UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 


FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the month of November 2013
 
Commission File Number 000-30862
 

 
CERAGON NETWORKS LTD.
(Translation of registrant’s name into English)

24 Raoul Wallenberg Street, Tel Aviv 69719, Israel
(Address of principal executive offices)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F x     Form 40-F   o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

 
 

 
 
EXPLANANTORY NOTE

Ceragon Networks Ltd. (the “Registrant”) is furnishing on this Form 6-K its unaudited interim consolidated financial statements for the nine months ended September 30, 2013, and the related Operating and Financial Review and Prospects for such period.   The Registrant is also furnishing (1) the consent of its independent registered accounting firm to the incorporation by reference into Registrant’s Registration Statement on Form F-3 (No. 333-183316) of its opinion on the Registrant’s consolidated financial statements included in Registrant’s Annual Report on Form 20-f for the year ended December 31, 2012 (2) an English summary of the material terms of an amendment to the Registrant’s Credit Facility.

(a)           Exhibits

Exhibit Number
Description
 
23.1 
Consent of Independent Registered Public Accounting Firm.
 
99.1
Unaudited financial statements of Ceragon Networks, Ltd. for the nine months ended September 30, 2013.
 
99.2
Operating and Financial Review and Prospects. for the nine months ended September 30, 2013.
 
99.3
English summary of the material terms of an amendment, effective as of October 1, 2013, to the Registrant’s Credit Facility, dated March 14, 2013.
 
101
Interactive Data File relating to the materials in this report on Form 6-K is formatted in Extensible Business Reporting Language (XBRL).
 
This Report on Form 6-K and the exhibits hereto are hereby incorporated by reference into the Registrant’s Registration Statement on Form F-3 (No. 333-183316), as amended and supplemented from time to time..
 
 
 

 

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
CERAGON NETWORKS, LTD.
(Registrant)
 
       
Date:           November 19, 2013 
By:
/s/  Donna Gershowitz  
   
Name: Donna Gershowitz
 
   
Title: VP and General Counsel
 
       
 



 


Exhibit 23.1
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We consent to the reference to our firm under the caption “Experts” in the Registration Statement (Form F-3) and related Prospectus of Ceragon Networks Ltd. and to the incorporation by reference therein of our report dated April 3, 2013, with respect to the consolidated financial statements of Ceragon Networks Ltd. and the effectiveness of internal control over financial reporting of Ceragon Networks Ltd. included in its Annual Report (Form 20-F) for the year ended December 31, 2012, filed with the Securities and Exchange Commission.

Tel-Aviv
November 19, 2013
Kost Forer Gabbay & Kasierer
A Member of Ernst & Young Global
 
                                                                             


                                                         


Exhibit 99.1
 
CERAGON NETWORKS LTD. AND SUBSIDIARIES

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2013

IN U.S. DOLLARS

UNAUDITED

INDEX

 
Page
   
F-2 - F-3
   
F-4
   
F-5
   
F-6
   
F-7
   
F-8 - F-16

 
 

 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

               
 
Note
 
December 31, 2012
   
September 30, 2013
 
           
Unaudited
 
ASSETS
             
               
CURRENT ASSETS:
             
Cash and cash equivalents
    $ 47,099     $ 40,582  
Short-term bank deposit
      422       321  
Trade receivables (net of allowance for doubtful accounts of $ 5,435 and $ 5,651 (unaudited) at December 31, 2012 and September 30, 2013, respectively)
      149,120       128,766  
Other accounts receivable and prepaid expenses
      38,743       37,529  
Deferred tax assets, net
      8,589       2,651  
Inventories
6
    65,554       57,438  
                   
Total current assets
      309,527       267,287  
                   
NON-CURRENT ASSETS:
                 
Marketable securities
5
    4,068       3,923  
Deferred tax assets, net
      9,140       10,984  
Severance pay and pension fund
      7,163       7,673  
Other non-current assets
      4,964       4,882  
                   
PROPERTY AND EQUIPMENT, NET
      33,642       36,403  
                   
INTANGIBLE ASSETS, NET
      9,809       7,866  
GOODWILL
7
    15,283       15,061  
                   
Total long-term assets
      84,069       86,792  
                   
Total assets
    $ 393,596     $ 354,079  
 
The accompanying notes are an integral part of the condensed consolidated financial statements

 
F - 2

 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share and per share data)
 
                 
   
Note
 
December 31, 2012
   
September 30, 2013
 
             
Unaudited
 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES:
               
Current maturities of long-term loan
 
8
  $ 8,232     $ 8,232  
Short-term loans
 
8
    17,000       40,990  
Trade payables
        102,079       81,041  
Deferred revenues
        16,719       8,501  
Other accounts payable and accrued expenses
        36,090       39,421  
                     
Total current liabilities
        180,120       178,185  
                     
LONG-TERM LIABILITIES:
                   
Long-term loan, net of current maturities
 
8
    18,536       12,362  
Accrued severance pay and pensions
        12,311       12,818  
Other long-term liabilities
        38,920       35,969  
                     
Total long-term liabilities
        69,767       61,149  
                     
                     
COMMITMENTS AND CONTINGENT LIABILITIES
 
9
               
                     
SHAREHOLDERS' EQUITY:
 
10
               
Share capital -
                   
Ordinary shares of NIS 0.01 par value -
                   
Authorized: 60,000,000 shares at December 31, 2012 and September 30, 2013; Issued: 40,046,691 and 40,338,691 shares at December 31, 2012 and September 30, 2013, respectively; Outstanding: 36,565,168 and 36,857,168 shares at December 31, 2012 and September 30, 2013, respectively
        98       98  
Additional paid-in capital
        318,106       322,025  
Treasury shares at cost – 3,481,523 Ordinary shares as of December 31, 2012 and September 30, 2013, respectively.
        (20,091 )     (20,091 )
Accumulated other comprehensive loss, net of taxes
        (490 )     (1,272 )
Accumulated deficit
        (153,914 )     (186,015 )
                     
Total shareholders' equity
        143,709       114,745  
                     
Total liabilities and shareholders' equity
      $ 393,596     $ 354,079  
 
The accompanying notes are an integral part of the condensed consolidated financial statements
 
 
F - 3

 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands (except per share data)
 
   
Nine months ended
September 30,
 
   
2012
   
2013
 
   
Unaudited
 
             
Revenues
  $ 339,802     $ 272,280  
Cost of revenues
    236,552       187,792  
                 
Gross profit
    103,250        84,488  
                 
Operating expenses:
               
Research and development, net
    35,480       32,553  
Selling and marketing
    58,762       50,637  
General and administrative
    20,594       18,668  
                 
Total operating expenses
  $ 114,836     $ 101,858  
                 
Operating loss
    11,586       17,370  
                 
Financial expenses, net
     2,609        8,856  
                 
Loss before taxes on income
    14,195       26,226  
                 
Taxes on income
    796       5,875  
                 
Net loss
  $ 14,991     $ 32,101  
                 
Net loss per share:
               
                 
Basic and diluted net loss per share
  $ 0.41     $ 0.87  
                 
Weighted average number of ordinary shares used in computing basic and diluted net loss per share
    36,397,410       36,736,417  
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 
 
F - 4

 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

U.S. dollars in thousands (except per share data)

   
Nine months ended September
 
   
2012
   
2013
 
   
Unaudited
 
             
Net loss
  $ 14,991     $ 32,101  
                 
Other comprehensive loss:
               
                 
Change in foreign currency translation adjustment
    778       1,023  
                 
Available-for-sale investments:
               
Change in net unrealized (gains) losses
    191       (161 )
Reclassification adjustment for net losses included in net income
    57       97  
Net change
    248       (64 )
                 
Cash flow hedges:
               
Change in net unrealized gains
    (348 )     (882 )
Reclassification adjustment for net (gains) losses included in net income
    (165 )     705  
Net change (net of tax effect of $185, and $24)
    (513 )     (177 )
                 
Other comprehensive loss
    513       782  
                 
Total of comprehensive loss
  $ 15,504     $ 32,883  

The accompanying notes are an integral part of the condensed consolidated financial statements
 
 
F - 5

 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

U.S. dollars in thousands (except share and per share data)

   
Ordinary shares
   
Share
capital
   
Additional
paid-in
capital
   
Treasury shares at cost
   
Accumulated other comprehensive income (loss)
   
Accumulated deficit
   
Total shareholders' equity
 
                                           
Balance as of January 1, 2012
    36,324,997     $ 97     $ 311,911     $ (20,091 )   $ (343 )   $ (130,523 )   $ 161,051  
                                                         
Exercise of options
    240,171       1       735       -       -       -       736  
Share-based compensation expense
    -       -       5,460       -       -       -       5,460  
Other comprehensive loss, net
    -       -       -       -       (147 )     -       (147 )
Net loss
    -       -       -       -       -       (23,391 )     (23,391 )
                                                         
Balance as of December 31, 2012
    36,565,168       98       318,106       (20,091 )     (490 )     (153,914 )     143,709  
                                                         
Exercise of options (unaudited)
    292,000       -       1,145       -       -       -       1,145  
Share-based compensation expense (unaudited)
    -       -       2,774       -       -       -       2,774  
Other comprehensive loss, net (unaudited)
    -       -       -       -       (782 )     -       (782 )
Net loss (unaudited)
    -       -       -       -       -       (32,101 )     (32,101 )
                                                         
Balance as of September 30, 2013 ( unaudited )
    36,857,168       98       322,025       (20,091 )     (1,272 )     (186,015 )     114,745  
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 
 
F - 6

 
 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands (except share and per share data)
 
   
Nine months ended
September 30,
 
   
2012
   
2013
 
   
Unaudited
 
Cash flows from operating activities:
           
Net loss
  $ (14,991 )   $ (32,101 )
Adjustments required to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    11,228       11,656  
Share-based compensation expense
    4,245       2,774  
Accrued severance pay and pensions, net
    (59 )     (3 )
Decrease in accrued interest, exchange rate on bank deposits,
               
accrued interest and amortization of premium on marketable securities
    (187 )     (19 )
Decrease (increase) in trade receivables, net
    (37,096 )     20,502  
Increase in other accounts receivable and prepaid expenses
    (2,425 )     (168 )
Decrease in inventories, net of write-off
    28,809       7,493  
Increase (decrease) in trade payables
    23,443       (17,472 )
Decrease in deferred revenues
    (16,419 )     (8,218 )
Decrease (increase) in deferred tax asset, net
    (419 )     3,743  
Decrease in other accounts payable and accrued expenses (including other long term liabilities)
    (6,005 )     (1,597 )
Net cash used in operating activities
    (9,876 )     (13,410 )
                 
Cash flows from investing activities :
               
Purchase of property and equipment
    (10,213 )     (11,706 )
Investment in short-term bank deposits
    (1,266 )     (255 )
Proceeds from maturities of short-term bank deposits
    7,920       336  
Proceeds from sale of marketable securities, net
    9,717       301  
Net cash provided by (used in) investing activities
    6,158       (11,324 )
             
Cash flows from financing activities :
           
Proceeds from short-term loans from financial institutions
    25,000       25,990  
Repayment of bank loan
    (6,174 )     (8,174 )
Proceeds from exercise of options
    734       1,145  
Net cash provided by financing activities
    19,560       18,961  
                 
Effect of exchange rate changes on cash
    (482 )     (744 )
                 
Increase (decrease) in cash and cash equivalents
    15,360       (6,517 )
                 
Cash and cash equivalents at the beginning of the year
    28,991       47,099  
                 
Cash and cash equivalents at the end of the year
  $ 44,351     $ 40,582  
 
The accompanying notes are an integral part of the condensed consolidated financial statements.

 
F - 7

 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)

NOTE 1:-
GENERAL

 
a.
Ceragon Networks Ltd. ("the Company") is a high-capacity wireless hauling specialist.  It provides wireless hauling solutions that enable cellular operators and other wireless service providers to deliver voice and data services, enabling smart-phone applications such as Internet browsing, social networking applications, image sharing, music and video applications.  Its wireless backhaul solutions use microwave technology to transfer large amounts of telecommunication traffic between base stations and small-cells and the core of the service provider’s network.  The Company also provides fronthaul solutions that use microwave technology for ultra-high speed, ultra-low latency communication between LTE/LTE-Advanced base 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 also serve 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 has fourty five wholly-owned subsidiaries worldwide. The subsidiaries provide research and development, marketing, manufacturing, distribution, sales and technical support to the Company's customers worldwide.

 
b.
During the fourth quarter of  2012, the Company initiated a restructuring plan to improve its operating efficiency. The restructuring expenses include mainly severance and other compensation related expenses associated with the termination of employment under a restructuring plan and office lease termination costs. The total restructuring costs associated with exiting activities of the Company for the year ended December 31, 2012 were $ 4,608 recorded in operating expenses, as restructuring costs. As of December 31, 2012 and September 30, 2013, the total liability balance for the restructuring plan was $ 3,712 and $ 1,231, respectively.

 
c.
During the fourth quarter of  2013, the Company initiated a restructuring plan to reduce its operating cost and improve its efficiency, mainly by realigning teams on enhancing the newly released IP-20 platform, consolidating or relocating certain offices and reducing staff functions and some operations positions, as well as other measures. The restructuring expenses include mainly severance and other compensation related expenses associated with the termination of employment under a restructuring plan and facilities related expenses for office closing and consolidations.

 
d.
ASC No. 740 "Income Taxes" requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.

As part of the process of preparing the unaudited condensed consolidated financial statements, the Company is required to estimate income taxes and deferred income tax assets in each of the jurisdictions in which it operates. During the nine-months period ended September 30, 2013 the Company has reviewed all available positive and negative evidence needs to be considered, including a Company's performance, projections regarding the near-term revenues and profitability, the changing business environment of the worldwide microwave radio and telecommunication markets, the market environment in which the company operates, the Company's ability to utilize  tax loss carryforward and the length of carryback and carryforward periods. The Company identified several developments in certain jurisdictions and accordingly, the Company determined that available tax strategies and projections were sufficient to support a deferred tax asset of $13,635. Consequently, the Company recorded an adjustment of valuation allowance for income taxes of $ 4,037 with a corresponding reduction to the tax asset.
 
 
F - 8

 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)
 
NOTE 1:-
GENERAL (Cont.)
 
 
e.
In March 2013, the Company entered into a syndicated credit agreement (the “Credit Facility”) with four financial institutions. Such agreement provides the Company with revolving credit facilities in the form of loans and bank guarantees, under which an aggregate sum of up to $73.5 million of credit loans and up to $40.2 million of bank guarantees shall be available. The Credit Facilities shall terminate, and all borrowings shall be repaid, upon March 14, 2016. Repayment may be accelerated by the financial institutions in certain events of default including in insolvency events, failure to comply with financial covenants or an event in which a current or future shareholder acquires control (as defined under the Israel Securities Law) of the Company. The financial covenants are mainly based on financial ratios that are related to the Company's total shareholders' equity, financial debt, trade receivables balance and working capital (see also note 8). As of September 30, 2013 the outstanding Credit Facility is $91.6 million, under which $61.6 million are credit loans and $30.0 are bank guarantees.

During the nine month period ended September 30, 2013, the Company incurred operating losses and negative cash flows from operating activities amounting to $17,370 and $13,410, respectively. As of September 30, 2013, the Company had $44,826 in cash and cash equivalents, short term bank deposits and long-term marketable securities, out of which $18,159 are located in Argentina and Venezuela. These countries are regulated for foreign currency exchange which impairs the availability of that cash outside of these countries.

Subsequent to the balance sheet date, the Company announced that it will realign its operations, reduce head count and undertake other cost reduction measures in order to improve profitability. Furthermore, the Company has amended its Credit Facility arrangements to adjust the financial covenants and applicable interest rates to better reflect new operational results of the Company following the cost reduction plan. The amendment shall be applied until October 1, 2014.  Subsequently, the original covenants will be restored. As of the date of the financial statements the Company meets the covenants in the Credit Facility, and expects to continue to meet them based on the amended agreement. In addition, the Company is evaluating other alternatives to obtain liquidity resources in order strengthen its liquidity resources.

 
F - 9

 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)
 
NOTE 2:-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 
a.
The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2012 are applied consistently in these financial statements . For further information, refer to the consolidated financial statements as of December 31, 2012.

 
b.
Basis of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

NOTE 3:-
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The Condensed Consolidated Balance Sheet as of December 31, 2012, is derived from the audited Consolidated Financial Statements for the year ended December 31, 2012.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The preparation of the financial statements and related disclosures in accordance with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and the accompanying notes. Actual results could differ materially from those estimates under different assumptions or conditions. Operating results for the nine-month period ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

For further information, refer to the consolidated financial statements and footnotes thereto, included in the Company's annual report on Form 20-F for the year ended December 31, 2012.

NOTE 4:-
FAIR VALUE MEASURMENTS

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 or paid 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 of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

 
F - 10

 

CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)
 
NOTE 4:-
FAIR VALUE MEASURMENTS (Cont.)
 
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 discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these 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.

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, the liquidity 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 unobservable in 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 approximate their fair values due to the short-term maturities of such instruments.

The marketable securities fair value, based on quoted market prices, classified within Level 1 (see also note 5).

The derivative instruments are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.

 
F - 11

 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)
 
NOTE 4:-
FAIR VALUE MEASURMENTS (Cont.)

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:

   
As of December 31, 2012
 
   
Fair value measurements using input type
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Marketable securities
  $ 4,068     $ -     $ -     $ 4,068  
Derivatives designated as hedging instrument
    -       533       -       533  
Pension liability, net
    -       -       (2,247 )     (2,247 )
                                 
Total assets (liabilities)
  $ 4,068     $ 533     $ (2,247 )   $ 2,354  
                                 
   
As of September 30, 2013
 
   
Fair value measurements using input type
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
                                 
Marketable securities
  $ 3,923     $ -     $ -     $ 3,923  
Derivatives designated as hedging instrument
    -       506       -       506  
Pension liability, net
    -       -       (2,142 )     (2,142 )
                                 
Total assets (liabilities)
  $ 3,923     $ 506     $ (2,142 )   $ 2,287  
 
NOTE 5:-   MARKETABLE SECURITIES

The following is a summary of marketable securities at December 31, 2012 and September 30, 2013:

   
December 31, 2012
   
September 30, 2013
 
   
Amortized
   
Gross
unrealized
   
Fair
market
   
Amortized
   
Gross
unrealized
   
Fair
market
 
   
Cost
   
gains
   
value
   
cost
   
gains
   
value
 
                                     
Corporate debentures
  $ 204     $ 99     $ 303     $ -     $ -     $ -  
Government bonds
    3,515       250       3,765       3,519       404       3,923  
                                                 
    $ 3,719     $ 349     $ 4,068     $ 3,519     $ 404     $ 3,923  

The aggregate maturities of marketable securities for years subsequent to September 30, 2013 are for periods between one to three years. The fair market value in the amount of $ 3,923 is comprised from an amortized cost and  gross unrealized gain in the amount of  $ 3,519 and $ 404, respectively.

During the nine months ended September 30, 2012 and 2013 the Company recorded net proceeds from sales and maturity of these securities in amount of $ 9,717 and $ 301 (unaudited), respectively and income from sale of marketable securities in an amount of $ 57 and $ 97 (unaudited), respectively.

 
F - 12

 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)
 
NOTE 6:-
INVENTORIES
 
   
December 31,
   
September 30,
 
    2012(*)     2013  
           
Unaudited
 
Raw materials
  $ 14,268     $ 13,421  
Work in progress
    2,633       404  
Finished products
    48,653       43,613  
                 
    $ 65,554     $ 57,438  

(*) Reclassified

Finished products include products shipped to customers for which revenues were not recognized as of September 30, 2013. Such products amounted to $ 19,266 and $ 13,734 (unaudited) at December 31, 2012 and September 30, 2013, respectively.

Inventory write-off provision as of December 31, 2012 and September 30, 2013 amounted of $ 2,887 and $ 3,157 (unaudited), respectively.
 
NOTE 7:-
GOODWILL

The changes in the carrying amount of goodwill for the year ended December 31, 2012 and the nine months ended September 30, 2013 are as follows:

       
January 1, 2012
  $ 14,593  
Functional currency translation adjustments (1) (2) (3)
    690  
         
December 31, 2012
  $ 15,283  
Functional currency translation adjustments (3)
    (222 )
         
September 30, 2013
  $ 15,061  

 
(1)
The allocation period of Nera's acquisition ended in July 2012.
 
(2)
Adjustment of goodwill related to acquisition of Nera.
 
(3)
Foreign currency translation differences resulting from goodwill allocated to subsidiaries, whose functional currency has been determined to be other than the U.S. dollar and adjustment related to provisions.

 
F - 13

 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)
 
NOTE 8:-
LOAN AND CREDIT LINE

In 2011 the Company entered into a loan agreement with Bank Hapoalim Ltd. (the "Loan Agreement") for a loan in the principal amount of $ 35,000 (the “Loan”).

The Loan Agreement provides that the principal amount of $ 35,000 bear effective interest at a rate of Libor + 3.15%, which Libor is updated every three months. As of September 30, 2013 the accrued interest is $ 76 and is recorded as part of the accrued expenses. The principal amount is to be repaid in 17 quarterly installments from February 19, 2012, through February 19, 2016 and the interest is to be paid in quarterly payments starting as of February 19, 2011.

The loan is secured by a floating charge over all Company assets as well as several customary fixed charges on specific assets and subject to certain financial covenants.

In March 2013, the Company was provided with a Credit Facility by four financial institutions. Such agreement provides the Company with revolving credit facilities, under which a sum of up to $40.2 million in the form of bank guarantees and $73.5 million in the form of loans shall be available. The new agreement replaced all of the Company’s previously existing credit facilities (and with respect to the Loan  provides the same interest and repayment installments set forth in the Loan Agreement), including the Loan Agreement. Each portion of the Credit Facility will be operated by its furnishing financial institution.

Borrowings and repayments shall be made directly with the relevant financial institution. Any amounts repaid during the term of the Credit Facility may be re-borrowed up to the amount available under the loan segment of the Credit Facility. In the framework of the Credit Facility, the Company undertook certain financial and other covenants. The Credit Facility shall terminate, and all borrowings shall be repaid, upon March 14, 2016.

As of September 30, 2013, the Company utilized $ 91.6 million out of $ 113.7 million of loans and bank guarantees available under the Credit Facility. During the period ending on September 30, 2013, the Credit Facility carried interest rates of Libor+2.90% to Libor+3.5%.

The Company undertook to maintain certain financial and other covenants regarding the above loan and Credit Facility. The financial covenants are mainly based on financial ratios that are related to the Company's total shareholders' equity, financial debt, trade receivables balance and working capital. Repayment of the Loan and Credit Facility may be accelerated by the financial institutions in certain events of default including in insolvency events, failure to comply with the financial covenants and an event whereby the Company will no longer be a traded company.

For details regarding change in financial covenants and interest rates after the balance sheet date, see note 1e.

The maturities of the principal amount of the Loan for periods after September 30, 2013 are as follows:

2013
  $ 2,058  
2014
    8,232  
2015
    8,232  
2016
    2,072  
    $ 20,594  
 
 
F - 14

 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)
 
NOTE 9:-
COMMITMENTS AND CONTINGENT LIABILITIES

 
a.
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 rental commitments under non-cancelable leases at September 30, 2013, were as follows:
 
Year ended December 31,
 
Facilities
   
Motor vehicles
   
Total
 
                   
2013
    1,518       359       1,877  
2014
    3,024       1,140       4,164  
2015
    2,595       648       3,243  
2016
    2,450       363       2,813  
2017 and thereafter
    2,984       -       2,984  
      12,571       2,510       15,081  

Expenses for lease of facilities for the nine months ended September 30, 2013 and 2012 were approximately $ 5,186 (unaudited) and $ 5,233, respectively.
Expenses for the lease of motor vehicles for the nine months ended September 30, 2013 and 2012 were approximately $ 1,774 (unaudited) and $ 1,569, respectively.

 
b. 
Charges and guarantees:

As of September 30, 2013, the Company provided bank guarantees in an aggregate amount of $ 29,997 (which counts as part of its credit line) with respect to tender offer guarantees and performance guarantees to its customers.

 
c. 
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. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.

The Company cannot estimate the exposure amount, and in any case, these allegations have not resulted in any action brought against the Company. The Company's management does not believe that it is probable that the above mentioned allegations will result in a loss to the Company. Accordingly, no provision was recorded with respect to these allegations.

 
d. 
Indirect taxes:

The Company recorded a provision for indirect tax liabilities in Latin America, mainly to VAT and Custom duties for the year ended December 31, 2012 and the nine month period ended September 30, 2013, in the amount of approximately $26.9 and $24.9   million, respectively. In addition to the amount currently reserved, the Company may be subject to loss contingencies related to these matters estimated to be up to an additional $26 million. The Company believes that such undiscounted unreserved losses are reasonably possible but are not currently considered to be probable of occurrence.
 
 
F - 15

 
CERAGON NETWORKS LTD. AND ITS SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands (except share and per share data)
 
NOTE 10:-
SHAREHOLDERS' EQUITY

During the nine months ended September 30, 2013, the Company's Board of Directors granted 675,834 options and 33,000 Restricted Share Units (RSU’s) to employees and directors to purchase 708,834 Ordinary shares of the Company. The exercise prices for the options are from $ 3.48 to $ 4.76 per share, with vesting to occur in up to 4 years.

During the nine months ended September 30, 2012 and 2013 the Company recorded share based compensation in total amount of $ 4,245 and $ 2,774, respectively.

During the year ended  December 31, 2012, 240,171 options were exercised at a weighted average exercise price of $ 3.04.

During the nine months ended  September 30, 2013, 292,000 options were exercised at a weighted average exercise price of $ 3.92.

As of September 30, 2013, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $ 3,378, which is expected to be recognized over a weighted average period of approximately one year.
 
NOTE 11:-
SUBSEQUENT EVENTS
 
 
a.
The Company initiated a restructuring plan during the fourth quarter of 2013. For details, see note 1c.

 
b.
Subsequent to the balance sheet date, the Company signed with the financial institutions on an amendment to the Credit Facility. For details, see note 1e.

 
c.
Subsequent to the balance sheet date , and as part of the 2013 Restructuring Plan, The Company’s Board of Directors has authorized a grant of up to 1.2 million RSU’s under our Amended and Restated Share Option and RSU Plan.

 
d.
On November 3, 2013, the Company’s Board of Directors approved a grant to employees of options and RSU’s to purchase a total of 144,667 Ordinary Shares. Such options and RSU’s shall vest over a period of 4 years commencing on the above date.        
 
F - 16




Exhibit 99.2
 
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
Components of Results of Operations

Revenues. We generate revenues primarily from the sale of our products, and, to a lesser extent, services. The final price to the customer may vary based on various factors, including but not limited to the size of a given transaction, the geographic location of the customer, the specific application for which products are sold, the channel through which products are sold, the competitive environment and the results of negotiation.
 
Cost of Revenues. Our cost of revenues consists primarily of the prices we pay contract manufacturers for the products they manufacture for us, the costs of our manufacturing facility, estimated warranty costs, costs related to management of our manufacturing facility, supply chain and shipping. In addition, we pay salaries and related costs to our employees and fees to subcontractors relating to installation services with respect to our products.
 
Significant Expenses

Research and Development Expenses. Our research and development expenses consist primarily of salaries and related costs for research and development personnel, subcontractors’ costs, costs of materials and depreciation of equipment. All of our research and development costs are expensed as incurred. We believe continued investment in research and development is essential to attaining our strategic objectives.
 
Selling and Marketing Expenses. Our selling and marketing expenses consist primarily of compensation and related costs for sales and marketing personnel, amortization of intangible assets, trade show and exhibit expenses, travel expenses, commissions and promotional materials.
 
General and Administrative Expenses. Our general and administrative expenses consist primarily of compensation and related costs for executive, finance, information system and human resources personnel, professional fees (including legal and accounting fees), insurance, provisions for doubtful accounts and other general corporate expenses.
 
 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 expenses, net. Our financial expenses, net, consists primarily of interest paid on bank debts, gains and losses arising from the re measurement of transactions and balances denominated in non-dollar currencies into dollars, gains and losses from our currency hedging activity, amortization of marketable securities premium, net, and other fees and commissions paid to banks, offset by interest earned on bank deposits and marketable securities.
 
Taxes.  Our tax expenses consist of current corporate tax expenses in various locations and changes in deferred tax assets and liabilities.
 
Restructuring charges. During the fourth quarter of 2012, we initiated a restructuring plan to improve our operating efficiency, the restructuring plan contributed to the reduction of the operating expenses by $13.0 million for the nine months ended 2013. The restructuring costs in 2012 amounted to $4.6 million. In the fourth quarter of 2013, we announced a new restructuring plan (the “2013 Restructuring Plan”) to reduce our operational costs. The 2013 Restructuring Plan is intended to realign operations, reduce head count and undertake other cost reduction measures in order to lower our breakeven point and improve profitability.  As part of the 2013 Restructuring Plan, executive and certain other employee salaries were reduced; in order to help retain these employees, our board has authorized a grant of up to 1.2 million restricted share units under our Amended and Restated Share Option and RSU Plan. The restructuring is expected to result in annual savings of approximately $25 million. The 2013 Restructuring Plan include consolidating research and development activities worldwide and realigning teams on enhancing the newly released IP-20 platform, consolidating or relocating certain offices and reducing staff functions and some operations positions, as well as other measures. No customer-facing activities will be affected. Total restructuring charges are expected to be approximately $11-$13 million which will begin in fourth quarter of 2013 and will continue during the first half of 2014, mainly in the first quarter.
 
 
 

 
 
Results of Operations

The following table presents consolidated statement of operations data for the periods indicated and as a percentage of total revenues.
 

   
Nine months ended
September 30, 2012
   
Nine months ended
September 30, 2013
 
     $       %      $       %  
Revenues
    339,802       100 %     272,280       100 %
Cost of revenues
    236,552       69.6       187,792       69.0  
Gross profit
    103,250       30.4       84,488       31.0  
Operating expenses:
                               
Research and development, net
    35,480       10.4       32,553       12.0  
Selling and marketing
    58,762       17.3       50,637       18.6  
General and administrative
    20,594       6.1       18,668       6.8  
Total operating expenses
    114,836       33.8       101,858       37.4  
Operating loss
    (11,586 )     (3.4 )     (17,370 )     (6.4 )
Financial expenses, net
    (2,609 )     (0.8 )     (8,856 )     (3.2 )
Taxes on income
    (796 )     (0.2 )     (5,875 )     (2.2 )
Net loss
    (14,991 )     (4.4 )     (32,101 )     (11.8 )

Nine months ended September 30, 2013 Compared to Nine Months Ended September 30, 2012

Revenues. Revenues decreased by 19.9 % from $339.8 million in the first nine months of 2012 to $272.3 million in the first nine months in 2013, partially due to recent downturns in the telecommunication industry which resulted in a reduction in capital expense budgets of our customers. Revenues in the India region decreased from $46.1 million in the first nine months of 2012 to $19.2 million in the first nine months of 2013, primarily due to completion of a major deployment cycle in one of our largest customers while our other major customers are still holding their investment as a result of market and regulatory conditions. Revenues in the Europe region decreased from $70.5 million in the first nine months of 2012 to $49.1 million in the first nine months in 2013, primarily due to economic and market conditions .  Revenues in the Asia Pacific region decreased from $48.1 million in the first nine months of 2012 to $30.7 million in the first nine months of 2013, primarily due to slow progress in penetrating new customers while our existing customers reduced their investment as part of cycle investment patterns. The decrease in revenues was partially offset by increase in Africa region.
 
Cost of Revenues.  Cost of revenues decreased by 20.6 % from $236.6 million in the first nine months of 2012 to $187.8 million in the first nine months of 2013. This decrease was attributable mainly to lower material costs of $43.2 million, related to decrease in revenues and lower cost of an inventory step-up adjustment of acquired deferred revenue as of the closing of the acquisition by the Company of Nera Networks AS in January 2011 (“Nera Acquisition”) in the amount of $4.5 million.
 
Gross Profit .  Gross profit as a percentage of revenues increased from 30.4% in the first nine months of 2012 to 31.0% in the first nine months of 2013. This increase was attributable mainly to the lower cost of inventory step up, partially offset by an increase of the percentage of our fixed operating expenses of lower revenues.
 
Research and Development Expenses. Our research and development expenses decreased by 8.2 % from $35.5 million in the first nine months of 2012 to $32.6 million in the first nine months of 2013. The decrease in our research and development expenses was attributable primarily to a reduction in subcontractor expenses of $1.6 million, a decrease in stock-based compensation expenses of $0.7 million and a decrease of $0.6 million in salary and related expenses as a result of organizational changes due to the 2012 restructuring plan. Our research and development efforts are a key element of our strategy and are essential to our success. We intend to maintain our commitment to research and development and an increase or a decrease in our total revenue would not necessarily result in a proportional increase or decrease in the levels of our research and development expenditures. The 2013 Restructuring Plan includes consolidating research and development activities worldwide and realigning teams on enhancing the newly released IP-20 platform.
 
 
- 2 -

 
 
Selling and Marketing Expenses . Selling and marketing expenses decreased by 13.9% from $58.8 million in the first nine months of 2012 to $50.6 million in the first nine months of 2013. This decrease was primarily attributable to the decrease of approximately $3.6 million in salary and related expenses as a result of organizational changes due to the 2012 restructuring plan, lower commission expenses of $1.0 million, lower office expenses of $1.0 million, lower amortization expenses of intangible assets of $0.8 million and lower stock-based compensation expenses of $0.5 million.
 
  General and Administrative Expenses . General and administrative expenses decreased by 9.2% from $20.6 million in the first nine months of 2012 to $18.7 million in the first nine months of 2013. This decrease was primarily attributable to the decrease of approximately $0.8 million in salary and related expenses as a result of organizational changes due to the 2012 restructuring plan and a decrease in doubtful debt expenses of $0.6 million.
 
Financial expenses, net . Financial expenses, net increased by 242.3% from $2.6 million in the first nine months of 2012 to $8.9 million in the first nine months of 2013. The increase in financial expenses was mainly related to an increase in currency revaluation expenses in the amount of $5.6 million, principally related to a  currency devaluation in Venezuela of $3.1 million that we took relating to Venezuela currency devaluation in February 2013 and an increase in interest expenses of our short-term loans in the amount of $0.8 million.
 
Taxes on income . Taxes on income increased by 638% from $0.8 million in the first nine months of 2012 to $5.9 million in the first nine months of 2013. Our effective tax rate was 22.4% in 2013. This change was mainly attributed to tax expenses related to an adjustment of the valuation allowance for income taxes of $4.0 million with a corresponding reduction to the tax asset. The adjustment was made as a result of the Company determining that it was not likely to utilize carry forward tax losses on the basis previously assumed.
 
Net loss . Net loss increased by 114.1% from $15.0 million in the first nine months of 2012 to $32.1 million in the first nine months of 2013. The increase in net loss was attributable primarily to the decrease in revenues, as well as an increase in financial and tax expenses.
 
Liquidity and Capital Resources

As of September 30, 2013, we had approximately $44.8 million in cash and cash equivalents, short term bank deposits and long-term marketable securities. Of this amount, $18.2 million is located in Argentina and Venezuela. These countries impose foreign currency exchange limits which impairs our ability to move funds out of these countries.
 
As of September 30, 2013, our cash investments were comprised of the following: 90% consisted of short-term, highly liquid investments with original maturities of up to three months, 9% of our liquid assets was invested in long term corporate and government debt securities and 1% consisted of short-term bank deposits. Most of these investments are in US dollars.
 
As of September 30, 2013, our short-term debt from financial institutions was $49.2 million and long-term debt from financial institutions was $12.4 million.
 
We have a committed credit facility with a maximum line of credit of $40.2 million in the form of bank guarantees and $73.5 million in the form of loans, available for our use from a syndicate of four banks, for which we pay commitment fees. The credit facility is provided by the syndicate with each bank agreeing severally (and not jointly) to make its agreed portion of the credit loans to us in accordance with the terms of the credit loan agreement which includes a framework for joint decision making powers by the banks.   As of September 30, 2013, we had $11.9 million available under our credit facility.
 
 
- 3 -

 
 
In addition, the 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  and a certain ratio between our net financial debt to each of our working capital and accounts receivable. Any failure to comply with the covenants, including for poor financial performance, may constitute a default under the credit agreement and may require us to seek an amendment or waiver from the banks to avoid termination of their commitments and/or an immediate repayment of all outstanding amounts under the credit facilities. The credit facilities are secured by (1) a floating charge over all our assets and (2) floating and fixed charges over our bank accounts with the banks.  Although we were in compliance with our bank covenants as of September 30, 2013, we have recently obtained the bank syndicate's consent for less restrictive financial covenants to be in effect until October 1, 2014 after which the original covenants again apply. We expect to comply with the new less restrictive financial covenants until October 1, 2014.
 
Net cash used in operating activities was $13.4 million for the nine months ended September 30, 2013.
 
In the first nine months of 2013, our cash used in operating activities was affected by the following principal factors:
 
 
·
our net loss of $32.1 million;
 
 
·
a $19.1 million decrease in trade payables, net of accrued expenses and other accounts payables; and
 
 
·
a $8.2 million decrease in deferred revenues paid in advance.
 
These factors were offset by:
 
 
·
a $7.5 million decrease in inventories, net of write-offs; and
 
 
·
a $20.3 million decrease in trade and other receivables, net.
 
Net cash used in operating activities was $9.9 million for the nine months ended September 30, 2012.
 
In the first nine months of 2012, our cash used in operating activities was affected by the following principal factors:

 
·
our net loss of $15.0 million;
 
 
·
a $39.5 million increase in trade and other receivables, net; and
 
 
·
a $16.4 million decrease in deferred revenues paid in advance.
 
T h ese factors were offset by:

 
·
a $28.8 million decrease in inventories, net of write-offs; and
 
 
·
a $17.4 million increase in trade payables, net of accrued expenses and other accounts payables.
 
 
- 4 -

 
 
Net cash used in investing activities was approximately $11.3 million in the first nine months of 2013 compared to $6.2 million provided by investing activities in the first nine months in 2012. In the nine months ended September 30, 2013, our investment in short-term bank deposits of $0.2 million and purchase of property and equipment of $11.7 million, were offset partially by proceeds from maturity of short-term bank deposits of $0.3 million and by proceeds from sales of marketable securities of $0.3 million. In the nine months ended September 30, 2012, our net proceeds from short-term bank deposits of $6.7 million and net proceeds from sales of marketable securities of $9.7 million, were offset partially by purchase of property and equipment of $10.2 million.
 
Net cash provided by financing activities was approximately $19.0 million in the first nine months of 2013 compared to $19.6 million provided in the first nine months in 2012. In the nine months ended September 30, 2013, proceeds from exercises of share options of $1.1 million and net proceeds from financial institutions of $17.8 million after giving effect to repayment of a portion of our long term debt. In the nine months ended September 30, 2012, our proceeds from exercises of share options of $0.7 million and net proceeds from financial institutions, net of $18.9 million, after giving effect to repayment of a portion of our loan term debt. 
 
As of September 30, 2013, our principal commitments consisted of $15.1 million for obligations outstanding under non-cancelable operating leases.
 
Although we cannot assure you that the 2013 Restructuring Plan will achieve the anticipated benefits or not exceed the expected costs, based on the Company’s current financial projections, which takes into account projected savings from the 2013 Restructuring Plan, the Company believes it has sufficient existing cash resources and credit facilities to fund operations for at least the next 12 months.
 
 - 5 -




Exhibit 99.3

English Summary of the Hebrew Original

SUMMARY OF AMENDMENT NO. 1 TO THE CREDIT AGREEMENT

On March 14, 2013 Ceragon Networks Ltd. (the " Company ") entered into a credit agreement (the credit agreement together with its schedules and annexes shall be referred to herein as the " Agreement "). The parties to the Agreement are as follows: (i) Bank Hapoalim B.M., HSBC Bank Plc, Bank Leumi Le’Israel Ltd., and First International Bank Israel Ltd., as Lenders (the " Lenders "); (ii) Bank Hapoalim B.M., as lead-arranger, facility agent and securities trustee; and (iii) Ceragon Networks Ltd., as   the borrower.

On November 3, 2013 the parties entered into the Amendment No. 1 to the Credit Agreement, (hereinafter the " Amendment ").

The following is the summary of the material terms and conditions of the Amendment. The section numbers used herein correspond to the section numbers of the Amendment.
 
1.
General .

Together with general provisions and rules of interpretation, this section also provides the following definitions to certain terms used in the Amendment in addition to the terms used in the Agreement:

 
i.
" Return Date to Financial Ratio "- the date the Lenders approved in writing in accordance with the financial statements provided by the Company, that the Company is in compliance with financial ratios stated under section 16 to the Agreement, in its version before its amendment pursuant to the this Amendment.

 
ii.
" Termination Date "- means the earlier of October 1 st , 2014, or the Return Date to Financial Ratio.

 
iii.
" Effective Date "- means October 1 st , 2013.

This section also contains customary representations of the Company including a representation that the Company has complied and is complying with all the provisions of the Agreement; that certain representations and warranties as detailed in the Agreement are true and correct as of the date of execution of this Amendment; and that the Company has full power and authority to enter into the Amendment.

2.
Financial Ratios .

As of the Effective Date and until the Termination Date, the Financial Ratios set forth in section 16 of the Agreement shall be replaced with the following:

 
 

 
 
The Company undertakes to maintain, at all times, all of the following financial ratios –

 
(a)
Ratio of equity to total balance sheet shall be equal to or greater than 0.23;

 
(b)
Equity level of no less than 85 (eighty five) million US dollars;
 
 
(c)
Ratio of net financial debt to the working capital shall be equal to or smaller than 0.5;

 
(d)
Ratio of net financial debt to the accounts receivables shall be equal to or smaller than 0.4;

 
(e)
Level of total cash, cash equivalents and short term investments in marketable securities of no less than 25 (twenty five) million US dollars, at all times excluding the first quarter of the year 2014, in which the level of total cash, cash equivalents and short term investments in marketable securities shall be no less than 30 (thirty) million US dollars;

 
(f)
The adjusted EBITDA (as defined below) for the second quarter of the year 2014 shall be no less than 3 (three) million US dollars; and

 
(g)
The adjusted EBITDA for the third quarter of the year 2014 shall be no less than 5 (five) million US dollars.

The " Adjusted EBITDA " - means, (1) Operating Profit, plus (2) Depreciation, plus (3) Stock Based Compensation, plus (4) Amortization, plus (5) Restructuring (as defined below), provided that with respect to the financial statements of the third quarter of the year 2014 and to the any period thereafter the value of the Restructuring shall not be taken into account for the purpose of calculating the Adjusted EBITDA; and all as reported under the Compnay's financial statements for the period ending on the referred date, respectively.

" Restructuring "- means, as reported under the Company's financial statements for the period ending on the referred date, respectively, provided that with respect to the financial statements of the second quarter of the year 2014, the maximum amount taken into account for the purpose of calculating the Financial Ratios will be 1.5 (one and a half) million US dollars. 

3.
Interest and Fees

As of the Effective Date and until the Termination Date the following shall apply:

 
3.1
The principal of each outstanding loan advanced to the Company by a Lender out of the Loan Facilities (as defined under the terms of the Agreement) shall bear floating interest in a rate of the base interest plus applicable spread of up to 3.2% per annum.

 
3.2
The annual rate with respect to the amount of the calculated fee for each day the Loan Facilities were not used by the Company during the term of the Loan Facilities  shall be 1.35% per annum.

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3.3
The annual rate with respect to the amount of the calculated fee for each day Bank Guarantees Facilities (as defined under the terms of the Agreement) were not used by the Company during the term of the Guarantees Facilities shall be 0.75% per annum.

 
3.4
The maximum annual fee for the issuance of a Bank Guarantee by a Lender, as of the Effective Date and until the Termination Date, is amended to the following:

 
(i)
An amount equal to 1.75% of the Bank Guarantee, if the Bank Guarantee is in the form of a tender, performance or quality guarantee;

 
(ii)
An amount equal to 2.70% of the Bank Guarantee if the Bank Guarantee is in the form a financial guarantee.

 
3.5
The Company shall pay each Lender a non-refundable one-time fee in consideration for the handling of the Amendment.

4.
Further Undertakings .

As of the Effective Date and until the Termination Date, section 2 of the Agreement shall be amended so that the existing definition of "Allowed Factoring Transaction " shall be deleted and replaced with the following:

"Allowed Factoring Transaction "- A transaction (or a series of transactions) in which the Company and/or its subsidiary sold, converted, assigned or transferred in any way one of its rights in accounts receivables, provided that in accordance with accepted accounting rules, the transaction is defined as a "true sale", and provided further that such right in accounts receivable is not among the rights included in  the amounts detailed in the "Accounts Receivables" section as reported in the Company's financial statements for the period ending on September 30 th , 2013, however this limitation shall not apply regarding a transaction executed by Indian clients with respect to account receivables to the Company from the aforementioned client in the amount of 2 (two) million US dollars, and also regarding transactions with entities in Africa.

5.
Termination of the Amendment Term .

All the amendments to the Agreement as detailed under the Amendment will be in effect from the Effective date until the Termination date. On the Termination Date the original version of the Credit Agreement ( i.e. , as it was prior to the execution of the Amendment) shall automatically reapply, without requiring any action or procedure.

6.
Reservation of Rights .

Unless otherwise expressly set forth under the Amendment the terms and obligations under the Amendment shall not derogate from any undertaking of the Company under the Credit Agreement and its ancillary documents.
 
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