Filed Pursuant to Rule 424(b)(3)
Registration Number 333-128847
PROSPECTUS
TEFRON LTD.
11,521,259 ORDINARY SHARES
This prospectus covers the sale of up to 11,521,259 of our ordinary shares
(the "Shares"). All of the Shares are being offered and sold by the selling
shareholders. The prices at which the selling shareholders may sell the Shares
will be determined by the prevailing market price for the Shares or in privately
negotiated transactions. Information regarding the selling shareholders and the
times and manner in which they may offer and sell the Shares under this
prospectus is provided under "Selling Shareholders" and "Plan of Distribution"
in this prospectus. The selling shareholders will receive all of the proceeds
from the sale of the Shares. The registration of the ordinary shares does not
necessarily mean that the selling shareholders or their transferees will offer
or sell their shares.
We are not offering or selling any of our ordinary shares pursuant to this
prospectus. We will not receive any of the proceeds from the sale by the selling
shareholders of the ordinary shares offered by this prospectus.
Our ordinary shares are listed on the New York Stock Exchange under the
symbol "TFR" and, since September 28, 2005, our shares have been listed on the
Tel Aviv Stock Exchange. On September 30, 2005, the last reported sale price on
the New York Stock Exchange was $6.94 per share.
THIS INVESTMENT INVOLVES RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION 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.
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different or additional information. This prospectus
may only be used where it is legal to sell these securities. You should not
assume that the information in this prospectus or any supplement is accurate as
of any date other than the date on the front of those documents.
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The date of this Prospectus is November 30, 2005
TABLE OF CONTENTS
PAGE
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Corporate Information 3
The Company 3
Risk Factors 5
Forward-Looking Statements 15
Reasons for the Offer and Use of Proceeds 16
Offering Price 16
Offer and Listing Details 16
Capitalization 17
Additional Information Regarding Loan Facilities 17
Significant Accounting Policies 18
Board of Directors 20
Selling Shareholders 22
Additional Information 23
Offer Statistics, Expected Timetable and Plan of Distribution 24
Expenses for the Offering 26
Legal Matters 26
Experts 26
Where You Can Find More Information 26
Incorporation of Certain Documents by Reference 27
Enforceability of Civil Liabilities 28
2
CORPORATE INFORMATION
The mailing address of our principal executive offices is Industrial Center
Teradyon, P.O. Box 1365, Misgav, 20179, Israel and our telephone number is
972-4-990-0881.
THE 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.
We manufacture intimate apparel, active-wear and swimwear sold throughout
the world by such name-brand marketers as Victoria's Secret, Nike, Target,
Warnaco/Calvin Klein, The Gap, Banana Republic, Mervyn's, Puma, Patagonia,
Adidas, Reebok and other well known American 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, T-shirts,
nightwear, bodysuits, swim wear, beach wear, active-wear and accessories. Our
Healthcare Division manufactures and sells a range of textile healthcare
products. These products include: slip resistant footwear; anti-embolism
stockings and compression therapy systems, an intermittent pneumatic compression
device; sterile wound dressings; and XX-Span(R) dressing retainers, an
extensible net tubing designed to hold dressings in place without the use of
adhesive tape.
We are known for the technological innovation of our Hi-Tex manufacturing
process. Our Hi-Tex manufacturing process was implemented as part of our
strategy to streamline our manufacturing process and improve the design and
quality of our products. The Hi-Tex manufacturing process includes 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.
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 Banana Republic and The Gap in 1993, with Warnaco/Calvin
Klein in 1994 and with Nike in 2000. In 2000, we also began our relationship
with Target, which was an existing customer of Alba. These customers accounted
for approximately 69.7% and 69.2% of our total sales in 2004 and in the first
nine months of 2005, respectively.
Below is a summary of significant events in our development:
1990 First bodysize cotton panty with applicated elastics.
1997 Formation of Hi-Tex Founded by Tefron Ltd. and production of
first seamless panty.
3
Initial public offering of our shares on the NYSE.
1998 Acquisition of a dyeing and finishing facility to achieve
greater vertical integration of our business.
1999 Acquisition of Alba, a manufacturer of seamless apparel and
healthcare products. The main purpose of the acquisition of
Alba was to acquire additional production capacity, a
presence in the United States, direct store distribution
capacity, a broader customer base and incremental revenues.
2001 Initial significant shifting of sewing production to Jordan
2001 Launch of a turn around program, including significant cost
reduction, downsizing and consolidation of operations.
2002 Reorganization of Alba, 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, was completed in the second quarter of 2003.
2003 Acquisition of all of the outstanding ordinary shares of
Macro Clothing Ltd., an entity that 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.
MARCH-APRIL Closing of equity investments with two groups of investors
2004 in the aggregate amount of $20 million.
OCTOBER Launch of a new business division, Sports Innovation
2004 Division ("SID"), which is devoted to our grow devoted to a
growing U.S. customer base in the sport active wear market.
SEPTEMBER Registration of our shares for trade on the Tel Aviv Stock
2005 Exchange (in addition to the listing on NYSE).
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. Due to our locations in Jordan
and due to the Qualified Industrial Zone Agreement between the United States,
Jordan and Israel we benefit from exemptions from United States customs duties
and import quotas on textiles manufactured in Jordan - QIZ. We also currently
benefit from substantial investment grants and tax incentives provided by the
Government of Israel and from the availability in Israel of skilled engineers.
4
RISK FACTORS
An investment in our Ordinary Shares involves a high degree of risk. You
should carefully consider the following risk factors, in addition to the other
information included and incorporated by reference in this prospectus, including
the consolidated financial statements and notes, before you invest.
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 49.8% of our
total sales in 2002, 38.2% of our total sales in 2003, 38.5% of our total sales
in 2004 and 33.7% of our total sales in the first nine months of 2005. Our sales
to Nike accounted for approximately 2.7% of our total sales in 2002, 3.2% of our
total sales in 2003, 6.8% of our total sales in 2004 and 23.0% of our total
sales in the first nine months of 2005. Our sales to Target, Banana Republic and
The Gap, Calvin Klein and Cardinal Healthcare accounted in the aggregate for
approximately 26.3% of our total sales in 2002, 31.4% of our total sales in
2003, 33.7% of our total sales in 2004 and 22.5% of our total sales in the first
nine months of 2005. 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,
Banana Republic and The Gap, and Cardinal Healthcare 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. Their failure to do so may significantly reduce our
sales. 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 conditions of our principal customers could
significantly reduce our sales.
OUR PRINCIPAL CUSTOMERS ARE IN THE CLOTHING RETAIL INDUSTRY, WHICH IS
SUBJECT TO SUBSTANTIAL CYCLICAL VARIATIONS. OUR REVENUES WILL DECLINE
SIGNIFICANTLY IF OUR PRINCIPAL CUSTOMERS DO NOT CONTINUE TO BUY OUR
PRODUCTS IN LARGE VOLUMES DUE TO AN ECONOMIC DOWNTURN.
Our customers are in the clothing retail industry, which is subject to
substantial cyclical variations and is affected strongly by any downturn in the
general economy. A downturn in the general economy, a change in consumer
purchasing habits or any other events or uncertainties that discourage consumers
from spending, could have a significant effect on our customers' sales and
profitability. Such downturns, changes, events or uncertainties could result in
our customers having larger inventories of our products than expected. These
events could result in decreased purchase orders from us in the future, which
would significantly reduce our sales and profitability. For example, the
difficult global economic environment and the continuing soft retail market
conditions in the world and specifically in the U.S. both before and especially
after the events of September 11, 2001 were reflected in disappointing clothing
retail sales in the year 2001 compared to the same period in the year 2000, and
consequently decreased our order backlog and production levels. A prolonged
economic downturn could harm our financial condition.
OUR EXPANSION INTO NEW PRODUCT LINES WITH MORE COMPLICATED PRODUCTS AND
DIFFERENT RAW MATERIALS REDUCED OUR OPERATING EFFICIENCY DURING 2003 AND
2004, AND WE MAY ALSO FACE OPERATING EFFICIENCY DIFFICULTIES IN THE FUTURE.
During 2003, 2004 and the first nine months of 2005, we invested
significant efforts to develop and expand new product lines, including
active-wear products and swimwear, to diversify our product line and our client
base. The manufacturing of new, more complicated products with different raw
materials has reduced our operating efficiency in 2003 and 2004. Although our
operating efficiency was improved in the first nine months of 2005, our
continued significant efforts to develop and expand new product lines may result
in additional reductions in operating efficiency. Although we believe that our
efficiency is improving as we continue to manufacture our new product lines, we
cannot assure that we will be able to avoid any efficiency problems in the
future.
5
OUR EXPANSION INTO NEW PRODUCT LINES, IN PARTICULAR ACTIVE-WEAR BUSINESS
PRODUCTS, INVOLVES THE MANUFACTURE OF NEW PRODUCTS, WHICH HAS AND MAY
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.
During 2003, 2004 and the first nine months of 2005, we invested
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, we have purchased and may need to purchase additional knitting machines
and other equipment adapted to manufacture our new products lines. In addition,
the manufacture of active-wear products at times requires equipment with new
technologies. The additional capital expenditures that may be incurred in
connection with these purchases may reduce our future cash flow.
OUR BUSINESS MAY BE IMPACTED BY INFLATION AND NIS EXCHANGE RATE
FLUCTUATIONS.
Exchange rate fluctuations between the United States dollar and the NIS and
inflation in Israel may negatively affect our earnings. A substantial majority
of our revenues and a substantial portion of our expenses are denominated in
U.S. dollars. However, a significant portion of the expenses associated with our
Israeli operations, including personnel and facilities-related expenses, are
incurred in NIS. Consequently, inflation in Israel will have the effect of
increasing the dollar cost of our operations in Israel, 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, we are exposed to
the risk of appreciation of the NIS vis-a-vis the U.S. dollar. This appreciation
would cause an increase in our NIS expenses as recorded in our U.S. dollar
denominated financial reports even though the expenses denominated in NIS will
remain unchanged. In addition, exchange rate fluctuations in currency exchange
rates in countries other than Israel where we operate and do business may also
negatively affect our earnings.
WE REQUIRE A SIGNIFICANT AMOUNT OF CASH TO PAY OUR DEBT. IF WE FAIL TO
GENERATE SUFFICIENT CASH FLOW FROM OPERATIONS, WE MAY NEED TO RENEGOTIATE
OR REFINANCE OUR DEBT, OBTAIN ADDITIONAL FINANCING OR POSTPONE CAPITAL
EXPENDITURES
We depend mainly on our cash generated by operating activities to make
payments on our debts. The cash generated by operating activities was
approximately $6.9 million and $16.8 million in 2004 and in the first nine
months of 2005, respectively. We cannot assure that we will generate sufficient
cash flow from operations to make the scheduled payments on our debt. We have
repayment obligations on our long-term debt of approximately $1.5 million due in
the fourth quarter of 2005, $7.6 million in 2006 and $11.4 million in 2007 and
the balance of $29.7 million from 2008 until 2012. These amounts do not include
any repayment obligations under our short-term debt in the amount of
approximately $19.2 million as of September 30, 2005. 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 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:
6
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, 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.
OUR DEBT OBLIGATIONS MAY HINDER OUR GROWTH AND PUT US AT A COMPETITIVE
DISADVANTAGE.
We have a considerable amount of bank debt mainly as a result of our
acquisition of Alba in December 1999 and the investments made in our Hi-Tex
Division. As of September 30, 2005, we had approximately $50.2 million of long
term loans outstanding (including current maturities of $6.9 million) and
approximately $19.2 million in short term bank credit. Our substantial 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 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 to borrow money for operations or capital in the
future.
Because a significant portion of our loans bear interest at floating rates,
an increase in interest rates could reduce our profitability. A ten percent
interest rate change on our floating interest rate long-term loans outstanding
at September 30, 2005, would have an annual impact of approximately $0.4 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 shareholder's equity and operating results that are customary
for companies comparable in size. 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 or our shareholders.
7
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 2004, our 48.35% subsidiary, AlbaHealth LLC, failed to comply
with certain financial covenants contained in its credit facility with GE
Capital, including a minimum EBITDA requirement. However, GE Capital agreed to
waive certain financial covenant defaults that occurred during 2004 and to amend
certain of the financial covenant provisions of the AlbaHealth credit facility.
During the second quarter of 2005, AlbaHealth again failed to comply with a
certain financial covenant in the credit facility. On October 1, 2005,
AlbaHealth LLC signed with GE Capital an amendment to its credit facility, under
which the covenant defaults were waived and the Company was provided with more
favorable credit facility terms.
If a default occurs and we are unable to renegotiate the terms of the 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.
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 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 are often in larger quantities of goods (to build its initial
inventory) than 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.
8
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 and
active-wear, 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 our Cut & Sew products; current or future
relationships between our existing and prospective competitors, especially from
the Far East, with existing or potential customers, could materially affect our
ability to compete. In addition, we cannot assure that our customers will not
seek to manufacture our products through alternative sources and thereby
eliminate the need to purchase our products.
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 cost, 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.
WE ARE SUBJECT TO FLUCTUATING COSTS OF RAW MATERIALS.
We use cotton yarn, lycra, 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 material, to take
advantage of favorable market conditions. For example, in 2004 and 2005 the cost
of synthetic fibers increased due to rising energy costs, and there may be a
similar increase in 2006. 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 reduced our margin of profitability.
9
IF OUR ORDINARY SHARES ARE DELISTED FROM THE NEW YORK STOCK EXCHANGE, THE
LIQUIDITY AND PRICE OF OUR ORDINARY SHARES AND OUR ABILITY TO ISSUE
ADDITIONAL SECURITIES MAY BE SIGNIFICANTLY REDUCED.
In order to maintain the listing of our ordinary shares on The New York
Stock Exchange, or NYSE, we are required to meet specified maintenance
standards. In addition, the NYSE has amended its continued listing criteria to
require, among other things, either a minimum stockholders' equity of $75
million or a minimum market capitalization of $75 million. As of November 15,
2005, our market capitalization was $135 million, and as of September 30, 2005,
we had stockholders' equity of $56.2 million.
In the event we fail to meet any current or revised listing criteria of the
NYSE, our ordinary shares may be delisted from trading on The New York Stock
Exchange. We cannot assure that we will meet all NYSE criteria in the future.
Delisting of our ordinary shares would result in limited availability of market
price information and limited news coverage. In addition, delisting could
diminish investors' interest in our ordinary shares as well as significantly
reduce the liquidity and price of our ordinary shares. Delisting may also make
it more difficult for us to issue additional securities or secure additional
financing.
On September 28, 2005, our shares began trading also on the Tel Aviv Stock
Exchange, or TASE. Under the Israeli Securities Law of 1968, in the event that
within 12 months after we were initially listed for trading on TASE, we are
delisted from trading on NYSE, then within two months of such delisting, we will
also be delisted from trading on TASE. If, however, prior to the expiration of
such two month period we register our shares for trading on TASE by publishing a
prospectus, our shares will not be delisted for trading on TASE.
WE DEPEND ON OUR SUPPLIERS FOR MACHINERY. WE MAY EXPERIENCE DELAYS OR
ADDITIONAL COSTS SATISFYING OUR PRODUCTION REQUIREMENTS DUE TO OUR RELIANCE
ON THESE SUPPLIERS.
We purchase machinery and equipment, including the machinery used in our
Hi-Tex manufacturing process, from sole suppliers. If our suppliers are not able
to provide us with additional machinery or equipment as needed, we might not be
able to increase our production to meet any growing demand for our products.
WE DEPEND ON SUBCONTRACTORS IN CONNECTION WITH OUR MANUFACTURING PROCESS,
IN PARTICULAR THE 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 to us services that are an integral
part of our manufacturing process, and in particular sewing services. If such
subcontractors do not 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 toward us or is not
otherwise able to supply the required services, we would have difficulty meeting
our customer orders until we find an alternative solution.
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.
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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 are
customers and suppliers.
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 November 15, 2005, Norfet, Limited Partnership had
voting power over approximately 31.5% of the outstanding ordinary shares of
Tefron. In addition, as of November 15, 2005, Meir Shamir, one of our directors,
owned approximately 40% in Mivtach-Shamir, which at such date was an
approximately 35.5% holder in Norfet. As a result, the corporate actions of
Tefron may be significantly influenced by Mr. Shamir. Furthermore, as of
November 15, 2005, Ishay Davidi, the Chairman of our Board of Directors, served
as CEO and a senior partner of FIMI Israel, Opportunity Fund, Limited
Partnership, which at such date was an approximately 51.9% holder in Norfet. As
a result, the corporate actions of Tefron may be significantly influenced by Mr.
Davidi.
As of November 15, 2005, Arie Wolfson, one of our directors, had direct
voting power over approximately 5.4% of the outstanding ordinary shares of
Tefron, not including options to acquire 150,000 ordinary shares of Tefron that
have already vested. Mr. Wolfson is also the Chairman and a significant
shareholder of Macpell Industries Ltd., an Israeli company that owned
approximately 20.6% of the outstanding ordinary shares of Tefron as of November
15, 2005. Mr. Wolfson and our former president, Mr. Sigi Rabinowicz, another
Macpell shareholder, collectively own a controlling interest in Macpell, have
entered into a shareholders' agreement regarding corporate actions of Macpell,
including the process by which Macpell votes its ordinary shares of Tefron to
elect our Directors. As a result, the corporate actions of Tefron may be
influenced significantly by Mr. Wolfson.
In connection with the acquisition of Tefron ordinary shares by Norfet,
Limited Partnership from the Company and from Arwol Holdings Ltd., an Israeli
company wholly owned by Arie Wolfson, and from Macpell, each of Norfet, Arwol
and Macpell agreed to vote all of the Tefron ordinary shares owned or controlled
by each of them for the election to the Company's nine-member Board of Directors
of: (i) two members plus one independent director and one external director
nominated by Norfet, Limited Partnership, (ii) two members plus one independent
director and one external director nominated by Arwol and Macpell, and (iii) the
Company's chief executive officer.
We are party to a consulting and management services agreement with Mr.
Wolfson and a company controlled by him, as well as with Norfet pursuant to
which the company controlled by Mr. Wolfson and Norfet have agreed to provide
consultancy and management services to Tefron. We also lease various properties
from affiliates of Macpell.
Israeli companies 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 Macpell and us and 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.
11
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.
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 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 140
million shekels that are submitted in any year) and up to 20% of eligible
capital expenditures (for projects exceeding investments of 140 million shekels
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. 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, 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.
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 and the European Free Trade Association. If there is a change in such
benefits or if other countries enter into similar agreements and obtain similar
benefits or if any such agreements were terminated, our profitability may be
reduced.
WE FACE SEVERAL RISKS, INCLUDING POLITICAL, ECONOMIC, SOCIAL, CLIMATIC
RISKS, ASSOCIATED WITH INTERNATIONAL BUSINESS.
Approximately 92% and 91% of our sales in 2004 and in the first nine months
of 2005, respectively, were made to customers in the United States, and 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. 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;
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;
12
o longer payment cycles;
o difficulties in collecting accounts receivable;
o political instability 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.
In addition to our production facilities in Israel, we currently have
production facilities in Jordan, we have relationships with manufacturers in
China and Cambodia and we are in the process of shifting additional sewing
production out of Israel to take advantage of lower labor costs. Due to
commercial disputes that arose between us and the other shareholders of our
joint subsidiaries that managed operations in Madagascar, we no longer have
production facilities in Madagascar.
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 Africa in general. We cannot assure that the political, economic or
social situation in these countries or in the Middle East and Africa 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 or Jordan will be
cost-efficient or successful.
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 problems 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. Since October 2000, there has been a deterioration in
the relationship between Israel and the Palestinians which has resulted in
increased violence. The future effect of this deterioration and violence on the
Israeli economy and our operations is unclear. 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.
13
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 if conditions in Israel should change, and no prediction
can be made as to the effect of any expansion or reduction of such military
obligations on us.
During 2004, a general strike at Israel's ports caused a shortage of raw
materials and resulted in a loss of sales to the Company 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 is intended to ensure five (5) years without
labor strikes, a further strike or labor disruption at Israel's ports may occur
and have an adverse effect on us or our business.
14
FORWARD-LOOKING STATEMENTS
Our disclosure in this prospectus (including documents incorporated by
reference herein) contains "forward-looking statements." Forward-looking
statements are our current expectations or forecasts of future events. You can
identify these statements by the fact that they do not relate strictly to
historic or current facts. They use words such as "anticipate," "estimate,"
"expect," "project," "intend," "plan," "believe," and other words and terms of
similar meaning. These include statements, among others, relating to our planned
future actions, our prospective products or product approvals, our beliefs with
respect to the sufficiency of our cash and cash equivalents, plans with respect
to funding operations, projected expense levels and the outcome of
contingencies, such as future financial results.
Any or all of our forward-looking statements in this prospectus may turn
out to be wrong. They can be affected by inaccurate assumptions we might make or
by known or unknown risks and uncertainties. Consequently, no forward-looking
statement can be guaranteed. Actual results may vary materially. The
uncertainties that may cause differences include, but are not limited to:
o our customers' continued purchase of our products in the same volumes
or on the same terms;
o the cyclical nature of the clothing retail industry;
o the potential adverse effect on our future operating efficiency
resulting from our new product lines with more complicated products
and different raw materials;
o the purchase of new equipment that may be necessary as a result of our
expansion into new product lines;
o fluctuations in inflation and currency rates;
o our failure to generate sufficient cash from our operations to pay our
debt;
o the limitations and restrictions imposed by our substantial debt
obligations;
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 fluctuating costs of raw materials; and
o the potential adverse effect on our business resulting from increased
custom duties and import quotas (e.g., China, where we manufacture for
our swimwear division).
In addition, you should note that our past financial and operation
performance is not necessarily indicative of future financial and operational
performance. We undertake no obligation to update any forward-looking
statements, whether as a result of new information, future events or otherwise.
15
REASONS FOR THE OFFER AND USE OF PROCEEDS
We will not receive any proceeds from the sales of the Shares by the
selling shareholders to others.
OFFERING PRICE
The selling shareholders have advised us that they may sell the Shares
offered by this prospectus at the prevailing market price at the time of such
sales, at prices related to such prevailing market price, at negotiated prices,
or at fixed prices. The actual number of Shares to be sold and the prices at
which they will be sold will depend upon the market price at the time of those
sales. Therefore, we have not included in this prospectus information about the
price to the public.
OFFER AND LISTING DETAILS
Since the initial public offering of our ordinary shares on September 24,
1997, our ordinary shares have been traded on the New York Stock Exchange, or
NYSE, under the symbol "TFR." Prior to the offering, there was no market for our
ordinary shares. Since September 28, 2005, our shares have also been traded in
the Tel Aviv Stock Exchange , or TASE, under the symbol "TEFRON".
The high and low sales prices for our ordinary shares as reported on the
NYSE during the first, second and third quarters of 2005 as well as for May
through October 2005 are set forth below. Other information regarding the market
price of our ordinary shares is located in our Form 20-F for the year ended
December 31, 2004 filed with the SEC on April 21, 2005.
2005
HIGH LOW
---- ---
First quarter $5.35 $3.84
Second quarter $5.93 $4.93
Third quarter $7.04 $4.96
May $5.93 $5.25
June $5.65 $5.14
July $5.6 $4.96
August $6.29 $5.45
September $7.04 $5.90
October $6.86 $6.20
16
CAPITALIZATION
The following table sets forth our consolidated unaudited capitalization as
of September 30, 2005. The financial data in the following table should be read
in conjunction with the Company's consolidated financial data and notes thereto
incorporated by reference herein.
AS OF SEPTEMBER 30, 2005
UNAUDITED
(USD IN THOUSANDS)
------------------
Short term bank debt 19,221
Current maturities of long term debt:
Bank(1) 6,875
Lease 23
Long term bank debt, net of current maturities(1) 43,292
Shareholder's equity:
Share Capital(2) 6,804
Additional paid-in capital 82,798
Deferred compensation (240)
Treasury shares (7,408)
Other comprehensive loss (80)
Accumulated deficit (25,676)
Total shareholders' equity 56,198
1) All bank debt is collateralized by a floating charge (a continuing
charge on the Company's present and future assets but permitting the
Company to dispose of such assets in the ordinary course of business)
on all of the assets of the Company and its subsidiaries.
2) Consisting of Ordinary Shares, par value NIS 1 per share, 50,000,000
authorized, 17,972,381 issued and outstanding (not including 997,400
ordinary shares held in treasury) as of September 30, 2005. As of
September 30, 2005, the deferred shares had been cancelled by the
Company following the waivers by Mr. Wolfson and Mr. Rabinowicz in
favor of the Company of the deferred shares that they held for no
compensation.
ADDITIONAL INFORMATION REGARDING LOAN FACILITIES
In October 2005, AlbaHealth LLC, our 48.35% subsidiary, entered into an
amendment to its credit facility with GE Capital. Under this amendment, the
balance of the term loan facility now amortizes as follows (A) four (4)
consecutive quarterly installments on the first day of January, April, July and
October, from January 1, 2006 through October 1, 2006, each in the amount of
$312,500, and (B) three (3) consecutive quarterly installments on January 1,
2007, April 1, 2007 and July 1, 2007, each in the amount of $375,000. The final
installment will be due on September 6, 2007 and be in the amount of $4,375,000
or, if different, the remaining principal balance of the term loan.
In addition, according to the amended terms, the interest on the revolving
credit facility and the term loan facility shall be paid, at the election of
AlbaHealth, at one of the following rates:
o a floating rate equal to the higher of (i) a base rate quoted by
75% of the largest banks in the U.S. and (ii) the federal funds
rate plus 50 basis points, in each case plus a margin per annum
of 1.5%; or
o the LIBOR rate plus a margin per annum initially of 2.75%.
17
In addition, the Company is party to a loan agreement dated October 12,
2004, with Israel Discount Bank Ltd. providing for a term loan of $450,000 at an
interest rate of LIBOR plus 1.5% (interest payable monthly) until maturity in
December 2006. The loan agreement provides Israel Discount Bank with the option
at any time during the term of the loan to convert all or any portion of the
unpaid principal amount of the loan into up to 75,000 Tefron ordinary shares at
a price of $6 per share.
These long-term loans are in addition to the long-term facility of our
wholly owned subsidiary, Alba (now called Tefron USA Inc.) with Bank Hapoalim
B.M. and Israel Discount Bank of New York entered into in connection with the
acquisition of Alba, in the outstanding amount of $25.6 million payable in 32
quarterly installments commencing March 15, 2005 through December 15, 2012. The
term loan facility bears interest of LIBOR plus 2%, and the related short-term
revolving credit facility bears interest at LIBOR plus 1.50%.
These long-term loans are also in addition to the long-term loan facilities
between us and Bank Hapoalim B.M. and Israel Discount Bank Ltd. in the aggregate
outstanding amount of $21.8 million also payable in 32 quarterly installments
commencing March 31, 2005 and terminating on December 31, 2012. These loans bear
interest of LIBOR plus 2%.
For more information about our long-term and short-term loan obligations,
please see "Item 5. Operating and Financial Review and Prospects - Liquidity and
Capital Resources" and "Item 10. Additional Information - 10C. Material
Contracts" in our 20-F filed with the Securities and Exchange Commission on
April 21, 2005.
SIGNIFICANT ACCOUNTING POLICIES
We prepare our consolidated financial statements in conformity with
accounting principles generally accepted in the U.S. As such, we are required to
make certain estimates, judgments and assumptions that we believe are reasonable
based upon the information available at the time they are made. These estimates,
judgments and assumptions affect the reported amounts of assets and liabilities
as of the date of the financial statements, as well as the reported amounts of
expenses during the periods presented.
18
Our management believes the significant accounting policies which affect
management's more significant estimates, judgments and assumptions used in the
preparation of the Company's consolidated financial statements and which are the
most critical to aid in fully understanding and evaluating the Company's
reported financial results include the following:
o Inventory valuation
o Property, plant and equipment
o Goodwill
o Income taxes and valuation allowance
INVENTORY VALUATION
At each balance sheet date, we evaluate our inventory balance for excess
quantities and obsolescence. We estimate the excess inventory of products and
raw materials which are not designated for existing or projected orders as well
as inventory that is not of saleable quality, estimate their market value and
reduce their carrying value accordingly. Misjudgment in planning inventory level
or in the assessment of the market value of the excess raw materials and
products may require us to record inventory mark downs that would be reflected
in cost of sales in the period the revision is made.
PROPERTY, PLANT AND EQUIPMENT
Our property, plant and equipment are reviewed for impairment in accordance
with Statement of Financial Accounting Standard No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future undiscounted cash
flows expected to be generated by the assets. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.
GOODWILL
Goodwill represents excess of the costs over the net assets of businesses
acquired. Goodwill that arose from acquisitions prior to July 1, 2001 was
amortized until December 31, 2001 on a straight-line basis over forty years.
Under Statement of Financial Accounting Standard No. 142, goodwill acquired in a
business combination for which date is on or after July 1, 2001 shall not be
amortized.
SFAS No.142 requires goodwill to be tested for impairment on adoption and
at least annually thereafter or between annual tests in certain circumstances,
and written down when impaired, rather than being amortized as previous
accounting standards required. Goodwill attributable to each of the reporting
units is tested for impairment by comparing the fair value of each reporting
unit with its carrying value.
The carrying value of goodwill recorded in our financial statement is
related to the AlbaHealth reporting unit. In preparation of the financial
statements for the year 2004, we completed our most recent review performed by
an independent expert of this reporting unit, which determined that its fair
value is greater than its carrying value, and therefore no impairment was
required in the recorded goodwill for this period. The review process uses the
income method and is based on a discounted future cash flow approach that uses
estimates for cash flow, growth of sales, taxes, profits and cost of capital,
among others, for the AlbaHealth reporting unit. We may incur charges for the
impairment of goodwill in the future if AlbaHealth fails to meet our assumed
cash flow, growth of sales and profits, or if interest rates significantly
increase.
19
INCOME TAXES AND VALUATION ALLOWANCE
The Company and its subsidiaries account for income taxes in accordance
with Statement of Financial Accounting Standards No.109, "Accounting for Income
Taxes" ("SFAS No.109"). This Statement prescribes the use of the liability
method whereby deferred tax assets and liability account balances are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. The Company and its
subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax
assets to their estimated realizable value.
We must assess the likelihood that we will be able to recover our deferred
tax assets. We review the balance of deferred taxes in relation to our
anticipated profits and if we estimate that it is not likely that our
anticipated profits will materialize, we record a valuation allowance against
the deferred tax assets accordingly. A future decrease in our profits or
anticipated profits may result in an additional adjustment to the carrying
amount of our deferred taxes.
In addition, the calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations, particularly under
the Law for Encouragement of Capital Investments, 1959, or the Investments Law.
We estimate our tax liabilities under the various investment programs under the
Investments Law based on a complex mix of factors, including our estimates of
our future growth of revenues, the particular investment program under which
revenue will be generated and the location where such revenues will be
generated. We may need to record a charge for tax if our estimates are
inaccurate or if we experience changes due to off-shoring of certain of our
production processes.
BOARD OF DIRECTORS
The directors of the Company are listed below. The following information
supplied with respect to each director is based upon the records of the Company
and information furnished to it by the directors.
NAME AGE CURRENT POSITION WITH COMPANY
- ---- --- -----------------------------
Ishay Davidi 43 Chairman of the Board
Yosef Shiran 43 Chief Executive Officer and Director
Arie Wolfson 43 Director
Meir Shamir 53 Director
Micha Korman 50 Director
Shirith Kasher 38 Director
Avi Zigelman 49 Director
Arie Arieli 53 External Director
Yacov Elinav 60 External Director
20
ISHAY DAVIDI has served as Chairman of the Board of Directors since
November 2005 and served as a director of the Company since June 2005. Mr.
Davidi serves as a CEO of each of First Israel Mezzanine Investors Ltd. and FIMI
2001 Ltd., the managing general partners of the partnerships constituting the
FIMI Private Equity Funds. Mr. Davidi also serves as a chairman of Tadir
(Precision Products) 1993 Ltd, and as a director at Lipman Electronic
Engineering Ltd, Caesarea Creation Industries Ltd, Medtechnica Ltd, Tedea
Development & Automation Ltd, TAT Technologies Ltd and Formula Systems, Ltd. Mr.
Davidi was also the former CEO of the Tikvah VC Fund. Mr. Davidi holds a B.Sc in
Industrial and Management Engineering from Tel Aviv University and an MBA from
Bar Ilan University.
YOSEF SHIRAN has served as Chief Executive Officer and a Director of Tefron
since January 2001. Prior to joining Tefron, Mr. Shiran was the general manager
of Technoplast Industries, an injection molding and extrusion company, from 1995
to 2000. Mr. Shiran has over 14 years of management experience. Mr. Shiran holds
a B.Sc. degree in Industrial Engineering from Ben-Gurion University and a
masters degree in Business Administration from Bar Ilan University.
ARIE WOLFSON joined Tefron in 1987 and served as Chairman of the Board of
Directors from August 2002 until November 2005. He also served as Chairman of
the Board of Directors from 1997 to 2000, and as President from 1993 to 2000.
Mr. Wolfson served as Chief Financial Officer from 1988 to 1990 and Assistant to
the Chief Executive Officer from 1990 to 1993. Mr. Wolfson has also served as
Chairman of Macpell Industries Ltd., a principal shareholder in Tefron, since
1998 and served as Chief Executive Officer of Macpell from 1998 until March
2003. Mr. Wolfson is a graduate of High Talmudical Colleges in the United States
and in Israel.
MEIR SHAMIR was elected as a director of the Company on March 31, 2004 and
has been the Chairman of Mivtach Shamir Holdings Ltd., an investment company
traded on the Tel-Aviv Stock Exchange, since 1992. Mr. Shamir also serves as a
director of each of the following companies, as well as of other private
companies: Lipman Electronic Engineering Ltd, a manufacturer of electronic
clearance systems; Wizcom Technologies Ltd. which is engaged in the field of
electronics and is traded on the Deutsche Borse A.G.; Digal Investments and
Holdings Ltd, a real estate holding company traded on the Tel-Aviv Stock
Exchange.
MICHA KORMAN has served as a director of the Company since October 2002.
Mr. Korman leads the recovery and rehabilitation process for companies. Mr.
Korman held various senior management positions in the Company from 1991 until
2003. From October 2000, he served as the Executive Vice President of the
Company. Prior to that, Mr. Korman was Chief Financial Officer of the Company
from 1991 to September 2000. Prior to joining the Company, Mr. Korman held
various senior financial and management positions with companies in the hi-tech,
beverage and food and communication industries. Mr. Korman holds a Bachelor's
degree in Economics and Business Administration from Bar-Ilan University.
SHIRITH KASHER was elected as a director of the Company on March 31, 2004
and is the CEO of Shefa Yamim Finance Ltd. From 2001 to March 31, 2005, Ms.
Kasher was the General Counsel and Secretary of The Israel Phoenix Assurance
Company Ltd. and the General Counsel of Atara Investment Company Ltd. and Atara
Technology Ventures Limited (both from the Phoenix Group) . From 1997 to 2000,
Ms. Kasher worked at S. Horowitz & Co., first as an Articled Clerk and then as
an Advocate. Ms. Kasher holds a B.Sc., from Tel Aviv University, and an LLB, all
from Tel Aviv University and is admitted to practice law in Israel.
21
AVI ZIGELMAN was elected as a director of the Company on June 28, 2005 Mr.
Zigelman is a financial advisor and serves as a director in the following
companies: Plastro Irrigation 1971 Ltd., Phoenix Gemel Ltd., Fox Vizel Ltd., DCL
Technologies Ltd., Bram Industries Ltd and Abe Trans Ltd. Between 1996 and 2003
Mr. Zigelman served as a Partner, Head of Professional Practice Department of
Kpmg Somekh Chaikin Accounting firm, and Mr. Zigelman holds an M.A. in Business
Economics, specialization in Finance, with honors, B.A in Accounting and
Economics, Economics with honors, and Post degree Accounting Studies, with
honors, - all from Tel Aviv University. Mr. Zigelman is a Certified Public
Accountant.
ARIE ARIELI has served as an External Director of Tefron since July 2000.
Since 1988, Mr. Arieli has been the legal counsel for the Israel Phoenix
Insurance Company. Mr. Arieli has served as Director of the Public for Offer
Commercial Centers Ltd. between 1993 and 1998 and is currently serving as an
External Director for Amit Profitable Company for the Management of Pensions and
Compensation Ltd. and for Master-Bit, the Israeli Students Insurance Agency Ltd.
YACOV ELINAV has served as an External Director of Tefron since 2004.
Between 1991 and July 2003, Mr. Elinav was a member of the Board of Management
of Bank Hapoalim B.M. Mr. Elinav also serves as Chairman of the Board of Diur
B.P. Ltd. and as a Chairman of the Board of DS Securities & Investment Ltd. and
is a director of Mivnei Ta'asia Ltd., Middle East Tube Ltd. and other entities
and is an external director of Office Textile Ltd. Mr. Elinav formerly served as
a director of other prominent Israeli companies.
SELLING SHAREHOLDERS
This prospectus and the registration statement of which it is a part
register the resale of the Shares which are currently held by the selling
shareholders. Under the terms of a Registration Rights Agreement among the
Company and the selling shareholders, we agreed to prepare and file a
registration statement on Form F-3 with the SEC covering the Shares as set forth
in the table below at the request of the selling shareholders. We also agreed to
maintain the effectiveness of this registration statement to allow the selling
shareholders to sell the Shares covered by this prospectus until the earlier to
occur of (1) the date that is two years after effectiveness of the registration
statement related to this prospectus or (2) the date the selling shareholders
sell or may sell all ordinary shares covered by the registration statement under
the provisions of Rule 144 without limitation as to volume.
The following table provides information about the ownership of our
ordinary shares by the selling shareholders and, with respect to each selling
shareholder, the number of our shares registered for sale in this prospectus.
No selling shareholder nor any of their respective affiliates has held any
position or office with, been employed by or otherwise has had any material
relationship with us or our affiliates during the three years prior to the date
of this prospectus besides the followings:
Mr. Ishay Davidi , the Chairman of our Board of Directors, serves as the
CEO of FIMI 2001 Ltd., the managing general partner of the partnerships
constituting the FIMI Opportunity Fund, which is a holder of approximately 51.9%
of the partnership interests in Norfet, Limited Parnership;
Mr. Arie Wolfson, one of our directors, is the owner of Arwol Holdings Ltd.
and is the Chairman and a significant shareholder of Macpell Industries Ltd.;
Mr. Sigi Rabinowitcz, our former president and director, is also a
significant shareholder of Macpell Industries Ltd.; and
22
Mr. Meir Shamir, one of our directors, owns approximately 40% in
Mivtah-Shamir, which is a holder of approximately 35.5% holder in Norfet,
Limited Partnership.
NUMBER OF NUMBER OF ORDINARY PERCENTAGE OF
ORDINARY SHARES ORDINARY SHARES SHARES BENEFICIALLY ORDINARY SHARES
NAME AND ADDRESS OF SELLING BENEFICIALLY OWNED REGISTERED OWNED AFTER BENEFICIALLY OWNED
SHAREHOLDER PRIOR TO OFFERING HEREUNDER OFFERING AFTER THE OFFERING
- ----------- ------------------- ----------------- ------------------- ------------------
Norfet, Limited Partnership 5,663,085 5,663,085 0 0
C/o Fimi 2001 Ltd.
Rubinstein House
37 Begin Rd.
Tel Aviv, Israel
Macpell Industries Ltd. 3,700,810 3,610,010 90,800 0.005% (1)
28 Chida Street
Bnei Brak, Israel 51371
Leber Partners, L.P 1,276,882 1,276,882 0 0
Zvi Limon
c/o Walkers SPV Ltd.
Walker House, Mary Street.
P.O.B 908GT
Georgetown, Grand Cayman
Cayman Islands
Arwol Holdings Ltd 971,282 971,282 0 0
28 Chida Street
Bnei Brak, Israel 51371
(1) Based on 17,972,381 ordinary shares outstanding as of September 30,
2005. The percentage set forth is not determinative of the selling
shareholder's beneficial ownership of our ordinary shares pursuant to
Rule 13d-3 or any other provision under the Securities Exchange Act of
1934, as amended. The percentage may change based on the selling
shareholder's decision to sell or hold the Shares.
ADDITIONAL INFORMATION
Our authorized capital is NIS 50,000,000 consisting of 49,995,500 ordinary
shares, par value NIS 1 per share, and 4,500 deferred shares, par value NIS 1
per share. As of September 30, 2005, the number of ordinary shares outstanding
was 17,972,381 (not including 997,400 shares held by a subsidiary of Tefron).
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As of September 20, 2005 4,500 of our deferred shares were cancelled and
are deemed to be unissued. In addition, at September 15, 2005, we had
outstanding 2,457,949 options to purchase ordinary shares under our 1997 Share
Option Plan as follows:
NUMBER OF OPTIONS EXERCISE PRICE PER SHARE EXPIRATION DATE
----------------- ------------------------ ---------------
1,038,782 $3.500 Oct. 2011 - July 2013
300,000 $3.563 January 2011
15,000 $3.590 August 2012
10,000 $3.680 January 2014
650,000 $4.250 April 2014
11,667 $4.310 January 2014
115,000 $5.820 May 2015
35,000 $5.850 August 2015
123,500 $8.125 April 2009
100,000 $9.500 May 2009
59,000 $15.00 June 2010
OFFERED STATISTICS, EXPECTED TIMETABLE AND PLAN OF DISTRIBUTION
We are registering the Shares covered by this prospectus for the selling
shareholders to facilitate their resale of the Shares from time to time. We will
receive no proceeds from the sale of Shares in this offering. The selling
shareholders may sell any or all of the Shares for value at any time or from
time to time under this prospectus in one or more transactions on the New York
Stock Exchange or on Tel Aviv Stock Exchange or any stock exchange, market or
trading facility on which the ordinary shares are traded, or in privately
negotiated transactions or in a combination of such methods of sale, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at prices otherwise negotiated. The selling shareholders will
act independently of us in making decisions with respect to the timing, manner
and size of each sale. The selling shareholders may use any one or more of the
following methods when selling Shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
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o block trades in which the broker-dealer will attempt to sell the
Shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o underwritten offerings;
o short sales;
o agreements by the broker-dealer and the selling shareholders to sell a
specified number of such Shares at a stipulated price per Share;
o a combination of any such methods of sale; or
o any other method permitted by applicable law.
The selling shareholders may also sell Shares under Rule 144 under the
Securities Act, if available, under Section 4(1) of the Securities Act or
directly to us in certain circumstances rather than under this prospectus.
Unless otherwise prohibited, the selling shareholders may enter into
hedging transactions with broker-dealers or other financial institutions in
connection with distributions of the Shares or otherwise. In such transactions,
broker-dealers or financial institutions may engage in short sales of the Shares
in the course of hedging the position they assume with the selling shareholders.
The selling shareholders may also engage in short sales, puts and calls,
forward-exchange contracts, collars and other transactions in our securities or
derivatives of our securities and may sell or deliver Shares in connection with
these trades. If the selling shareholders sell shares short, they may redeliver
the Shares to close out such short positions. The selling shareholders may also
enter into option or other transactions with broker-dealers or financial
institutions which require the delivery to the broker-dealer or the financial
institution of the Shares. The broker-dealer or financial institution may then
resell or otherwise transfer such Shares pursuant to this prospectus. In
addition, the selling shareholders may loan their Shares to broker-dealers or
financial institutions who are counterparties to hedging transactions and the
broker-dealers, financial institutions or counterparties may sell the borrowed
Shares into the public market. The selling shareholders may also pledge their
Shares to their brokers or financial institutions and under the margin loan the
broker or financial institution may, from time to time, offer and sell the
pledged Shares. The selling shareholders have advised us that they have not
entered into any agreements, understandings or arrangements with any
underwriters, broker-dealers or financial institutions regarding the sale of
their Shares other than ordinary course brokerage arrangements, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of Shares by the selling shareholders.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling shareholders in amounts
to be negotiated in connection with the sale. Such broker-dealers and any other
participating broker-dealers are deemed to be "underwriters" within the meaning
of the Securities Act, in connection with such Sales and any such commission,
discount or concession may be deemed to be underwriting discounts or commissions
under the Securities Act.
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All costs, expenses and fees in connection with the registration of the
Shares will be borne in the following manner: the first $50,000 of such costs,
expenses and fees will be borne by us, and all such costs, expenses and fees in
excess of $50,000 will be borne 50% by us and 50% by the selling shareholders.
Underwriting discounts and commissions, if any, attributable to the sales of the
Shares will be borne by the selling shareholders. We will indemnify the selling
shareholders against various liabilities, including some liabilities under the
Securities Act, in accordance with the Registration Rights Agreement, or the
selling shareholders will be entitled to contribution in certain circumstances.
The selling shareholders may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the Shares against certain
liabilities, including liabilities arising under the Securities Act of 1933.
We have advised the selling shareholders that the anti-manipulation rules
under the Securities Exchange Act of 1934 may apply to sales of our ordinary
shares in the market and to the activities of the selling shareholders and its
affiliates. In addition, we will make copies of this prospectus available to the
selling shareholders and have informed it of the need for delivery of copies of
this prospectus to purchasers at or prior to the time of any sale of the Shares
offered hereby.
There is no assurance that the selling shareholders will sell all or any
portion of the Shares offered under this prospectus. Because it is possible that
a significant number of Shares could be sold simultaneously by means of this
prospectus, such sales, or the possibility thereof, may have an adverse effect
on the market price of our ordinary shares.
EXPENSES OF THE OFFERING
The following table sets forth the estimated expenses in connection with
this registration:
SEC Registration Fees $ 9,418
Legal Fees and Expenses $ 4,500
Miscellaneous $ 3,500
-------------
Total $ 17,418
LEGAL MATTERS
The validity of the securities offered under this registration statement
will be passed upon for us by Gross, Kleinhendler, Hodak, Halevy, Greenberg &
Co.
EXPERTS
Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, independent
auditors, have audited our consolidated financial statements included in our
Annual Report on Form 20-F for the year ended December 31, 2004, as set forth in
their report which is incorporated by reference in this prospectus and elsewhere
in the registration statement. Our financial statements are incorporated by
reference in reliance on such firm's report given on their authority as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form F-3 with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. This
Prospectus, which is part of our registration statement, omits some information,
exhibits and undertakings included in the registration statement. For further
information with respect to us and this offering, please refer to the
registration statement.
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We are subject to the reporting requirements of the Exchange Act of 1934,
as amended, that are applicable to a foreign private issuer. In accordance with
the Exchange Act, we file with the Commission reports, including annual reports
on Form 20-F by June 30 of each year, and other information. In addition, we
file interim financial information on Form 6-K on a quarterly basis. We also
furnish to the Commission under cover of Form 6-K certain other material
information. The registration statement on Form F-3, including the exhibits
thereto, and reports and other information filed by us with the Commission can
be inspected and copied at the Public Reference Room maintained by the
Commission at 450 Fifth Street, N.W., 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. Copies of that material can also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the Commission
at http://www.sec.gov. Our Internet address is http://www.tefron.com.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
them, which means that we can disclose important information to you by referring
to those documents. The information incorporated by reference is considered to
be part of this prospectus. We incorporate by reference the documents listed
below and all amendments or supplements we may file to such documents, as well
as any future filings we may make with the SEC on Form 20-F under the Exchange
Act before the time that all of the securities offered by this prospectus have
been sold or de-registered:
(1) Our Annual Report on Form 20-F, as filed with the Commission on April
21, 2005;
(2) Our Current Reports on Form 6-K as filed with the Commission on May 25,
June 22, August 17, September 1, September 29, October 6, October 7 and November
25, 2005, and
(3) The description of our ordinary shares contained in the registration
statement under the Exchange Act on Form 8-A dated September 4, 1997.
In addition, we may incorporate by reference into this prospectus our
Current Reports on Form 6-K filed after the date of this prospectus (and before
the time that all of the securities offered by this prospectus have been sold or
de-registered) if we identify in the report that it is being incorporated by
reference into this prospectus.
All information appearing in this prospectus is qualified in its entirety
by the information and financial statements, including the notes thereto,
contained in the documents incorporated by reference herein. Our Exchange Act
file number is 0-28878.
Copies of all documents which are incorporated by reference will be
provided without charge to anyone to whom this Prospectus is delivered upon a
written or oral request to Tefron Ltd. at Industrial Center Teradyon, P.O. Box
1365, Misgav 20179, Israel, Attention: Asaf Alperovitz. Our telephone number is
972-4-990-881.
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ENFORCEABILITY OF CIVIL LIABILITIES
Service of process upon us and upon our directors and officers and the
Israeli experts named in this prospectus, most of who reside outside the United
States, may be difficult to obtain within the United States. Furthermore,
because all of our assets and most of our directors and officers are located
outside the United States, any judgment obtained in the United States against us
or any of our directors and officers may not be collectible within the United
States.
We have been informed by our legal counsel in Israel, Gross, Kleinhendler,
Hodak, Halevy, Greenberg & Co., that there is doubt concerning the
enforceability of civil liabilities under the Securities Act and the Exchange
Act 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 if the
rules of enforcing foreign judgments prevailing in Israel enable its
enforcement. The rules of enforcing foreign judgments currently prevailing in
Israel do not prohibit the enforcement of a U.S. 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 enforcement of the judgment is not contrary to the security or
sovereignty of the State of Israel;
o the content of the judgment is not contrary to public policy;
o the judgment was not obtained by fraud;
o the judgment does not conflict with any other valid judgment in the
same matter between the same parties;
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; and
o the judgment was not issued by an incompetent court under the rules of
private international law prevailing in Israel.
We have irrevocably appointed CSC Corporation System as our agent to
receive service of process in any action against us in any federal court or
court of the State of New York 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.
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