favor of another person by a court judgment, including a compromise judgment or an arbitrator's award approved by court; (ii) reasonable litigation expenses, including attorney's fees, incurred by the Office Holder as a result of an investigation or proceeding instituted against him by a competentauthority 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 thefiling 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 inconnection 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 meaningascribed to such phrases in section 260(a)(1a) of the Companies Law); and (iii) expenses, including reasonable litigation expenses and legal fees, incurred by an Office Holder in relation to a proceeding instituted against such Office Holder: (1)pursuant to the provisions of Chapter H'3 ("Imposition of Financial Sanctions by the Israeli Securities Authority") of the Securities Law, or (2) pursuant to the provisions of Chapter H'4("Imposition of Administrative Enforcement Measures by the Administrative Enforcement Committee") of the Securities Law, or (3) pursuant to the provisions of Chapter I'1 ("Arrangement forthe Avoidance of taking or Cessation of Proceedings, subject to Conditions") of the Securities Law; and - 23 - (iv) 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 OfficeHolder 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 wasconvicted of an offense that does not require proof of criminal intent; and (v) Payment to an injured party, pursuant to section 52ND(a)(1)(a) of the Securities Law. The Company may undertake to indemnify an Office Holder as aforesaid, (aa) prospectively, provided that, in respect of Article 70(c)(i), the undertaking is limited to events which in theopinion 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 ofDirectors as reasonable under the circumstances, and further provided that such events and amount or criteria are set forth in the undertaking to indemnify, and (bb) retroactively. (d) (1) Subject to the provisions of the Companies Law, the Company may enter into a contract for the insurance of all or part of the liability of any Office Holder imposed on theOffice Holder in respect of an act performed in his capacity as an Office Holder, in respect of each of the following: (i) a breach of his duty of care to the Company or to another person; (ii) a breach of his duty of loyalty to the Company, provided that the Office Holder acted in good faith and had reasonable cause to assume that such act would not prejudicethe interests of the Company; (iii) a financial obligation imposed on him in favor of another person. (2) without derogating from the aforementioned, subject to the provision of the Companies Law and the Securities Law, the Company may also enter into a contract to insurean Office Holder, in respect of each of the following: (i) expenses, including reasonable litigation expenses and legal fees, incurred by an Office Holder in relation to a proceeding instituted against such Office Holder: (1)pursuant to the provisions of Chapter H'3 ("Imposition of Financial Sanctions by the Israeli Securities Authority") of the Securities Law, or (2) pursuant to the provisions of Chapter H'4("Imposition of Administrative Enforcement Measures by the Administrative Enforcement Committee") of the Securities Law, or (3) pursuant to the provisions of Chapter I'1 ("Arrangement forthe Avoidance of taking or Cessation of Proceedings, subject to Conditions") of the Securities Law; and (ii) payment to an injured party, pursuant to section 52ND(a)(1)(a) of the Securities Law. (e) The provisions of Articles 70(a), 70(b) and 70(c) above are not intended, and shall not be interpreted, to restrict the Company in any manner in respect of the procurement ofinsurance and/or in respect of indemnification (i) in connection with any person who is not an Office Holder, including, without limitation, any employee, agent, consultant or contractor of theCompany who is not an Office Holder, and/or (ii) in connection with any Office Holder to the extent that such insurance and/or indemnification is not specifically prohibited under law; providedthat the procurement of any such insurance and/or the provision of any such indemnification shall be approved by the Audit Committee of the Company. - 24 -WINDING UP 71. Winding Up (a) A resolution adopted in a General Meeting approved by [75%] of the voting shares represented at such meeting in person or by proxy is required to approve the winding up ofthe Company. (b) If the Company be wound up, then, subject to applicable law and to the rights of the holders of shares with special rights upon winding up, the assets of the Company availablefor distribution among the members shall be distributed to them in proportion to the nominal value of their respective holdings of the shares in respect of which such distribution is being made. - 25 - Exhibit 4.10 English Summary of the Hebrew Original Amendment no. 5 to the Credit Agreement dated March 14, 2013, which wasamended on November 3, 2013, April 29, 2014, March 31, 2015 and March 10, 2016Made and entered in Tel Aviv, on September __, 2016 On March 14, 2013, the Borrower entered into a credit agreement with the Lenders (hereinafter: the "Credit Agreement"), in the framework of which, and by virtue of which, inter alia,the "Credit" was made available to the Borrower; andOn November 3, 2013, following the Borrower's request to make various amendments to the Credit Agreement, Amendment no. 1 to the Credit Agreement was executed by and among theParties, and on April 29, 2014, following the Borrower's request to make additional amendments to the Credit Agreement, instead of the amendments that were made to the Credit Agreement in theframework of Amendment no. 1, Amendment no. 2 to the Credit Agreement was executed by and among the Parties, and on March 31, 2015, following the Borrower's request to make variousamendments to the Credit Agreement, inter alia, instead of various amendments that were made to the Credit Agreement in the framework of Amendment no. 2 and remained in force, Amendmentno. 3 to the Credit Agreement was executed by and among the Parties (hereinafter: "Amendment no. 3") and on March 10, 2016, following the Borrower's request to make various amendments tothe Credit Agreement, inter alia, instead of various amendments that were made to the Credit Agreement in the framework of Amendment no. 3, Amendment no. 4 to the Credit Agreement wasexecuted by and among the Parties (hereinafter, jointly, the "Amendments"); andThe Borrower approached the Lenders and requested to make various amendments to the Credit Agreement and to Amendment no. 3, as specified in this Amendment below; and inreliance upon the veracity of the Borrower's representations and warranties in the Credit Agreement and in this Amendment, as specified below, and the fulfillment of all of its undertakings asspecified in the Credit Agreement, as amended in this Amendment, the Lenders agreed to the Borrower's request, all subject to and in accordance with the terms and conditions and the provisionsof the Credit Agreement and this Amendment (the “Amendment”);The following is the summary of the material terms and conditions of the Amendment.1.GeneralThe preamble to this Amendment constitutes an integral part hereof. All of the terms mentioned above and below in this Amendment shall have the meaning given to them in them in the CreditAgreement, unless explicitly stated otherwise.This section also contains customary representations of the Borrower, including a representation that the Borrower has complied and is complying with all the provisions of the Credit Agreement;that the Borrower has full power and authority to enter into the Amendment; that certain representations and warranties as detailed in the Credit Agreement are true and correct as of the date ofexecution of the Amendment; that there will be no need for any further decision making or any further approvals; that the Amendment is part of the Credit Documents. 2.A Permitted Factoring Transaction2.1As of the date of execution of this Amendment and until the Final Repayment Date, Section 16.16 of the Credit Agreement shall be amended such that the existing section shall bedeleted and the following shall come in its stead:"16.16The Borrower and/or any of the held companies shall not perform Permitted Factoring Transactions in an aggregate sum that at any time exceeds 20 (twenty) million US dollars(hereinafter: the "Allowed Factoring Sum"). Notwithstanding that stated, the Borrower and/or any of the held companies shall be permitted to perform a Permitted FactoringTransaction with respect to the sale of their rights to receive accounts receivables from customers that are among a certain customer group, in accordance with the transaction withthe customer group in an additional aggregate sum which shall not, at any time, exceed 94 million dollars. For the avoidance of doubt, that stated shall not derogate from the right ofthe Borrower and/or any of the held companies to perform other Permitted Factoring Transactions with the group of customers up to the Allowed Factoring Sum. The Borrowerand/or any of the held companies shall not perform a Factoring Transaction that is not a Permitted Factoring Transaction or any other transaction in the framework of which any ofthe rights to receive accounts receivables belonging to any of them, shall be sold, endorsed, assigned or otherwise transferred. For the avoidance of doubt it is clarified that theresponsibility to comply with the undertaking under this Section 16.16 lies solely on the Borrower and the held companies, and that a Lender shall be responsible for non-compliance with the said restriction only in the event in which such Lender itself performed Factoring Transactions with the Borrower and/or with a held company in an amountthat, at such time, exceeds the Allowed Factoring Sum.For the avoidance of doubt, it shall be clarified that the Borrower must confirm that the amount of a Permitted Factoring Transaction be subtracted from the customers' balance, inaccordance with acceptable accounting principles."3.Miscellaneous3.1Unless otherwise expressly set forth in this Amendment, the terms and conditions and the obligations specified in this Amendment do not derogate from and/or prejudice and/or modifyany other undertaking of the Borrower towards the Lenders and/or the validity of any security whatsoever that was made available to the benefit of the Securities' Trustee for theLenders, under and by virtue of the Credit Agreement and/or the other Credit Documents and/or any other agreement or document that was and/or shall be delivered to the Lenders orto a position holder with respect to the Credit, and these shall continue to have full and binding force, including all of the provisions relating to the Lenders' rights to make the Creditimmediately payable, all in accordance with and subject to the provisions and the terms and conditions of the Credit Documents.3.2This Amendment, unless explicitly stated otherwise herein, is meant to be in addition to all that is stated in the Credit Agreement and in the Amendments, and shall not derogate fromand/or modify and/or prejudice them, and other than as explicitly specified in this Amendment, all of the rights of the Lenders and of the Borrower under the Credit Agreement, theAmendments and applicable law, are fully reserved. Exhibit 4.11 English Summary of the Hebrew Original Amendment no. 6 to the Credit Agreement dated March 14, 2013, which wasamended on November 3, 2013, April 29, 2014, March 31, 2015, March 10, 2016 and December 6, 2016Made and entered in Tel Aviv, on March 30, 2017 On March 14, 2013, the Borrower entered into a credit agreement with the Lenders (hereinafter: the "Credit Agreement"), in the framework of which, and by virtue of which, inter alia,the "Credit" was made available to the Borrower; andOn November 3, 2013, following the Borrower's request to make various amendments to the Credit Agreement, Amendment no. 1 to the Credit Agreement was executed by and among theParties, and on April 29, 2014, following the Borrower's request to make additional amendments to the Credit Agreement, instead of the amendments that were made to the Credit Agreement in theframework of Amendment no. 1, Amendment no. 2 to the Credit Agreement was executed by and among the Parties, and on March 31, 2015, following the Borrower's request to make variousamendments to the Credit Agreement, inter alia, instead of various amendments that were made to the Credit Agreement in the framework of Amendment no. 2 and remained in force, Amendmentno. 3 to the Credit Agreement was executed by and among the Parties (hereinafter: "Amendment no. 3") and on March 10, 2016, following the Borrower's request to make various amendments tothe Credit Agreement, inter alia, instead of various amendments that were made to the Credit Agreement in the framework of Amendment no. 3, Amendment no. 4 to the Credit Agreement wasexecuted by and among the Parties, and on December 6, 2016, following the Borrower's request to make various amendments to the Credit Agreement, inter alia, instead of various amendmentsthat were made to the Credit Agreement in the framework of Amendment no. 3 and remained in force, Amendment no. 5 to the Credit Agreement was executed by and among the Parties(hereinafter, jointly, the "Amendments"); andPursuant to the directive of the Director General of the Antitrust Authority (hereinafter: the "Director General") dated December 31, 2015, the leading bank (the “Bank”) and anotherbank (the “Other Bank”) shall not be allowed to join together in the same credit consortium, all as stated in the Director General's directives; and pursuant to the approval that was granted to theLenders, the prohibition prescribed in the Director General's directives shall not apply to the Credit Agreement until July 2, 2017; and the Borrower approached the other banks who are part of theCredit Agreement (hereinafter: the "Remaining Lenders") and requested to extend the Credit Agreement until March 31, 2018, without the Other Bank taking part in the consortium, in light ofthe Director General's directives; and in light of that stated in the Borrower requested that the Remaining Lenders take the Other Bank's place in the Credit (as defined in the Credit Agreement),pro rata to each of the Remaining Lender's relative portion of the Credit, all as specified in this Amendment; andAdditionally, the Borrower approached the Remaining Lenders and requested to make various additional amendments to the Credit Agreement and to the Amendments, as specified inthis Amendment below; and in reliance upon the veracity of the Borrower's representations and warranties in the Credit Agreement and in this Amendment, as specified below, and the fulfillmentof all of its undertakings as specified in the Credit Agreement, as amended in this Amendment, the Remaining Lenders agreed to the Borrower's request, all subject to and in accordance with theterms and conditions and the provisions of the Credit Agreement and this Amendment;The following is the summary of the material terms and conditions of the Amendment.1.GeneralThe preamble to this Amendment constitutes an integral part hereof. All of the terms mentioned above and below in this Amendment shall have the meaning given to them in them in the CreditAgreement, unless explicitly stated otherwise.This section also contains customary representations of the Borrower, including a representation that the Borrower has complied and is complying with all the provisions of the Credit Agreement;that the Borrower has full power and authority to enter into the Amendment; that certain representations and warranties as detailed in the Credit Agreement are true and correct as of the date ofexecution of the Amendment; that there will be no need for any further decision making or any further approvals; that the Amendment is part of the Credit Documents. 2.Extension of the Final Repayment Date2.1As of the date of execution of this Amendment, Section 2 of the Credit Agreement shall be amended such that the definition of "Final Repayment Date" existing therein shall be deletedand the following shall come in its stead:""Final Repayment Date" means March 31, 2018."3.Replacing a Lender and Increasing the Guarantee Facility3.1Commencing from the date of execution of this Amendment the Other Bank shall be removed from the list of the Lenders specified in Annex 1 of the Credit Agreement and the Annexshall be amended as follows: Each of the Remaining Lenders shall replace the Other Bank’s part in the amount of the Loan Facility and in the amount of the Guarantee Facility, pro rata,in accordance with each of the Remaining Lender's relative part of the amount of the Loan Facility and the amount of the Guarantee Facility. Additionally, and without derogating fromthe provisions of Sections 18.8 and 18.9 of the Credit Agreement, commencing from the date of execution of this Amendment, the amount of the Bank Guarantee Facility that each of theLenders allocated shall be amended such that the total Bank Guarantee Facilities that shall be allocated by all of the Lenders together shall increase by an amount of 10 million USdollars.2 3.2In light of the replacement of the Other Bank in the Credit Agreement by the Remaining Lenders, in each of the Credit Documents in which there is reference to the Lenders, the Lendersshall be deemed to be the Remaining Lenders (without the Other Bank), and any reference to the Other Bank in the Credit Documents shall be interpreted accordingly. 4.Extension of the Termination Date of Amendment no. 34.1As of the date of execution of this Amendment, Section 1 of Amendment no. 3 shall be amended such that the definition of "Termination Date" existing therein shall be deleted and thefollowing shall come in its stead:""Termination Date" means the Final Repayment Date."5.Interest and Commissions5.1As of the date of execution of this Amendment, Sections 4.1-4.4 of Amendment no. 3 shall be cancelled, such that the amendments specified therein shall be deleted and the sectionsmentioned in Sections 4.1-4.4 of Amendment no. 3 shall resume to their drafting in the Credit Agreement (in its original drafting as was executed on March 14, 2013, prior to itsamendment).5.2For the avoidance of doubt, it shall be clarified that with respect to the commissions that apply to issuing bank guarantees as specified in Section 28.2.4 of the Credit Agreement, andwhich bank guarantees have already been issued by a Lender prior to the execution of this Amendment, the commission that the Borrower shall pay the Lender shall be updated at thedate of the payment of the upcoming commission, in accordance with the commission rate as is updated in this Amendment. 5.3The Borrower shall pay: (a) to the leading bank, in its capacity as Credit Manager, and (b) to each Lender, through the Credit Manager, a one-time commission for handling the request toamend the Credit Agreement, all as specified in the Commissions Letter, which shall be executed concurrently with the execution of this Amendment by the Borrower. 5.4The payment of any of the commissions specified above shall be deemed final and absolute, and shall not be refunded to the Borrower for any reason whatsoever.36.Miscellaneous6.1Unless otherwise expressly set forth in this Amendment, the terms and conditions and the obligations specified in this Amendment do not derogate from and/or prejudice and/or modifyany other undertaking of the Borrower towards the Lenders and/or the validity of any security whatsoever that was made available to the benefit of the Securities' Trustee for theLenders, under and by virtue of the Credit Agreement and/or the other Credit Documents and/or any other agreement or document that was and/or shall be delivered to the Lenders orto a position holder with respect to the Credit, and these shall continue to have full and binding force, including all of the provisions relating to the Lenders' rights to make the Creditimmediately payable, all in accordance with and subject to the provisions and the terms and conditions of the Credit Documents.6.2This Amendment, unless explicitly stated otherwise herein, is meant to be in addition to all that is stated in the Credit Agreement and in the Amendments, and shall not derogate fromand/or modify and/or prejudice them, and other than as explicitly specified in this Amendment, all of the rights of the Lenders and of the Borrower under the Credit Agreement, theAmendments and applicable law, are fully reserved. 4Exhibit 8.1List of Significant Subsidiaries Company Place of Incorporation Ceragon Networks, Inc. New Jersey Ceragon Networks AS Norway Ceragon Networks (India) Private Limited India Ceragon Networks S.A. de CV Mexico Exhibit 10.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-54356, 333-117849, 333-136633, 333-158983, 333-164064, 333-173480 and 333-187953) pertaining tothe Ceragon Networks Ltd. (“Ceragon”) Amended and Restated Share Option and RSU Plan of our reports dated April 7, 2017, with respect to the consolidated financial statements of Ceragonand the effectiveness of internal control over financial reporting of Ceragon, included in this Annual Report on Form 20-F for the year ended December 31, 2016. Tel-Aviv, IsraelApril 7, 2017/s/KOST FORER GABBAY and KASIERER A Member of Ernst & Young Global Exhibit 12.1 CERTIFICATIONI, Ira Palti, certify that:1.I have reviewed this annual report on Form 20-F of Ceragon Networks Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results ofoperations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that materialinformation relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which thisreport is being prepared;(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples;(c)evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosurecontrols and procedures, as of the end of the period covered by this report based on such evaluation; and(d)disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that hasmaterially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and theaudit committee of the company's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect thecompany's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.Date: April 7, 2017CERAGON NETWORKS LTD.By: /s/ Ira PaltiName: Ira PaltiTitle: President and Chief Executive Officer Exhibit 12.2 CERTIFICATIONI, Doron Arazi, certify that:1.I have reviewed this annual report on Form 20-F of Ceragon Networks Ltd.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results ofoperations and cash flows of the company as of, and for, the periods presented in this report;4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that materialinformation relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which thisreport is being prepared;(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples;(c)evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosurecontrols and procedures, as of the end of the period covered by this report based on such evaluation; and(d)disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that hasmaterially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and theaudit committee of the company's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect thecompany's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.Date: April 7, 2017CERAGON NETWORKS LTD.By: /s/ Doron AraziName: Doron AraziTitle: Deputy CEO and Chief Financial Officer Exhibit 13.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 20-F of Ceragon Networks Ltd. (the "Company") for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on thedate hereof (the "Report"), the undersigned hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to the best of ourknowledge:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: April 7, 2017 By: /s/ Ira PaltiName: Ira PaltiTitle: President and Chief Executive Officer By: /s/ Doron AraziName: Doron AraziTitle: Deputy CEO and Chief Financial Officer A signed copy of this written statement required by Section 906 has been provided to Ceragon Networks Ltd. and will be retained by Ceragon Networks Ltd. and furnished to the Securities andExchange Commission or its staff upon request.

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