January 27, 2010
VIA EDGAR
John Reynolds
Assistant Director
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549-3561
RE: TEFRON LTD.
FORM F-3
FILED AUGUST 21, 2009
FILE NO. 333-161466
Dear Sir:
On behalf of Tefron Ltd. ("TEFRON"), we respectfully submit a marked
version of the Amendment No. 1 on Form F-1 to Form F-3 filed by Tefron with the
Securities and Exchange Commission on January 20, 2010.
If you have any questions or concerns, please call the undersigned at
972-3-607-4444.
Very truly yours,
/s/ Perry Wildes
Perry Wildes, Adv.
cc: Mr. Eran Rotem
Registration No. 333-161466
As filed with the Securities and Exchange Commission on January 19, 2010
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
AMENDMENT NO. 1
ON FORM F-1
TO
FORM F-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
-----------
TEFRON LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ISRAEL 2340 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) NDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
CODE NUMBER)
INDUSTRIAL CENTER, TERADYON
P.O. BOX 1365
MISGAV, 20179, ISRAEL
+ 972-4-9900881
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
TEFRON USA, INC.
720 MAIN ST. W.
P.O. BOX 100
VALDESE, NC 28690
ATTN: ERAN ROTEM
+ 972-4-9900881
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
Copies to:
PERRY WILDES, ADV.
GROSS, KLEINHENDLER, HODAK, HALEVY, GREENBERG & CO.
ONE AZRIELI CENTER
TEL AVIV 67021, ISRAEL
+972-3-607-4444
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED January 19, 2010
PROSPECTUS
DISTRIBUTION OF RIGHTS TO PURCHASE UP TO 1,578,947 ORDINARY SHARES
-----------
We are distributing transferable rights to purchase up to 1,578,947 of our
ordinary shares to those persons that, as of 5:00 p.m., New York City time
(midnight, Israel time) on the record date of ___________ ____, 2010 were
shareholders of our company. You will receive one right for each 1.3429 ordinary
shares that you hold on the record date. If you hold one ordinary share, you
will not receive any rights. Your rights will be aggregated for all the shares
that you own on the record date and then rounded down to the nearest whole
number, so that you will not receive fractional rights. For example, if you own
two shares on the record date, you will receive one right, and if you own 10,000
shares on the record date, you will receive 7,446 rights. For holders of shares
on the record date, each right will entitle you to purchase, at a subscription
price of $3.80, one ordinary share. The rights granted to holders of shares are
exercisable during a _____-day period, beginning after 5:00 p.m., New York City
time (midnight, Israel time) on ______ ____, 2010 and ending on ______ _____,
2010 at 5:00 p.m., New York City time (midnight, Israel time), or during a
______-day period, until _________, 2010, if you hold your rights through an
Israeli brokerage company that holds the rights through our nominee company
(HEVRA LE-RISHUMIM OF BANK HAPOALIM).
Our ordinary shares are quoted on the Over the Counter Bulletin Board
("OTCBB") under the symbol "TFRFF.OB" and are listed on the Tel Aviv Stock
Exchange in Israel under the symbol "TFRLF." On [_______], 2010 the last
reported sale price of our ordinary shares on the OTCBB was $[____] per ordinary
share and on the Tel Aviv Stock Exchange was NIS [____] per ordinary share.
The rights are transferable and will be quoted for trading on the OTCBB.
The rights will also be listed for trading on the Tel Aviv Stock Exchange under
the symbol "[______]" for one day only on _________, 2010. If you hold your
rights through an Israeli brokerage company that holds the rights through our
nominee company (HEVRA LE-RISHUMIM OF BANK HAPOALIM), you will be considered to
have instructed your broker to sell all your rights on the Tel Aviv Stock
Exchange with no price limit, if you fail to give your broker instructions
regarding the exercise, non-exercise or sale of the rights prior to ___________,
2010. The purchaser of such rights shall be able to exercise them until
___________, 2010.
The offering is not secured by an underwriting commitment.
You should read both this prospectus and any prospectus supplement before
you decide to invest in our ordinary shares.
INVESTING IN THE SECURITIES OFFERED HEREIN INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION OR THE ISRAELI SECURITIES AUTHORITY HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE UNDER THE LAWS OF THE
UNITED STATES AND THE LAWS OF THE STATE OF ISRAEL.
The date of this prospectus is ________, 2010
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
PROSPECTUS SUMMARY 1
OUR COMPANY 1
RECENT DEVELOPMENT 3
THE OFFERING 5
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING 7
RISK FACTORS 12
USE OF PROCEEDS 26
PRICE RANGE OF ORDINARY SHARES 26
THE RIGHTS OFFERING 28
SELECTED FINANCIAL DATA 33
PLAN OF DISTRIBUTION 36
DILUTION 37
CAPITALIZATION 37
MATERIAL INCOME TAX CONSIDERATIONS 38
DESCRIPTION OF SHARE CAPITAL 42
EXPENSES OF THE OFFERING 43
RELATED PARTY TRANSACTIONS 43
LEGAL MATTERS 46
EXPERTS 46
ENFORCEABILITY OF CIVIL LIABILITIES 46
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 47
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES 47
WHERE YOU CAN FIND MORE INFORMATION 48
PART II
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS 49
ITEM 7. RECENT SALES OF UNREGISTERED SECURITIES 51
ITEM 8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 51
ITEM 9. UNDERTAKINGS 51
EXHIBIT INDEX 54
You should rely only on the information contained or incorporated by
reference in this prospectus or any supplement. We have not authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not
making an offer to sell these securities in any jurisdiction where the offer or
sale is not permitted. You should assume that the information appearing in this
prospectus is accurate only as of the date on the front cover of this
prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the ordinary shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
the U.S. Securities Act of 1933, as amended, the U.S. Securities Exchange Act of
1934, as amended, and the safe harbor provisions of the United States Private
Securities Litigation Reform Act of 1995. These forward-looking statements
involve risks and uncertainties and relate to our future plans, objectives,
expectations and intentions. The use of words such as "may," "will," "expect,"
"anticipate," "intend," "plan," "estimate," "believe," "continue" or other
similar expressions often identify forward-looking statements but are not the
only way we identify these statements. These forward-looking statements reflect
our current expectations and assumptions as to future events that may not prove
to be accurate.
Our actual results are subject to a number of risks and uncertainties and
could differ materially from those discussed in these statements. Factors that
could contribute to these differences include, but are not limited to, those
discussed under the sections: "Our Company" and "Risk Factors" and elsewhere
included or incorporated by reference into this Prospectus. The uncertainties
that may cause differences include, but are not limited to:
o the liquidity challenges that we face;
o our dependence on a small number of principal customers and on
their continued purchase of our products in the same volumes or
on the same terms and their ability to meet their payment
obligations to us;
o the effect of the worldwide recession on our target markets and
the cyclical nature of the clothing retail industry and the
ongoing changes in fashion preferences;
o our failure to generate sufficient cash from our operations to
pay our debt and our failure to meet our financial covenants in
our bank loan agreements;
o the competitive nature of the markets in which we operate,
including the ability of our competitors to enter into and
compete in the seamless market in which we operate;
o the potential adverse effect on our future operating efficiency
resulting from our expansion into new product lines with more
complicated products, different raw materials and changes in
market trends;
o fluctuations in inflation and currency exchange rates;
o cost increase in the purchase of finish products or production
services;
o the limitations and restrictions imposed by our substantial debt
obligations;
o the potential adverse effect on our business resulting from our
international operations, including increased custom duties and
import quotas (e.g., in China, where we manufacture for our
swimwear division);
o political, economic and social risks associated with
international business and relating to operations in Israel;
o the purchase of new equipment that may be necessary as a result
of our expansion into new product lines;
o our dependence on subcontractors in connection with our
manufacturing process, in particular the sewing, dyeing and
finishing process;
o the fluctuating costs of raw materials; and
o dependence on our suppliers for our machinery and the maintenance
of our machinery.
In addition, you should note that our past financial and operational
performance is not necessarily indicative of future financial and operational
performance.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events contained in this prospectus might not occur.
PROSPECTUS SUMMARY
THIS PROSPECTUS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED
ELSEWHERE, OR INCORPORATED BY REFERENCE, IN THIS PROSPECTUS. YOU SHOULD READ THE
FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION REGARDING OUR
COMPANY AND THE SECURITIES BEING SOLD IN THIS OFFERING, WHICH INFORMATION
APPEARS ELSEWHERE IN THIS PROSPECTUS AND IN OTHER DOCUMENTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION THAT WE HAVE INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS.
UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES IN THIS PROSPECTUS TO
"TEFRON," "WE," "OUR," "OUR COMPANY," "US" AND THE "COMPANY" REFER TO TEFRON
LTD. AND ITS CONSOLIDATED SUBSIDIARIES. ALL REFERENCES IN THIS PROSPECTUS TO
"ORDINARY SHARES" REFER TO OUR ORDINARY SHARES, NOMINAL VALUE NIS 10.0 PER
SHARE. ALL REFERENCES IN THIS PROSPECTUS TO "DOLLARS" OR "$" ARE TO UNITED
STATES DOLLARS AND ALL REFERENCES IN THIS PROSPECTUS TO "SHEKELS" OR "NIS" ARE
TO NEW ISRAELI SHEKELS.
OUR COMPANY
Tefron Ltd. was incorporated under the laws of the State of Israel on March
10, 1977. We are subject to the provisions of the Israeli Companies Law,
5759-1999, or the Companies Law.
We manufacture intimate apparel, active-wear and swimwear sold throughout
the world by such name-brand marketers as Victoria's Secret, Nike, The Gap, J.C
Penny, Maidenform, lululemon athletica, Warnaco/Calvin Klein, Patagonia, Reebok,
Wal-Mart, Swimwear Anywhere, El Corte Englese and other well known American and
European retailers and designer labels. Through the utilization of manufacturing
technologies and techniques developed or refined by us, we are able to
mass-produce quality garments featuring unique designs tailored to our
customers' individual specifications. Our product line includes knitted briefs,
bras, tank tops, boxers, leggings, crop tops, T-shirts, daywear, nightwear,
bodysuits, swimwear, beach-wear, active-wear, shape wear and accessories. We are
known for the technological innovation of our Hi-Tex manufacturing process,
which is conducted through our subsidiary, Hi-Tex Founded by Tefron Ltd., or
Hi-Tex. Our Hi-Tex manufacturing process was implemented as part of our strategy
to streamline our advanced development and design skills and manufacturing
process and improve the design and quality of our products. The Hi-Tex
manufacturing process involves the utilization of a single machine that
transforms yarn directly into a nearly complete garment, replacing the knitting,
cutting, and significant sewing functions which, in traditional manufacturing,
are performed sequentially on separate machines at separate workstations.
Following this single-machine operation, all the Hi-Tex manufacturing process
requires to complete the garment is dyeing and a reduced amount of sewing and
finishing. Our Hi-Tex manufacturing process enables us to produce a
substantially wider range of fabrics, styles and product lines, resulting in a
consistently high level of comfort, quality and durability. Our fabric
engineering, product design and the comfort of our products provide us with an
opportunity to expand our sales of active-wear products.
Our subsidiary, Macro Clothing Ltd., or Macro, is known for its ability to
combine expertise in design and fashion with its ability to manufacture high
quality swimwear products in large quantities to leading customers mainly in the
U.S. and Europe.
We believe that our collaboration with our customers in the design and
development of our products strengthens our relationships with our customers and
improves the quality of our products. We began our relationship with Victoria's
Secret in 1991, with The Gap in 1993, with Nike and J.C Penny in 2000 and with
Swimwear Anywhere in 2003. In 2000, we also began our relationship with Target,
which was an existing customer of Tefron USA, Inc., or Tefron USA. These
customers accounted for approximately 83.5% of our total sales in 2007, 76.4% of
our total sales in 2008 and 53.7% of our total sales in the nine months ended
September 30, 2009.
Our principal executive offices and registered offices are located at
Industrial Center Teradyon, P.O. Box 1365, Misgav 20179, Israel, and our
telephone number is 972-4-990-0881
Below is a summary of significant events in our development:
1990 First bodysize cotton panty with elastics adjustable to body size.
1997 Formation of Hi-Tex Founded by Tefron Ltd. and production of first
seamless products.
Initial public offering of our ordinary shares on the NYSE.
1999 Acquisition of Alba Waldensian, Inc. (Tefron USA), a manufacturer of
seamless apparel and healthcare products.
2001 Initial significant shifting of sewing production to Jordan.
2002 Reorganization of Tefron USA, including a spin-off of the Health
Product Division and the formation of the AlbaHealth joint venture
with a strategic investor, and the initial consolidation of the
seamless production activity in Hi-Tex in Israel, which was completed
in the second quarter of 2003.
2003 Acquisition of all of the outstanding ordinary shares of Macro
Clothing Ltd., an entity that develops, manufactures, markets and
sells swimsuits and beachwear.
Implementation of strategic steps to expand our product line,
including active-wear products, to diversify our product line and
client base.
2004 Closing of equity investments with two groups of investors in the
aggregate amount of $20 million.
Launch of a new business division, Sports Innovation Division, or SID,
devoted to our growing US customer base in the performance active-wear
market.
2005 Listing of our ordinary shares for trading on the Tel-Aviv Stock
Exchange ("TASE") (in addition to the listing on the NYSE).
2006 Closing of a public offering of ordinary shares and option
certificates on the TASE for aggregate net proceeds of $13.8 million.
We subsequently received approximately $5.7 million from the exercise
of the option certificates, primarily in 2007.
Disposition of our ownership interest in AlbaHealth for consideration
of approximately $13 million, consisting of approximately $10 million
paid in cash and $3 million by an unsecured subordinated promissory
note, the terms of which were amended on December 31, 2008. On
September 24, 2009, we signed an agreement with AlbaHealth for the
early repayment of the unsecured subordinated promissory note.
According to the agreement, AlbaHealth paid us $1.715 million and
settled all overdue interest payments. We recorded a loss from this
early repayment in the amount of $1.285 million in our financial
statements for the period ended September 30, 2009.
September 2008 Acquisition of operations of Excelsior Inc., a private company
operating in the USA that specializes in design and distribution of
swimwear in the USA.
December 2008 Delisting of our ordinary shares from the NYSE due to failure to
meet certain quantitative listing standards.
January 2009 Quotation of our ordinary shares on the Over the Counter Bulletin
Board.
Ten-for-one reverse stock split and increase in share capital.
February 2009 Implementation of an efficiency plan to, among other things,
streamline our production facilities and reduce wastage.
We enjoy several strategic advantages by reason of our location in Israel
and Jordan. Israel is one of the few countries in the world that has free trade
agreements with the United States, Canada, the European Union, or EU, and the
European Free Trade Association, or EFTA. These agreements permit us to sell our
products in the United States, Canada and the member countries of the EU and the
EFTA free of customs duties and import quotas. We also currently benefit from
tax incentives provided by the Government of Israel and from the availability in
Israel of skilled engineers and unskilled workers.
2
Since the fourth quarter of 2008, we have faced liquidity challenges due to
the worsening global economic environment, our ongoing operating difficulties
and the reduction by our bank lenders of the credit available to us. Due to
these factors and in view of our financial results, we decided in February 2009
to implement an overall efficiency plan. In this context we decided to
streamline all our production facilities, including by combining several
production sites operating in Jordan into fewer, larger production facilities,
improving the utilization of knitting capacity and reducing knitting costs,
making changes in the development processes (in order to meet the production
demands at the development stage), assimilating an advanced system of quality
assurance, with precise feedback for the production process, reducing gaps of
time between the various production stages for the purpose of reducing lead time
for customers, reducing wastage and reducing our workforce by about 15%. As of
the date of this prospectus, we have completed the implementation of the
efficiency plan.
In addition, at the end of 2008, we closed our dyeing factory in Israel,
which provided only a small part of the dyeing activity for our products. We
have transferred all of our dyeing activity to subcontractors with whom we have
longstanding business relationships.
In order to streamline our management, operations and our arrangements with
customers and suppliers, during January 2009 we transferred all of our Cut & Sew
sportswear and underwear activity to our subsidiary, Hi-Tex, while maintaining
our swimwear activity in our subsidiary, Macro. Since January 2009, our
arrangements with all our customers and most of our suppliers in connection with
our underwear and sportswear businesses are conducted solely through Hi-Tex.
Previously, our customers and suppliers were required to enter into separate
agreements with Tefron and Hi-Tex.
Recent Developments
RESIGNATION OF CEO
On November 16, 2009, Mr. Adi Livneh, who served as our Chief Executive
Officer (CEO) since September 1, 2008, notified us of his decision to resign
from his position as CEO of the Company. Mr. Livneh resigned for personal
reasons and he is no longer acting as our CEO. The board of directors has
established a search committee to nominate a new Chief Executive Officer. The
search committee is comprised of the Chairman of the board of directors and
three directors, two of whom are the external directors.
MEMORANDUM OF UNDERSTANDING WITH OUR BANK LENDERS
On December 2, 2009, we received non-written notices from our bank lenders
in which the banks stated their decision to terminate our utilization of our
credit line. On January 6, 2010, we signed a memorandum of understanding (MOU)
with our bank lenders pursuant to which the banks would provide us with a total
credit line of $30.75 million, comprised of the current utilized balance under
our existing credit line in the amount of $28.95 million and new credit in an
additional amount of $1.8 million. The new credit would be provided by the banks
in the form of a short term credit line guaranteed by partners of our
shareholder, Norfet, Limited Partnership. This guarantee by Norfet's partners
would be terminated upon our completion of a rights offering and/or a private
placement in which not less than $4 million is invested in Tefron's equity (the
"Minimum Offering"). In addition, the MOU provides that by the end of the first
quarter of 2010, we and our bank lenders must enter into a definitive binding
agreement and we must complete the Minimum Offering. In the event that we do not
satisfy these terms, the banks may cancel all our credit lines, which would
jeopardize the continuation of our activities.
Subject to applicable regulatory and shareholder approval requirements,
Norfet has agreed with our bank lenders that it (or whoever acts on its behalf)
would participate in a rights offering and/or private placement of our shares,
and in the framework of such rights offering and/or private placement not less
than $4 million would be invested in Tefron's equity. Norfet has also indicated
to us that it does not intend to exercise nor sell its rights in the Rights
Offering, but that it intends to acquire shares from Tefron by means of a
private placement following the rights offering at a price identical to the
price per share offered in the rights offering. See "- Private Placement to
Norfet, Limited Partnership" below.
In addition, pursuant to the MOU, upon the execution of a definitive
agreement with the bank lenders no later than March 31, 2010, a re-organization
of the current credit lines with the banks would be effected as follows: (1) one
loan in the amount of $15 million would be payable in three equal installments
of $1.25 million, each at the end of the seventh, eighth and ninth years from
the date on which this loan was provided (I.E., years 2016, 2017 and 2018), with
the balance of $11.25 million to be paid at the end of the year 2019, (2) one
loan in the amount of $5 million would be payable in four equal installments of
$1.25 million each, beginning on the last day of the third year from the date on
which such loan was provided (I.E., 2012) and (3) short term credit lines in a
total amount of $8.95 million. The MOU further provides that the banks would
provide waivers for Tefron's failure to meet its financial covenants in 2009 and
establishes new financial covenants and undertakings for 2010, including our
undertaking not to distribute any dividends or pay management fees and/or any
other payment to our shareholders until the loans have been repaid in full.
3
PRIVATE PLACEMENT TO NORFET, LIMITED PARTNERSHIP
As described above in "- Memorandum of Understanding with Our Bank
Lenders", the MOU with our bank lenders requires us to complete a rights
offering and/or a private placement in which not less than $4 million is
invested in Tefron's equity by the end of the first quarter of 2010. Subject to
applicable regulatory and shareholder approval requirements, Norfet has agreed
with our bank lenders that it (or whoever acts on its behalf) would participate
in a rights offering and/or private placement of our shares, and in the
framework of such rights offering and/or private placement not less than $4
million would be invested in Tefron's equity.
As of January 17, 2010, Norfet and a portion of its main shareholders, FIMI
Opportunity Fund L.P. and FIMI Israel Opportunity Fund Limited Partnership,
owned jointly in the aggregate approximately 21.85% of the issued share capital
and voting rights in Tefron, and to the best of Tefron's knowledge, there is no
shareholder who owns 25% or more of the voting rights in Tefron. Accordingly,
participation by Norfet, FIMI Opportunity Fund L.P. and FIMI Israel Opportunity
Fund Limited Partnership (Norfet, Limited Partnership or an entity/person on its
behalf, including controlling parties in Norfet, in this section are
collectively called "Norfet") in the rights offering, to the extent the rights
distributed to other shareholders in the rights offering are not exercised in
full, may cause Norfet's holdings to exceed 25% of Tefron's voting power (and
even 45% of Tefron's voting power), which would require Norfet to conduct a
special tender offer, pursuant to Section 328 of the Companies Law.
However, pursuant to Section 328(b) of the Companies Law, a shareholder may
increase its voting power to 25% or more of a company's voting power (and even
to more than 45% of the voting power) by means of a private placement that has
been approved by such company's shareholders as a private placement for the
purpose of granting to the shareholder voting power of 25% or more of the voting
power in the company ("Controlling Interest"), if the company does not already
have a shareholder with a Controlling Interest, or as a private placement for
the purpose of granting to a shareholder voting power over 45% of the company's
voting power, if the company does not already have a shareholder with voting
power over 45% of the company's voting power.
Due to Tefron's need to raise capital, our board of directors has decided
to raise capital by means of a transaction that combines both a rights offering
to all of our shareholders and a private placement to Norfet, pursuant to the
requirements of Section 328(b) of the Companies Law, as follows:
1. We intend to complete the rights offering to our shareholders, as
described in this Prospectus
2. Norfet will not exercise nor sell its rights in the Rights Offering.
Accordingly, the maximum capital that may be raised in the rights
offering will be approximately $4.689 million.
3. We will convene a shareholders meeting to approve the private
placement of ordinary shares to Norfet pursuant to which, subject to
our conducting the Rights Offering, the private placement will be
conducted at a price identical to the price per share offered in the
Rights Offering and the aggregate amount to be raised will be the
greater of (a) the difference between $4 million and the amount
previously raised in the rights offering, but only to the extent that
Norfet's holdings in Tefron immediately following the private
placement does not exceed 45% of Tefron's voting rights (the 45%
limitation was agreed upon between the Company and the Israeli
Securities Authority), and (2) such amount as would enable Norfet to
retain its aggregate 21.85% holdings in Tefron immediately following
the private placement, subject to all of the terms described below.
More specifically, the amount to be raised in the private placement to
Norfet will depend on the amount raised by Tefron in this rights offering as
follows:
o If Tefron raises between approximately $3.126 million and $4.689
million in this rights offering, the aggregate amount to be raised in
the private placement to Norfet will range between $0.874 million and
$1.311 million, respectively. In this case, the aggregate amount
invested in Tefron's equity in the rights offering and the private
placement will be between $4 million and $6 million, and the Private
Placement would enable Norfet to retain its aggregate 21.85% holdings
of the voting rights in Tefron.
4
o In the event that Tefron raises less than or equal to approximately
$3.126 million, but more than $0.335 million, in the rights offering,
the aggregate amount to be raised in the private placement to Norfet
will range between $0.874 million and $3.665 million, respectively. In
this case, the aggregate amount invested in Tefron's equity in the
rights offering and the private placement will be $4 million, and the
private placement would enable Tefron to raise the difference between
$4 million and the amount previously raised in the rights offering.
Accordingly, in this case, immediately following the private
placement, Norfet's percentage holdings of the voting rights in Tefron
will range between 21.85% and 45%.
o In the event that Tefron raises less than approximately $0.335 million
but more than $0 in the rights offering, the aggregate amount to be
raised in the private Ppacement to Norfet will range between $3.665
million and $3.391 million, respectively. In this case, the aggregate
amount invested in Tefron's equity in the rights offering and the
private placement will be between $3.391 million and $4 million, and
the private placement would enable Norfet to invest the difference
between $4 million and the amount previously raised in the rights
offering, in accordance with Norfet's commitment to the Banks. In this
case, however, due to the limitations imposed by the Israel Securities
Authority (ISA) that following the private placement Norfet's holdings
may not exceed 45% of the voting rights in Tefron (the "ISA
Limitation"), Norfet will invest not more than $3.665 million, and
immediately following the private placement, Norfet's aggregate
holdings will be 45% of the voting rights in Tefron.
In the event that the total gross amount invested in Tefron's equity after
the rights offering and the private placement are conducted will be less than $4
million due to the ISA Limitation, Tefron will consider an additional private
placement to Norfet, subject to receipt of all required authorizations and
disclosures to the public.
Tefron has already distributed a proxy statement in connection with a
shareholders meeting at which shareholders will be asked to vote on the
above-described private placement to Norfet, which is deemed to be an
"extraordinary private placement" under Israeli law. The shareholder meeting is
scheduled for February 23, 2010. It is expected that the private placement to
Norfet would occur soon after the rights offering, assuming satisfaction of all
conditions precedent, including approval of the private placement to Norfet by
the Tefron shareholders. For more information on the contemplated private
placement with Norfet, please see the proxy statement for the shareholders
meeting which was submitted by Tefron to the Securities and Exchange Commission
on Form 6-K on January 19, 2010.
Rental Fees for Plant in Misgav
The Company is negotiating to reduce the rental fee of the plant in Misgav
and vacate one of the buildings in its use. On January 11, 2010 the Company
received a letter from the representive of RIET 1 Ltd., the owner of the
buildings in Misgav, in which RIET 1 claims that the Company did not transfer
the rental fee for December 2009 and the first quarter of 2010, in the amount of
$877 thousands. REIT 1 also claims that there is a debt for linkage differences
in the amount of NIS 570 thousands. REIT 1 stated in its letter that if the said
debt is not settled within five days from the letter date, REIT 1 will make
procedures to protect its rights. The Company has reservations regarding the
claims stated in REIT 1's letter, including the amount of the claimed debt. The
Company and REIT 1 decided to continue the discussion in the said above
subjects.
THE OFFERING
For a more complete description of the securities specified in the
following summary, please see "The Rights Offering" in this prospectus.
Rights Offering You will receive one right for each 1.3429 ordinary shares that
you hold on the record date. If you hold one ordinary share, you
will not receive any rights. Your rights will be aggregated for
all the shares that you own on the record date and then rounded
down to the nearest whole number, so that you will not receive
fractional rights.
Record Date _____________, 2010
Ordinary Share The subscription price is $3.80 per share, which is a __%
Subscription Price discount to the closing price of our ordinary shares on ______,
2010.
Exercise Period The rights are exercisable during a _____-day period, beginning
after 5:00 p.m., New York City time (midnight, Israel time) on
______ ____, 2010 and ending on ______ _____, 2010 at 5:00 p.m.,
New York City time (midnight, Israel time), or during a
______-day period, until __________, 2010, if you hold your
rights through an Israeli brokerage company that holds the rights
through Our nominee company (HEVRA LE-RISHUMIM OF BANK
Hapoalim.). No one may exercise rights after the expiration date.
5
Procedure for After you have exercised your rights, you may not revoke that
Exercising Rights exercise.
Exercise of Rights
Irrevocable
Transferability The rights are transferable. If you are one of our affiliates,
you may transfer your rights only if there is an effective
registration statement or exemption covering such transfer under
the united States securities laws.
Use of Proceeds The aggregate proceeds to us from the rights offering
will be up to $4.689 million before deducting offering
expenses payable by us, assuming that our shareholder, Norfet,
does not exercise its rights but the offering is otherwise
fully subscribed for.
We intend to use the net proceeds from this rights offering
towards funding of general corporate purposes, including
working capital, in accordance with our company's needs and
in accordance with resolutions of our board of directors
from time to time.
Listing Our ordinary shares are quoted on the OTCBB under the symbol
"TFRFF.OB" and are listed on the Tel Aviv Stock Exchange in
Israel under the symbol "TFRLF." On [_____] the last reported
sale price of our ordinary shares on the OTCBB was $[____] per
ordinary share and on the Tel Aviv Stock Exchange was NIS [____]
per ordinary share.
Rights Agent American Stock Transfer & Trust Company.
Information Agent The Altman Group, Inc. You may contact them with questions at
877-896-3194 or by email at reorg@altmangroup.com (banks and
brokers only may call 201-806-7300).
TASE Rights
Trading Day _____________, 2010.
OTCBB Rights
Trading
Day/Period _____________, 2010.
Delivery of
New Shares We expect to deliver the ordinary shares subscribed in this rights
offering on or about ___________, 2010.
6
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
WHAT IS A RIGHTS OFFERING?
A rights offering is a distribution of rights on a pro rata basis to all
shareholders of a company. We are distributing to holders of our ordinary
shares, at no charge, one right for each 1.3429 ordinary shares held by them at
5:00 p.m., New York City time, on ________, 2010, the "record date".
The 1.3429 was derived by dividing the sum of the total number of our
issued and outstanding ordinary shares as of ___________, 2010 (not including
99,740 ordinary shares held by a wholly owned subsidiary of ours) by the
aggregate dollar amount being offered in the rights offering, multiplied by the
subscription price. If you hold one ordinary share, you will not receive any
rights. Your rights will be aggregated for all the shares that you own on the
record date and then rounded down to the nearest whole number, and so that you
will not receive fractional rights. For example, if you own two shares on the
record date, you will receive one right, and if you own 10,000 shares on the
record date, you will receive 7,446 rights.
WHAT SECURITIES AND HOW MANY SECURITIES MAY BE PURCHASED UNDER EACH RIGHT?
Each full right entitles the holder to purchase one of our ordinary shares
at a price of $3.80 per ordinary share.
HOW MANY RIGHTS WILL YOU RECEIVE?
Each person who, at the close of business at 5:00 p.m., New York City time
(midnight, Israel time), on ___________, 2010 (the record date), owns our
ordinary shares will receive, at no charge, one right for each 1.3429 ordinary
shares owned on the record date. Your rights will be aggregated for all the
shares that you own on the record date.
You may exercise all of your rights or a portion of your total rights (but
only whole rights), or you may choose not to exercise any of your rights. In
addition, you may sell the rights that you receive either on the OTCBB or,
during one single trading day on ___________, 2010, on the TASE. If your
exercise of rights results in you holding 25% or more of our ordinary shares,
such exercise must be made by means of a special tender offer in accordance with
the Companies Law.
You must pay us the subscription price in U.S. dollars.
WILL THE RIGHTS BE LISTED OR QUOTED FOR TRADING?
Yes. The rights will be quoted on the OTCBB. The rights will also be listed
on the Tel Aviv Stock Exchange under the symbol "[_____]" for one day only, on
___________, 2010.
WHY ARE WE ENGAGING IN A RIGHTS OFFERING?
We are engaging in this rights offering to provide our company with funds
for general corporate purposes, including working capital.
HOW WAS THE SUBSCRIPTION PRICE DETERMINED?
Our board of directors determined the subscription price after considering
several factors, including the likely cost and availability of capital from
other sources, historical and current trading prices for our ordinary shares,
current market conditions and the need to provide an incentive to our
shareholders to participate in the rights offering on a PRO RATA basis. The
subscription price of $3.80 represents a [__]% discount to the closing price of
our ordinary shares on _________________, 2010. The subscription price does not
necessarily bear any relationship to the book value of our assets or past
operations, cash flows, losses, financial condition, net worth or any other
established criteria used to value securities. You should not consider this
price to be an indication of the fair value of the ordinary shares to be offered
in the rights offering.
HOW LONG WILL THE RIGHTS OFFERING LAST?
You will be able to exercise the rights that you receive only during a
limited period. The rights are exercisable during a _____-day period, beginning
after 5:00 p.m. New York City time (midnight, Israel time) on ___________, 2010
and ending at 5:00 p.m. New York City time on _________, 2010 (the rights
expiration date) or during a ______-day period, until _________, 2010, if you
hold your rights through an Israeli brokerage company that holds the rights
through our nominee company (HEVRA LE-RISHUMIM OF BANK HAPOALIM.). No one may
exercise rights after the expiration date. If you hold your shares through a
broker, dealer or other nominee (including through members of TASE), you will be
required to comply with the procedural requirements of such nominee, including
the procedures relating to the last time by which you may be required to provide
notice of your intention to exercise your rights (which may be earlier than the
final expiration date of the rights), as well as other procedural requirements
described under the heading "The Rights Offering." If you do not exercise your
rights by the date and in accordance with the procedures applicable to you, your
ability to exercise the rights and purchase the ordinary shares will expire.
7
HOW DO YOU EXERCISE YOUR RIGHTS?
We will send a rights certificate to each holder of our ordinary shares
that on the record date is registered on our shareholder registry maintained at
American Stock Transfer & Trust Company, the transfer agent for our ordinary
shares. The rights certificate will evidence the number of rights applicable to
each holder and will be accompanied by a copy of this prospectus.
If you are a record holder of our ordinary shares and you wish to exercise
your rights, you should complete the exercise form on the back of the rights
certificate and send the certificate (or a notice of guaranteed delivery),
accompanied by the subscription price following the record date, to the offices
of American Stock Transfer & Trust Company, as our Rights Agent, to the
attention of: Reorganization Department, to be received no later than the
expiration date of the rights.
The rights will expire on ____________, 2010, at 5:00 p.m. New York time
(midnight, Israel time). You must make your payment to American Stock Transfer &
Trust Company by wire transfer or cashier's check or a certified check drawn on
a bank located in the United States payable to the order of "American Stock
Transfer & Trust Company, as Rights Agent." Payment made to American Stock
Transfer & Trust Company must be in U.S. dollars.
If you are a beneficial owner of our ordinary shares and hold them through
a broker, dealer or other nominee (including a member of TASE), see "What should
you do if you want to participate in this rights offering, but your shares are
held in the name of your broker, dealer or other nominee?"
HOW DO YOU TRANSFER YOUR RIGHTS?
The rights distributed are transferable and will be evidenced by rights
certificates. If you are a record holder of our ordinary shares and wish to
transfer your rights to another person, you may do so by completing the transfer
form on the back of your certificate and submitting it to American Stock
Transfer & Trust Company, as Rights Agent prior to _____________, 2010. If you
wish to sell your rights on the OTCBB or TASE, you should independently engage a
broker to execute this sale on your behalf. The rights will be quoted for
trading on the OTCBB. The rights will also be listed for trading on the TASE for
one day only on ___________, 2010 during its regular trading hours. We cannot
assure you that a trading market for the rights will exist or develop.
AFTER YOU EXERCISE YOUR RIGHTS, CAN YOU CHANGE YOUR MIND?
No. You cannot revoke the exercise of your rights, even if you later learn
information about us that you consider to be unfavorable. You should not send
the completed exercise form on the back of the rights certificate unless you are
certain that you wish to purchase the ordinary shares.
IS EXERCISING YOUR RIGHTS RISKY?
Yes. The exercise of your rights involves substantial risks. Exercising
your rights means buying additional securities, and you should carefully
consider this purchase as you would do with respect to any other equity
investment. Among other things, you should carefully consider the risks
described under "Risk Factors."
IS THERE AN OVER-SUBSCRIPTION PRIVILEGE?
No. Unexercised rights will be quoted for trading on the OTCBB. Unexercised
rights will also be listed for trading on the TASE for one day only on
_________, 2010. Additional rights may be purchased from selling shareholders on
such day.
DO YOU HAVE TO EXERCISE ALL OF YOUR RIGHTS?
No. You may exercise any number of your rights, or you may choose not to
exercise any rights. If you do not exercise any rights, then the number of
ordinary shares you own will not change. However, if shares are purchased by
other shareholders in the rights offering, then your percentage ownership after
the exercise of the rights will diminish, and your voting and other rights will
be diluted.
CAN YOU SELL OR GIVE AWAY YOUR RIGHTS?
Yes. You may transfer or sell, at any time prior to the expiration date
(__________, 2010, at 5:00 p.m. New York time, midnight, Israel time), all or a
portion of the rights that you receive. You are responsible for all commissions,
fees and other expenses, including brokerage commissions and transfer taxes,
incurred in connection with the purchase or sale of rights. The unexercised
rights will be quoted for trading on the OTCBB. The unexercised rights will also
be listed for trading on the TASE for one day only on ___________, 2010. For
further details regarding trading in our rights, please see "The Rights
Offering-Transferability of Rights."
8
Some of the tax consequences of selling your rights for certain U.S. and
Israeli shareholders are described herein under the heading "Material Income Tax
Considerations." You are, however, advised to seek specific tax advice from your
personal tax advisor, as this prospectus does not summarize all tax consequences
arising under U.S. state tax laws, Israeli tax laws, tax laws outside of the
U.S. and Israeli or any tax laws relating to special tax circumstances or
particular types of taxpayers.
WHAT ARE THE FEDERAL INCOME TAX AND ISRAELI INCOME TAX CONSEQUENCES OF
EXERCISING YOUR RIGHTS?
The receipt and exercise of your rights are intended to be nontaxable;
however, no ruling from the U.S. Internal Revenue Service or the Israeli Income
Tax Authority will be sought. Therefore, you should seek specific tax advice
from your personal tax advisor.
See "Material Income Tax Considerations" for a description of material
income tax consequences in the United States and in Israel resulting from the
distribution of the rights to a U.S. holder or an Israeli holder and related
transactions by such holder. This prospectus does not conclusively summarize tax
consequences arising under U.S. state tax laws, Israeli tax laws, tax laws
outside of the U.S. and Israel or any tax laws relating to special tax
circumstances or particular types of taxpayers.
WHAT HAPPENS IF YOU CHOOSE NOT TO EXERCISE YOUR RIGHTS?
You will retain your current number of ordinary shares even if you do not
exercise your rights. However, if you do not exercise your rights and other
shareholders who receive rights do, the percentage of our ordinary shares that
you own will diminish, and your voting and other rights will be diluted. If you
do not exercise your rights, you may either elect to sell your unexercised
rights, or have them lapse unsold.
If you hold our shares through an Israeli brokerage company that holds the
rights through our nominee company (HEVRA LE-RISHUMIM OF BANK HAPOALIM) and you
do not provide notice of your exercise of the rights or give any other
instructions by the time determined by your broker on __________, 2010 (the
rights trading day), under the rules of the Tel Aviv Stock Exchange, you will be
considered to have provided an instruction to sell all your rights on the Tel
Aviv Stock Exchange with no price limit. The proceeds of such sale shall be
transferred to you. If you do not hold your shares through the nominee company,
you may either elect to sell your unexercised right, or have them lapse unsold.
HAS OUR BOARD OF DIRECTORS MADE A RECOMMENDATION REGARDING THIS OFFERING?
No. Our board of directors makes no recommendation to you about whether you
should exercise any rights. You should make an independent investment decision
about whether or not to exercise any rights.
WHAT SHOULD YOU DO IF YOU WANT TO PARTICIPATE IN THIS RIGHTS OFFERING, BUT YOUR
SHARES ARE HELD IN THE NAME OF YOUR BROKER, DEALER OR OTHER NOMINEE?
If you are a beneficial owner of our ordinary shares and hold them through
a broker, dealer or other nominee (including a member of TASE), you should
expect your broker, dealer or other nominee to notify you of this rights
offering and the procedures for exercising or transferring your rights. If you
wish to exercise your rights, you will need to have your broker, dealer or other
nominee act for you. To indicate your decision with respect to your rights, you
should complete and return to your broker, dealer or other nominee the form
provided to you accompanied by the subscription payment payable to your broker,
dealer or other nominee. You should receive this form from your broker, dealer
or other nominee. If you are a beneficial owner of our ordinary shares and hold
them through a broker, dealer or other nominee (including a member of TASE), you
should NOT return your exercise form or transfer the subscription payment
directly to us. Your broker, dealer or other nominee will execute the exercise
of your rights through the appropriate facilities. However, if you own your
shares through, a member of the TASE that holds the rights through our nominee
company (HEVRA LE-RISHUMIM OF BANK HAPOALIM), the rules of TASE provide that if
no contrary instructions have been received from you by the time determined by
your broker on ___________, 2010 (the rights trading day), you will be
considered to have instructed your broker to sell all your rights on the Tel
Aviv Stock Exchange with no price limit.
WHAT FEES OR CHARGES APPLY IF YOU EXERCISE YOUR RIGHTS?
We are not charging any fee or sales commission to issue rights to you and
we are not charging any fee or sales commission, other than the subscription
price, to issue the ordinary shares if you exercise your rights. If you exercise
your rights through a broker, dealer or other nominee, you are responsible for
paying any fees that may be charged thereby.
9
HOW WILL THIS RIGHTS OFFERING AFFECT THE PRICE OF OUR ORDINARY SHARES ON TASE
AND ON OTCBB?
The OTCBB will not reduce the opening price of our ordinary shares at the
opening of trading on the OTCBB Ex-day, which is the first day that our ordinary
shares will trade on OTCBB without entitlement to receive the rights. The OTCBB
Ex-day will be the first trading day on OTCBB following the record date.
Accordingly, the OTCBB Ex-day for this rights offering will be _________, 2010.
In accordance with the rules of TASE, TASE will reduce the opening price of the
ordinary shares at the opening of trading on the TASE Ex-day, which is the first
day that our ordinary shares will trade on TASE following the record date; the
Tel Aviv Stock Exchange Ex-day for the rights offering will, therefore, be
_________, 2010. For this purpose TASE employs a reduction formula in which the
numerator is the sum of: (i) the number of shares entitling the shareholder to
one right (the "Base Unit") multiplied by the share's closing price on TASE on
the trading day prior to the Ex-day (the "Closing Price"), and (ii) the
subscription price; and the denominator is the sum of the Base Unit and the
number of rights granted to the holder of a Base Unit, provided however, that if
the Closing Price is lower than the result of the aforementioned formula , the
opening price on the Ex-day shall be the Closing Price.
WHEN WILL YOU RECEIVE YOUR NEW SHARES?
If you exercise your rights in this rights offering and the Rights Agent
has received your duly completed exercise form and your payment has cleared,
your purchase of ordinary shares will be effected, and you will receive
certificates representing the ordinary shares purchased upon exercise of the
rights as soon as practicable following the right's expiration date. We have the
discretion to delay allocation and distribution of any shares you may elect to
purchase by exercise of your privilege in order to comply with state securities
laws and regulations. Brokers may be unwilling to sell your ordinary shares
until you have received certificates representing your ordinary shares.
HAVE ANY SHAREHOLDERS OR MEMBERS OF OUR MANAGEMENT INDICATED THAT THEY WILL
EXERCISE THEIR RIGHTS?
Norfet, Limited Partnership, which has voting power over approximately
21.76% of our outstanding ordinary shares (excluding 99,740 ordinary shares held
by our wholly-owned subsidiary) has indicated to us that it does not intend to
exercise nor sell its rights in the rights offering, but that it intends to
acquire shares from Tefron by means of a private placement following the rights
offering at a price identical to the price per share offered in the rights
offering. This private placement to Norfet would be subject to approval of
Tefron's shareholders. See "Prospectus Summary - Recent Developments - Private
Placement to Norfet, Limited Partnership" above.
Members of our management have not provided us with any indication as to
whether they will exercise rights to be granted to them.
ARE THERE ANY CONDITIONS TO THE CONSUMMATION OF THE RIGHTS OFFERING?
There are no conditions to the consummation of the rights offering.
However, we reserve the right to reject your exercise of rights if your
exercise is not in accordance with the terms of the rights offering or in proper
form. Neither we nor the Rights Agent will have any duty to notify you of a
defect or irregularity in your exercise of rights. We will not be liable for
failing to give you that notice. We will also not accept your exercise of rights
if our issuance of shares pursuant to your exercise could be deemed unlawful or
materially burdensome. In addition, we will not be required to issue shares
prior to the rights expiration date.
CAN WE WITHDRAW THE RIGHTS OFFERING?
Yes. Our board of directors may withdraw the rights offering in its sole
discretion at any time prior to 5:00 p.m. New York City time (midnight, Israel
time) on ___________, 2010 (the record date), for any reason (including, without
limitation, a change in the market price of our ordinary shares). If we withdraw
the rights offering, we will issue a press release notifying shareholders of the
cancellation, and any money received from subscribing shareholders will be
refunded promptly, without interest.
HOW MUCH MONEY WILL WE RECEIVE FROM THE RIGHTS OFFERING?
The amount of gross proceeds from the rights offering depends on the number
of rights that are exercised into our ordinary shares. As indicated above in
"Have any shareholders or members of our management indicated that they will
exercise their rights?", Norfet has indicated to us that it does not intend to
exercise nor sell its rights in the rights offering, but that it intends to
acquire shares from Tefron by means of a private placement following the rights
offering. If all the rights are exercised, other than those distributed to
Norfet, we will receive gross proceeds of $4.689 million.
10
IF THE RIGHTS OFFERING IS NOT COMPLETED, WILL MY SUBSCRIPTION PAYMENT BE
REFUNDED TO ME?
Yes. The Rights Agent will hold all funds it receives in a segregated bank
account until completion of the rights offering. If the rights offering is not
completed, we will immediately instruct the Rights Agent to return your payment
in full. If you own shares in "street name," it may take longer for you to
receive payment because the Rights Agent will send payments through the record
holder of your shares. You will not be credited interest on your payment.
HOW MANY SHARES WILL BE OUTSTANDING AFTER THE RIGHTS OFFERING IF ALL THE RIGHTS
ARE EXERCISED?
As of [________], 2010, 2,120,298 of our ordinary shares were issued and
outstanding. The number of ordinary shares that will be outstanding after the
rights offering depends on the number of rights that are exercised. If all the
rights are exercised in full, an additional 1,578,947 of our ordinary shares
will be outstanding (excluding any shares that may be issued in the future upon
the exercise of rights issued in respect of share options).
WHO SHOULD I CONTACT IF I HAVE OTHER QUESTIONS?
If you have other questions or need assistance, please contact the
Information Agent, The Altman Group, Inc. at 877-896-3194 or by email at
reorg@altmangroup.com (banks and brokers only may call 201-806-7300).
11
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND ALL THE INFORMATION
CONTAINED IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION REGARDING OUR
ORDINARY SHARES. OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS
COULD BE MATERIALLY ADVERSELY AFFECTED BY ANY OF THESE RISKS. THE RISKS
DESCRIBED BELOW ARE NOT THE ONLY RISKS FACING OUR COMPANY. ADDITIONAL RISKS AND
UNCERTAINTIES THAT WE ARE NOT AWARE OF OR THAT WE CURRENTLY BELIEVE ARE
IMMATERIAL MAY ALSO ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, RESULTS
OF OPERATION AND LIQUIDITY. THE TRADING PRICE OF OUR ORDINARY SHARES COULD
DECLINE DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT.
RISK FACTORS RELATING TO OUR BUSINESS
WE FACE SIGNIFICANT LIQUIDITY CHALLENGES. IF OUR BANK LENDERS CANCEL OUR CREDIT
LINES, IT WILL JEOPARDIZE THE CONTINUATION OF OUR ACTIVITIES. IN ADDITION, WE
NEED TO RAISE ADDITIONAL CAPITAL IN THE NEAR FUTURE, AND IF IT IS NOT AVAILABLE
TO US, WE MAY NEED TO ELIMINATE SOME ASPECTS OF OUR OPERATIONS.
We face significant liquidity challenges. Current economic conditions have,
among other things, led to a limitation in the amount of credit available to us,
and in recent months we have been contending with limited credit after our bank
lenders reduced the credit lines at our disposal. On December 2, 2009, we
received non-written notices from our bank lenders in which the banks stated
their decision to terminate our utilization of our credit line. On January 6,
2010, we signed a memorandum of understanding (MOU) with our bank lenders
pursuant to which the banks would provide us with a total credit line of $30.75
million, comprised of the current utilized balance under our existing credit
line in the amount of $28.95 million and new credit in an additional amount of
$1.8 million. The new credit would be provided by the banks in the form of a
short term credit line guaranteed by partners of our shareholder, Norfet,
Limited Partnership. The MOU provides that by the end of the first quarter of
2010, we and our bank lenders must enter into a definitive binding agreement and
we must complete the rights offering and/or private placement in which not less
than $4 million is invested in Tefron's equity. See "Prospectus Summary - Recent
Developments - Memorandum of Understanding with Our Bank Lenders" above. In the
event that by the end of the first quarter of 2010, we do not enter into a
definitive binding agreement with the banks or complete a rights offering and/or
private placement in which not less than $4 million is invested in Tefron's
equity, the banks may cancel all our credit lines, which would jeopardize the
continuation of our activities.
Irrespective of whether our credit lines will continue to be available to
us, we need to raise additional funds in the near future in order to satisfy our
working capital and capital expenditure requirements. Current economic
conditions, including weakness and uncertainty in the capital and credit
markets, are likely to limit our ability to access sources of funds.
Although we intend to raise new capital from various resources, we may not
be able to obtain additional funds on a timely basis, on acceptable terms or at
all. Continued weakness and uncertainty in the capital and credit markets may
limit our access to additional funds required to operate our business. This
could force us to delay raising capital or bear an unattractive cost of capital,
resulting in decreased profitability and significantly reducing our financial
flexibility. In addition, if we cannot raise needed funds on acceptable terms,
we may be required to delay, scale back or eliminate some aspects of our
operations and we may not be able to:
o develop new products;
o maintain or enhance our existing products;
o remain current with evolving industry standards;
o maintain or expand our sales and marketing programs;
o take advantage of future opportunities; or
o respond to competitive pressures or unanticipated requirements.
WE DEPEND ON A SMALL NUMBER OF PRINCIPAL CUSTOMERS WHO HAVE IN THE PAST BOUGHT
OUR PRODUCTS IN LARGE VOLUMES. WE CANNOT ASSURE THAT THESE CUSTOMERS OR ANY
OTHER CUSTOMER WILL CONTINUE TO BUY OUR PRODUCTS IN THE SAME VOLUMES OR ON THE
SAME TERMS.
Our sales to Victoria's Secret accounted for approximately 38.6% of our
total sales in 2006, 39.1% of our total sales in 2007, 32.7% of our total sales
in 2008 and 27.0% of our total sales in the nine months ended September 30,
2009. Our sales to Nike accounted for approximately 28.8% of our total sales in
2006, 23.6% of our total sales in 2007, 23.2% of our total sales in 2008 and
7.0% of our total sales in the nine months ended September 30, 2009. Our sales
to Target, J.C. Penney, Swimwear Anywhere and The Gap accounted in the aggregate
for approximately 21.4% of our total sales in 2006, 20.7% of our total sales in
2007 and 20.5% of our total sales in 2008. Our sales to our largest four
customers (other than Victoria's Secret and Nike) during the nine months ended
September 30, 2009 (Wal-Mart, The Gap, Target and lululemon athletica) accounted
in the aggregate for approximately 17.7% of our total sales during that period.
For comparison purposes, all data provided above excludes AlbaHealth, in which
we sold our ownership in April, 2006.
12
We do not have long-term purchase contracts with our customers, and our
sales arrangements with our customers do not have minimum purchase requirements.
We cannot assure that Victoria's Secret, Nike, Target, J.C. Penney, Swimwear
Anywhere, The Gap, lululemon athletica and Wal-Mart or any other customer will
continue to buy our products at all or in the same volumes or on the same terms
as they have in the past. During the second and third quarters of 2009, we
experienced a significant decrease in our sales, including in our sales to our
two major customers, Nike and Victoria's Secret. We do not currently expect
sales in the fourth quarter of 2009 to these customers to increase from the
third quarter, and our sales to such customers may decrease even further in the
future.
Failures of our customers, and particularly our major customers, to
continue to buy our products in the same volumes and on the same terms as in the
past may significantly reduce our sales and our earnings. In addition, we cannot
assure that we will be able to attract new customers.
A material decrease in the quantity of sales made to our principal
customers, a material adverse change in the terms of such sales or a material
adverse change in the financial condition of our principal customers could
significantly reduce our sales and our earnings.
OUR PRINCIPAL CUSTOMERS ARE IN THE CLOTHING RETAIL INDUSTRY, WHICH IS SUBJECT TO
SUBSTANTIAL CYCLICAL VARIATIONS. CURRENT ECONOMIC CONDITIONS IN OUR TARGET
MARKETS ARE EXPECTED TO ADVERSELY AFFECT OUR SALES. OUR REVENUES WILL DECLINE
SIGNIFICANTLY IF OUR PRINCIPAL CUSTOMERS DO NOT CONTINUE TO BUY OUR PRODUCTS IN
LARGE VOLUMES OR IF ANY OF OUR PRINCIPAL CUSTOMERS FAILS TO SATISFY ITS PAYMENT
OBLIGATIONS TO US DUE TO AN ECONOMIC DOWNTURN OR FOR ANY OTHER REASON.
Our customers are in the clothing retail industry, which is subject to
substantial cyclical variations and is affected strongly by any downturn or
slowdown in the general economy. The current global economic recession, and the
current recession in the U.S. economy in particular, could have the effect of
causing a significant reduction in consumption in our target markets, which
could have a significant effect on our customers' sales and profitability.
Consequently, our customers may have larger inventories of our products than
expected, and they may reduce the size of their orders, change the payment
terms, limit their purchases to a lower price range and try to change their
purchase terms. These events could result in decreased purchase orders from us,
which would significantly reduce our sales and profitability and result in
losses.
A worsening of the economic recession, together with the credit shortage in
our target markets, may lead to the postponement of payments by our customers
and thus restrict our cash flow. Economic difficulties in our target markets can
also jeopardize the businesses of our customers, and may limit our ability to
collect payment from such customers after we have already delivered their
orders. In addition, the current economic instability and uncertainty could
affect the willingness of our customers to make capital spending and investment
in our products, or their ability to obtain financing to purchase our products,
any of which may have an adverse effect on our revenues. Our results of
operations, financial condition, and cash flows could be materially adversely
affected by a prolonged economic downturn.
A significant part of our sales is made to a limited number of customers.
Our two largest customers accounted for 62.7% of our sales in 2007, 55.9% of our
sales in 2008 and 38.4% of our sales in the nine months ended September 30,
2009, and our then six largest customers accounted for approximately 83.5% of
our sales in 2007, 76.4% of our sales in 2008 and 56.1% of our sales in the nine
months ended September 30, 2009. We generally do not require and do not receive
collateral or guarantees from those customers for the orders we supply them. We
maintain an allowance for doubtful debts based upon factors surrounding the
credit risk of specific customers, historical trends and other information which
our management believes adequately covers all anticipated losses in respect of
trade receivables. There can be no assurance that this allowance will be
adequate. In the event that any of our major customers fails to satisfy its
payment obligations to us for any reason, this could significantly reduce our
sales and our earnings and have a material adverse effect on our operating
results.
13
The economic situation has increased the level of risk that our partners -
customers, subcontractors, (including an important contractor in the area of
dyeing) and suppliers - will become insolvent. If our suppliers and
subcontractors encounter financial difficulties, we may be forced to find
alternative suppliers and subcontractors with little advance warning. As a
result, we may be unable to supply our products to our customers in a timely
manner or be unable to deliver such products to our customers altogether.
WE REQUIRE A SIGNIFICANT AMOUNT OF CASH TO SATISFY OUR DEBT OBLIGATIONS. IF WE
FAIL TO GENERATE SUFFICIENT CASH FLOW FROM OPERATIONS, WE MAY NEED TO
RENEGOTIATE OR REFINANCE OUR DEBT, OBTAIN ADDITIONAL FINANCING, POSTPONE CAPITAL
EXPENDITURES OR SELL ASSETS. IF WE ARE NOT SUCCESSFUL IN ACCOMPLISHING ANY OF
THE FORGOING, THE LENDERS MAY DECLARE ALL AMOUNTS OWED TO THEM DUE AND PAYABLE.
We depend mainly on our cash generated by operating activities to make
payments on our debt. The cash generated by operating activities was
approximately $27.8 million in 2006, $3.0 million in 2007. In 2008, we had a
negative cash flow of $7.7 million, and in the nine months ended September 30,
2009, the cash generated by operating activities was approximately $2.3 million.
In 2008 and in the first and second quarters of 2009, we were unable to meet our
financial covenant obligations on our loan from our bank lenders. All the banks
with which we have loan agreements have agreed to waive these financial covenant
defaults for 2009. For 2010, we and our bank lenders have agreed to the
following financial covenants: (i) that our EBITDA for the year 2010 will be
positive, (ii) that our shareholders equity will not drop below $35 million,
(iii) that we will not pay dividends or any management fees and/or any other
payment to our shareholders until the loans provided by our bank lenders have
been repaid in full, and (iv) that our cash, inventory and receivables will not,
at any time, drop below $33 million, nor will our receivables drop below $9
million. We cannot guarantee that we will be able to meet these financial
requirements for 2010.
We cannot assure that we will generate sufficient cash flow from operations
to make the scheduled payments on our debt in the future. We currently have
repayment obligations on our long-term debt of approximately $4.1 million per
year and the balance of $12.4 million is due from 2009 until 2012. In addition,
we had repayment obligations under our short-term bank credit and revolving
credit facilities in the amount of approximately $12.8 million as of September
30, 2009. Our ability to meet our debt obligations will depend on whether we can
successfully implement our strategy, as well as on economic, financial,
competitive and technical factors. Some of the factors are beyond our control,
such as economic conditions in the markets where we operate or intend to
operate, changes in our customers' demand for our products, and pressure from
existing and new competitors.
If we cannot generate sufficient cash flow from operations to make
scheduled payments on our debt obligations, we may need to renegotiate the terms
of our debt, refinance our debt, obtain additional financing, delay planned
capital and other expenditures or sell assets. Our ability to renegotiate the
terms of our debt, refinance our debt or obtain additional financing will depend
on, among other things:
o our financial condition at the time;
o restrictions in agreements governing our debt; and
o other factors, including market conditions.
If our lenders decline to renegotiate the terms of our debt in these
circumstances, the lenders could declare all amounts borrowed and all amounts
due to them under the agreements due and payable. If we are unable to repay the
debt in these circumstances, the lenders could foreclose on our assets that are
subject to liens and sell our assets to satisfy the debt.
OUR MARKETS ARE HIGHLY COMPETITIVE AND SOME OF OUR COMPETITORS HAVE NUMEROUS
ADVANTAGES OVER US; WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
We compete directly with a number of manufacturers of intimate apparel,
active-wear and swimwear, many of which have a lower cost-base than Tefron,
longer operating histories, larger customer bases, greater geographical
proximity to customers and significantly greater financial and marketing
resources than we do. Increased competition, direct or indirect, could reduce
our revenues and profitability through pricing pressure, loss of market share
and other factors. We cannot assure that we will be able to compete successfully
against existing or new competitors, as the market for our products evolves and
the level of competition increases. Moreover, our competitors, especially those
from the Far East, have established relationships with our customers, which has
caused an erosion of prices of some of the products of our Cut & Sew Division,
and we expect this will have a negative effect on our sales of Cut & Sew
products. For example, in 2008, our largest intimate apparel customer
transferred its sourcing of an old Cut & Sew cotton program to India. Current or
future relationships between our existing and prospective competitors,
especially from the Far East, and existing or potential customers could
materially affect our ability to compete.
14
Our customers operate in an intensely competitive retail environment. In
the event that any of our customers' sales decline for any reason, whether or
not related to us or to our products, our sales to such customers could be
materially reduced.
In addition, our competitors may be able to purchase Seamless knitting
machines and other equipment similar to, but less expensive than, the Santoni
knitting machines we use to knit garments in our Hi-Tex manufacturing process.
By reducing their production costs, our competitors may lower their selling
prices. If we are forced to reduce our prices and we cannot reduce our
production costs, it will cause a reduction in our profitability. Furthermore,
if there is a weak retail market or a downturn in the general economy,
competitors may be pressured to sell their inventory at substantially depressed
prices. A surplus of intimate apparel at significantly reduced prices in the
marketplace would significantly reduce our sales.
THE CANCELLATION OF IMPORT QUOTAS ON TEXTILE GOODS IS CAUSING A DECREASE IN THE
SALE PRICE OF SOME OF OUR PRODUCTS.
Beginning January 1, 2005, the member countries in the World Trade
Organization removed a portion of the quotas on textile products. As a result,
some of the textile products manufactured in a country that is a member of the
World Trade Organization are no longer subject to quota limitations.
These changes allow retailers, clothing companies and others to import
unlimited quantities of textile products from member countries, including those
member countries where manufacturing costs are low. As a result, textile and
clothing prices worldwide, including our products, are facing pressures for
price reductions, and price reductions are likely to continue. Should such price
reductions accelerate beyond our ability to cut costs, our business and results
of operations may be adversely impacted.
The United States and the European Union adopted a policy with regard to
products imported from China until the end of 2008 that limited the total number
of items imported from China. Beginning on January 1, 2009, no quotas apply to
imports from China to the United States and to the European Union, and this can
have an impact on our activities that are related to the categories and
quantities upon which the limitations were imposed. In particular we expect that
the cancelation of the quotas will reduce prices of products imported from
China, which will likely cause a decrease in the sale prices of some of our
products.
OUR EXPANSION INTO NEW PRODUCT LINES WITH COMPLICATED PRODUCTS AND DIFFERENT RAW
MATERIALS, AND FACING SHORTER PRODUCTION RUNS, REDUCED OUR OPERATING EFFICIENCY
DURING 2007 AND 2008, AND WE MAY ALSO FACE OPERATING EFFICIENCY DIFFICULTIES IN
THE FUTURE.
In recent years, we have invested significant efforts to develop and expand
new product lines, including active-wear products and swimwear, in order to
diversify our product line and our client base. Our efforts to fulfill our
costumers' needs, including by providing innovative products, and the
requirements of our customers to manufacture new, complicated products with
different raw materials in shorter production runs, and sometimes to supply
orders in small amounts and short time frames, led to a reduction in our
operating efficiency in 2007 and 2008. Our continued efforts to develop and
present new product lines and to make the required adjustments to changes in
market trends may result in additional reductions in operating efficiency and
profits in the future. As a result of our reductions in operating efficiency, we
may also be unable to guarantee the quality of our products or meet our
customers' delivery deadline requirements, which may increase our costs due to
the additional freight charges and charge backs that we may be required to pay.
In addition, our reduction in operating efficiency may adversely affect our
reputation and our relationships with our customers and lead to a diversion of
orders and projects from us to our competitors.
15
OUR BUSINESS MAY BE IMPACTED BY INFLATION AND U.S. DOLLAR, NIS AND EURO EXCHANGE
RATE FLUCTUATIONS AS WELL AS THE EXCHANGE RATES OF THE OTHER CURRENCIES IN
COUNTRIES IN WHICH WE OPERATE.
Exchange rate fluctuations between the U.S. dollar and the NIS and between
the Euro and the U.S. dollar, and inflation in Israel, may negatively affect our
earnings. A substantial majority (approximately 81.7% in 2008) of our revenues
is denominated in U.S. dollars and a portion of our revenues (approximately
16.1% in 2008) are denominated in Euros. However, a significant portion of the
expenses associated with our Israeli operations, including personnel and
facilities-related expenses, are incurred in NIS. A significant portion of our
expenses are also incurred in countries in the Far East, mainly China and India;
these expenses are denominated in U.S. dollars but may be adjusted in accordance
with the exchange rate of the local currency to the U.S. dollar. Consequently,
we are exposed to the risk of appreciation of the NIS and other currencies
vis-a-vis the U.S. dollar. This appreciation would cause, and in 2007 and 2008
did cause, an increase in our expenses as recorded in our U.S. dollar
denominated financial reports even though the expenses denominated in local
currencies will remain unchanged.
Due to the appreciation of the NIS vis-a-vis the dollar in 2008, we
incurred gross expenses of approximately $6.4 million. This amount does not take
into account hedging transactions performed by the Company during 2008, which
diminished the adverse effect of the appreciation of the NIS in relation to the
dollar. These hedging transactions do not protect us if the devaluation in these
currencies vis-a-vis the dollar continues after the end of the forward
contracts. Although during the first nine months of 2009 the U.S. dollar
appreciated vis-a-vis the NIS, the NIS may appreciate vis-a-vis the U.S. dollar
again in the future.
In addition, inflation in Israel and all other off-shore locations in which
we operate will have the effect of increasing the dollar cost of our operations,
unless it is offset on a timely basis by a devaluation of the NIS relative to
the U.S. dollar. We cannot predict any future trends in the rate of inflation in
Israel or the rate of devaluation of the NIS against the U.S. dollar. In
addition, fluctuations in currency exchange rates in countries other than Israel
where we operate and do business may also negatively affect our earnings.
COST INCREASES IN THE PURCHASE OF FINISHED PRODUCTS OR PRODUCTION SERVICES COULD
AFFECT OUR PROFITABILITY.
We purchase and manufacture some of the products that we sell via
subcontractors located in the Far East and in Jordan. The cost of these products
may increase due to an increase in wages costs, production-related costs and the
strengthening of the local currencies against the U.S. dollar or for other
reasons not within our control. Our profitability would be adversely affected as
a result of an increase in the price of products that we purchase from our
subcontractors.
OUR DEBT OBLIGATIONS MAY HINDER OUR GROWTH AND PUT US AT A COMPETITIVE
DISADVANTAGE.
As of September 30, 2009, we had approximately $12.4 million of long term
loans outstanding (including current maturities of $4.1 million) and
approximately $12.8 million in short-term bank credit. Our debt obligations
could have important consequences. For example, they could:
o require us to use a substantial portion of our operating cash flow to
repay the principal and interest on our loans, which would reduce
funds available to operate, grow and expand our business, invest in
machinery and equipment and for other purposes;
o place us at a competitive disadvantage compared to our competitors
that have less debt;
o make us more vulnerable to economic and industry downturns and reduce
our flexibility in responding to changing business and economic
conditions;
o limit our ability to pursue business opportunities; and
o limit our ability in the future to borrow money for operations or
capital.
Because our loans bear interest at floating rates, an increase in interest
rates could reduce our profitability. For example, a one percent change on our
floating interest rate long-term loans outstanding at September 30, 2009, would
have an annual impact of approximately $0.2 million on our interest cost.
DUE TO RESTRICTIONS IN OUR LOAN AGREEMENTS, WE MAY NOT BE ABLE TO OPERATE OUR
BUSINESS AS WE DESIRE.
Our loan agreements contain a number of conditions and limitations on the
way in which we can operate our business, including limitations on our ability
to raise debt, sell or acquire assets and pay dividends. Our loan agreements
also contain various covenants which require that we maintain certain financial
ratios related to shareholders' equity and operating results. These limitations
and covenants may force us to pursue less than optimal business strategies or
forgo business arrangements which could have been financially advantageous to us
and our shareholders.
16
Our failure to comply with the covenants and restrictions contained in our
loan agreements could lead to a default under the terms of these agreements. For
instance, during the fourth quarter of 2008 and during the first and second
quarters of 2009, we failed to comply with a minimum EBITDA requirement
contained in our bank loan agreements. All the banks with which we have loan
agreements have agreed to waive such financial covenant defaults for 2009. For
2010, our bank lenders have agreed to the following financials covenants: (i)
that our EBITDA for the year 2010 will be positive, (ii) that our shareholders
equity will not drop below $35 million, (iii) that we will not pay dividends or
any management fees and/or any other payment to our shareholders until the loans
provided by our bank lenders have been repaid in full, and (iv) that our cash,
inventory and receivables will not, at any time, drop below $33 million, nor
will our receivables drop below $9 million. We cannot assure that we will not
default on that or other financial covenants contained in our bank loan
agreements again in the future, or in the event of any such defaults, that our
bank lenders will agree to waive such defaults again in the future.
If a default occurs and we do not receive a waiver and we are unable to
renegotiate the terms of our debt, the lenders could declare all amounts
borrowed and all amounts due to them under the agreements due and payable. If we
are unable to repay the debt, the lenders could foreclose on our assets that are
subject to liens and sell our assets to satisfy the debt.
IF THE MARKET SHARE OF OUR CUSTOMERS DECLINES, OUR SALES AND EARNINGS MAY
DECLINE.
Our sales can be adversely affected in the event that our customers do not
successfully compete in the markets in which they operate. In the event that the
sales of one of our major customers decline for any reason, irrespective of
whether it is related to us or to our products, our sales to such customer may
also decline, which could reduce our overall sales and our earnings.
WE FACE SEVERAL RISKS, INCLUDING POLITICAL, ECONOMIC AND SOCIAL RISKS,
ASSOCIATED WITH INTERNATIONAL BUSINESS.
Approximately 77% of our sales in 2006, 84% of our sales in 2007, 79% of
our sales in 2008 and 82% of our sales in the nine months ended September 30,
2009 were made to customers in North America, and approximately 18% of our sales
during 2006, 11% of our sales during 2007, 16% of our sales in 2008 and 10% of
our sales in the nine months ended September 30, 2009 were made to customers in
Europe. We also had sales in Asia constituting approximately 2% of our sales in
2006, 2007, 2008 and approximately 1% of our sales in the nine months ended
September 30, 2009. We intend to continue to expand our sales to customers in
the United States and Europe. In addition, a substantial majority of our raw
materials are purchased outside of Israel. Furthermore, a substantial majority
of our sewing operation is performed in Jordan, and a substantial majority of
our Cut & Sew operations for swimwear and intimate apparel is performed in
China, India and Cambodia. For these purposes, products of ours are situated in
these countries, and equipment and machinery of ours are situated in Jordan. Our
international sales and purchases are affected by costs associated with shipping
goods and risks inherent in doing business in international markets, including:
o changes in regulatory requirements or tax laws;
o export restrictions, tariffs and other trade barriers;
o quotas imposed by international agreements between the United States
and certain foreign countries;
o currency fluctuations;
o longer payment cycles;
o difficulties in collecting accounts receivable;
o political instability, hostility and seasonal reductions in business
activities; and
o strikes and general economic problems.
Any of these risks could have a material adverse effect on our ability to
deliver or receive goods on a competitive and timely basis and on our results of
operations. We cannot assure that we will not encounter significant difficulties
in connection with the sale or procurement of goods in international markets in
the future or that one or more of these factors will not significantly reduce
our sales and profitability.
In addition, we may enter into joint ventures with third parties or
establish operations outside of Israel that will subject us to additional
operating risks. These risks may include diversion of management time and
resources and the loss of management control over such operations and may
subject us to the laws of such jurisdiction. For instance, due to commercial
disputes that arose between us and the other shareholder of our subsidiary that
managed operations in Madagascar, we ceased production activities in Madagascar
in 2004.
17
In addition to our production facilities in Israel, we currently have
production facilities in Jordan, we have relationships with manufacturers,
suppliers and subcontractors in India, China and Cambodia, and we are shifting
additional production activities, mainly cutting and sewing, finishing and
accompanied operations and logistics operations, out of Israel to benefit from
lower labor costs. We are currently in negotiations with third parties to
establish a joint venture in Egypt to manufacture products designated for our
customers. In addition to the risks referred to above, terrorist attacks against
foreigners, in general, and Jews, in particular, in the countries where we have
production facilities or relationships with manufacturers can disrupt the normal
course of business of our business partners or can harm our business partners
and/or our relationships with them and as a result impair our manufacturing
capacity.
Our ability to benefit from the lower labor costs will depend on the
political, social and economic stability of these countries and in the Middle
East and Asia in general. We cannot assure that the political, economic or
social situation in these countries or in the Middle East and Asia in general
will not have a material adverse effect on our operations, especially in light
of the potential for hostilities in the Middle East. The success of the
production facilities also will depend on the quality of the workmanship of
laborers and our ability to maintain good relations with such laborers in these
countries. We cannot guarantee that our operations in China, Cambodia, India,
Jordan or any newer locations outside of Israel will be cost-efficient or
successful.
OUR EXPANSION INTO NEW PRODUCT LINES, IN PARTICULAR ACTIVE-WEAR BUSINESS
PRODUCTS, INVOLVES THE MANUFACTURE OF NEW PRODUCTS, WHICH HAS REQUIRED AND MAY
CONTINUE TO REQUIRE US TO PURCHASE ADDITIONAL MACHINERY ADAPTED TO MANUFACTURE
SUCH PRODUCTS. THE ADDITIONAL CAPITAL EXPENDITURES INCURRED IN CONNECTION WITH
THESE PURCHASES MAY REDUCE OUR FUTURE CASH FLOW.
In recent years, we have made significant efforts to develop and expand our
new product lines, in particular active-wear products, to diversify our product
line and our client base. Active-wear products that we manufacture are made in
bigger sizes than intimate apparel, both because our active-wear products are
intended for both men and women, and because our active-wear products involve
the manufacture of more tops. As a result, we have purchased and may need to
purchase additional knitting machines and other equipment adapted to manufacture
new products. In addition, the manufacture of active-wear products at times
requires equipment with new technologies. We may also have to purchase machinery
to support the shorter production runs for our products. The additional capital
expenditures that may be incurred in connection with these purchases may reduce
our future cash flow.
WE DEPEND ON SUBCONTRACTORS IN CONNECTION WITH OUR MANUFACTURING PROCESS, IN
PARTICULAR THE SEWING, DYEING AND FINISHING PROCESS; WE MAY EXPERIENCE DELAYS OR
ADDITIONAL COSTS SATISFYING OUR PRODUCTION REQUIREMENTS AND WE MAY BE PREVENTED
FROM MEETING OUR CUSTOMERS' ORDERS DUE TO OUR RELIANCE ON THESE SUBCONTRACTORS.
We depend on subcontractors who render services to us that are an integral
part of our manufacturing process, and in particular sewing services. We are
increasingly dependent on subcontractors' services for all of our Cut & Sew
products. If such subcontractors do not or cannot render the required services,
we may experience delays or additional costs to satisfy our production
requirements. We depend on a subcontractor who performs a major part of the
dyeing and finishing of our Hi-Tex manufacturing process, which is an essential
part of our manufacturing process. If that subcontractor breaches its
commitments to us or is otherwise not able to supply the required services, we
would have substantial difficulty meeting our customer orders until we find an
alternative source.
WE ARE SUBJECT TO FLUCTUATING COSTS OF RAW MATERIALS.
We use cotton yarn, spandex, various polymeric yarn and elastic as primary
materials for manufacturing our products. Our financial performance depends, to
a substantial extent, on the cost and availability of these raw materials. The
capacity, supply and demand for such raw materials are subject to cyclical and
other market factors and may fluctuate significantly. As a result, our cost in
securing raw materials is subject to substantial increases and decreases over
which we have no control except by seeking to time our purchases of cotton and
polymeric yarns, which are our principal raw materials, to take advantage of
favorable market conditions. For example, in 2007, the cost of synthetic fibers
increased due to rising energy costs, and there may be a similar increase in the
future. In addition, in 2008, cotton price levels were very high due to high
demand and shortage of commodity and in 2009 there was a relative increase in
the price of raw materials. We cannot assure that we will be able to pass on to
customers the increased costs associated with the procurement of raw materials.
Moreover, there has in the past been, and there may in the future be, a time lag
between the incurrence of such increased costs and the transfer of such
increases to customers. To the extent that increases in the cost of raw
materials cannot be passed on to customers or there is a delay in passing on the
increased costs to customers, we are likely to experience an increase in the
cost of raw materials which may materially reduce our margin of profitability.
18
WE DEPEND ON OUR SUPPLIERS FOR MACHINERY AND MAINTENANCE OF MACHINERY. WE MAY
EXPERIENCE DELAYS OR ADDITIONAL COSTS SATISFYING OUR PRODUCTION REQUIREMENTS DUE
TO OUR RELIANCE ON THESE SUPPLIERS.
We purchase machinery and equipment used in our Hi-Tex manufacturing
process from a sole supplier. If our supplier is not able to provide us with
maintenance, additional machinery or equipment as needed, we might not be able
to maintain or increase our production to meet any demand for our products.
DIRECT PURCHASES BETWEEN RETAILERS AND MANUFACTURERS IN THE FAR EAST COULD
ADVERSELY AFFECT OUR SALES.
In recent times, a number of large retailers are attempting to bypass
design companies by developing private undergarment brands and contracting
directly with manufacturing plants, to have them manufacture products for them.
We believe that this phenomenon will encompass basic products intended for the
mass market, where the design element is less important. Our sales can be
adversely impacted if this phenomenon spreads further.
THE CLOTHING RETAIL INDUSTRY IS SUBJECT TO CHANGES IN FASHION PREFERENCES. IF WE
OR OUR CUSTOMERS MISJUDGE A FASHION TREND OR THE PRICE WHICH CONSUMERS ARE
WILLING TO PAY FOR OUR PRODUCTS, OUR REVENUES COULD BE ADVERSELY AFFECTED.
The clothing retail industry is subject to changes in fashion preferences.
We design and manufacture products based on our and our customers' judgment as
to what products will appeal to consumers and what price consumers would be
willing to pay for our products. We may not be successful in accurately
anticipating consumer preferences and the prices that consumers would be willing
to pay for our products. If we are not successful, our customers may reduce the
volume of their purchases from us and/or the prices at which we sell our
products will decline, in either case resulting in reduced revenues.
UNEXPECTED EXPENSES RELATED TO THE DELIVERY OF PRODUCTS MAY REDUCE OUR
PROFITABILITY
As part of our business, we supply our products through various delivery
companies. Delivery of our products involved the incurrence of unexpected
expenses, such as product theft, delays and loss of products. Our profitability
may be adversely affected by these additional expenses to the extent that they
are not covered by our various insurance policies.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY.
Our success is substantially dependent upon the adaptations and
configurations we make to the machinery and equipment that we purchase and upon
the manufacturing technologies, methods and techniques that we have developed
for our exclusive use. Only a part of the adaptations, configurations,
technologies or techniques used in our manufacturing process is patented.
Moreover, we purchase our machinery and equipment from third parties and we
cannot assure that a competitor will not adapt, configure or otherwise utilize
machinery or equipment in substantially the same manner as we do. In addition,
our subcontractors have access to proprietary information, including regarding
our manufacturing processes, and from time to time we also lend machinery and
equipment to subcontractors, and there is a chance that subcontractors may
breach their confidentiality undertakings toward us. Any replication of our
manufacturing process by an existing or future competitor would significantly
reduce our sales and profitability.
WE FACE POTENTIAL COMPETITION BY OUR FORMER EMPLOYEES.
Our trade secrets are well known to some of our employees. In the event one
or more of our current or former employees exploit our trade secrets in
violation of their non-competition and confidentiality obligations, we may be
adversely affected in the competitive market and in our relationships with our
customers and suppliers.
19
AN INCREASE IN THE MINIMUM WAGE IN ISRAEL, JORDAN OR OTHER COUNTRIES IN WHICH WE
CONDUCT BUSINESS MAY ADVERSELY AFFECT OUR OPERATING RESULTS.
Many of our employees and the employees of our manufacturers and
subcontractors earn the minimum wage payable under law. Under Israeli law, the
minimum wage, which is increased from time to time as a result of various
economic parameters and updating of employee-union agreements, equals
approximately 47.5% of the average wage for an employee in Israel, unless
otherwise determined by government regulations. Pursuant to existing
legislation, the minimum monthly wage was increased on July 1, 2008 in Israel,
to NIS 3,850, and in October 2008, the Jordanian Labor Ministry raised the
minimum wage from JD110 to JD150 a month for 200,000 laborers, a decision that
excluded QIZ firms, who in turn pledged to raise their Jordanian workers'
salaries voluntarily. We have operations that are located both in the QIZ areas
and outside such areas. An increase in the minimum wage would increase our labor
costs or the labor costs of our manufacturers and subcontractors, and unless we
can obtain alternative labor in lower cost markets, this increase could
adversely affect our operating results.
WE FACE POTENTIAL CONFLICTS OF INTEREST CAUSED BY INVESTOR INFLUENCE.
Our principal shareholders have a great deal of influence over the
constitution of our Board of Directors and over matters submitted to a vote of
the shareholders. As of January 17, 2010, Norfet, Limited Partnership had voting
power over approximately 21.76% of the outstanding ordinary shares of Tefron
(excluding 99,740 ordinary shares held by our wholly-owned subsidiary). In
addition, as of January 17, 2010, and based on available public information,
Meir Shamir, one of our directors, owned approximately 34.15% in Mivtach-Shamir,
which at such date was an approximately 42.29% holder in Norfet. As a result,
the corporate actions of Tefron may be significantly influenced by Mr. Shamir.
Furthermore, as of January 17, 2010, Ishay Davidi, another director, served as
CEO of FIMI 2001 Ltd., which controls the general partner of Norfet, one of the
Norfet limited partners (which is managed by FIMI 2001 Ltd.) as well as the
other Norfet limited partners by virtue of an irrevocable power of attorney. As
a result, the corporate actions of Tefron may be significantly influenced by Mr.
Davidi.
We are party to consulting and management services agreements with Norfet,
pursuant to which Norfet agreed to provide consultancy and management services
to Tefron.
Israeli law imposes procedures, including, for certain material
transactions, a requirement of shareholder approval, as a precondition to
entering into interested party transactions. These procedures may apply to
transactions between Norfet and us. However, we cannot assure that we will be
able to avoid the possible detrimental effects of any such conflicts of interest
by complying with the procedures mandated by Israeli law.
WE MAY FAIL TO MAINTAIN EFFECTIVE INTERNAL CONTROL OVER FINANCIAL REPORTING IN
ACCORDANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002. IF WE FAIL TO
MAINTAIN EFFECTIVE INTERNAL CONTROL OVER FINANCIAL REPORTING, WE MAY NOT BE ABLE
TO REPORT OUR FINANCIAL RESULTS ACCURATELY, AND THIS COULD SUBJECT US TO COSTLY
LITIGATION, DIVERT OUR MANAGEMENT'S TIME AND ATTENTION, REQUIRE US INCUR
SIGNIFICANT COSTS AND EXPENSES AND LEAD TO A LOSS OF SHAREHOLDER CONFIDENCE IN
OUR FINANCIAL REPORTING. ANY OF THESE COULD SIGNIFICANTLY IMPACT OUR BUSINESS.
The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our
executives and directors. Our efforts to comply with the requirements of Section
404, which began in connection with our Annual Report on Form 20-F for the
fiscal year ended December 31, 2006, have resulted in increased general and
administrative expense and a diversion of management time and attention, and we
expect these efforts to require the continued commitment of resources. We have
documented and tested our internal control systems and procedures in order for
us to comply with the requirements of Section 404. While our assessment of our
internal control over financial reporting resulted in our conclusion that as of
December 31, 2008, our internal control over financial reporting was effective,
we cannot predict the outcome of our testing in future periods. Recently, we
determined that a deficiency in our internal control over financial reporting in
the first quarter of this year did not enable us to identify a failure to record
purchasing expenses in connection with one sale made by our subsidiary, Macro
Clothing Ltd. This required us to restate our financial statements for the first
quarter this year. If we fail to maintain the adequacy of our internal controls,
we may not be able to conclude on an ongoing basis that we have effective
internal controls over financial reporting.
The restatement of our financial results may lead to costly litigation
claims against us or an investigation or sanctions by regulatory authorities.
The defense of any litigation or investigation which may arise in connection
with any restatement may divert management's time and attention, and we may be
required to pay damages if any claims are not resolved in our favor. Any
litigation or investigation, even if resolved in our favor, may cause us to
incur significant legal and other expenses. Any restatement could also reduce
investor confidence in our financial results. As a result, our business and
market price could be impacted.
20
RISK FACTORS RELATING TO OUR ORDINARY SHARES
OUR ANNUAL AND QUARTERLY OPERATING RESULTS MAY VARY WHICH MAY CAUSE THE MARKET
PRICE OF OUR ORDINARY SHARES TO DECLINE.
We may experience significant fluctuations in our annual and quarterly
operating results which may be caused by, among other factors:
o the timing, size and composition of orders from customers;
o varying levels of market acceptance of our products;
o the timing of new product introductions by us, our customers or their
competitors;
o fluctuations in the exchange rate between the NIS, the U.S. dollar and
the Euro;
o economic conditions in the geographical areas in which we operate or
sell products; and
o operating efficiencies.
When we establish a relationship with a new customer, initial sales to such
customer may be in larger quantities of goods (to build its initial inventory)
and we may be required to replenish such inventory from time to time afterwards.
As a result, after a customer builds its initial inventory, our sales to such
customer may decrease. We cannot assure that our sales to any of our customers
will continue at the current rate.
Our operations are affected by our principal customers' businesses, which
businesses are subject to substantial cyclical variations. If demand for our
products is significantly reduced, our profits will be reduced, and we may
experience slower production, lower plant and equipment utilization and lower
fixed operating cost absorption.
Additionally, if, in any year, there is a significant number of Christian,
Druse, Jewish or Muslim holidays in a particular quarter, we will have fewer
days of operation, which will result in lower levels of production and sales
during such quarter. In certain years, a significant number of such holidays
have occurred during the second quarter, but the dates of many of those holidays
are based on the lunar calendar and vary from year to year.
THE DELISTING OF OUR ORDINARY SHARES FROM NYSE MAY MAKE IT MORE DIFFICULT FOR
YOU DISPOSE OF YOUR SHARES OR FOR US TO SECURE ADDITIONAL FINANCING.
On December 22, 2008, our ordinary shares were delisted from the New York
Stock Exchange, ("NYSE") and, effective as of January 16, 2009, they are quoted
on the Over-The-Counter Bulletin Board ("OTCBB"), an electronic quotation medium
regulated by the Financial Industry Regulatory Authority. Securities traded on
the OTCBB typically have low trading volumes. In addition, delisting of our
shares could diminish interest in our Ordinary Shares, and it may be more
difficult to dispose of or to obtain accurate quotations as to the market value
of our Ordinary Shares. Delisting may also make it more difficult for us to
issue additional securities or secure additional financing. Our shares continue
to be traded on the TASE.
DELISTING OF THE COMPANY'S SHARES FROM THE TEL AVIV STOCK EXCHANGE.
In order to preserve the registration of our shares for trading on the
TASE, we must comply with certain conditions. We cannot ensure that we can
comply with those conditions in the future. If we fail to comply with those
conditions, our shares could be delisted from trading on the Tel Aviv Stock
Exchange, their liquidity could be impaired, their price in the U.S. and in
Israel may be reduced, the extent of information published by us to our
shareholders could be reduced, the possibility of obtaining a market price for
the shares will be reduced and our ability to raise capital could be reduced.
DIFFICULT CONDITIONS IN THE GLOBAL CAPITAL AND CREDIT MARKETS AND THE ECONOMY
GENERALLY MAY MATERIALLY ADVERSELY AFFECT OUR SHARE PRICE.
Market fluctuations and volatility, as well as general economic, market and
political conditions, could reduce our share price. Continued weakness or
uncertainty in the global capital and credit markets and difficult conditions in
the economy generally may continue to adversely affect our share price. As of
January 15, 2010, our closing share price was $4.00 and as of December 31, 2008
our closing share price was $3.0.
21
RISK FACTORS RELATING TO THE RIGHTS OFFERING
IF WE DO NOT REALIZE SUBSTANTIAL PROCEEDS AS A RESULT OF THE RIGHTS OFFERING OR
IN PRIVATE PLACEMENT TO NORFET SHORTLY FOLLOWING THE RIGHTS OFFERING, OUR
BUSINESS, RESULTS OF OPERATIONS AND LIQUIDITY POSITION COULD BE ADVERSELY
AFFECTED.
In recent months, we have been contending with decreased liquidity and
limited credit after our bank lenders reduced the credit lines at our disposal
and we incurred losses. See "Risk Factors Relating to Our Business - We face
significant liquidity challenges. If our bank lenders cancel our credit lines,
it will jeopardize the continuation of our activities. In addition, we need to
raise additional capital in the near future, and if it is not available to us,
we may need to eliminate some aspects of our operations." In addition, our
revenues in the nine months ended September 30, 2009 decreased by 32% from our
revenues in the equivalent period in 2008, and our operating loss substantially
increased in the nine months ended September 30, 2009 compared to the equivalent
period in 2008. We also expect substantial losses in fourth quarter of 2009. We
intend to use the proceeds realized from the rights offering in order to satisfy
our working capital and capital expenditure requirements. The amount of gross
proceeds we realize from the rights offering depends on the number of rights
that our shareholders exercise into our ordinary shares.
If we do not realize substantial proceeds from the rights offering or in a
private placement to Norfet referred to below that may occur shortly following
the rights offering, we will need to raise capital from other sources, which we
may not be able to do on a timely basis, on acceptable terms or at all,
particularly given the continued weakness and uncertainty in the capital and
credit markets. If we are not able to raise needed funds on acceptable terms, we
may not be able to continue our present level of operations, may need to delay,
scale back or eliminate some aspects of our operations and may not be able to
maintain or enhance our existing products, remain current with evolving industry
standards or effectively respond to competitive pressures, any of which could
have a material adverse effect on our business, results of operations and
liquidity position.
In addition, on January 6, 2010, we signed an MOU with our bank lenders
pursuant to which we must complete a rights offering and/or private placement in
which not less than $4 million is invested in our equity by the end of the first
quarter of 2010. See "Prospectus Summary - Recent Developments - Memorandum of
Understanding with Our Bank Lenders" above. Norfet has indicated to us that it
intends to acquire shares from Tefron by means of a private placement following
the rights offering to enable us to raise the minimum $4 million. This private
placement to Norfet would be subject to approval of Tefron's shareholders. See
"Prospectus Summary - Recent Developments - Private Placement to Norfet, Limited
Partnership". In the event that we are not successful in completing a rights
offering and/or private placement in which not less than $4 million is invested
in Tefron's equity by the end of the first quarter of 2010, the banks may cancel
all our credit lines, which would jeopardize the continuation of our activities.
THE SUBSCRIPTION PRICES DETERMINED FOR THE RIGHTS OFFERING MAY NOT BE AN
INDICATION OF THE FAIR VALUE OF OUR ORDINARY SHARES.
Our board of directors determined the subscription price after considering
the likely cost of capital from other sources, historical and current trading
prices for our ordinary shares, current market conditions and the need to
provide an incentive to our shareholders to participate in the rights offering
on a pro rata basis. We believe it is unlikely that we could sell a significant
amount of equity securities to third parties at prices in excess of this price.
The subscription price does not necessarily bear any relationship to the book
value of our assets or our past operations, cash flows, losses, financial
condition, net worth or any other established criteria used to value securities.
You should not consider this price to be an indication of the fair value of the
ordinary shares to be offered in the Offering. After the date of this
prospectus, our ordinary shares may trade at prices above or below the
subscription price.
IF YOU DO NOT EXERCISE YOUR RIGHTS IN FULL, YOU MAY SUFFER SIGNIFICANT DILUTION
OF YOUR PERCENTAGE OWNERSHIP OF OUR ORDINARY SHARES.
If you choose not to exercise your right in full, then your relative
ownership and voting interest in Tefron will be diluted to the extent others
exercise their rights. This may result in a significant dilution of your
percentage ownership of our Ordinary Shares.
In addition, other existing or new shareholders can become significant
and/or controlling shareholders of the Company following the rights offering and
such shareholders may affect our strategy and operation.
22
THE RECEIPT OF RIGHTS MAY BE TREATED AS A TAXABLE DISTRIBUTION TO YOU.
We intend to treat the distribution of the rights as a non-taxable
distribution of stock rights under Section 305(a) of the Internal Revenue Code
of 1986, as amended, or the Code. In such case, you will not be subject to
United States federal income taxation with respect to the receipt of the rights.
However there can be no assurance in this regard, and in the event the Internal
Revenue Service, or the IRS, successfully asserts that your receipt of rights is
currently taxable, the discussion under the heading "Material Income Tax
Considerations - Certain United States Federal Income Tax Consequences"
describes the tax consequences that will result from such a determination.
YOU WILL NOT RECEIVE INTEREST ON SUBSCRIPTION FUNDS, INCLUDING ANY FUNDS
ULTIMATELY RETURNED TO YOU.
You will not earn any interest on your subscription funds while they are
being held by the Rights Agent pending the closing of the rights offering. In
addition, if we cancel the rights offering, neither we nor the Rights Agent will
have any obligation with respect to the rights except to return, without
interest, any subscription payments to you.
RISK FACTORS RELATING TO OUR OPERATIONS IN ISRAEL
OUR RESULTS OF OPERATIONS WOULD BE MATERIALLY AND ADVERSELY AFFECTED IN THE
EVENT WE ARE UNABLE TO OPERATE OUR PRINCIPAL PRODUCTION FACILITIES IN MISGAV,
ISRAEL.
All of our knitting process with respect to our Seamless Division, which
includes the major portion of our manufacture of our active-wear products, is
performed in a complex of production facilities located in Misgav, which is in
northern Israel. These facilities also contain a significant portion of our
machinery and equipment, including Santoni machines and adaptations and
configurations that we have made to the machinery and equipment, as well as
infrastructure that we have tailored to our needs. We have no effective back-up
for these operations and, in the event that we are unable to use the production
facilities located in Misgav, Israel as a result of damage or for any other
reason, our ability to manufacture a major portion of our products and our
relationships with customers could be significantly impaired, which would
materially and adversely affect our results of operation. For instance, during
the third quarter of 2006, our revenues and results of operations were affected
by the loss of production due to hostilities in the northern part of Israel, and
there is the risk that further hostilities would also impact our production in
the future, leading to a reduction in revenues.
WE ARE AFFECTED BY CONDITIONS TO, AND POSSIBLE REDUCTION OF, GOVERNMENT PROGRAMS
AND TAX BENEFITS.
We benefit from certain Israeli government programs and tax benefits,
particularly as a result of the "Approved Enterprise" status of substantially
all of our existing production facilities in Israel. As a result of our
"Approved Enterprise" status, we have been able to receive significant
investment grants with respect to our capital expenditures. In addition,
following our exhaustion of our net operating loss carry forwards, we have been
able to benefit from a reduced tax rate of 25% on earnings derived from these
investments for which the benefit period has not expired. To maintain
eligibility for these programs and tax benefits, we must continue to meet
certain conditions, including making certain specified investments in fixed
assets and conducting our operations in specified "Approved Enterprise" zones in
Israel. If we fail to meet such conditions in the future, we could be required
to refund tax benefits and grants already received, in whole or in part, with
interest linked to the Consumer Price Index, or CPI, in Israel from the date of
receipt. We have granted a security interest over all of our assets to secure
our obligations to fulfill these conditions.
The Government of Israel has reduced the available amount of investment
grants from up to 38% of eligible capital expenditures in 1996 to up to 24% of
eligible capital expenditures (for projects not exceeding investments of NIS 140
million that are submitted in any year) and up to 20% of eligible capital
expenditures (for projects exceeding investments of NIS 140 million that are
submitted in any year) since 1997. There can be no assurance that the Israeli
government will not further reduce the availability of investment grants, and
there can be no assurance that there will be any government budget for such
grants. The termination or reduction of certain programs and tax benefits,
particularly benefits available to us as a result of the "Approved Enterprise"
status of some of our existing facilities in Israel, would increase the costs of
acquiring machinery and equipment for our production facilities and increase our
effective tax rate which, in the aggregate, could significantly reduce our
profitability. In addition, income attributed to certain programs is tax exempt
for a period of two years and is subject to a reduced corporate tax rate of 10%
- - 25% for an additional period of five to eight years, based on the percentage
of foreign investment in the Company. We cannot assure that we will obtain
approval for additional Approved Enterprises/Privileged Enterprises, or that the
provisions of the Law for the Encouragement of Capital Investments, 1959, as
amended, will not change or that the 25% foreign investment percentage will be
reached for any subsequent year.
23
We also benefit from exemptions from customs duties and import quotas due
to our locations in Israel and Jordan (Qualified Industrial Zone), and the free
trade agreements Israel maintains with the United States, Canada, the European
Union, or EU, and the European Free Trade Association, or EFTA. If there is a
change in such benefits or if any such agreements were terminated, our
profitability may be reduced. Recently, there has been a worldwide trend to
reduce quotas and customs in order to promote free trade. If other countries
enter into similar free trade agreements and obtain similar benefits, the price
of apparel products, including our products, may decline and our profitability
may be reduced. See "- THE CANCELLATION OF IMPORT QUOTAS ON TEXTILE GOODS IS
CAUSING A DECREASE IN THE SALE PRICE OF SOME OF OUR PRODUCTS."
A DETERIORATION IN ISRAEL'S RELATIONSHIPS WITH NEIGHBORING COUNTRIES IN WHICH
TEFRON HAS PRODUCTION FACILITIES COULD INTERRUPT TEFRON'S PRODUCTION AND HARM
ITS FINANCIAL RESULTS.
A significant portion of our manufacturing process is performed in Jordan.
Our operations in Jordan depend largely on its relationship with the State of
Israel. In the past, there have been hostilities between Israel and Jordan. In
addition, there are currently hostilities between Israel and the Palestinians. A
deterioration in Israel's relations with Jordan could interrupt our
manufacturing operations and would adversely affect our business.
THE DETERIORATION OF RELATIONS BETWEEN ISRAEL AND ITS NEIGHBORS CAN ADVERSELY
AFFECT OUR BUSINESS.
Security conditions prevailing in Israel and in the region can influence
our business. A deterioration in relations between Israel and its neighbors,
where some of our manufacturing facilities are located, can disrupt production
processes and the purchase of our products by our customers and negatively
affect our financial results.
Most of our sewing activities are concentrated in Jordan, and during 2008,
approximately 63.1% of our sales derived from the sale of products manufactured
in Jordan. Our activities in Jordan are predicated to a large extent on
relations between Jordan and the State of Israel. In the past, hostility existed
between Israel and Jordan. Likewise beginning with December 2008, the
hostilities between Israel and the Palestinians increased, and future
hostilities can damage our activity in Jordan. A deterioration in Israel's
relations with Jordan can adversely affect our production and our ability to
meet delivery on customer orders.
WE ARE SUBJECT TO VARIOUS RISKS RELATING TO OPERATIONS IN ISRAEL.
We are incorporated under the laws of, and our main offices and
manufacturing facilities are located in, the State of Israel. We are directly
influenced by the political, economic and security conditions in Israel. Since
the establishment of the State of Israel in 1948, a number of armed conflicts
have taken place between Israel and its Arab neighbors and a state of hostility,
varying in degree and intensity, has led to security and economic concerns for
Israel. Any major hostilities involving Israel, the interruption or curtailment
of trade between Israel and its trading partners or a significant downturn in
the economic or financial condition of Israel could have a material adverse
effect on our operations.
In July 2006, a conflict with Hezbollah escalated significantly on Israel's
northern border, during which our normal activity routine was disrupted,
affecting our sales and increasing our costs. In the last few years, the
establishment of a Hamas government in Gaza has created additional unrest and
uncertainty in the region and has increased hostilities between Israel and the
Palestinians. In December 2008 and January 2009, there was an armed conflict
between Israel and Hamas, following the firing of missiles into southern Israel.
Although our principal executive offices and production facilities are not
located in southern Israel, any armed conflicts, terrorist activities or
political instability in the region would likely negatively affect business
conditions and could significantly harm our results of operations.
24
The future of Israel's relations with its Arab neighbors and the
Palestinians is uncertain. We cannot assure that ongoing or revived hostilities
or other factors related to Israel will not have a material adverse effect on us
or our business.
Generally, all male adult citizens and permanent residents of Israel under
the age of 54, unless exempt, are obligated to perform up to 36 days of annual
military reserve duty. Additionally, all such residents are subject to being
called to active duty at any time under emergency circumstances. Some of our
officers and employees are currently obligated to perform annual reserve duty.
No assessment can be made as to the full impact of such requirements on our
workforce or business, and no prediction can be made as to the effect of any
expansion or reduction of such military obligations on our business.
During 2004, a general strike at Israel's ports caused a shortage of raw
materials and resulted in a loss to the Company of sales of approximately $2.5
million. This shortage also resulted in a decrease in production volume and an
increase in operating costs, which affected our ability to achieve greater
operating efficiencies. Although Israel's Ministry of Finance, the Histadrut
(General Federation of Labor in Israel), and the Israel Ports Authority signed
an agreement in February 2005 which was intended to ensure five years without
labor strikes, a further strike or labor disruption at Israel's ports occurred
thereafter and may occur again in the future. Such strikes and disruptions could
have an adverse effect on us or our business.
YOU MAY NOT BE ABLE TO ENFORCE CIVIL LIABILITIES IN THE UNITED STATES AGAINST
OUR OFFICERS AND OUR DIRECTORS.
Most of our officers and all of our directors reside outside the United
States. Service of process upon them may be difficult to effect within the
United States. Furthermore, because the majority of our assets are located
outside the United States, any judgment obtained in the United States against us
or any of our directors and officers may not be collectible within the United
States.
25
USE OF PROCEEDS
We intend to use the net proceeds from this rights offering towards funding
of general corporate purposes, including working capital, in accordance with our
company's needs and in accordance with resolutions of our board of directors
from time to time. Our gross proceeds from the rights offering will depend on
the number of rights that are exercised. There can be no assurance that any of
the rights will be exercised. If all of the rights are exercised, other than the
rights distributed to Norfet, then we will receive immediate proceeds of $4.689
million, before deducting estimated expenses payable by us of approximately
$____ million.
PRICE RANGE OF ORDINARY SHARES
Our ordinary shares traded on the NYSE from September 24, 1997 through
December 18, 2008 under the symbol "TFR", and since January 16, 2009, our
ordinary shares have been quoted on the OTCBB. The symbol of our ordinary shares
on the OTCBB is "TFRFF." Our ordinary shares have been traded on TASE since
September 28, 2005 under the symbol "TFRLF". Information regarding the market
price of our ordinary shares is located in our Annual Report on Form 20-F for
the year ended December 31, 2008, filed with the Securities and Exchange
Commission, or the Commission, on June 30, 2009.
Prices set forth below are high and low reported closing prices for our
ordinary shares as reported by NYSE (through December 18, 2008) and, starting on
January 16, 2009, on the OTCBB for the periods indicated.
2009 HIGH LOW
- ---- ---- ---
Second quarter $ 4.4 $ 3.2
Third quarter $ 6.1 $ 3.5
Fourth quarter $ 6.4 $ 2.7
June $ 4.2 $ 3.7
July $ 4.3 $ 3.5
August $ 6.1 $ 4.4
September $ 5.9 $ 4.4
October $ 6.4 $ 4.5
November $ 5.8 $ 3.4
December $ 3.5 $ 2.7
26
Prices set forth below are high and low reported closing prices for our
ordinary shares as reported by TASE for the periods indicated.
2009 HIGH LOW
- ---- ---- ---
Second quarter NIS 20.5 NIS 14.0
Third quarter NIS 26.6 NIS 14.0
Fourth quarter NIS 22.8 NIS 10.6
June NIS 17.2 NIS 15.0
July NIS 15.8 NIS 14.0
August NIS 26.6 NIS 17.1
September NIS 20.5 NIS 17.3
October NIS 22.8 NIS 17.8
November NIS 21.8 NIS 14.1
December NIS 14.1 NIS 10.6
On September 8, 1998, we announced our intention to repurchase through a
stock repurchase program up to one million of our outstanding Ordinary Shares.
As of January 17, 2010, we had repurchased and hold in our treasury, through a
subsidiary, 99,740 Ordinary Shares.
27
THE RIGHTS OFFERING
Before exercising any rights, you should read carefully the information set
forth under "Risk Factors."
THE RIGHTS
We are distributing transferable rights to shareholders who own our
ordinary shares at 5:00 p.m., New York time (midnight, Israel time) on ________,
2010, the record date, at no cost to the shareholders. We will distribute to you
one right for each 1.3429 ordinary shares that you own at 5:00 p.m. New York
time (midnight, Israel time) on the record date. If you hold one ordinary share,
you will not receive any rights. Your rights will be aggregated for all the
shares that you own on the record date and then rounded down to the nearest
whole number, so that you will not receive fractional rights. For example, if
you own two shares on the record date, you will receive one right, and if you
own 10,000 shares on the record date, you will receive 7,446 rights. If your
exercise of rights results in you holding 25% or more of our ordinary shares,
such exercise must be made by means of a special tender offer in accordance with
the Companies Law.
The subscription price for each ordinary share is $3.80, which is equal to
a __% discount to the closing price of our ordinary shares on _________, 2010,
and must be paid to American Stock Transfer & Trust Company, as Rights Agent.
The rights are exercisable during a ________-day period, beginning after
5:00 p.m. New York City time (midnight, Israel time) on ___________, 2010 and
ending at 5:00 p.m. New York City time (midnight, Israel time) on _________,
2010, or during a _______-day period, until _______, 2010 if you hold your
rights through an Israeli brokerage company that holds the rights through our
nominee company (HEVRA LE-RISHUMIM OF BANK HAPOALIM). In such case, if you fail
to give your broker instructions regarding the exercise, non-exercise or sale of
the rights by _______________, 2010, you will be considered to have instructed
your broker to sell all your rights on TASE with no price limit, on __________,
2010. We will issue to you certificates representing the ordinary shares you
purchased in this offering as soon as practicable after the rights expiration
date (__________, 2010), provided that the Rights Agent has received your duly
completed exercise form and your payment has cleared. If you hold your shares
through a broker, dealer or other nominee (including through members of TASE),
your time to exercise will be subject to the timing requirements of your broker,
dealer or other nominee (which may be earlier than the final expiration date of
the rights), in addition to other procedural requirements of your broker, dealer
or other nominee, as described below. After the expiration date of the rights
offering, all unexercised rights will be null and void.
NO RECOMMENDATION TO RIGHTS HOLDERS
We are not making any recommendations as to whether or not you should
exercise your rights. You should make an independent investment decision about
whether or not to exercise any rights based on your own assessment of your best
interests after reading this prospectus.
WITHDRAWAL AND AMENDMENT RIGHT
Our board of directors may withdraw the rights offering in its sole
discretion at any time prior to 5:00 p.m., New York City time (midnight, Israel
time), on _______, 2010 (the record date) for any reason (including, without
limitation, a change in the market price of our ordinary shares). If we withdraw
the rights offering for any reason, then all rights will expire without value,
and we will promptly arrange for the refund, without interest or deduction, of
all subscription funds you paid to the Rights Agent, as soon as practicable.
We reserve the right, in our sole discretion, to amend or modify the terms
of the rights offering (including the maximum number of ordinary shares we may
issue in the rights offering and the subscription price per share). If we amend
or modify the terms of the rights offering, then we will issue a press release
announcing such amendment or modification, and we shall file with the SEC such
documents and other information relating to the amendment or modification as is
required under the Securities Act of 1933, as amended. If we amend or modify
certain terms of the rights offering, then we will extend the expiration date of
the rights offering as required by law.
DETERMINATION OF SUBSCRIPTION PRICE
Our board of directors determined the subscription price after considering
several factors, including the likely cost of capital from other sources,
historical and current trading prices for our ordinary shares, current market
conditions and the need to provide an incentive to our shareholders to
participate in the rights offering on a PRO RATA basis. The subscription price
of $3.80 per share represents a [___]% discount to the closing price of our
ordinary shares on _________, 2010. The subscription price does not necessarily
bear any relationship to the book value of our assets or our past operations,
cash flows, losses, financial condition, net worth, or any other established
criteria used to value securities. You should not consider these prices to be an
indication of the fair value of the ordinary shares to be offered in the rights
offering.
28
The subscription price should not be considered an indication of our actual
value, or the actual value of our ordinary shares. We cannot assure you that the
market price of our ordinary shares will not decline during the rights offering
or that the market price of our ordinary shares will not decline after the
rights offering. We also cannot assure you that you will be able to sell the
ordinary shares issuable upon exercise of the rights offering at a price equal
to or greater than the subscription price paid. On [________], 2010, the last
reported sale price of our ordinary shares on the OTCBB was $[__] per share and
on TASE was NIS [__] per share. We urge you to obtain a current quote for our
ordinary shares before exercising your rights.
OUR SHARE PRICE FOLLOWING THE RIGHTS OFFERING
The OTCBB will not reduce the opening price of our ordinary shares at the
opening of trading on the OTCBB Ex-day, which is the first day that our ordinary
shares will trade on OTCBB without entitlement to receive the rights. The OTCBB
Ex-day will be the first trading day on OTCBB following the record date.
Accordingly, the OTCBB Ex-day for the rights offering will be ___________, 2010.
In accordance with the rules of TASE, TASE will reduce the opening price of the
ordinary shares at the opening of trading on the TASE Ex-day, which is the first
day that our ordinary shares will trade on TASE following the record date; the
TASE Ex-day for the rights offering will, therefore, be ________, 2010. For this
purpose TASE employs a reduction formula in which the numerator is the sum of:
(i) the number of shares entitling the shareholder to one right (the "Base
Unit") multiplied by the share's closing price on TASE on the trading day prior
to the Ex-day (the "Closing Price"), and (ii) the subscription price; and the
denominator is the sum of the Base Unit and the number of rights granted to the
holder of a Base Unit, provided however, that if the Closing Price is lower than
the result of the aforementioned formula, the opening price on the Ex-day shall
be the Closing Price.
OUR DECISION WILL BE BINDING ON YOU
All questions concerning the timeliness, validity, form and eligibility of
any exercise of rights will be determined by us in accordance with the terms of
this prospectus, and our determinations will be final and binding. In our sole
discretion, we may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as we may determine, or reject the
purported exercise of any right by reason of any defect or irregularity in such
exercise. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as we
determine in our sole discretion. In determining whether to waive any defect or
irregularity regarding the exercise of the rights, we will consider the
materiality of the defect or irregularity. If we determine that any such defect
or irregularity is material then the subscription will not be deemed to have
been received or accepted until such defect or irregularity is cured within such
time as we determine in our sole discretion. We will not be under any duty to
notify you of any defect or irregularity in connection with the exercise of your
rights or incur any liability for failure to give such notification. However,
liabilities under the U.S. federal securities laws and Israeli securities laws
cannot be waived.
NO REVOCATION OF EXERCISE OF RIGHTS
After you have exercised your rights, you may not revoke that exercise. You
should not exercise your rights unless you are certain that you wish to purchase
our ordinary shares.
METHOD OF EXERCISE OF RIGHTS FOR RECORD HOLDERS
Shortly after the date of this prospectus, we will send by registered mail
or personal delivery to each holder of our ordinary shares that is registered on
our shareholder registry maintained at American Stock Transfer & Trust Company a
rights certificate conferring the number of rights applicable to each holder.
The rights certificate will be accompanied by a copy of this prospectus, and on
the back of the rights certificate will be a rights exercise form and a rights
transfer form.
During the subscription period ending on __________, 2010, if you are a
record owner of our ordinary shares, you may exercise your rights by delivering
a signed exercise form on the back of your rights certificate or a notice of
guaranteed delivery to American Stock Transfer & Trust Company, our Rights
Agent, at the address noted below together with payment in full of the
subscription price for each right being exercised, by 5:00 p.m., New York City
time (midnight Israel time), on _______________, 2010. This rights offering will
not be extended beyond the subscription period ending on __________________,
2010, except as disclosed in this prospectus.
29
We and American Stock Transfer & Trust Company, our Rights Agent, as
applicable, may refuse to accept improperly completed or delivered or unexecuted
exercise forms. We and American Stock Transfer & Trust Company, our Rights
Agent, as applicable, must receive payment in full of the subscription price for
each right being exercised together with the exercise form (or notice of
guaranteed delivery).
If you are delivering your completed exercise form (or notice of guaranteed
delivery) and payment for the exercise of your rights to American Stock Transfer
& Trust Company, our Rights Agent, please do so by mail, overnight or hand
delivery to one of the following addresses:
BY FACSIMILE FOR NOTICE OF
BY HAND/OVERNIGHT COURIER: GUARANTEED DELIVERY BY MAIL:
(TO ELIGIBLE INSTITUTIONS ONLY)
+1-718-234-5001
American Stock Transfer & Trust American Stock Transfer & Trust
Company Company
Operations Center CONFIRM BY TELEPHONE: Operations Center
Attn: Reorganization Department Toll-free +1-877-248-6417 Attn: Reorganization Department
59 Maiden Lane +1-718-921-8317 6201 15th Avenue
New York, New York 10038 Brooklyn, New York 11219
Any payments to American Stock Transfer & Trust Company, as Rights Agent,
must be made in U.S. dollars (a) by cashier's or certified check drawn on a bank
located in the United States and payable to the order of "American Stock
Transfer & Trust Company, as Rights Agent," or (b) by wire transfer of
immediately available funds to the account maintained by American Stock Transfer
& Trust Company, our Rights Agent, for this rights offering at JP Morgan Chase,
ABA No. 021000021, Account No. 323-836895, reference Tefron Ltd., Attention:
Reorganization Department.
You will choose the method of delivery of exercise forms and payment of the
subscription price and will bear the risk of such election.
IF YOU SEND YOUR COMPLETED EXERCISE FORM AND PAYMENTS BY MAIL, WE URGE YOU
TO USE REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND TO
ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY AND CLEARANCE OF PAYMENT
PRIOR TO THE EXPIRATION DATE. WE STRONGLY URGE YOU TO PAY, OR ARRANGE FOR
PAYMENT, BY MEANS OF A CHECK DRAWN ON A BANK LOCATED IN THE UNITED STATES OR IN
ISRAEL. Your rights will not be considered exercised unless the Rights Agent
receives from you, your broker, dealer or other nominee (including a member of
TASE), as the case may be, all of the required documents and your full
subscription price payment before 5:00pm, New York City time (midnight, Israel
time), on ___________, 2010, the expiration date of the rights offering. We will
not consider any payment by check, other than a cashier's or certified check, to
have been made until the check clears through the account of American Stock
Transfer & Trust Company, our Rights Agent, or to our account, as applicable,
before the expiration date. If you do not exercise your rights by the expiration
date and in accordance with the procedures applicable to you, your ability to
exercise the rights and purchase the ordinary shares will expire. Record holders
exercising their rights shall be entitled to receive the ordinary shares
promptly following such exercise.
Payments for the exercise of your rights made to American Stock Transfer &
Trust Company, our Rights Agent, will be held in a segregated interest bearing
money market account, and will be sent to us in accordance with our written
instructions.
GUARANTEED DELIVERY PROCEDURES IN THE UNITED STATES.
If you want to exercise your rights, but time will not permit your rights
certificate to reach American Stock Transfer & Trust Company, our Rights Agent,
prior to 5:00 p.m., New York City time (midnight, Israel time), on
______________, 2010, then you may nevertheless exercise the rights if:
o before the expiration date, the Rights Agent receives:
o payment in full for the number of ordinary shares you subscribe
for pursuant to your right; and
30
o a notice of guaranteed delivery from a member firm of a
registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or from a
commercial bank or trust company having an office or
correspondent in the United States, guaranteeing the delivery to
the Rights Agent of the rights certificate evidencing the rights
to be exercised within three (3) trading days following the date
of that notice; and
o within this three (3) trading day period, the Rights Agent receives
the properly completed rights certificate.
The notice of guaranteed delivery may be delivered to the Rights Agent in
the same manner as you would deliver the rights certificate, or may be
transmitted by eligible institutions to the Rights Agent by facsimile
transmission, to facsimile number +1-718-234-5001. To confirm facsimile
deliveries, call +1-718-921-8317 or toll-free +1-877-248-6417. You can obtain
additional copies of the form of notice of guaranteed delivery by requesting
them from the Rights Agent.
TRANSFERABILITY OF RIGHTS
The rights are transferable. You may sell or otherwise transfer them to
others. The unexercised rights (including, if you hold your shares through an
Israeli brokerage company that holds shares through our nominee company, those
rights for which you fail to give your broker instructions regarding the
exercise, non-exercise or sale) will be quoted for trading on the OTCBB. The
unexercised rights will also be and listed for trading on the TASE for one day
only on _________, 2010. If you are one of our affiliates, you may transfer your
rights only if there is an effective registration statement or exemption
covering such transfer under the United States securities laws.
Record holders wishing to transfer their rights to another person may do so
by executing the rights transfer form on the back of the rights certificate and
submitting it to American Stock Transfer & Trust Company prior to ___________,
2010. Record holders wishing to sell their rights on the OTCBB or the TASE,
should independently engage a broker to execute this sale on their behalf.
If no contrary instructions have been received by ____________, 2010 and
your rights remain unexercised, your rights will expire. However, if you hold
your shares through an Israeli brokerage company that holds the rights through
our nominee company (HEVRA LE-RISHUMIM OF BANK HAPOALIM), the rules of TASE
provide that if no contrary instructions have been received from you by the time
determined by your broker on ___________, 2010, you will be considered to have
instructed your broker to sell all your rights on TASE with no price limit. The
purchaser of such rights shall be able to exercise them until ______________,
2010.
You are responsible for all commissions, fees and other expenses, including
brokerage commissions and transfer taxes, incurred in connection with the
purchase, sale or exercise of rights.
AMBIGUITIES IN EXERCISE OF RIGHTS
If you do not specify the number of rights being exercised, or if your
payment is not sufficient to pay the total subscription price for all of the
shares that you indicated you wished to purchase, you will be deemed to have
exercised the maximum number of rights that could be exercised for the amount of
the payment received from you. If your payment exceeds the total subscription
price for all of the rights you have elected to exercise, we will promptly
refund to you the balance with no interest.
BENEFICIAL OWNERS WHO ARE NOT RECORD HOLDERS
If you are a beneficial owner of our ordinary shares and hold them through
a broker, dealer or other nominee (including a member of TASE), you should
expect your broker, dealer or other nominee to notify you of this rights
offering and the procedures for exercising or transferring your rights. If you
wish to exercise your rights, you will need to have your broker, dealer or other
nominee act for you. To indicate your decision with respect to your rights, you
should complete and return to your broker, dealer or other nominee the form
provided to you accompanied by the subscription payment. You should receive this
form from your broker, dealer or other nominee with the other rights offering
materials. You should NOT return your subscription form or transfer the
subscription payment directly to us.
Summarized below are the procedures for exercising your rights if you are a
beneficial owner whose ordinary shares are held through the Company's nominee
company (HEVRA LE-RISHUMIM OF BANK HAPOALIM).
31
PROCEDURES APPLICABLE TO HOLDERS OF SHARES THROUGH A NOMINEE COMPANY.
If you hold your ordinary shares through an Israeli brokerage company that
holds the rights through our nominee company (HEVRA LE-RISHUMIM OF BANK
HAPOALIM), you should expect to receive a letter regarding this rights offering
from the member of TASE through which you hold your shares (the brokerage
company). In that letter, you will be requested to make ONE of the following
three elections:
(1) Exercise your rights and subscribe for our ordinary shares. If this
alternative is elected, you may give a member of TASE through which you
hold your shares an exercise notice commencing after 5:00 p.m., New York
City time (midnight, Israel time), on _________, 2010 and no later than the
time determined by your broker on ____________, 2010. You must attach the
subscription payment to your notice. You will need to arrange with your
broker the method of payment of your subscription payment. As a holder of
our ordinary shares through our nominee company (HEVRA LE-RISHUMIM OF BANK
HAPOALIM), your subscription payment will not be made to American Stock
Transfer & Trust Company, as Rights Agent. The subscription price is to be
paid in New Israeli Shekels according to the representative exchange rate
published by the Bank of Israel on the day before payment of the
subscription price; or
(2) Sell the rights or any part of them on TASE. If you select this
alternative, you may give your broker price limit instructions as to the
sale of the rights; or
(3) Refrain from exercising your rights and from selling them.
Your notice should reach the member of TASE through which you hold your
shares by no later than _________, 2010 (the rights trading day) at the time
determined by your broker. If notice is not received from you by such time, you
will be considered to have instructed your broker to sell your rights on TASE,
with no price limit.
If you hold rights and wish to transfer them to another person, you may do
so by executing the rights transfer form that will be made available to you by
your broker.
The rights will trade on TASE for one trading day, __________, 2010.
Pursuant to TASE rules, if the trading of our ordinary shares or the rights is
halted for a period in excess of 45 minutes, and the trading does not resume for
the remainder of that day upon which the rights are traded on TASE, an
additional trading day for the rights will take place, and the last day to
exercise the rights will be accordingly extended. If on the day upon which the
rights are traded on TASE the trading of our ordinary shares is halted, yet the
cessation of trade continues for fewer than five consecutive trading days, your
instructions with respect to the rights delivered to your broker shall remain in
effect unless contrary instructions have been received by your broker from you.
If the trading of our ordinary shares on the day upon which the rights are
traded on TASE is halted for a period of more than five consecutive trading
days, all prior instructions received by your broker will be cancelled.
Holders of unexercised rights following the TASE rights trading day may
exercise them and subscribe for our ordinary shares by notifying their broker
and transferring the subscription payment. This notice must reach the broker by
no later than _________, 2010 at the time determined by the broker. If this
notice is not received on time, it will not be possible to exercise these
rights.
Under the TASE rules, TASE members must submit to the Tel Aviv Stock
Exchange Clearing House a written rights exercise (subscription) notice on
behalf of all their clients wishing to exercise rights no later than 9:00 a.m.
Israel time (2:00 a.m., New York City time) on ____________, 2010. The rights of
holders of our ordinary shares through our nominee company will expire if the
brokers of these holders do not provide an exercise notice as described above.
The TASE rules further require brokers to transfer, on the same date, to the Tel
Aviv Stock Exchange Clearing House the subscription payments with respect to
their clients' exercised rights, and the Tel Aviv Stock Exchange Clearing House
thereafter will transfer these payments to us. Under the TASE rules, during the
period of __________, 2010 until ______________, 2010, an exercise notice
submitted by a shareholder who holds ordinary shares through a broker, dealer or
other nominee in Israel, by 12:00 p.m. Israel time, shall be transferred to the
Tel Aviv Stock Exchange Clearing House by 12:00 p.m. Israel time on the next
trading day, and shall be cleared by 12:00 p.m. Israel time on the trading day
thereafter. The shares issuable upon exercise of the rights shall be freely
tradable.
NOMINEE HOLDERS
If you are a broker, a trustee or a depositary for securities that holds
our ordinary shares for the account of others as a nominee holder, you should
notify the respective beneficial owners of such shares as soon as possible of
the issuance of the rights to find out such beneficial owners' intentions. You
should obtain instructions from the beneficial owner with respect to the rights,
as set forth in the instructions we have provided to you for your distribution
to beneficial owners. If the beneficial owner so instructs, you should complete
the appropriate subscription certificates. A nominee holder that holds shares
for the account(s) of more than one beneficial owner may exercise the number of
rights to which all such beneficial owners in the aggregate otherwise would have
been entitled if they had been direct record holders of our ordinary shares on
the record date, so long as the nominee submits the appropriate subscription
certificates and certifications and proper payment to us. If you are a member of
TASE, you must comply with the rules of TASE with respect to providing notices
to and receiving instructions from your clients.
32
PROCEDURES FOR DTC (THE DEPOSITORY TRUST COMPANY) PARTICIPANTS
We expect that your exercise of your subscription privilege with respect to
rights issued with respect to outstanding ordinary shares may be made through
the facilities of DTC. If you exercise your subscription privilege with respect
to such rights through DTC we refer to your rights as DTC Exercised Rights. If
you are a bank or broker and would like to obtain copies of the DTC participant
exercise form and the nominee holder certification, please call the Information
Agent, The Altman Group, Inc., at 201-806-7300.
REGULATORY LIMITATION
We will not be required to issue ordinary shares pursuant to the rights
offering to anyone who, in our opinion, would be required to obtain prior
clearance or approval from any federal, state or foreign regulatory authorities
to acquire, own or control ordinary shares, if such clearance or approval has
not been obtained as of the expiration date of the rights offering.
RIGHTS AGENT AND INFORMATION AGENT
We have appointed American Stock Transfer & Trust Company as Rights
Agent and The Altman Group, Inc. as the Information Agent for the rights
offering.
The Information Agent's number is 877-896-3194 (banks and brokers only may
call 201-806-7300), or alternatively you may email the Information Agent at
reorg@altmangroup.com. We will pay the fees and specified expenses of the Rights
Agent and Information Agent.
SELECTED FINANCIAL DATA
PRESENTATION OF FINANCIAL AND SHARE INFORMATION.
We prepared our consolidated financial statements in accordance with
International Financial Reporting Standards ("IFRS") as issued by the
International Accounting Standards Board ("IASB"). The Company's financial
statements for the year ended December 31, 2008 were the Company's first
consolidated financial statements that were prepared in accordance with IFRS as
issued by the IASB and IFRS 1, "First Time Adoption of International Financial
Reporting Standards". Our previous consolidated financial statements were
prepared in accordance with U.S. GAAP. The influence of the transition to IFRS
(from financial statements prepared in accordance with U.S. GAAP) on our
financial statements for the year ended December 31, 2007 and on its results of
operations for that year is detailed in note 25 to our consolidated annual
financial statements included in our Annual Report on Form 20-F for the year
ended December 31, 2008, filed with the Securities and Exchange Commission, on
June 30, 2009.
The following selected financial data as of December 31, 2007 and 2008 and
for each of the two years ended December 31, 2007 and 2008 have been derived
from, and should be read in conjunction with, our audited consolidated financial
statements and notes thereto prepared in accordance with IFRS and do not include
consolidated financial data in accordance with U.S. GAAP appearing in our Annual
Report on Form 20-F for the year ended December 31, 2008. The selected financial
data as of December 31, 2004, 2005 and 2006 and for each of the three years
ended December 31, 2004, 2005 and 2006 have been derived from our audited
financial statements prepared in accordance with U.S. GAAP not included in our
Annual Report on Form 20-F for the year ended December 31, 2008. All share and
per share information has been adjusted to give retroactive effect to a
ten-for-one reverse split of our ordinary shares that became effective on
January 22, 2009.
The selected unaudited consolidated financial as of and for each of the
nine month periods ended September 30, 2009 and 2008 are derived from unaudited
interim consolidated financial statements that were submitted on Report of
Foreign Private Issuer on Form 6-K. Such financial statements include, in our
opinion, all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the results of the unaudited periods. You should not
rely on these interim results as being indicative of results we may expect for
the full year or any other interim period.
We sold our ownership interest in AlbaHealth in April 2006. Accordingly,
the financial statements of AlbaHealth are accounted for as discontinued
operations, and the financial results and information described below do not
include the financial results of AlbaHealth. We ceased to consolidate the
financial statements of AlbaHealth commencing April 27, 2006.
33
NINE MONTHS ENDED
FOR THE YEAR ENDED SEPTEMBER 30
DECEMBER 31 (UNAUDITED)
--------------------------- ---------------------------
2007 2008 2008 2009
---------- ---------- ---------- ----------
U.S. DOLLARS IN THOUSANDS
(EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
IN ACCORDANCE WITH IFRS
Sales $ 158,614 $ 173,829 $ 137,865 $ 93,263
Cost of sales 139,145 167,557 129,199 94,902
---------- ---------- ---------- ----------
Gross profit (loss) 19,469 6,272 8,666 (1,639)
Selling and marketing expenses 12,443 16,959 12,538 10,925
General and administrative expenses 5,190 6,406 4,520 2,745
Impairment of property, plant and
equipment - 2,135 - -
---------- ---------- ---------- ----------
Operating income (loss) 1,836 (19,228) (8,392) (15,309)
Other expenses - - - 1,285
Financial expenses, net 1,289 3,028 2,957 414
---------- ---------- ---------- ----------
Income (loss) before taxes on income 547 (22,256) (11,349) (17,008)
Tax benefit 35 4,677 2,788 4,270
---------- ---------- ---------- ----------
Net income (loss) $ 582 $ (17,579) $ (8,561) $ (12,738)
========== ========== ========== ==========
Basic and diluted net earnings
(losses) per share 0.2 (8.3) (4.0) (6.0)
========== ========== ========== ==========
Weighted average number of shares
used for computing basic earnings
(losses) per share 2,118,816 2,120,298 2,120,298 2,120,298
========== ========== ========== ==========
Weighted average number of shares
used for computing diluted earnings
(losses)per share 2,118,816 2,120,298 2,120,298 2,120,298
========== ========== ========== ==========
34
FOR THE YEAR ENDED DECEMBER 31
--------------------------------------------
2004 2005 2006
---------- ---------- ----------
U.S. DOLLARS IN THOUSANDS
(EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA: IN ACCORDANCE WITH
U.S. GAAP
Sales $ 148,620 $ 171,336 $ 188,104
Cost of sales 136,424 141,621 145,144
---------- ---------- ----------
Gross profit 12,196 29,715 42,960
Selling and marketing expenses 11,309 8,984 11,573
General and administrative expenses 5,603 4,595 5,504
---------- ---------- ----------
Operating income (loss) (4,716) 16,136 25,883
Financing expenses, net 3,888 3,189 1,912
---------- ---------- ----------
Income (loss) before taxes on income (8,604) 12,947 23,971
Tax benefit 83 4,297 5,711
---------- ---------- ----------
Income (loss) from continuing operations (8,687) 8,650 18,260
Income (loss) from discontinued operations 1,822 (5,357) 120
---------- ---------- ----------
Net income (loss) $ (6,865) $ 3,293 $ 18,380
========== ========== ==========
Basic and diluted net earnings (losses)per share from
continuing operations:
Basic net earnings (losses) per share $ (5.6) $ 4.9 $ 9.0
---------- ---------- ----------
Diluted net earnings (losses) per share $ (5.6) $ 4.7 $ 8.8
---------- ---------- ----------
Basic and diluted net earnings (losses)per share from
discontinued operations:
Basic net earnings (losses) per share $ 1.2 $ (3.0) $ 0.1
---------- ---------- ----------
Diluted net earnings (losses) per share $ 1.2 $ (2.9) $ 0.1
---------- ---------- ----------
Basic and diluted net earnings (losses)per share:
Basic net earnings (losses) per share $ (4.4) $ 1.9 $ 9.1
========== ========== ==========
Diluted net earnings (losses) per share $ (4.4) $ 1.8 $ 8.9
========== ========== ==========
Weighted average number of shares used for computing
basic earnings (losses) per share 1,560,390 1,771,927 2,021,072
========== ========== ==========
Weighted average number of shares used for computing
diluted earnings (losses)per
share 1,560,390 1,854,262 2,075,457
========== ========== ==========
35
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
--------------------- ---------------------
2007 2008* 2008 2009
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
FINANCIAL DATA:
IN ACCORDANCE WITH IFRS
Cash and cash equivalents $ 2,384 $ 1,566 $ 3,614 $ 5,326
Working capital 38,578 4,930 21,205 4,005
Total assets 160,740 131,732 139,897 107,115
Total debt(1) 19,322 24,809 20,723 25,178
Total equity 89,380 63,745 72,899 51,129
Share Capital 7,518 7,518 7,518 7,518
Additional paid in capital 106,864 107,104 107,020 107,492
AS OF DECEMBER 31,
-------------------------------------
2004 2005 2006*
-------- -------- --------
IN THOUSANDS
FINANCIAL DATA:
IN ACCORDANCE WITH U.S. GAAP
Cash and cash equivalents $ 3,558 $ 7,652 $ 3,966
Working capital (deficit) (8,441) 7,296 35,270
Total assets 191,531 186,514 164,656
Total debt(1) 78,301 56,621 25,270
Shareholders' equity 46,744 54,685 82,230
Share Capital 6,582 6,810 7,411
Additional paid-in capital 79,243 83,069 101,684
(1) Total debt consists of total short-term bank credit and long-term loans
from banks.
* In 2006, dividends declared per share amounted to $4.851 (after giving
effect to the ten-for-one reverse split). In 2008, dividends declared per share
amounted to $3.77 (after giving effect to the ten-for-one reverse split). No
dividends were declared in the years 2004, 2005 and 2007.
PLAN OF DISTRIBUTION
On or about [________], 2010, we will distribute by mail the rights
certificates and copies of this prospectus to our holders of record as of 5:00
p.m., New York City time (midnight, Israel time), on ______________, 2010. It is
our expectation that holders of record which hold our ordinary shares for
beneficial owners will forward a copy of this prospectus and the related
subscription information and forms to those beneficial owners in adequate time
to permit beneficial holders to complete and deliver the "Form of Beneficial
Owner Election Form" as to their investment decisions. We have engaged our
Rights Agent and Information Agent to assist in the distribution of the rights
certificates and this prospectus and the related subscription information and
forms. The Rights Agent will process all rights certificates from our holders of
record and will distribute certificates representing the shares purchased by
each holder of record upon the completion of the rights offering.
36
DILUTION
Based on the 2,120,298 ordinary shares outstanding as of January 17, 2010,
and assuming that our shareholder, Norfet, does not exercise its rights but that
all other ordinary shares offered in the rights offering are issued, 3,354,252
ordinary shares will be issued and outstanding immediately following the rights
offering. If you do not exercise any rights, then the number of ordinary shares
you own will not change. However, if shares are purchased by other shareholders
in the rights offering, then your percentage ownership after the exercise of the
rights will be diluted. Assuming that all of the rights we are distributing to
shareholders are exercised, other than the rights we distribute to Norfet, and
we issue 1,233,954 of our ordinary shares, this would represent an approximate
58% increase over our 2,120,298 issued and outstanding ordinary shares as of
January 17, 2010, excluding shares issuable upon exercise of our outstanding
options. Existing shareholders who do not exercise their rights in this rights
offering will have their ownership interest diluted such that, assuming that all
of the rights we are distributing to shareholders are exercised, other than the
rights distributed to Norfet, a holder of our ordinary shares who held one
percent of our ordinary shares before this rights offering will be reduced to
holding approximately 0.63% after the issuance of the additional ordinary shares
in this rights offering.
In addition, in accordance with our Option Plan, we expect to distribute
rights to those persons who, as of the record date, held options to acquire our
ordinary shares under our Option Plan (the "Option Holders"). Each Option Holder
will receive one right for each one ordinary share subject to share options held
by such Option Holder on the record date, and each right will entitle such
Option Holder to purchase, at a subscription price of [$__ ], one ordinary
share. Under the terms of our Option Plan, the rights granted to Option Holders
will be exercisable only if and when share options are exercised and only to the
extent that such rights have been issued in respect of the ordinary shares
purchased by Option Holders upon the exercise of share options. As of January
17, 2010, we had outstanding 220,229 options that were granted under our Option
Plan, and the latest expiration date of these options is December 2019.
Assuming that all of the outstanding options are exercised during their
term and the Option Holders exercise all of the rights issued to them, we will
issue an additional 163,995 ordinary shares to Option Holders from time to time
in the future. Together with the 1,233,954 shares that may be issued to our
shareholders upon exercise of their rights assuming that Norfet does not
exercise the rights distributed to it, this would represent an approximate 60%
increase over our 2,120,298 issued and outstanding ordinary shares as of January
17, 2010, excluding shares issuable upon exercise of our outstanding options. If
you do not exercise any rights distributed to you in the rights offering, and if
shares are purchased in the future by Option Holders that exercise the rights
distributed to them, then your percentage ownership after the exercise of the
rights will be further diluted.
CAPITALIZATION
The following table sets forth our consolidated unaudited capitalization as
of September 30, 2009:
o on an actual basis;
o as adjusted to give effect to the gross proceeds to be received from the
rights offering, assuming the rights offering is fully subscribed for by
all shareholders, except by Norfet; and
o as adjusted to give effect to the gross proceeds to be received from the
(1) rights offering, assuming the rights offering is fully subscribed for
by all shareholders, except by Norfet and (2) the subsequent issuance to
Norfet of 344,992 ordinary shares by means of a private placement as
described in "Prospectus Summary - Recent Developments - Private Placement
to Norfet, Limited Partnership".
You should read this table in conjunction with our Form 6-K regarding our
financial results for the third quarter of 2009, incorporated by reference
herein.
As of September 30, 2009
(unaudited)
(Dollars in thousands)
-------------------------------------
ACTUAL AS ADJUSTED
------- ----------------------
Rights
Offering
Rights and Private
Offering Placement
------- ------- -------
Short-term bank credit $ 16,956 16,956 16,956
Shareholders' equity:
Share Capital:
Ordinary shares of NIS 10 par value - authorized:
6,999,550 shares; issued: 2,220,038;
outstanding: 2,120,298 $ 7,518 7,551 7,561
Additional paid-in capital 107,492 112,147 113,449
Treasury shares (7,408) (7,408) (7,408)
Accumulated deficit (56,477) (56,477) (56,477)
Other capital reserves 4 4 4
Total shareholders' equity $ 51,129 55,818 57,129
37
MATERIAL INCOME TAX CONSIDERATIONS
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TAX CONSEQUENCES IN THE UNITED
STATES TO INDIVIDUAL AND CORPORATE RESIDENTS OF ISRAEL AND THE UNITED STATES
RESULTING FROM THE DISTRIBUTION OF THE RIGHTS WE ARE DISTRIBUTING, THE PURCHASE
OR SALE OF THE RIGHTS, THE EXERCISE OF THE RIGHTS AND THE SALE OF THE ORDINARY
SHARES ISSUABLE UPON EXERCISE OF THE RIGHTS.
TO THE EXTENT THAT THE DISCUSSION IS BASED ON TAX LEGISLATION THAT HAS NOT
BEEN SUBJECT TO JUDICIAL OR ADMINISTRATIVE INTERPRETATION, WE CANNOT ASSURE YOU
THAT THE TAX AUTHORITIES WILL ACCEPT THE VIEWS EXPRESSED IN THIS SUMMARY. THIS
SUMMARY IS NOT INTENDED, AND SHOULD NOT BE CONSTRUED, AS LEGAL OR PROFESSIONAL
TAX ADVICE AND IS NOT EXHAUSTIVE OF ALL POSSIBLE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO EACH PERSON'S DECISION TO EXERCISE OR SELL THE RIGHTS WE ARE
DISTRIBUTING, OR THE SALE OF OUR ORDINARY SHARES ISSUED UPON THE EXERCISE OF THE
RIGHTS.
PROSPECTIVE PURCHASERS OF OUR ORDINARY SHARES AND OTHER SECURITIES SHOULD
CONSULT THEIR OWN TAX ADVISORS AS TO THE UNITED STATES OR OTHER TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR SECURITIES, INCLUDING, IN
PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences of the receipt, exercise, disposition and/or lapse of the
subscription rights (the "rights") to acquire ordinary shares and of the
ownership and disposition of the ordinary shares. Except where noted, this
summary deals only with rights and/or ordinary shares held as capital assets by
a holder who acquires the rights in connection with this rights distribution
("rights offering"), and who acquires ordinary shares upon exercise of the
rights. This summary does not represent a detailed description of the United
States federal income and estate tax consequences applicable to you if you are
subject to special treatment under the United States federal income or estate
tax laws, including if you are:
o a dealer in securities or currencies;
o a financial institution;
o a regulated investment company;
o a real estate investment trust;
o a tax-exempt organization;
o an insurance company;
o a person holding the rights, or ordinary shares as part of a hedging,
integrated, conversion or constructive sale transaction or a straddle;
o a trader in securities that has elected the mark-to-market method of
accounting for your securities;
o a person liable for alternative minimum tax;
o a partnership or other pass-through entity or a person who is an
investor in such an entity;
o a United States person whose "functional currency" is not the U.S.
dollar;
o a "controlled foreign corporation":
o a "passive foreign investment company"; or
o a United States expatriate
This summary is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and regulations, rulings and judicial decisions
as of the date hereof. Those authorities may be changed, perhaps retroactively,
so as to result in United States federal income and estate tax consequences
different from those summarized below.
38
For purposes of this discussion, a "U.S. holder" is a beneficial owner of a
right or ordinary share that is:
o an individual citizen or resident of the United States;
o a corporation (or any other entity treated as a corporation of United
States federal income tax purposes) created or organized in or under
the laws of the United States, any state thereof or the District of
Columbia;
o an estate the income of which is subject to United States federal
income taxation regardless of its source; or
o a trust if it (1) is subject to the primary supervision of a court
within the United States and one or more United States persons have
the authority to control all substantial decisions of the trust or (2)
has a valid election in effect under applicable United States Treasury
regulations to be treated as a United States person.
Except as modified for estate tax purposes, the term "non-U.S. holder"
means a beneficial owner of a right or an ordinary share that is an individual,
corporation, an estate or a trust that is not a U.S. holder.
If a partnership holds rights or ordinary shares, the tax treatment of a
partner will generally depend upon the status of the partner and the activities
of the partnership or the Limited Liability Corporation treated as a
partnership. If you are a partner of a partnership holding the rights and/or
ordinary shares, you should consult your own tax advisors.
We have not sought, and will not seek, an opinion of counsel or a ruling
from the Internal Revenue Service (the "IRS") regarding the United States
federal income or estate tax consequences of the rights offering. The IRS could
take positions concerning such tax consequences that are different from those
described in this discussion and, if litigated, a court could sustain any such
positions taken by the IRS. In addition the following summary does not address
the tax consequences of the rights offering under foreign, state, or local tax
laws.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE PARTICULAR UNITED
STATES FEDERAL INCOME, ESTATE AND GIFT TAX CONSEQUENCES TO YOU OF THE RIGHTS
OFFERING AND OF THE OWNERSHIP AND DISPOSITION OF THE ORDINARY SHARES, AS WELL AS
THE CONSEQUENCES TO YOU ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
TAX CONSEQUENCES TO U.S. HOLDERS OF THE RECEIPT, SALE OR EXERCISE OF THE RIGHTS
RECEIPT OF THE DISTRIBUTION
The discussion under this heading "Receipt of the Distribution" is a
summary of certain United States federal income tax consequences that will apply
to you if you are a U.S. holder that receives the rights and the distribution of
the rights is treated as a non-taxable distribution of stock rights under
Section 305(a) of the Code.
BASIS AND HOLDING PERIOD OF THE RIGHTS. If the fair market value of the
rights on the date of distribution is 15% or more of the fair market value on
such date of the ordinary shares with respect to which the rights are
distributed, upon distribution, exercise or sale of the rights, a holder's basis
in its ordinary shares will be allocated between such ordinary shares and the
rights in proportion to the fair market values of each on the date of
distribution of the rights. If the fair market value of the rights on the date
of distribution is less than 15% of the fair market value of the ordinary shares
with respect to which the rights are distributed on the date of distribution,
the basis of the rights distributed to a holder will be zero unless the holder
of the rights irrevocably elects, in such holder's United States federal income
tax return for the taxable year in which the rights are received, to allocate
part of the basis of such holder's ordinary shares to such rights in the same
manner as described above. In the event that your rights lapse after an
allocation of basis described above, you will not recognize any loss with
respect to such rights, but the basis will instead be attributed back to your
shares of common stock. The holding period of rights received will include a
holder's holding period in ordinary shares with respect to which the rights were
distributed.
SALE OF THE RIGHTS. Subject to the discussion below under "Passive Foreign
Investment Company Rule," a U.S. holder will recognize taxable gain or loss upon
the sale or other taxable disposition of the rights in an amount equal to the
difference between the amount realized for the rights and the U.S. holder's tax
basis in the rights, as determined above. Such gain or loss will generally be
treated as capital gain or loss. Any capital gain or loss will be long-term
capital gain or loss if the U.S. holder's holding period exceeds one year, and
long-term capital gains of certain non-corporate holders are eligible for
reduced rates of taxation. The deductibility of capital losses is subject to
limitations.
39
EXPIRATION OF THE RIGHTS. If a holder that holds rights does not exercise
or sell such rights prior to the end of the exercise period, such holder
generally will recognize no gain or loss for United States federal income tax
purposes. In addition, such holder's tax basis in the ordinary shares with
respect to which the rights are received will equal its tax basis before receipt
of the rights. If you dispose of some of the ordinary shares with respect to
which the rights are distributed after your receipt of the rights but prior to
the expiration of such rights, you should consult your tax advisor regarding the
determination of your basis in the remaining ordinary shares.
EXERCISE OF THE RIGHTS. Holders of rights will not recognize any gain or
loss upon the exercise of the rights. The holding period of shares of common
stock acquired upon exercise of rights will begin on the date the rights are
exercised.
ALTERNATIVE TREATMENT OF RIGHTS
If the IRS were to successfully assert that the distribution of rights is a
taxable distribution of property to which Section 301 of the Code applies, each
U.S. holder would be considered to have received a distribution with respect to
such holder's ordinary shares in an amount equal to the fair market value of the
rights received by such holder on the date of the distribution. This
distribution generally would be taxed as dividend income to the extent of your
ratable share of our current and accumulated earnings and profits. The amount of
any distribution in excess of our earnings and profits would be applied to
reduce, but not below zero, your tax basis in the ordinary shares, and any
excess (determined on a share-by-share basis) generally would be taxable to you
as capital gain and will be long-term capital gain, if your holding period with
respect to our ordinary shares is more than one year as of the date of
distribution. The amount treated as a dividend may be taxable to certain
non-corporate holders at reduced rates of taxation. Dividends paid by Tefron
will not qualify for the dividends-received deduction available to U.S.
corporations. Your tax basis in the rights received would be equal to their fair
market value on the date of distribution and the holding period for the rights
would begin on the day after receipt. The consequences of a sale of the rights
would be as described above under "Receipt of the Distribution--Sale of the
Rights" except that any capital gain or loss may be considered short-term. If
rights lapse without being exercised, you would recognize a capital loss equal
to your tax basis in such rights. The deductibility of capital losses is subject
to limitations.
ISRAELI TAX CONSIDERATIONS
THE RECEIPT AND EXERCISE OF THE RIGHTS
We do not believe that the receipt and exercise of your rights will be
taxable; however, no ruling from the Israeli Tax Authority will be sought.
CAPITAL GAINS TAX
Capital gains tax is imposed on the disposal of capital assets by an
Israeli resident, and on the disposal of such assets by a non-Israel resident if
those assets either (i) are located in Israel; (ii) are shares or a right to a
share in an Israeli resident corporation; or (iii) represent, directly or
indirectly, rights to assets located in Israel. The Israeli Income Tax Ordinance
[new version], 1961 (the "ORDINANCE") distinguishes between "real gain" and the
"inflationary surplus". Real gain is the excess of the total capital gain over
inflationary surplus computed generally on the basis of the increase in the
Israeli CPI between the date of purchase and the date of disposal.
The capital gains generated by individuals on the sale of an asset
(including the Company shares) will be generally taxed at the rate of 20%.
However, if the individual shareholder is a "significant shareholder" (i.e., a
person who holds, directly or indirectly, alone or together with another, 10% or
more of one of the Company means of control at the time of sale or at any time
during the preceding 12 month period), such gain will be taxed at the rate of
25%. However, the foregoing tax rates will not apply to: (i) dealers in
securities; and (ii) shareholders who acquired their shares prior to an initial
public offering (that may be subject to a different tax arrangement).
Furthermore, until the determination of provisions for the deduction of real
interest expenses by the Minister of Finance, an individual who claims real
interest and linkage differential expenses with respect to securities will be
subject to tax at a rate of 25% on the real capital gains generated from the
sale of such securities. The real capital gain generated by a corporation will
be generally subject to tax at the rate of 25%. However, the real capital gain
generated from sale of securities, as defined in Section 6 of the Inflationary
Adjustment Law, by a corporation, which was subject on August 10, 2005 to the
provisions of Section 6 of the Inflationary Adjustment Law, will be taxed at the
corporate tax rate (27% in 2008, 26% in 2009, 25% in 2010 and afterwards).
40
The benefit component, if any, of the rights offered in the framework of
this rights offering to, and accepted by, a Company shareholder shall also be
attributed to the existing shares of such shareholder by virtue of which the
rights have been offered to such shareholder (the "ORIGINAL Shares"), and the
original price (i.e., the tax basis for the purpose of calculating capital
gains) of the Original Shares will be adjusted pro rata in order to reflect the
attribution of the above benefit component, if any, to those shares. Moreover,
the purchase date of the shares resulting from the acceptance of the offer will
be deemed to have been the purchase date of the Original Shares.
Capital gain generated from the sale of the Company shares by a non-Israeli
shareholder may be exempt under the Ordinance from Israeli capital gains tax
provided the following cumulative conditions are met: (i) the shares were
purchased upon or after the registration of the shares on the stock exchange (it
is our understanding that the current position of the Israeli Tax Authority is
to view securities quoted on the OTCBB as listed on a "stock exchange" where
such securities were previously delisted from a "stock exchange"), (ii) the
seller does not maintain a permanent establishment in Israel to which the
generated capital gains are attributed, and (iii) if the seller is a
corporation, less than 25% of its means of control are held by Israeli resident
shareholders.
In addition, the sale of the Company's shares may be exempt from Israeli
capital gains tax under an applicable double tax treaty. Thus, the U.S - Israel
Double Tax Treaty (the "Treaty") exempts U.S. resident from Israeli capital
gains tax in connection with such sale, provided the following cumulative
conditions are met: (i) the U.S. resident owned, directly or indirectly, less
than 10% of an Israeli resident company's voting power at any time within the 12
- - month period preceding such sale; (ii) the seller, being an individual, is
present in Israel for a period or periods of less than 183 days at the taxable
year; and (iii) the capital gain from the sale was not generated through a
permanent establishment maintained by the U.S. resident in Israel.
A resident of a country with which Israel has a double tax treaty who is
unable to benefit from the above exemptions may wish to utilize a special
exemption provided in the Ordinance pertaining to capital gains arising from the
sale of shares purchased between July 1, 2005 and December 31, 2008. In order
for this exemption to apply, the following cumulative conditions must be met:
(a) an application is to be submitted to the Israeli Tax Authority at the same
time as the reporting to the Israeli Tax Authority on the sale;
(b) the capital gain is not derived through a permanent establishment maintained
by the seller in Israel;
(c) the seller is an individual and has been a resident of a country with which
Israel has a double tax treaty (e.g., the U.S.) during ten consecutive years
prior to the purchase or is an entity where at least 75% of the means of control
of the entity are ultimately held, directly or indirectly, by individual
shareholders who are residents of a country with which Israel has a tax treaty
(e.g., the U.S.) during the ten consecutive years prior to the acquisition.
Unless it can be proved otherwise, where the entity is listed on a non-Israel
stock exchange (it is our understanding that the current position of the Israeli
Tax Authority is to view securities quoted on the OTCBB as listed on a "stock
exchange" where such securities were previously delisted from a "stock
exchange"), this condition is deemed to be met automatically in respect of
shareholders which are not significant shareholders (as defined above);
(d) the shares were not purchased from a "related party" and Chapter E-2 of the
Ordinance does not apply to such purchase of shares;
(e) the sale was reported to the Israeli Tax Authority in the country of the
seller's residence; and
(f) within 30 days of the acquisition, the transaction was reported to the
Israeli Tax Authority.
WITHHOLDING TAX
The purchaser is obligated to withhold tax from the real capital gains
generated by the seller upon the sale of the Shares at the rate of 25% in
respect of a corporation and 20% in respect of an individual.
41
DIVIDENDS
A distribution of dividends from income attributed to an "approved
enterprise" or "privileged enterprise" under the Law for the Encouragement of
Capital Investments, 1959 will be subject to tax in Israel at the rate of 15%,
subject to a reduced rate under any applicable double tax treaty. A distribution
of dividends from income, which is not attributed to an approved
enterprise/privileged enterprise, to an Israeli resident individual will
generally be subject to income tax at a rate of 20%. However, a 25% tax rate
will apply if the dividend recipient is a "significant shareholder" (as defined
above). If the recipient of the dividend is an Israeli resident corporation,
such dividend will be exempt from income tax provided that the income from which
such dividend is distributed was derived or accrued within Israel.
A non-Israeli resident (either individual or corporation) is generally
subject to an Israeli income tax on the receipt of dividends at the rate of 20%
(25% if the dividends recipient is a "Significant Shareholder" (as defined
above)); those rates are subject to a reduced tax rate under an applicable
double tax treaty. Thus, under the Treaty, the following rates will apply in
respect of dividends distributed by an Israeli resident company to a U.S.
resident: (i) if the U.S. resident is a corporation which holds during that
portion of the taxable year which precedes the date of payment of the dividend
and during the whole of its prior taxable year (if any), at least 10% of the
outstanding shares of the voting stock of the Israeli resident paying
corporation and not more than 25% of the gross income of the Israeli resident
paying corporation for such prior taxable year (if any) consists of certain type
of interest or dividends - the tax rate is 12.5%, (ii) if both the conditions
mentioned in section (i) above are met and the dividend is paid from an Israeli
resident company's income which was entitled to a reduced tax rate applicable to
an "approved enterprise" under the Israeli Law for the Encouragement of Capital
Investments of 1959 - the tax rate is 15%, and (iii) in all other cases, the tax
rate is 25%. The aforementioned rates under the Treaty will not apply if the
dividend income was derived through a permanent establishment of the U.S.
resident in Israel.
WITHHOLDING TAX
The Company is obligated to withhold tax, upon the distribution of a
dividend attributed to an approved enterprise/privileged enterprise's income,
from the amount distributed, at the following rates: (i) Israeli resident
corporation - 15%, (ii) Israeli resident individual -15%, and (iii) non-Israeli
resident - 15%, subject to a reduced tax rate under an applicable double tax
treaty. If the dividend is distributed from income not attributed to the
approved enterprise/privileged enterprise, the following withholding tax rates
will apply: (i) Israeli resident corporation - 0%, (ii) Israeli resident
individual - 20% (iii) non-Israeli resident - 20%, subject to a reduced tax rate
under an applicable double tax treaty.
DESCRIPTION OF SHARE CAPITAL
The Company is authorized to issue 6,999,550 ordinary shares, par value NIS
10.0 per share. As of September 30, 2009, and as of January 17, 2010, 2,220,039
ordinary shares were issued and outstanding and 99,740 ordinary shares, with a
book value of $7,408 thousand, were held by a wholly owned subsidiary of Tefron.
All outstanding ordinary shares are validly issued, fully paid and
nonassessable.
OPTIONS TO DIRECTORS, OFFICERS AND EMPLOYEES
As of January 17, 2010 we also have outstanding 220,229 options issued to
directors, officers and employees to purchase ordinary shares under our Tefron
Ltd. Option Plan as follows:
NUMBER OF OPTIONS EXERCISE PRICE PER SHARE EXPIRATION DATE
- ----------------- ------------------------ ---------------
30,000 $ 20.7 July 2018
71,722 $33-$36 January 2011-October 2011
15,207 $ 35 May 2015
30,000 $ 40 December 2018
6,000 $ 49.5 May 2015
3,400 $ 71 November 2015
4,000 $ 85 March 2016
5,900 $ 150 June 2010
54,000 $ 5.34 November 2019
42
HISTORY OF SHARE CAPITAL
The following is a summary of the changes in Tefron's share capital in the
last three years preceding the date of this prospectus.
On January 10, 2006, we completed a public auction of our ordinary shares
and Option Certificates (Series 1) in Israel. A total of 100,000 units,
consisting of 1.8 ordinary shares and 0.6 Option Certificates each, were issued
in the offering at a price of NIS 7,016.4 (approximately $1,514.8) per unit.
Each Option Certificate was exercisable into one Share until January 9, 2007 at
an exercise price of $94.9 per Ordinary Share denominated in NIS (subject to
adjustment for dividend distributions). Of the total number of Option
Certificates issued, 57,275 were exercised and 2,725 expired. Our total net
proceeds from the offering were approximately $13.8 million for shares plus
approximately $5.7 million generated from the exercise of the Option
Certificates. The ordinary shares and the shares issued upon the exercise of the
Option Certificates are listed for trading on the Tel Aviv Stock Exchange.
In May 2006, the Israel Discount Bank Ltd. exercised its option to convert
into 7,500 ordinary shares the entire principal amount of its $450,000 loan to
the Company, pursuant to a loan agreement dated October 12, 2004, at a price of
$60 per share.
In January 2009, the Company's shareholders approved (1) an increase in the
Company's authorized share capital from NIS 49,995,500 to NIS 69,995,500 and (2)
a ten-for-one reverse stock split by consolidating the Company's (i) authorized
and unissued share capital; and (ii) issued and outstanding share capital, such
that every ten ordinary shares, NIS 1.00 nominal value per share, became one
ordinary share with a nominal value of NIS 10.00. Following approval by the
shareholders, the total authorized share capital of the Company is NIS
69,995,500, divided into 6,999,550 Ordinary Shares, NIS 10.00 par value per
share.
From January 1, 2008 through January 17, 2010, Tefron did not issue any
Ordinary Shares.
EXPENSES OF THE OFFERING
The following table sets forth all costs and expenses payable by us in
connection with the sale of the securities being registered hereunder. All of
the amounts shown are estimates except for the Commission registration fee.
Registration and filing fees $4,930
Transfer, rights and information agent fees and expenses -
Legal fees and expenses 83,269
Accounting fees and expenses 54,507
Printing and delivery costs 1,344
Miscellaneous expenses 159
Total ---------
$ 144,209
=========
RELATED PARTY TRANSACTIONS
The following discussion includes summaries of the significant terms of
various agreements and transactions. Because these are summaries, they are
qualified by reference to the actual agreements, which are attached as exhibits
our Annual Report on Form 20-F for the year ended December 31, 2008, filed with
the Commission on June 30, 2009.
The Israeli Companies Law, 1999 (the "Companies Law") requires that certain
related party transactions be approved as provided for in a company's articles
of association and, in certain circumstances, by a company's audit committee or
its shareholders. Our Audit Committee is responsible for reviewing potential
conflicts of interest situations where appropriate.
43
RELATIONSHIPS AND TRANSACTIONS WITH NORFET.
As of January 17, 2010, Norfet owned 461,308 ordinary shares, which
represented approximately 21.76% of Tefron's outstanding ordinary shares
(excluding 99,740 shares held by Tefron's wholly owned subsidiary).
Substantially all of Norfet is owned by: (i) N.D.M.S. Ltd., a company wholly
owned by FIMI Opportunity Fund L.P.; (ii) FIMI Israel Opportunity Fund, Limited
Partnership; (iii) Migdal Insurance Company; (iv) Mivtach Shamir Holdings Ltd.
and (v) the provident funds of First International Bank of Israel.
Pursuant to a Share Purchase Agreement, dated February 17, 2004, we issued
to Norfet in April 2004, 352,941 ordinary shares for a base price of $42.5 per
share and a base aggregate consideration of $15 million. Norfet also acquired an
additional 136,500 of our ordinary shares in the aggregate from Arwol Holdings
Ltd., an Israeli company ("Arwol"), and Macpell Industries Ltd., and Israeli
company who shares are listed for trade on the TASE ("Macpell") pursuant to a
separate agreement. Immediately following the closing of these agreements,
Norfet held 489,441, or approximately 28.8% of our outstanding share capital,
without taking into account our ordinary shares held by our wholly-owned
subsidiary. In April 2005, due to a purchase price adjustment agreed to with
Norfet instead of the purchase price adjustment mechanism agreed to in the Share
Purchase Agreement, we issued to Norfet an additional 66,176 Ordinary Shares,
and Arwol transferred 10,690 additional ordinary shares to Norfet.
Under the Share Purchase Agreement, we also agreed to pay Norfet a
management fee of approximately $172,000 plus VAT per annum until our first
annual meeting in 2005 (which took place on June 28, 2005), and $120,000 plus
VAT thereafter. On January 6, 2010 we signed an MOU with our bank lenders which,
among other things, establishes new financial covenants and undertakings for
2010, including our undertaking not to distribute any dividends or pay
management fees and/or any other payment to our shareholders until the loans
provided by our bank lenders have been repaid in full. Please see "Prospectus
Summary - Recent Developments - Memorandum of Understanding with Our Bank
Lenders" above.
We, Norfet, Arwol and Macpell, together with Leber Partners L.P., are also
party to a Registration Rights Agreement, dated April 22, 2004, which replaced
the previous Registration Rights Agreements to which the Company and certain of
these shareholders had been a party. On November 29, 2005, the Securities and
Exchange Commission declared effective a Registration Statement on Form F-3
covering the resale of ordinary shares held by the shareholders party to this
agreement.
Please see "Item 10. Additional Information- 10C. Material Contracts - FIMI
Agreements" of our Annual Report on Form 20-F for the year ended December 31,
2008, for a more complete description of these agreements.
On March 31, 2009, our board of directors approved an agreement with Orian
Agish Ltd. ("Orian Agish") for freight and delivery services. FIMI Israel
Opportunity Fund Limited Partnership and FIMI Opportunity Fund L.P. are
interested parties in Orian Agish. Our Director, Yishai Davidi, serves as senior
partner of FIMI Israel Opportunity Fund, Limited Partnership and FIMI
Opportunity Fund, L.P. Mr. Davidi also serves as CEO of FIMI 2001 Ltd., which
controls the general partner of Norfet, one of the Norfet limited partners
(which is managed by FIMI 2001 Ltd.) as well as the other Norfet limited
partners by virtue of an irrevocable power of attorney. As of January 17, 2010,
Norfet held 21.76% of our shares. The agreement with Orian Agish will be
reviewed annually by the Company's Audit Committee and the Board of Directors.
AGREEMENT WITH ARIE WOLFSON.
Until July 30, 2007, we were party to a consulting and management services
agreement with Mr. Arie Wolfson, a former Director of ours.
The aggregate direct remuneration paid to all directors and senior
management as a group for services in all capacities for the year ended December
31, 2007, was approximately $2.2 million, of which $90,500 was paid to directors
in their capacities as directors. Negligible amounts were set aside or accrued
for vacation and recuperation pay for all directors and senior management as a
group. No amounts were set aside or accrued to provide pension, retirement or
similar benefits. The amount does not include any amounts expended by us for
automobiles made available to our officers, expenses (including business travel
and professional and business association dues and expenses) reimbursed to
officers and other fringe benefits commonly reimbursed or paid by companies in
Israel and $120,000 in management fees paid to Norfet and $70,000 in management
fees paid to New York Delights, a company wholly owned by Mr. Wolfson. We have
no service contract with any of our directors that provide for benefits upon
termination of their employment as directors.
Mr. Wolfson resigned as a director in April 2007.
RELATIONSHIPS BETWEEN SIGI RABINOWICZ AND SUPPLIERS.
Mr. Sigi Rabinowicz served as our president until his resignation on
January 10, 2005.
44
We understand that Sigi Rabinowicz, who also owned a significant interest
in Macpell during the period in which he served as our president, began to serve
as an agent of some of the suppliers from whom we regularly purchased materials,
and hence may be paid a commission with respect to such purchases. We believe
that our transactions with these suppliers are in the ordinary course and are on
customary terms.
Additionally, under the terms of a retirement agreement we executed with
Mr. Sigi Rabinowicz on January 10, 2005, we paid Mr. Rabinowicz during most of
2005 certain monthly payments, employee benefits such as vacation, educational
fund, sick leave, and management and disability insurance contributions, and we
provided a vehicle to him. During 2007 we paid Mr. Rabinowicz in accordance with
the retirement agreement $162,500. The retirement agreement also included
clauses of non competition that ended in September 2007.
LEASE ARRANGEMENT.
Until June 12, 2007 we leased the following facilities from a wholly-owned
subsidiary of Macpell (that has since merged into Macpell). As of April 2007,
Macpell sold all of its ordinary shares of Tefron. On June 12, 2007, Macpell
assigned all its rights and obligations under these agreements to a third party.
On August 19, 2008, the term of these agreements was extended until February 28,
2012.
o On August 12, 1997, we entered into an agreement to lease approximately
143,000 square feet of industrial space in a facility (the Hi-Tex 1
facility) adjacent to our current facilities in Misgav for a current
monthly rent of approximately $73,000 until 2011. The first rental payment
was made upon entrance into the facility on October 1, 1999. Under an
agreement approved by our shareholders on August 10, 2006, the rent of this
facility was reduced by 4%.
o On December 21, 1998, we entered into an agreement to lease approximately
178,000 square feet of industrial space in a second facility (the Hi-Tex 2
facility) adjacent to our existing facilities in Misgav from the same
wholly-owned subsidiary of Macpell for a monthly rent of approximately
$89,000. The first rental payment was made upon entrance into the facility
on March 1, 2000.
o According to an agreement we entered into with Macpell on August 16, 1995,
we leased an 83,000 square foot facility in Misgav under a lease that
expired in 2006 for a monthly rent of approximately $48,000 (the
Headquarters Facility). Under an agreement approved by our shareholders on
August 10, 2006, the lease was extended until 2012, and the rent for the
first 65,000 square feet is $28,000 and the rent for the remaining 18,000
square feet is $2.70 per square meter. We conduct our Hi-Tex manufacturing
operations in this facility.
o According to an agreement we entered into with Macpell on December 10,
1999, we leased a 65,000 square foot warehouse under a lease that expires
in 2012 for a monthly rent of approximately $28,000 (the Products
Facility). Under an agreement approved by our shareholders on August 10,
2006, this facility was vacated, and Macpell bore the costs of Tefron's
departure, which were approximately $85,000.
The rent payable under these leases was 50% linked to the Israeli and U.S.
consumer price index and 50% to the exchange rate between the NIS and the U.S.
dollar until August 2006. Under the agreement approved by our shareholders on
August 10, 2006, all rent is paid in U.S. dollars (linked to the U.S. consumer
price index) beginning April 2006.
Under the original agreements, the monthly rent was increased by 5% every
2-3 years. Under the agreement approved by our shareholders on August 10, 2006,
the rent for all facilities is to be increased by 3% every 2-3 years (other than
the 18,000 square feet of the Headquarters Facility, for which the rent is $2.70
per square meter, which is not subject to any increase.
According to the terms of the lease agreements, we pay the property
insurance premiums on these facilities. On July 5, 2006, we entered into an
agreement with Macpell which was approved by our shareholders on August 10, 2006
which amended the lease agreements as described above.
All of these facilities are subject to a long-term lease agreement between
Macpell's subsidiary and the Israel Land Authority. Under the terms of such
lease agreement, Macpell's affiliate was granted a 49-year lease over such
property.
45
LEGAL MATTERS
The validity of the securities offered in this prospectus will be passed
upon for us by Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co., our Israeli
counsel.
EXPERTS
The consolidated financial statements of Tefron Ltd. appearing in Tefron
Ltd.'s Annual Report (Form 20-F) for the year ended December 31, 2008, have been
audited by Kost Forer Gabbay & Kasierer, a member of Ernst & Young
Global, independent registered public accounting firm, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing. The offices of Kost Forer Gabbay & Kasierer, a
member of Ernst & Young Global are located at 3 Aminadav Street, Tel Aviv.
ENFORCEABILITY OF CIVIL LIABILITIES
Service of process upon our directors and officers and the Israeli experts
named in this prospectus, a substantial number of whom reside outside the United
States, may be difficult to obtain within the United States. Furthermore,
because a substantial portion of our principal assets and the assets of these
persons are located outside the United States, any judgment obtained in the
United States against us or any of these persons may not be collectible within
the United States.
We have been informed by our legal counsel in Israel, Gross, Kleinhendler,
Hodak, Halevy, Greenberg & Co., that it may be difficult to assert U.S.
securities law claims in original actions instituted in Israel. However, subject
to specified time limitations, Israeli courts may enforce a United States final
executory judgment in a civil matter, including a monetary or compensatory
judgment in a non-civil matter, obtained after due process before a court of
competent jurisdiction according to the laws of the state in which the judgment
is given and the rules of private international law currently prevailing in
Israel. The rules of private international law currently prevailing in Israel do
not prohibit the enforcement of a judgment by Israeli courts provided that:
o the judgment is enforceable in the state in which it was given;
o adequate service of process has been effected and the defendant has
had a reasonable opportunity to present his arguments and evidence;
o the judgment and the enforcement of the judgment are not contrary to
the law, public policy, security or sovereignty of the State of
Israel;
o the judgment was not obtained by fraud and does not conflict with any
other valid judgment in the same matter between the same parties; and
o an action between the same parties in the same matter is not pending
in any Israeli court at the time the lawsuit is instituted in the
foreign court.
We have irrevocably appointed Tefron USA, Inc. as our agent to receive
service of process in any action against us in any U.S. jurisdiction arising out
of this offering or any purchase or sale of securities in connection with this
offering.
If a foreign judgment is enforced by an Israeli court, it generally will be
payable in Israeli currency, which can then be converted into non-Israeli
currency and transferred out of Israel. The usual practice in an action before
an Israeli court to recover an amount in a non-Israeli currency is for the
Israeli court to issue a judgment for the equivalent amount in Israeli currency
at the rate of exchange in force on the date of the judgment, but the judgment
debtor may make payment in foreign currency. Pending collection, the amount of
the judgment of an Israeli court stated in Israeli currency ordinarily will be
linked to the Israeli consumer price index plus interest at an annual statutory
rate set by Israeli regulations prevailing at the time. Judgment creditors must
bear the risk of unfavorable exchange rates.
Additionally, it may be difficult for an investor, or any other person or
entity, to assert U.S. securities law claims in original actions instituted in
Israel. Israeli courts may refuse to hear a claim based on a violation of U.S.
securities laws because Israel is not the most appropriate forum in which to
bring such a claim. In addition, even if an Israeli court agrees to hear a
claim, it may determine that Israeli law and not U.S. law is 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 which can be a time-consuming and costly process.
Certain matters of procedure will also be governed by Israeli law. There is
little binding case law in Israel addressing the matters described above.
46
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" into this prospectus
the information we file with them, which means that we can disclose important
information to you by referring you to these documents. The following documents
previously filed by us with the Commission are incorporated in this prospectus
by reference:
(1) Our Annual Report on Form 20-F for the fiscal year ended December 31, 2008,
as filed with the Commission on June 30, 2009;
(2) Our Current Reports on Form 6-K as submitted to the Commission on July 8,
2009, July 20, 2009, August 21, 2009 (two Form 6-Ks), August 24, 2009 (two
Form 6-Ks), August 27, 2009, September 14, 2009, September 17, 2009,
November 9, 2009, November 16, 2009, November 19, 2009, November 30, 2009,
December 2, 2009, December 3, 2009, December 7, 2009, December 9, 2009,
December 21, 2009, January 7, 2010, and January 19, 2010 (two Form 6-Ks);
and
(3) The description of our Ordinary Shares, par value NIS 10.0 per share,
contained in the registration statement on Form 8-A dated September 4,
1997.
In addition, all subsequent annual reports on Form 20-F filed pursuant to
the Securities Exchange Act of 1934, as amended, or the Exchange Act, after the
date of this prospectus and before the termination of this offering will be
deemed to be incorporated by reference in this prospectus and to be a part of
this prospectus from the date of filing of such reports and documents. We may
also incorporate in this prospectus any Form 6-K which we file with the
Commission by identifying in such form that it is being incorporated by
reference into this prospectus. Any statement we make in this prospectus (or
incorporated herein by reference) may be modified or superseded by statements we
make in documents which we incorporate by reference into this prospectus and
which are filed after the date of this prospectus. If we make a statement in a
previously-filed document which is incorporated by reference into this
prospectus, that statement will be modified or superseded by statements in this
prospectus or documents incorporated by reference into this prospectus which
have a later filing date. You should read this prospectus together with all
documents incorporated by reference.
Copies of all of the information that has been incorporated by reference in
this prospectus but not delivered with this prospectus will be provided without
charge to anyone to whom this prospectus is delivered upon a written or oral
request to:
TEFRON, LTD.
Industrial Center Teradyon
P.O. Box 1365
Misgav, 20179
Israel
Telephone No: 972-4-990-0881
Attention: Eran Rotem, Chief Financial Officer
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling our
business pursuant to the provision in the section entitled "Indemnification of
Directors and Officers" (see below), we have been informed that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
47
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on Form F-1
under the Securities Act of 1933, with respect to the securities offered by this
prospectus. However, as is permitted by the rules and regulations of the
Commission, this prospectus, which is part of our registration statement on Form
F-1, omits certain non-material information, exhibits, schedules and
undertakings set forth in the registration statement. For further information
about us, and the securities offered by this prospectus, please refer to the
registration statement.
We are subject to the reporting requirements of the Exchange Act that are
applicable to a foreign private issuer. In accordance with the Exchange Act, we
file reports, including annual reports on Form 20-F by June 30 of each year. We
also furnish to the Commission under cover of Form 6-K material information
required to be made public in Israel, filed with and made public by any stock
exchange or distributed by us to our shareholders.
The registration statement on Form F-1 of which this prospectus forms a
part, including the exhibits and schedules thereto, and reports and other
information filed by us with the Commission may be inspected without charge and
copied at prescribed rates at the Commission's Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers, such
as us, that file electronically with the Commission (http://www.sec.gov).
As a foreign private issuer, we are exempt from the rules under the
Exchange Act prescribing the furnishing and content of proxy statements to
shareholders and our officers, directors and principal shareholders are exempt
from the "short-swing profits" reporting and liability provisions contained in
Section 16 of the Exchange Act and related Exchange Act rules.
48
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION OF OFFICE HOLDERS
Our Articles of Association also include the following provisions:
o a provision authorizing us to indemnify an office holder to the
fullest extent permitted by law, retroactively or prospectively,
against a financial liability he incurs or is imposed on him in favor
of another person by any judgment, including a settlement or an
arbitrator's award approved by a court in respect of an act performed
in his capacity as an office holder of the company;
o a provision authorizing us to indemnify an office holder to the
fullest extent permitted by law, retroactively or prospectively,
against reasonable litigation expenses, including attorneys' fees
incurred by such office holder or charged to him by a court, in
proceedings we institute against him, or instituted on our behalf or
by another person, or in a criminal charge, from which he was
acquitted or in a criminal charge in which he was convicted for an
offense that does not require the proof of criminal intent, all in
respect of an act performed in his capacity as an office holder of the
company;
o a provision authorizing us to indemnify an office holder to the
fullest extent permitted by law, retroactively or prospectively,
against reasonable litigation expenses, including attorneys' fees,
incurred by such office holder due to an investigation or proceeding
conducted against him by an authority authorized to conduct such
investigation or proceeding, and which was ended without filing an
indictment against him and without the imposition of a financial
liability as a substitute for a criminal proceeding, or that was ended
without filing an indictment against him but for which he was subject
to a financial liability as a substitute for a criminal proceeding
relating to an offense which does not require criminal intent, within
the meaning of the relevant terms in the Companies Law;
o a provision authorizing us to indemnify an office holder to the
fullest extent permitted by law, retroactively or prospectively,
against liabilities, obligations and expenses in respect of which we
may be legally permitted to indemnify under the Companies Law;
o a provision authorizing us to grant in advance an undertaking to
indemnify an office holder for liabilities described under the first
bullet point above, provided that the undertaking is restricted to
events that in the opinion of the board of directors are foreseen in
light of the Company's actual activities at the time that the
commitment is made ("Determining Events") and will be limited to an
amount or criteria determined by the board of directors to be
reasonable under the circumstances. The undertaking must specify those
events, sum or criteria. Such indemnification may include any other
liability or event permitted by any applicable law. The aggregate
indemnification amount paid under the first bullet point above may not
exceed an amount equal to the sum of (i) all the insurance proceeds
for the Determining Events received by us from time to time within the
scope of any directors' and officers' liability insurance and (ii) an
amount equal to 25% (twenty five percent) of our shareholders' equity
as set forth in our most recent consolidated financial statements
prior to the date of the actual payment of the indemnification by us;
and
o a provision stating that our articles shall not limit us in any way
from entering into a contract for the insurance, or the granting of
exemptions or indemnification, in connection with an office holder in
our company or any person designated by us to serve as a director in
another company in which we have an interest or hold shares, directly
or indirectly, to the extent that the insurance, exemption or
indemnification are not forbidden by any applicable law.
LIMITATION ON EXEMPTION, INSURANCE AND INDEMNIFICATION
The Companies Law provides that a company may not exempt an office holder
from liability for, indemnify an office holder for, or enter into an insurance
contract that would provide coverage for, any monetary liability incurred as a
result of any of the following:
49
o a breach by the office holder of his duty of loyalty; provided that a
company may indemnify an office holder for, or enter into an insurance
contract that would provide coverage for, any monetary liability
incurred as a result of a breach by the office holder of his duty of
loyalty in the event the office holder acted in good faith and had a
reasonable basis to believe that the act would not prejudice the
company;
o a breach by the office holder of his duty of care if such breach was
done intentionally or in disregard of the circumstances of the breach
or its consequences, other than mere negligence;
o any act or omission done with the intent to derive an illegal personal
benefit; or
o any fine levied against the office holder as a result of a criminal
offense.
REQUIRED APPROVALS
In addition, pursuant to the Companies Law, indemnification of and
procurement of insurance coverage for our office holders must be approved by our
audit committee and board of directors and, for indemnification and insurance
for directors and controlling shareholders, also, subject to certain exceptions,
by our shareholders.
INDEMNIFICATION LETTERS
We have granted indemnification letters to our directors and officers. The
aggregate amount of the indemnification under such letters may not exceed an
amount equal to 25% of our equity capital as set forth in our most recent
consolidated financial statements prior to such payment.
Under the indemnification letters, we agreed to indemnify our directors and
officers for any liability or expenses which are indemnifiable according to the
law as follows: a monetary liability imposed on a director or an officer or
incurred by a director or an officer in favor of another person under a
judgment, including a judgment granted in the case of a settlement or an
arbitration award approved by the court, provided that such director or
officer's actions were associated with one or more of the Determining Events (as
defined below) or any matter associated, directly or indirectly, with the
Determining Events, that, in any such case, in the opinion of the board of
directors are anticipated in light of the actual activities of the Company as of
the date of the letter of indemnification, provided that the maximum amount of
such indemnification does not exceed the amount set forth above.
The following are considered Determining Events under the indemnification
letters, among others:
o Acts with regard to investments (whether or not implemented) performed
by the Company, its subsidiaries or affiliates (whether before or
after the investment is made);
o The offering of securities, including public and private offerings;
o A credit, sale or purchase of assets or liabilities transaction;
o The filing of a report or announcement required by the Israeli
Companies Law, Israeli Securities Law and related regulations or by
any similar law or regulation;
o Acts relating to employment of employees;
o Any act causing bodily injury, sickness, death and damage to property;
o Any restructuring of the Company, reorganization or any resolution in
connection with the aforesaid, including any merger split, variation
of the share capital of the Company, subsidiaries or affiliates, the
dissolution or sale thereof, issue of any security whatsoever of the
Company, subsidiary or affiliate or performance of any distribution
(within the meaning of the Companies Law) or any procurement bid by or
in connection with any of the aforesaid;
o Any expression, statement, including expression of a viewpoint or
opinion made in good faith by the Officer in the course of and by
virtue his position, including within the course of general meetings
or meetings of the Board of Directors of the Company, a subsidiary or
affiliate thereof or any committees of the Board of Directors, and
negotiations and communications with suppliers, advisors and clients;
o Actions submitted against an Officer in connection with the
dissolution or receivership of the Company, a subsidiary or affiliate;
50
o Acts or decisions in connection with drafting or approval of financial
statements, business plans or forecasts in connection with the
Company, a subsidiary or an affiliate;
o Granting of liens on Company assets and granting guarantees on behalf
of the Company;
o Compliance with various governmental requirements in Israel and
outside Israel;
o Establishment and management of financial policy, including credit
policies, hedging against changes in currency exchange rates and
utilization of cash reserves;
o Any action and/or decision relating to preparation of work plans,
including pricing, marketing, distribution and instructions to
employees, to customers and to suppliers and to cooperative
arrangements, including with competitors;
o Any action and/or decision relating to product development or relating
to the conduct of product testing, approvals, sales, distribution or
licensing;
o Any action and/or decision that may be considered as an infringement
of the intellectual property rights of a third party;
o Representations and any undertaking granted vis-a-vis third parties or
the Company, a subsidiary or affiliate or vis-a-vis any person acting
on behalf thereof; and
o Each of the Determining Events in connection with the position of the
Officer in a subsidiary or an affiliate.
We agreed to indemnify our directors and officers for the following legal
expenses:
o reasonable legal expenses, including attorneys' fees, disbursed or
which a director or an officer is ordered to pay by a court in
proceedings filed against such director or officer by the Company or
another corporation according to the Company's request, as the case
may be, or in the name of either of the aforesaid or by any other
person or under a criminal charge from which such director or officer
may be exonerated, or under a criminal charge of which such director
or officer is convicted not requiring proof of any MENS REA; and
o reasonable legal expenses, including attorneys' fees, expended in
connection with an investigation or proceeding against a director or
an officer by an authorized authority, and that concludes without an
indictment against such director or officer and either (i) no monetary
payments are imposed on such director or officer in lieu of criminal
proceedings or (ii) monetary payments are imposed on such director or
officer in lieu of criminal proceedings, provided that the alleged
criminal offense does not require proof of any MENS REA.
ITEM 7. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
See Exhibit Index after signature page.
ITEM 9. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
51
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
PROVIDED, HOWEVER, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(l)(iii) do not
apply if the registration statement is on Form S-3 or Form F-3 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in reports filed with or furnished to the Commission by
the registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement, or is contained in a form of prospectus filed pursuant to Rule 424(b)
that is part of the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Item 8.A of Form 20-F at the start
of any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the Act
need not be furnished, PROVIDED, that the registrant includes in the prospectus,
by means of a post-effective amendment, financial statements required pursuant
to this paragraph (a)(4) and other information necessary to ensure that all
other information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of Regulation S-X if such financial statements
and information are contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
(5) That, for the purpose of determining liability under the Securities Act
of 1933 to any purchaser:
(i) If the registrant is relying on Rule 430B (Sec 230.430B of this
chapter):
A. Each prospectus filed by the registrant pursuant to Rule
424(b)(3) shall be deemed to be part of the registration
statement as of the date the filed prospectus was deemed part of
and included in the registration statement; and
B. Each prospectus required to be filed pursuant to Rule
424(b)(2), (b)(5), or (b)(7) as part of a registration statement
in reliance on Rule 430B relating to an offering made pursuant to
Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the
information required by section 10(a) of the Securities Act of
1933 shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the
first contract of sale of securities in the offering described in
the prospectus. As provided in Rule 430B, for liability purposes
of the issuer and any person that is at that date an underwriter,
such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the
registration statement to which that prospectus relates, and the
offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof. PROVIDED, HOWEVER, that
no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such effective date, supersede or
modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or made
in any such document immediately prior to such effective date; or
52
(ii) If the registrant is subject to Rule 430C, each prospectus filed
pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements
relying on Rule 430B or other than prospectuses filed in reliance
on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. PROVIDED, HOWEVER, that no statement made in a
registration statement or prospectus that is part of the
registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as
to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such date of first use.
(6) That, for the purpose of determining liability of the registrant under
the Securities Act of 1933 to any purchaser in the initial distribution of the
securities: The undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to
the purchaser, if the securities are offered or sold to such purchaser by means
of any of the following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell such securities
to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed pursuant
to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by
or on behalf of the undersigned registrant or used or referred to
by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by
the undersigned registrant to the purchaser.
(d) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against the
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
53
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Misgav, in the State of Israel, on January 19, 2010.
TEFRON LTD.
By: /s/ Eran Rotem By: /s/ Yacov Gelbard
- ------------------ ---------------------
Eran Rotem Yacov Gelbard
Chief Financial Officer Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
* Chairman of the Board of Directors January 19, 2010
- -------------------- (principal executive officer)
Yacov Gelbard
* Chief Financial Officer (principal January 19, 2010
- -------------------- financial and accounting officer)
Eran Rotem
* Director January 19, 2010
- --------------------
Ishay Davidi
- -------------------- Director January __, 2010
Meir Shamir
* Director January 19, 2010
- --------------------
Avi Zigleman
- -------------------- Director January __, 2010
Shirith Kasher
- -------------------- Director January __, 2010
Zvi Limon
* External Director January 19, 2010
- --------------------
Eli Admoni
* External Director January 19, 2010
- --------------------
Yacov Elinav
* By: /s/ Eran Rotem
- --------------------
Name: Eran Rotem January 19, 2010
Title: Attorney-in-Fact
Authorized Representative in the United States:
TEFRON U.S.A., INC.
By: /s/ Eran Rotem January 19, 2010
- ------------------
Name: Eran Rotem
Title: CFO
By: /s/ Steve Goad January 19, 2010
- ------------------
Name: Steve Goad
Title: Director of USA operation
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
4.1 Form of Rights Agent Agreement
4.2 Specimen Certificate for Ordinary Shares.**
4.3 Form of Rights Certificate and Form of Instruction Letter with
Form of Notice of Guaranteed Delivery.
5.1 Opinion of Gross, Kleinhendler, Hodak, Halevy, Greenberg &
Co., Israeli counsel for Tefron Ltd., as to the validity of the
ordinary shares.*
23.1 Consent of Gross, Kleinhendler, Hodak, Halevy, Greenberg &
Co. (included in Exhibit 5.1).*
23.2 Consent of Kost Forer Gabay & Kasierer, a Member Firm of
Ernst & Young Global.
24.1 Power of Attorney (included on signature page).
99.1 Form of Letter to Record Holders
99.2 Form of Letter to Securities Dealers, Commercial Banks, Trust
Companies and Other Nominees
99.3 Form of Letter to Clients
- --------------------
* To be filed by Amendment.
** Previously filed.
54
EXHIBIT 4.1
RIGHTS AGENT AGREEMENT
_______________, 2010
American Stock Transfer & Trust Company, LLC
59 Maiden Lane
New York, New York 10038
Ladies and Gentlemen:
In connection with your appointment as Subscription Agent in the transaction
described herein, Tefron Ltd. (the Company), hereby confirms its arrangements
with you as follows:
1. RIGHTS OFFERING - The Company is distributing (the "Rights offering") to
the holders of its ordinary shares, par value NIS 10.0 per share ("Ordinary
Shares"), on ____________, 2010 (the "Record Date"), transferable rights
("Rights") to purchase an aggregate of up to 1,578,947 Ordinary Shares.
Except as set forth under Paragraphs 8 and 9 below, Rights shall cease to
be exercisable at 5:00 p.m., New York City time, on _______________, 2010
or such later date of which the Company notifies you orally and confirms in
writing (the "Expiration Date"). One Right is being issued for each 1.3429
Ordinary Shares held on the Record Date. One Right and payment in full of
the subscription price of $3.8 (the "Subscription Price") is required to
subscribe for one Ordinary Share. Rights are evidenced by transferable
rights certificates in registered form ("Rights Certificates"). The Rights
Offering will be conducted in the manner and upon the terms set forth in
the Company's Prospectus dated _______________, 2010 (the "Prospectus"),
which is incorporated herein by reference and made a part hereof as if set
forth in full herein.
2. APPOINTMENT OF RIGHTS AGENT - You are hereby appointed as Rights Agent to
effect the Rights offering in accordance with the Prospectus. Each
reference to you in this letter is to you in your capacity as Rights Agent
unless the context indicates otherwise.
3. DELIVERY OF DOCUMENTS - Enclosed herewith are the following, the receipt of
which you acknowledge by your execution hereof:
(a) a copy of the Prospectus, which includes instructions for exercise of
the Rights (the "Instructions");
(b) the form of Rights Certificate (with instructions);and
(c)Notice of Guaranteed Delivery.
As soon as is reasonably practical, you shall mail or cause to be mailed,
via first class mail, to each holder of Ordinary Shares at the close of
business on the Record Date a Rights Certificate (with instructions)
evidencing the Rights to which such holder is entitled, a Notice of
Guaranteed Delivery, a Prospectus, and an envelope addressed to you. You
and the Company may mutually agree that you shall use methods other than
first class mail, including personal delivery, delivery by International
Express Mail, or delivery by recognized expedited courier service such as
Federal Express, UPS, DHL or Courier Network. Prior to mailing, the Company
will provide you with blank Rights Certificates which you will prepare and
issue in the names of holders of Ordinary Shares of record at the close of
business on the Record Date and for the number of Rights to which they are
entitled. The Company will also provide you with a sufficient number of
copies of each of the documents to be mailed with the Rights Certificates.
With respect to each rights certificate that you are required to mail
hereunder, you shall maintain a blanket surety bond protecting you and the
Company from loss or liability arising out of non-receipt or non-delivery
of such certificates.
1
4. SUBSCRIPTION PROCEDURE -
(a) Upon your receipt prior to 5:00 p.m., New York City time, on the
Expiration Date (by mail or delivery), as Rights Agent, of (ii) any Rights
Certificate completed and endorsed for exercise, as provided on the reverse
side of the Rights Certificate (except as provided in paragraph 8 hereof),
and (ii) payment in full of the Subscription Price in U.S. funds by check,
bank draft or money ORDER payable at par (without deduction for bank
service charges or otherwise) to the order of American Stock Transfer &
Trust Company, you shall as soon as practicable after the Expiration Date,
mail to the subscriber's registered address on the books of the Company
certificates representing the Ordinary Shares duly subscribed for and
furnish a list of all such information to the Company.
(b) Funds received by you pursuant to the exercise by shareholders of their
subscription right shall be held by you in a segregated account to be
maintained by you. You are hereby authorized and directed to endorse,
negotiate and deposit all subscription payments into this account, and you
shall provide an accounting to the Company from time to time, as the
Company may reasonably request, regarding the subscription payments
deposited into such account. Upon mailing certificates representing the
Ordinary Shares, you shall promptly remit to the Company all funds received
in payment of the Subscription Price for Ordinary Shares sold in the Rights
Offering.
5. SUBDIVISION, SALE OR TRANSFER OF RIGHTS - Until 5:00 p.m., New York City
time, on the third business day prior to the Expiration Date, you shall
facilitate subdivision or transfers of Rights Certificates by issuing new
Rights Certificates in accordance with the instructions set forth on the
reverse side of the Rights Certificates.
6. DEFECTIVE EXERCISE OF RIGHTS; LOST RIGHTS CERTIFICATES - The Company shall
have the absolute right to reject any defective exercise of Rights or to
waive any defect in exercise. Subscriptions will not be deemed to have been
made until any such defects or irregularities have been cured or waived
within such time as the Company shall determine. If the Company delivers to
you a notice that the Company rejects any defective exercise of Rights, you
shall as soon as practicable (i) if the defect and the necessary correction
can be adequately explained by telephone and the holder can correct the
defect without possession of the Rights Certificate(s), attempt to contact
the holder of such Rights by telephone to explain the nature of the defect
or (ii) return Rights Certificates with the defects or irregularities which
have not been cured or waived to the holder of the Rights, together with a
letter explaining the nature of the defect in exercise and how to correct
the defect. Any rights certificate with respect to which defects in
exercise are not corrected prior to 5:00 p.m., New York City time, on the
Expiration Date, or which are received after such time, shall be returned
to the holder of such Rights Certificates. If any Rights Certificate is
alleged to have been lost, stolen or destroyed, you should follow the same
procedures followed for lost stock certificates representing Ordinary
Shares you use in your capacity as transfer agent for the Company's
Ordinary Shares.
2
7. LATE DELIVERY - If prior to 5:00 p.m., New York City time, on the
Expiration Date you receive (i) payment in full of the Subscription Price
for the Ordinary Shares being subscribed for and (ii) a guarantee notice
substantially in the form of the Notice of Guaranteed Delivery delivered
with the Rights Certificate, from a financial institution having an office
or correspondent in the United States, or a member firm of any registered
United States national securities exchange or of the National Association
of Securities Dealers, Inc. stating the certificate number of the Rights
Certificate relating to the Rights, the name and address of the exercising
subscriber, the number of Rights represented by the Rights Certificate held
by such exercising subscriber, the number of Units being subscribed for
pursuant to the Rights and guaranteeing the delivery to you of the Rights
Certificate evidencing such Rights within three Over the Counter Bulletin
Board ("OTCBB") trading days following the date of the Notice of Guaranteed
Delivery, then the Rights may be exercised even though the Rights
Certificate was not delivered to you prior to 5:00 p.m., New York City
time, on the Expiration Date, provided that within three OTCBB trading days
following the date of the Notice of Guaranteed Delivery you receive the
properly completed Rights Certificate evidencing the Rights being
exercised, with signatures guaranteed if required.
8. DELIVERY - You shall deliver to the Company the exercised Rights
Certificates in accordance with written directions received from the
Company and shall deliver to the subscribers who have duly exercised Rights
at their registered addresses certificates representing the securities
subscribed for as instructed on the reverse side of the Rights
Certificates. All Rights Certificates surrendered for the purpose of
exercise shall, if surrendered to you shall be cancelled by you, and no
Rights Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement.
9. REPORTS - You shall notify the Company by telephone on or before the close
of business on each business day during the period commencing 5 business
days after the mailing of the Rights and ending at the Expiration Date (and
in the case of guaranteed deliveries ending three OTCBB trading days after
the Expiration Date) (a "daily notice"), which notice shall thereafter be
confirmed in writing, of (i) the number of Rights exercised on the day
covered by such daily notice, (ii) the number of Rights subject to
guaranteed exercises on the day covered by such daily notice, (iii) the
number of Rights for which defective exercises have been received on the
day covered by such daily notice, (iv) the aggregate subscription payments
made on such date and (v) the cumulative total of the information set forth
in clauses (i) through (v) above. At or before 5:00 p.m., New York City
time, on the first OTCBB trading day following the Expiration Date you
shall certify in writing to the Company the cumulative total through the
Expiration Date of all the information set forth in clauses (i) through
(iii) above. At or before 10:00 a.m., New York City time, on the fifth
OTCBB trading day following the Expiration Date you will execute and
deliver to the Company a certificate setting forth the number of Rights
exercised pursuant to a Notice of Guaranteed Delivery and as to which
Rights Certificates have been timely received. You shall also maintain and
update a listing of holders who have fully or partially exercised their
Rights, holders who have transferred their Rights and their transferees,
and holders who have not exercised their Rights. You shall provide the
Company or its designees with such information compiled by you pursuant to
this paragraph 9 as any of them shall request.
3
10. FUTURE INSTRUCTIONS - With respect to notices or instructions to be
provided by the Company hereunder, you may rely and act on any written
instruction signed by any one or more of the following authorized officers
or employees of the Company:
Yacov Gelbard
Eran Rotem
11. PAYMENT OF EXPENSES - The Company will pay you compensation for acting in
your capacity as Rights Agent hereunder in the amount of $___________ plus
your reasonable out-of-pocket expenses not to exceed $2,000 without the
prior written consent of the Company. The Company will pay an additional
fee equal to one-third of the Rights Agent fee for each extension of the
Offering, plus any out-of-pocket expenses associated with such extension.
Fees will be paid by:
Name: Tefron Ltd.
Attention: Eran Rotem
Address: Industrial Center, Teradyon
P.O. Box 1365
Misgav, 20179, Israel
Phone: +972-4-9900803
12. COUNSEL - You may consult with counsel satisfactory to you, which may be
counsel to the Company, and the advice or opinion of such counsel shall be
full and complete authorization and protection in respect of any action
taken, suffered OR omitted by you hereunder in good faith and in accordance
with such advice or opinion of such counsel.
13. INDEMNIFICATION - The Company covenants and agrees to indemnify and hold
you harmless against any costs, expenses (including reasonable fees of
legal counsel), losses or damages, which may be paid, incurred or suffered
by or to which you may become subject arising from or out of, directly or
indirectly, any claim or liability resulting from your actions as Rights
Agent pursuant hereto; provided that such covenant and agreement does not
extend to such costs, expenses, losses and damages incurred or suffered by
you as a result of, or arising out of, your own gross negligence,
misconduct or bad faith or that of any employees, agents or independent
contractors used by you in connection with performance of your duties as
Rights Agent hereunder. If any action is brought against you in respect of
which indemnity may be sought against the Company pursuant to this
Paragraph 13, you shall promptly notify the Company in writing of the
institution of such action and the Company may, at its option, assume the
defense of such action, including the employment and fees of counsel (which
counsel shall be reasonably satisfactory to you) and payment of expenses.
You shall have the right to employ your own counsel in any such case, but
the fees and expenses of such counsel shall be at your expense unless the
employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action or the Company shall
not have employed counsel to have charge of the defense of the action, in
any of which events the fees and expenses of not more than one additional
firm of attorneys for you shall be borne by the Company.
4
14. NO ASSIGNMENT; DELEGATION - Neither this Agreement nor any rights or
obligations hereunder may be assigned or delegated by either party without
the prior written consent of the other party.
15. FACSIMILE SIGNATURES - Any facsimile signature of any party hereto shall
constitute a legal, valid and binding execution hereof by such party.
16. NOTICES - Unless otherwise provided herein, all reports, notices and other
communications required or permitted to be given hereunder shall be in
writing and delivered by hand or confirmed telecopy or by first class U.S.
mail, postage prepaid, shall be deemed given if by hand or telecopy, upon
receipt or if by U.S. mail, three business days after deposit in the U.S.
mail and shall be addressed as follows:
(a) If to the Company, to:
Tefron Ltd.
Industrial Center, Teradyon
P.O. Box 1365
Misgav, 20179, Israel
Attn: Eran Rotem
Telephone: +972-4-9900803
with copy to:
Perry Wildes, Adv.
Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co.
One Azrieli Center
Tel Aviv 67021, Israel
Telephone: +972-3-607-4444
(b) If to you, to:
American Stock Transfer & Trust Company, LLC
59 Maiden Lane
New York, N.Y. 10038
Attention: George Karfunkel
Telephone: (718) 921-8200
Telecopy: (718) 236-4588
Yours truly,
By: ___________________________________
Name: Eran Rotem
Title: Chief Financial Officer
5
Agreed & Accepted:
AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC
By: _______________________________
Name: _____________________________
Title: _______________________________
6
Exhibit 4.3
RIGHTS CERTIFICATE #: NUMBER OF RIGHTS
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE
COMPANY'S PROSPECTUS DATED _____ __, 2010 (THE "PROSPECTUS") AND ARE
INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE
UPON REQUEST FROM THE ALTMAN GROUP, INC., THE INFORMATION AGENT.
TEFRON LTD.
Incorporated under the laws of the State
of Israel
SUBSCRIPTION RIGHTS CERTIFICATE
Evidencing Subscription Rights to Purchase
Ordinary Shares of Tefron Ltd.
Subscription Price: $3.8 per Share
THE SUBSCRIPTION RIGHTS WILL EXPIRE IF NOT EXERCISED ON OR
BEFORE 5:00 P.M., NEW YORK CITY TIME,
ON _______ __, 2010, UNLESS EXTENDED BY THE COMPANY
REGISTERED OWNER:
THIS CERTIFIES THAT the registered owner whose name is inscribed hereon is
the owner of the number of subscription rights ("Rights") set forth above.
Each whole Right entitles the holder thereof to subscribe for and purchase
one Ordinary Share, with a par value of NIS 10.0 per share, of Tefron Ltd.,
an Israeli corporation, at a subscription price of $3.8 per share, pursuant
to a rights offering (the "Rights Offering"), on the terms and subject to
the conditions set forth in the Prospectus and the "Form of Instructions as
to Use of Tefron Ltd. Subscription Rights Certificates" accompanying this
Subscription Rights Certificate.
There is no over-subscription privilege. The Rights represented by this
Subscription Rights Certificate may be exercised by completing Form 1 and
any other appropriate forms on the reverse side hereof and by retuning the
full payment of the subscription price for each Ordinary Share in
accordance with the instructions set forth in the Prospectus.
This Subscription Rights Certificate is not valid unless countersigned by
the subscription agent and registered by the registrar. Witness the seal of
Tefron Ltd. and the signatures of its duly authorized officers.
Dated:
- ---------------------- ----------------------- Chief Executive Officer Chief Financial Officer
DELIVERY OPTIONS FOR SUBSCRIPTION RIGHTS CERTIFICATE
Delivery other than in the manner or to the addresses listed below will not
constitute valid delivery.
IF DELIVERING BY HAND: IF DELIVERING BY MAIL OR OVERNIGHT COURIER:
American Stock Transfer & Trust Company American Stock Transfer & Trust Company
Operations Center Operations Center
Attn: Reorganization Department Attn: Reorganization Department
59 Maiden Lane 6201 15th Avenue
New York, New York 10038 Brooklyn, New York 11219
PLEASE PRINT ALL INFORMATION CLEARLY AND LEGIBLY.
FORM 1-EXERCISE OF SUBSCRIPTION RIGHTS
To subscribe for ordinary shares, please complete lines (a) and (b) and sign
under Form 4 below.
(a) EXERCISE OF SUBSCRIPTION RIGHTS:
I apply for ______________ shares x $ 3.8 = $____________________
(no. of new shares) (subscription price) (amount enclosed)
(b) METHOD OF PAYMENT (CHECK ONE)
[_] Cashier's or certified check drawn on a bank located in the United States
and payable to the order of "American Stock Transfer & Trust Company, as
Rights Agent." Funds paid by an uncertified check may take at least five
business days to clear.
[_] Wire transfer of immediately available funds directly to the account
maintained by American Stock Transfer & Trust Company, LLC, as Subscription
Agent, for purposes of accepting subscriptions in this Rights Offering at
JPMorgan Chase Bank, 55 Water Street, New York, New York 10005, ABA
#021000021, Account # 323-836895 American Stock Transfer FBO Tefron Ltd.,
with reference to the rights holder's name.
FORM 2-SALE OR TRANSFER TO DESIGNATED TRANSFEREE OR THROUGH BANK OR BROKER
To sell or transfer your subscription rights to another person, complete this
form and have your signature guaranteed under Form 5. To sell your subscription
rights through your bank or broker, sign below under this Form 2 and have your
signature guaranteed under Form 5, but leave the rest of this Form 2 blank.
For value received ______________ of the subscription rights represented by this
Subscription Rights Certificate are assigned to:
________________________________________________________________
Print Full Name of Assignee)
________________________________________________________________
(Print Full Address)
Social Security # __________________________________________________
Signature(s): ______________________________________________________
IMPORTANT: The signature(s) must correspond with the name(s) as printed on the
reverse of this Subscription Rights Certificate in every particular, without
alteration or enlargement, or any other change whatsoever.
FORM 3-DELIVERY TO DIFFERENT ADDRESS
If you wish for the ordinary shares underlying your subscription rights to be
delivered to an address different from that shown on the face of this
Subscription Rights Certificate, please enter the alternate address below, sign
under Form 4 and have your signature guaranteed under Form 5.
________________________________________________________________
________________________________________________________________
________________________________________________________________
FORM 4-SIGNATURE
TO SUBSCRIBE: I acknowledge that I have received the Prospectus for this Rights
Offering and I hereby irrevocably subscribe for the number of shares indicated
above on the terms and conditions specified in the Prospectus.
Signature(s): ______________________________________________________
IMPORTANT: The signature(s) must correspond with the name(s) as printed on the
reverse of this Subscription Rights Certificate in every particular, without
alteration or enlargement, or any other change whatsoever.
FORM 5-SIGNATURE GUARANTEE
This form must be completed if you have completed any portion of Forms 2 or 3.
Signature Guaranteed: _______________________________________________
(Name of Bank or Firm)
By:_______________________________________________________________
(Signature of Officer)
IMPORTANT: The signature(s) should be guaranteed by an eligible guarantor
institution (bank, stock broker, savings & loan association or credit union)
with membership in an approved signature guarantee medallion program pursuant to
Securities and Exchange Commission Rule 17Ad-15.
FOR INSTRUCTIONS ON THE USE OF TEFRON LTD. SUBSCRIPTION RIGHTS CERTIFICATES,
CONSULT THE ALTMAN GROUP, INC., THE INFORMATION AGENT, AT (877) 896-3194.
2
FORM OF INSTRUCTIONS
AS TO USE OF
TEFRON LTD.
SUBSCRIPTION RIGHTS CERTIFICATES
CONSULT THE INFORMATION AGENT, YOUR BANK OR BROKER
AS TO ANY QUESTIONS
The following instructions relate to a rights offering (the "Rights
Offering") by Tefron Ltd., an Israeli company ("Tefron"), to the holders of
record (the "Recordholders") of its ordinary shares, par value NIS 10.0 per
share (the "Ordinary Shares"), as described in the Tefron prospectus dated
[_________] [_], 2010 (the "Prospectus"). Recordholders of Ordinary Shares as of
5:00 p.m., New York City time, on [________________], 2010 (the "Record Date")
are receiving transferable subscription rights (the "Rights") to subscribe for
and purchase Ordinary Shares. An aggregate of 1,578,947 underlying Ordinary
Shares are being offered by the Prospectus. Each Recordholder will receive one
Right for each 1.3429 Ordinary Shares owned of record as of 5:00 p.m., New York
City time, on the Record Date. The Rights will expire, if not exercised, at 5:00
p.m., New York City time, on [__________], 2010, unless extended in the sole
discretion of Tefron (as it may be extended, the "Expiration Date"). After the
Expiration Date, unexercised Rights will be null and void. Tefron will not be
obligated to honor any purported exercise of Rights received by American Stock
Transfer & Trust Company, LLC (the "Rights Agent") after 5:00 p.m., New York
City time, on the Expiration Date, regardless of when the documents relating to
such exercise were sent, except pursuant to the Guaranteed Delivery Procedures
described below. Tefron may extend the Expiration Date by giving oral or written
notice to the Rights Agent on or before the Expiration Date, followed by a press
release no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. The Ordinary Shares are quoted
on the Over the Counter Bulletin Board ("OTCBB") under the symbol "TFRFF.OB" and
are listed on the Tel Aviv Stock Exchange in Israel under the Symbol "TFRLF."
The Rights are transferable, and we have applied to quote the Rights on the
OTCBB. We have also applied to list the Rights on the TASE under the symbol
"[______]" for one day only on _______, 2010. The Rights will be evidenced by
Rights certificates (the "Rights Certificates"), which will be transferable
until the close of business on the last OTCBB trading day preceding the
Expiration Date, at which time they will cease to have value.
Each Right entitles the holder thereof to purchase one Ordinary Share (the
"Subscription Privilege") at the cash price of $3.8 per share (the "Subscription
Price").
The number of Rights to which you are entitled is printed on the face of
your Rights Certificate. You should indicate your wishes with regard to the
exercise of your Rights by completing the appropriate portions of your Rights
Certificate and returning the certificate to the Rights Agent in the envelope
provided, in accordance with these instructions and the terms set forth in the
Prospectus.
YOUR RIGHTS CERTIFICATES, OR NOTICE OF GUARANTEED DELIVERY, AND
SUBSCRIPTION PRICE PAYMENT, INCLUDING FINAL CLEARANCE OF ANY CHECKS, MUST BE
RECEIVED BY THE RIGHTS AGENT ON OR BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE. ONCE A HOLDER OF RIGHTS HAS EXERCISED ITS SUBSCRIPTION
PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED. RIGHTS NOT EXERCISED PRIOR TO THE
EXPIRATION DATE OF THE RIGHTS OFFERING WILL EXPIRE AND BE NULL AND VOID.
1. METHOD OF SUBSCRIPTION - EXERCISE OF RIGHTS.
To exercise Rights, complete your Rights Certificate and send your properly
completed and executed Rights Certificate evidencing such Rights with any
signatures required to be guaranteed so guaranteed, together with payment in
full of the Subscription Price for each Ordinary Share subscribed for pursuant
to the Subscription Privilege, to the Rights Agent, on or prior to 5:00 p.m.,
New York City time, on the Expiration Date. Payment of the Subscription Price
will be held in a segregated account to be maintained by the Rights Agent. All
payments must be made in U.S. dollars for the full number of Ordinary Shares
being subscribed for (a) by cashier's or certified check drawn upon a U.S. bank
payable to American Stock Transfer & Trust Company LLC, as Rights Agent, or (b)
by wire transfer of immediately available funds, to the account maintained by
the Rights Agent for purposes of accepting subscriptions in the Rights Offering
at JP Morgan Chase, ABA No.021000021, further credit to Account Number
323-836895, reference Tefron Ltd., Attention: Reorganization Department (the
"Subscription Account"). Any wire transfer should clearly indicate the identity
of the subscriber who is paying the Subscription Price by wire transfer and the
Rights Certificate number. Additionally for wire transfers, send your Rights
Certificate via overnight courier to be delivered on the next business day
following the day of the wire transfer to the Rights Agent. Payments will be
deemed to have been received upon (i) receipt by the Rights Agent of a cashier's
or certified check drawn upon a U.S. bank payable to the Rights Agent or (ii)
receipt of collected funds in the Subscription Account designated above.
Personal checks will not be accepted. You are responsible for any wire transfer
fees.
3
The Rights Certificate and payment of the Subscription Price (other than
wire transfers), or, if applicable, the Notice of Guaranteed Delivery (as
defined below) must be delivered by the Expiration Date to the Rights Agent by
one of the methods described below:
IF DELIVERING BY MAIL: IF DELIVERING BY HAND OR COURIER:
American Stock Transfer & Trust Company, LLC American Stock Transfer & Trust Company, LLC
Operations Center Operations Center
Attn: Reorganization Department Attn: Reorganization Department
6201 15th Avenue 59 Maiden Lane
Brooklyn, New York 11219 New York, New York 10038
BY FACSIMILE TRANSMISSION FOR NOTICE OF GUARANTEED DELIVERY:
(718) 234-5001
TELEPHONE NUMBER FOR CONFIRMATION:
Toll Free: (877) 248-6417
(718) 921-8317
Telephone Number for Information:
Toll Free: (877) 896-3194
Information Agent, The Altman Group, Inc.
DELIVERY TO AN ADDRESS OTHER THAN THOSE ABOVE DOES NOT CONSTITUTE
VALID DELIVERY.
By making arrangements with your bank or broker for the delivery of funds
on your behalf you may also request such bank or broker to exercise the Rights
Certificate on your behalf. Alternatively, you may cause a written guarantee
substantially in the form of Exhibit A to these instructions (the "Notice of
Guaranteed Delivery"), from an "Eligible Guarantor Institution," as such term is
defined in Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, such
as a member firm of a registered national securities exchange or a member of the
Financial Industry Regulatory Authority, Inc., or a commercial bank or trust
company having an office or correspondent in the U.S., subject to standards and
procedures adopted by the Rights Agent (each, an "Eligible Institution"), to be
received by the Rights Agent on or prior to the Expiration Date together with
payment in full of the applicable Subscription Price. Such Notice of Guaranteed
Delivery must state your name, the number of Rights represented by the Rights
Certificate held by you, the number of Ordinary Shares being subscribed for
pursuant to the Subscription Privilege and that you will guarantee the delivery
to the Rights Agent of any properly completed and executed Rights Certificate
evidencing such Rights within three (3) business days following the date of the
Notice of Guaranteed Delivery. If this procedure is followed, the properly
completed Rights Certificate evidencing the Rights being exercised, with any
signatures required to be guaranteed so guaranteed, must be received by the
Rights Agent within three (3) business days following the date of the Notice of
Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered to the
Rights Agent in the same manner as Rights Certificates at the address set forth
above, or may be transmitted to the Rights Agent by facsimile transmission
(Facsimile No. (718) 234-5001). Additional copies of the Notice of Guaranteed
Delivery may be obtained upon request from the Rights Agent at the address set
forth above, or by calling The Altman Group, Inc., the Information Agent, at
(877) 896-3194 (banks and brokers only may call (201) 806-7300).
4
If the aggregate Subscription Price paid by you is insufficient to purchase
the number of Ordinary Shares subscribed for, or if no number of Ordinary Shares
to be purchased is specified, then you will be deemed to have exercised the
Subscription Privilege to purchase Ordinary Shares to the full extent of the
payment tendered.
If the aggregate Subscription Price paid by you exceeds the amount
necessary to purchase the number of Ordinary Shares for which you have indicated
an intention to subscribe, then any remaining amount shall be returned to you by
mail without interest or deduction as soon as practicable after the Expiration
Date and after all prorations and adjustments contemplated by the terms of the
Rights Offering have been effected.
2. ISSUANCE OF ORDINARY SHARES.
As soon as practicable after the Expiration Date and the valid exercise of
Rights, the Rights Agent will mail to each exercising Rights holder certificates
representing Ordinary Shares purchased pursuant to the Subscription Privilege.
3. SALE OR TRANSFER OF RIGHTS.
(A) SALE OF RIGHTS THROUGH A COMMERCIAL BANK OR BROKER. To sell Rights
evidenced by a Rights Certificate through your commercial bank or broker, sign
Form 2 of your Rights Certificate leaving the rest of the Form blank (your
broker will add the buyer's name later). You must have your signature on Form 2
guaranteed in Form 5 by an Eligible Institution and deliver your Rights
Certificate and the accompanying envelope to your commercial bank or broker.
Your Rights Certificate should be delivered to your commercial bank or broker in
ample time for it to be exercised. If Form 2 is completed without designating a
transferee, the Rights Agent may thereafter treat the bearer of the Rights
Certificate as the absolute owner of all of the Rights evidenced by such Rights
Certificate for all purposes, and the Rights Agent shall not be affected by any
notice to the contrary. Because your commercial bank or broker cannot issue
Rights Certificates, if you wish to sell less than all of the Rights evidenced
by a Rights Certificate, either you or your commercial bank or broker must
instruct the Rights Agent as to the action to be taken with respect to the
Rights not sold, or you or your commercial bank or broker must first have your
Rights Certificate divided into Rights Certificates of appropriate denominations
by following the instructions in Section 4 of these instructions. The Rights
Certificates evidencing the number of Rights you intend to sell can then be
transferred by your commercial bank or broker in accordance with the
instructions in this Section 3(a).
(B) TRANSFER OF RIGHTS TO A DESIGNATED TRANSFEREE. To transfer your Rights
to a transferee other than a commercial bank or broker, you must complete Form 2
in its entirety, execute the Rights Certificate and have your signature
guaranteed in Form 5 by an Eligible Institution. A Rights Certificate that has
been properly transferred in its entirety may be exercised by a new holder
without having a new Rights Certificate issued. In order to exercise, or
otherwise take action with respect to, such a transferred Rights Certificate,
the new holder should deliver the Rights Certificate, together with payment of
the applicable Subscription Price and complete separate instructions signed by
the new holder, to the Rights Agent in ample time to permit the Rights Agent to
take the desired action. Because only the Rights Agent can issue Rights
Certificates, if you wish to transfer less than all of the Rights evidenced by
your Rights Certificate to a designated transferee, you must instruct the Rights
Agent as to the action to be taken with respect to the Rights not sold or
transferred, or you must divide your Rights Certificate into Rights Certificates
of appropriate smaller denominations by following the instructions in Section 4
below. The Rights Certificate evidencing the number of Rights you intend to
transfer can then be transferred by following the instructions in this Section
3(b).
(c) Rights holders wishing to transfer a portion of their Rights (or all of
their Rights in separate portions) should allow a sufficient amount of time
prior to the Expiration Date for (i) the transfer instructions to be received
and processed by the Rights Agent, (ii) a new Rights Certificate to be issued
and transmitted to the transferee or transferees with respect to transferred
Rights and to the transferor with respect to retained Rights, if any, and (iii)
the Rights evidenced by such new Rights Certificates to be exercised or sold by
the recipients thereof. The Rights Agent will facilitate transfers of Rights
Certificates only until 5:00 p.m., New York City time, on [_____________], 2010,
the fifth business day before the Expiration Date.
(d) Neither Tefron nor the Rights Agent shall have any liability to a
transferee or transferor of Rights if Rights Certificates or any other required
documents are not received in time for exercise or sale prior to the Expiration
Date.
5
(E) COMMISSIONS, FEES AND EXPENSES. Tefron will pay all fees charged by the
Rights Agent, other than fees associated with the sale or transfer of Rights,
and the fees charged by the Information Agent. You are responsible for paying
any other commissions, fees, taxes or other expenses incurred in connection with
the exercise of the Rights. Neither we nor the Rights Agent nor the Information
Agent will pay such expenses. Tefron has agreed to indemnify the Rights Agent
from certain liabilities that they may incur in connection with the issuance of
the Rights and the Ordinary Shares if you exercise your Rights.
4. DIVISION OF RIGHTS CERTIFICATE INTO SMALLER DENOMINATIONS.
To have a Rights Certificate divided into smaller denominations, send your
Rights Certificate, together with complete separate instructions (including
specification of the denominations into which you wish your Rights to be
divided) signed by you, to the Rights Agent, allowing a sufficient amount of
time for new Rights Certificates to be issued and returned so that they can be
used prior to the Expiration Date. Alternatively, you may ask a commercial bank
or broker to effect such actions on your behalf. The Rights Agent will
facilitate subdivisions of Rights Certificates only until 5:00 p.m., New York
City time, on [_____________], 2010, five business days prior to the Expiration
Date. Your signature must be guaranteed in Form 5 by an Eligible Institution if
any of the new Rights Certificates are to be issued in a name other than that in
which the old Rights Certificate was issued. As a result of delays in the mail,
the time of the transmittal, the necessary processing time and other factors,
you or your transferee may not receive such new Rights Certificates in time to
enable the Rights holder to complete a sale or exercise by the Expiration Date.
Neither Tefron nor the Rights Agent will be liable to either a transferor or
transferee for any such delays.
5. EXECUTION.
(A) EXECUTION BY REGISTERED HOLDER. The signature on the Rights Certificate
must correspond with the name of the registered holder exactly as it appears on
the face of the Rights Certificate without any alteration or change whatsoever.
Persons who sign the Rights Certificate in a representative or other fiduciary
capacity must indicate their capacity when signing and, unless waived by the
Rights Agent in its sole and absolute discretion, must present to the Rights
Agent satisfactory evidence of their authority to so act.
(B) EXECUTION BY PERSON OTHER THAN REGISTERED HOLDER. If the Rights
Certificate is executed by a person other than the holder named on the face of
the Rights Certificate, proper evidence of authority of the person executing the
Rights Certificate must accompany the same unless the Rights Agent, in its
discretion, dispenses with proof of authority.
(C) SIGNATURE GUARANTEES. Your signature must be guaranteed by an Eligible
Institution.
6. METHOD OF DELIVERY.
The method of delivery of Rights Certificates and payment of the
Subscription Price to the Rights Agent will be at the election and risk of the
Rights holder. If sent by mail, it is recommended that such certificates and
payments be sent by overnight courier or by registered mail, properly insured,
with return receipt requested, and that a sufficient number of days be allowed
to ensure delivery to the Rights Agent and the clearance of payment prior to
5:00 p.m., New York City time, on the Expiration Date.
7. SPECIAL PROVISIONS RELATING TO THE DELIVERY OF RIGHTS THROUGH THE
DEPOSITORY TRUST COMPANY.
In the case of Rights that are held of record through the Depository Trust
Company (the "Book-Entry Transfer Facility"), exercises of the Subscription
Privilege may be effected by instructing the Book-Entry Transfer Facility to
transfer Rights from the Book-Entry Transfer Facility account of such holder to
the Book-Entry Transfer Facility account of the Rights Agent, together with
certification as to the aggregate number of Rights exercised and the number of
Ordinary Shares thereby subscribed for pursuant to the Subscription Privilege by
each beneficial owner of Rights on whose behalf such nominee is acting, and
payment of your Subscription Price for each Ordinary Share subscribed for
pursuant to the Subscription Privilege.
6
EXHIBIT A
FORM OF NOTICE OF GUARANTEED DELIVERY
FOR
SUBSCRIPTION RIGHTS CERTIFICATES
ISSUED BY
TEFRON LTD.
This form, or one substantially equivalent to this form, must be used to
exercise the transferable subscription rights (the "Rights") pursuant to the
rights offering (the "Rights Offering"), as described in the prospectus dated
______ __, 2010 (the "Prospectus") of Tefron Ltd., an Israeli company,
("Tefron"), if a holder of Rights cannot deliver the certificate(s) evidencing
the Rights (the "Rights Certificate(s)"), to the Rights Agent listed below (the
"Rights Agent") at or prior to 5:00 p.m., New York City time, on _____ ___,
2010, unless such time is extended by Tefron as described in the Prospectus (as
it may be extended, the "Expiration Date"). Such form must be delivered by hand
or sent by telegram, facsimile transmission, first class mail or overnight
courier to the Rights Agent, and must be received by the Rights Agent on or
prior to the Expiration Date. See "The Rights Offering -- Notice of Guaranteed
Delivery" in the Prospectus.
Payment of the subscription price of $3.8 per share (the "Subscription
Price") for each ordinary share, par value NIS 10.0 per share ("Ordinary
Shares") subscribed for upon exercise of such Rights must be received by the
Rights Agent in the manner specified in the Prospectus at or prior to 5:00 p.m.,
New York City time, on the Expiration Date even if the Rights Certificate(s)
evidencing such Rights is (are) being delivered pursuant to the guaranteed
delivery procedures thereof. See "The Rights Offering -- Notice of Guaranteed
Delivery" in the Prospectus.
IF DELIVERING BY MAIL: IF DELIVERING BY HAND OR COURIER:
American Stock Transfer & Trust Company, LLC American Stock Transfer & Trust Company, LLC
Operations Center Operations Center
Attn: Reorganization Department Attn: Reorganization Department
6201 15th Avenue 59 Maiden Lane
Brooklyn, New York 11219 New York, New York 10038
BY FACSIMILE TRANSMISSION
(718) 234-5001
TELEPHONE NUMBER FOR CONFIRMATION:
(877) 248-6417
(718) 921-8317
Telephone Number for Information:
The Altman Group, Inc.
Toll Free: (877) 896-3194
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF THIS INSTRUMENT VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY
A-1
Ladies and Gentlemen:
The undersigned hereby represents that the undersigned is the holder of
Rights Certificate(s) representing Right(s) and that such Rights Certificate(s)
cannot be delivered to the Rights Agent prior to the Expiration Date. Upon the
terms and subject to the conditions set forth in the Prospectus, receipt of
which is hereby acknowledged, the undersigned hereby elects to exercise
his/her/its subscription privilege to subscribe for ______________ ordinary
share(s) underlying the Rights represented by such Rights Certificate(s).
The undersigned understands that payment of the Subscription Price for each
ordinary share subscribed for pursuant to his/her/its subscription privilege
must be received by the Rights Agent at or prior to the Expiration Date and
represents that such payment, in the aggregate amount of $______________ either
(check appropriate box):
[_] is being delivered to the Rights Agent herewith
or
[_] has been delivered separately to the Rights Agent in the manner set forth
below (check appropriate box and complete information relating thereto):
[_] Wire transfer of funds
Name of transferor institution:________________________________________
_______________________________________________________________________
Date of transfer:______________________________________________________
_______________________________________________________________________
Confirmation number (if available):____________________________________
_______________________________________________________________________
[_] Certified check
[_] Bank draft (cashier's check)
Name of maker: ________________________________________________________
_______________________________________________________________________
Date of check or draft: _______________________________________________
_______________________________________________________________________
A-2
Check or draft: _______________________________________________________
_______________________________________________________________________
Bank on which check is drawn or issuer: _______________________________
_______________________________________________________________________
Signature(s)________________________ Address________________________
Names__________________________________________________________________
(Please type or print)
Address________________________________________________________________
Area Code and Tel. No.(s) _____________________________________________
Rights Certificate No(s) (if available)________________________________
A-3
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR RIGHTS CERTIFICATE SIGNATURE GUARANTEE)
The undersigned, an "Eligible Guarantor Institution," as such term is
defined in Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended,
guarantees that the undersigned will deliver to the Rights Agent the
certificates representing the Rights being exercised hereby, with any required
signature guarantee and any other required documents, all within three (3)
business days after the date hereof.
Dated: ____________________________________________________________________
Authorized Signature:______________________________________________________
Name of Firm:______________________________________________________________
Address:___________________________________________________________________
___________________________________________________________________________
Area Code and Telephone Number:____________________________________________
The institution that completes this form must communicate the guarantee to
the Rights Agent and must deliver the Rights Certificate(s) to the Rights Agent
within the time period shown in this prospectus. Failure to do so could result
in a financial loss to such institution.
A-4
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in this Amendment No. 1 on
Form F-1 to Tefron Ltd.'s Registration Statement on Form F-3 (No. 333-161466) of
our report dated March 31, 2009 (except for notes 1d and 26 which are as of
January 19, 2010), with respect to the consolidated financial statements of
Tefron Ltd., which appears in Tefron Ltd.'s Current Report on Form 6-K submitted
to the Securities and Exchange Commission on January 19, 2010. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ KOST, FORER, GABBAY & KASIERER
-----------------------------------
KOST, FORER, GABBAY & KASIERER
A member of Ernst & Young Global
Haifa, Israel
January 19, 2010
EXHIBIT 99.1
TEFRON LTD.
P.O. BOX 1365
MISGAV, 20179, ISRAEL
[ ], 2010
To holders of ordinary shares of Tefron Ltd.:
Enclosed are the prospectus and other materials relating to a Rights
Offering by Tefron Ltd. Please carefully review the prospectus, which describes
how you can participate in the Rights Offering. You will be able to exercise
your subscription rights to purchase additional ordinary shares only during a
limited period. You will find answers to some frequently asked questions about
the Rights Offering beginning on page [ ] of the prospectus. You should also
refer to the detailed Instructions as to Use of Subscription Certificates, which
is attached to this letter. After you have exercised your subscription rights,
you may not revoke that exercise.
The following is a summary of the terms of the Rights Offering:
o You will receive one transferable subscription right for each 1.3429
ordinary shares you hold of record at the close of business on
[_________], 2010 (the "Record Date"). If you hold one ordinary share,
you will not receive any rights. Your rights will be aggregated for
all the shares that you own on the Record Date and then rounded down
to the nearest whole number, so that you will not receive fractional
rights.
o You may purchase one ordinary share, par value NIS 10.0 of Tefron Ltd.
for each whole subscription right you receive at a subscription price
of $3.8 per share.
o The Rights Offering will expire at 5:00 p.m., Eastern Time, on
[_____], 2010. If you do not exercise your subscription rights before
that time, they will expire and will have no monetary value. You may
revoke your exercise of your subscription rights at any time prior to
the expiration of the Rights Offering.
o If your ordinary shares are held in the name of a bank, dealer or
other nominee, you must contact your bank, dealer or other nominee if
you wish to participate in the Rights Offering.
If you have any questions concerning the Rights Offering, please feel free
to contact The Altman Group, Inc. at 877-896-3194.
Very truly yours,
TEFRON LTD.
EXHIBIT 99.2
TEFRON LTD.
P.O. BOX 1365
MISGAV, 20179, ISRAEL
[ ], 2010
To Securities Dealers, Commercial Banks, Trust Companies, and Other Nominees:
This letter is being distributed to securities dealers, commercial banks,
trust companies and other nominees in connection with the offering by Tefron
Ltd. ("Tefron") of an aggregate of 1,578,947 ordinary shares, par value NIS 10.0
("Ordinary Shares"), of Tefron at a subscription price of $3.8 per Ordinary
Share (the "Subscription Price"), pursuant to the exercise of transferable
subscription rights initially distributed on [_______], 2010 ("Subscription
Rights"), to all holders of record of Ordinary Shares of Tefron as of the close
of business on [__________], 2010 (the "Record Date"). The Subscription Rights
are described in the enclosed prospectus and evidenced by a Rights Certificate
registered in your name or in the name of your nominee.
Each beneficial owner of Ordinary Shares registered in your name or the
name of your nominee is entitled to one Subscription Right for each 1.3429
Ordinary Shares owned by such beneficial owner on the Record Date.
We are asking you to contact your clients for whom you hold Ordinary Shares
registered in your name or in the name of your nominee as of the Record Date to
obtain instructions with respect to the Subscription Rights.
Enclosed are copies of the following documents:
1. Prospectus;
2. Rights Certificate;
3. Instructions as to Use of Rights Certificates;
4. Form of Letter from Tefron to Record Holders;
5. Form of Notice of Guaranteed Delivery;
6. Form of Beneficial Owner Election Form; and
7. Form of Nominee Holder Certification.
Your prompt action is requested. The Subscription Rights will expire at
5:00 P.M., Eastern Time, on [_______], 2010 (the "Expiration Date").
To exercise Subscription Rights, properly completed and executed Rights
Certificates and payment in full for all Subscription Rights exercised must be
delivered to the Subscription Agent as indicated in the prospectus prior to the
Expiration Date, unless the guaranteed delivery procedures described in the
prospectus are followed.
Additional copies of the enclosed materials may be obtained by contacting
our Information Agent for the rights offering at 877-896-3194 (banks and brokers
only may call 201-806-7300), or alternatively by e-mail at
reorg@altmangroup.com.
Very truly yours,
TEFRON LTD.
EXHIBIT 99.3
[LETTERHEAD OF DEALER, BANK, TRUST COMPANY OR NOMINEE]
[ ], 2010
To our clients:
Enclosed are the prospectus and other materials relating to a Rights
Offering by Tefron Ltd. Please carefully review the prospectus, which describes
how you can participate in the Rights Offering. You will be able to exercise
your subscription rights to purchase additional ordinary shares only during a
limited period. You will find answers to some frequently asked questions about
the Rights Offering beginning on page [__] of the prospectus. You should also
refer to the detailed Instructions as to Use of Rights Certificates, which is
attached to this letter. After exercising your subscription rights, you may not
revoke that exercise.
The following is a summary of the terms of the Rights Offering:
o You will receive one transferable subscription right for each 1.3429
ordinary shares you hold of record at the close of business on
[_________], 2010 (the "Record Date"). If you hold one ordinary share,
you will not receive any rights. Your rights will be aggregated for
all the shares that you own on the Record Date and then rounded down
to the nearest whole number, so that you will not receive fractional
shares.
o You may purchase one ordinary share, par value NIS 10.0, of Tefron
Ltd. for each whole subscription right you receive at a subscription
price of $3.8 per share.
o The Rights Offering will expire at 5:00 p.m., Eastern Time, on
[_____], 2010. If you do not exercise your subscription rights before
that time, they will expire and will have no monetary value. You may
revoke your exercise of your subscription rights at any time prior to
the expiration of the Rights Offering.
THE MATERIALS ENCLOSED ARE BEING FORWARDED TO YOU AS THE BENEFICIAL OWNER
OF ORDINARY SHARES HELD BY US IN YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME.
EXERCISES OF SUBSCRIPTION RIGHTS MAY BE MADE ONLY BY US AS THE RECORD OWNER AND
PURSUANT TO YOUR INSTRUCTIONS. Accordingly, we request instructions as to
whether you wish us to elect to subscribe for any ordinary shares to which you
are entitled pursuant to the terms and subject to the conditions set forth in
the enclosed prospectus and other materials. However, we urge you to read the
prospectus and other enclosed materials carefully before instructing us to
exercise your Subscription Rights.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to exercise subscription rights on your behalf in accordance
with the provisions of the Rights Offering. THE RIGHTS OFFERING WILL EXPIRE AT
5:00 P.M., EASTERN TIME, ON THE EXPIRATION DATE, AND SO YOU ARE ENCOURAGED TO
FORWARD YOUR INSTRUCTIONS TO US BEFORE THE EXPIRATION DATE TO ALLOW US AMPLE
TIME TO ACT UPON YOUR INSTRUCTIONS. Once you have exercised your subscription
right, such exercise may not be revoked.
If you wish to have us, on your behalf, exercise the Subscription Rights
for any ordinary shares to which you are entitled, please so instruct us by
timely completing, executing, and returning to us the Beneficial Owner Election
Form attached to this letter.
WITH RESPECT TO ANY INSTRUCTIONS TO EXERCISE (OR NOT TO EXERCISE)
SUBSCRIPTION RIGHTS, THE ENCLOSED BENEFICIAL OWNER ELECTION FORM MUST BE
COMPLETED AND RETURNED SUCH THAT IT WILL BE ACTUALLY RECEIVED BY US BY 5:00
P.M., EASTERN TIME, ON [____________], 2010, THE LAST BUSINESS DAY PRIOR TO THE
SCHEDULED EXPIRATION DATE OF THE RIGHTS OFFERING OF [___________], 2010.
Please indicate whether you wish to receive a separate subscription rights
certificate issued to you by checking the appropriate box.
[_] Yes [_] No
If you have any questions concerning the Rights Offering, please feel free
to contact us at [___________].
Very truly yours,
[___________]