SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
For the month of November, 2010
TEFRON LTD.
(Translation of registrant's name into English)
IND. CENTER TERADYON, P.O. BOX 1365, MISGAV 20179, ISRAEL
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [_]
Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [_] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- N/A
Attached hereto and incorporated by reference herein are copies of unofficial
translations from Hebrew of each of (i) a Shareholder's Position in connection
with the Company's special general meeting of shareholders scheduled for
December 29, 2010 and (ii) the Company's Board of Director's Response to the
Shareholders' Response, both as filed with the Israeli Securities Authority on
November 29, 2010.
This Form 6-K is hereby incorporated by reference into Tefron Ltd.'s
Registration Statement on Form F-3 (Registration No. 333-128847) and its
Registration Statements on Form S-8 (Registration Nos. 333-139021 and
333-111932).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEFRON LTD.
(Registrant)
By: /s/ Eran Rotem
----------------------
Name: Eran Rotem
Title: Chief Financial Officer
By: /s/ Hanoch Zlotnik
----------------------
Name: Hanoch Zlotnik
Title: Treasurer
Date: November 30, 2010
2
[UNOFFICIAL TRANSLATION FROM HEBREW]
GISSIN & CO., ADVOCATES
GISSIN & CO., ADVOCATES
GUY GISSIN, ADV.
TOMER ALTMAN, ADV.
YOEL FREILICH, ADV.
ROY MILLER, ADV.
TAL BAR- YOSHAFAT, ADV.
GIL CHERCHI, ADV.
SAGI NATAN, ADV.
OREN BIALER, ADV.
CARMIT GOLAN-ABU, ADV.
LIRON MAOR, ADV.
DIKLA SIMCHI ADV.
SIGAL RUSSAK GISSIN, ADV.
Tel-Aviv, November 25, 2010 Tel Aviv
Mr. Arnon Tiberg, Chairman Meir Shamir, CEO Norfet L.P. c/o Mr. Yishai
Mr. Amit Meridor, CEO Mivtach Shamir Davidi
Mr. Aviram Lahav, External Holdings Ltd
Director 27 Habarzel Street,
Mr. Eli Admoni, External Tel- Aviv 60710
Director SHAREHOLDER SHAREHOLDER
Mr. Avi Zigelman, Director
Mr. Meir Shamir, Director
Mr. Guy Shamir, Replacement
Director
Mr. Zvi Limon, Director
Ms. Shirit Kasher, Director
Mr. Ishai Davidi, ex-Director
TEFRON LTD.
94 DERECH EM-HAMOSHAVOT
PETAH TIKVA 49527
WITHOUT PREJUDICE
EXTREMELY URGENT
Dear Sir/Madam,
RE: TEFRON LIMITED - IMMEDIATE REPORT OF NOVEMBER 24, 2010 AND SHAREHOLDERS'
MEETING CONVENED FOR NOVEMBER 29, 2010
On behalf of my client, Mr. Danny Magen, who holds ordinary shares of Tefron
Limited (hereinafter: the "COMPANY"), and further to the telephone conversations
between him and the CEO of the Company, I would refer to you urgently as
follows:
1. In accordance with your Company's Immediate Report of November 24, 2010, a
long list of transactions are due to be raised at the Company's General
Meeting convened for November 29, 2010.
[UNOFFICIAL TRANSLATION FROM HEBREW]
GISSIN & CO., ADVOCATES
2. As set forth in the Report, the transactions "are being brought before the
General Meeting as a whole for the approval of the shareholders as one
resolution". The problem is that a more thorough examination of the
Immediate Report shows that said transactions, and especially the way in
which the shareholders are being asked to approve them (i.e. by one vote on
the complete set of transactions), contain an enormous benefit worth
millions of dollars to certain offerees defined in Section A of the
Immediate Report (hereinafter: the "INVESTORS"). These Investors currently
hold, directly or indirectly, the Company's shares and their
representatives also serve as officers and Directors of the Company.
3. Note that, as distinct from "Nouvelle Investors" who it is argued are
strategic investors whose investment involves input of material and
important effort into the Company, the Investors are PURELY AND SIMPLY
FINANCIAL INVESTORS. Moreover, not only do the Investors not currently hold
a core control in the Company, they do not even hold a "Control Block" as
these terms are defined in law. Despite this, as part of the deal, these
same parties are in effect attempting to get, a "control premium" worth
millions of dollars, at the expense of the public shareholders, all by
conducting the "Transaction" as defined in the Immediate Report in the way
it proposes. Their pursuit of that objective even raises real suspicions of
a breach of a number of the law's provisions, all as set forth briefly
hereinunder.
4. THE NEGOTIATIONS WITH THE INVESTORS CONCERNING THE INVESTMENT IN THE
COMPANY
4.1 In Section 7.3 of the Immediate Report, it is reported that the
consideration determined as part of the investment agreements with the
Investors "WAS DETERMINED IN NEGOTIATIONS BETWEEN THE COMPANY AND EACH
OF MIVTACH SHAMIR AND RIMON, ZILKHA AND FIMA, SEPARATELY, BASED ON THE
SHARE PRICE DETERMINED IN THE CONTEXT OF THE INVESTMENT AGREEMENT WITH
NOUVELLE INVESTORS (the emphasis is mine - G.G.).
4.2. THIS STATEMENT RAISES MANY QUESTIONS. FOLLOWING ARE SOME OF THE
INITIAL QUESTIONS RAISED:
(a) Since the Investors (or any of their directors or controlling
shareholders in them) serve as officers in the Company, who
actually "conducted" the negotiations on behalf of the Company?
(b) Why did those same parties who conducted the "separate"
negotiations with the Investors (the financial ones as previously
mentioned) on behalf of the Company not see fit to demand the
payment of a premium from the Investors over and above the price
demanded of the strategic investors - Nouvelle Investors?
(c) Why did those parties that conducted the "separate" negotiations
with the Investors (the financial ones as previously mentioned)
on behalf of the Company agree that their investment should be
subject to and conditional on completing the negotiations and the
entering into this deal with Nouvelle and with Nouvelle
Investors? It is clear that as financial investors, their
investment in the Company at the same time as the investment of
Nouvelle Investors and the entry of their operations is in fact
practically without risk.
2
[UNOFFICIAL TRANSLATION FROM HEBREW]
GISSIN & CO., ADVOCATES
(d) In light of the fact that the Investors or someone on their
behalf serve as officers in the Company, and naturally were
involved in the negotiations conducted with Nouvelle and Nouvelle
Investors prior to the reporting of the transactions to the
public, is it possible that they were privy to inside information
(as this term is defined in the Securities Law, 5728-1968), at
the time they were conducting negotiations "separately" "with the
Company"?
4.3 The Immediate Report comprises 225 pages. However, the Report does not
answer these disturbing questions or any one of them. What can be
gathered from the Report are the results of those "separate
negotiations" someone conducted in the Company's name with the
Investors.
(a) As set forth in Sections 1.4 and 1.5 of the Immediate Report, the
Investors (each of them in proportion to its share), will
purchase as part of the transaction 1,190,475 ordinary shares of
the Company for USD 2.1 per share (NIS 7.6 at the representative
rate), a total of USD 2.5 million (NIS 9,050,000 at the
representative rate).
(b) The price of each share on the TASE at the end of the trading day
on November 24, 2010 was NIS 13.61. The value of the shares to be
purchased by the Investors, if and insofar as the entire
"Transaction" is approved, will therefore be NIS 16,202,364. THAT
IS TO SAY WHEN THE SHARES ARE PURCHASED THE INVESTORS CAN BE
EXPECTED TO MAKE A PROFIT OF 80%, A TOTAL OF NIS 7,152,364.
4.4 There is no doubt that the main reason for the substantial increase in
the value of the Company's shares on the TASE was the announcement of
the strategic deal with Nouvelle and Nouvelle Investors. Some would
even argue that when the deal actually goes through and the
uncertainty that still shrouds it is removed, the share may even rise
significantly. The point is that this is precisely what is problematic
about the entire affair. Those same "Investors" at the time they were
conducting the "separate negotiations" with the Company on their
investment, knew very well about the negotiations and the agreement
being concluded at the same time with Nouvelle and Nouvelle Investors.
I wouldn't be at all surprised if they (or someone on their behalf)
actually handled the contacts and the agreements with Nouvelle and
Nouvelle Investors. Moreover, as part of the negotiations it was
stipulated that the Investors' investment would be subject to and made
at the same time as the completion of the Nouvelle deal and the
investment of Nouvelle Investors. So not only did the investors have
additional "inside information" at the time the negotiations were
being conducted (and it hardly seems necessary to elaborate on the
significance of this), but they even went into a completely risk-free
deal.
3
[UNOFFICIAL TRANSLATION FROM HEBREW]
GISSIN & CO., ADVOCATES
5. CREATION OF A CONTROL CORE
5.1 But it would appear that not even this was enough to satisfy the
Investors. Not only were they buying shares in a risk-free deal while
ostensibly in possession of additional inside information and while
allowing themselves to enter into a "risk-free" deal. The Immediate
Report also notes that:
"TO THE BEST OF THE COMPANY'S KNOWLEDGE, THE NOUVELLE GROUP AND
MIVTACH SHAMIR ARE EXPECTED TO ENTER INTO A SHAREHOLDERS' AGREEMENT,
WHICH SHALL GRANT THEM A JOINT HOLDING IN THE COMPANY'S SHARES.
ACCORDINGLY, IT IS HEREBY EMPHASIZED THAT THE APPROVAL OF THE
COMPANY'S SHAREHOLDERS IS REQUIRED INTER ALIA IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 328 (B) (1) OF THE COMPANIES LAW, AS A PRIVATE
OFFER THE OBJECT OF WHICH IS TO GIVE THE SHAREHOLDERS IN THE NOUVELLE
AND MIVTACH SHAMIR GROUP, JOINTLY, MORE THAN 45% OF THE VOTING RIGHTS
IN THE COMPANY..."
5.2 Therefore, not only are the Investors receiving a substantial discount
on their risk-free purchase of shares but at the same time they are
even assuring for themselves the creation of a control core which will
give them a "control premium" in the future which they do not have at
present.
5.3 There is not enough room here to detail the nature and importance of
Clause 328 of the Companies Law. It need only be said that its
objective is to allow investors from the public to share in any
additional economic value that is created for the controlling
shareholders when they take for themselves a "control premium" to
which they were not previously entitled.
5.4 TO REPEAT - the shareholders from the public are being asked to vote
on all the aforementioned commercial steps "AS A WHOLE FOR THE
APPROVAL (OF THE SHAREHOLDERS) AS ONE RESOLUTION, and thus enable the
Investors to form a control core without shareholders from the public
benefiting from the process or getting the return for their consent to
creating for all or any of the a control premium that they do not
currently have.
6. PRESERVING THE STRATEGIC COMMERCIAL OPPORTUNITY CREATED FOR THE COMPANY
6.1 There is no doubt that the contract with Nouvelle and Nouvelle
Investors creates an important and strategic opportunity for the
Company to create and unlock value, including a significant flow of
orders (let us hope) for the Company's current excess production
capacity. The rise in the share price since the publication of the
planned deal shows that this is how even shareholders in the capital
market view it.
6.2 My client is also aware that there is a tight schedule for completing
the strategic deal with Nouvelle and obviously, as a shareholder in
the Company, he is extremely concerned about the possibility that the
deal (with Nouvelle) will not go through. Therefore, and so as not to
jeopardize the timetable of the deal with Nouvelle, you are hereby
required to declare and add to the agenda of the Company's meeting a
note clarifying that the approval of the planned deal is subject to
and conditional on the Company, its officers and the Investors
undertaking to publish and make, no later than 3 months from the date
the transaction is approved, a rights issue to all the Company's
shareholders as part of which every investor from the public will be
entitled to purchase shares at the same price offered to the Investors
to an amount that will be determined proportionately to the amount of
shares offered to the Investors, in proportion to their holdings in
the Company prior to entering into the investment agreements with it.
4
[UNOFFICIAL TRANSLATION FROM HEBREW]
GISSIN & CO., ADVOCATES
The Investors themselves, or someone on their behalf or entities
connected with them, will undertake not to take advantage of and
not to sell the rights to which they will be entitled in the
context of the issue.
6.3 It is self-evident that the abovementioned undertaking of the Company
and the Investors should be backed by guarantees of an appropriate
economic value, to be decided on and approved during the planned
meeting.
6.4 In this way it will be possible to close the entire deal according to
the published Immediate Report, but the shareholders from the public
will benefit from the same terms, proportionately, as those given to
the Investors.
Thus the additional and inappropriate advantage that the Investors and
officers in the Company unlawfully gave themselves will be partly
neutralized (probably too little and too late).
7. CONCLUSION
7.1 You are required to act as stated in paragraph 6 above.
7.2 Please consider this letter as a shareholder's request pursuant to
CLAUSE 88 (B) OF THE COMPANIES LAW, 5769-1999. Please publish this
letter in the MAGNA system as a "POSITION NOTICE" in advance of the
general meeting convened for November 29, 2010.
7.3 Nothing in the above or in anything missing from it exhausts my
client's arguments or constitutes a waiver of any remedy, right, claim
or grounds he may have in respect of any of the parties involved in
the matters that are the subject of this letter.
Yours faithfully,
[Signature]
Guy Gissin, Adv.
Gissin & Co., Advocates
cc: Danny Magen
38 HABARZEL ST., ENTRANCE B, 6TH FL. TEL-AVIV 69710 ISRAEL
TEL: 972-3-7457777 FAX: 972-3-7467700 E-MAIL: OFFICE(C)GISSINIAW.CO.IL
5
[UNOFFICIAL TRANSLATION FROM HEBREW]
TEFRON LTD.
("THE COMPANY")
November 29, 2010
RE: RESPONSE BY THE BOARD OF TEFRON LTD. TO THE SHAREHOLDERS' POSITION
ANNOUNCEMENT
Pursuant to the provisions of section 88 of the Companies Law, 5759-1999
(hereinafter: "the Law") and to section 6 of the Companies Regulations (Voting
in Writing and Position Announcements), 5766-2005, we are pleased to present the
response of the Company's board to the position announcement sent to the Company
by Attorney Guy Gissin, as the client of Mr. Danny Magen, a shareholder in the
Company, which was published by the Company, on November 29, 2010 (hereinafter:
"THE SHAREHOLDER" and "THE POSITION ANNOUNCEMENT", respectively). It should be
noted already at the outset that the Company's board is of the opinion that the
claims made in the Position Announcement are unfounded and tainted with a lack
of understanding of the particulars of the Transaction and the chronological
sequence of events.
1. BACKGROUND
On November 24, 2010 the Company published an immediate report (as
amended on November 29, 2010) (reference number: 2010-01-698151)
(hereinafter: "THE IMMEDIATE REPORT") concerning the convening of a
general meeting of Company shareholders for the purpose of approving
several agreements within the framework of which, INTER ALIA, the
Company is to purchase activity in the field of ladies' intimate
apparel products of Intimes Nouvelle Seamless Inc. (hereinafter:
"NOUVELLE"), and to invest in the company a total amount of 5,813,000
US dollars by (i) Canada Inc. 7341148, a private company incorporated
in Canada controlled by Mr. Martin Lieberman (hereinafter: "NOUVELLE
INVESTORS"); (ii) Mivtach Shamir Holdings Ltd. (hereinafter: "MIVTACH
SHAMIR"), which is an interested party in the Company and, for the
sake of caution, transactions with it are approved as transactions
with the holder of a controlling interest: and (iii) Zilkha Partners,
L.P. (hereinafter: "ZILKHA"); (iv) Fima Trust (hereinafter: "Fima")
and (v) Rimon Investments Master Fund L.P. (hereinafter: "RIMON"), an
interested party in the Company; (Mivtach Shamir investors, Rimon,
Zilkha and Fima shall hereinafter be collectively called: "THE
INVESTORS") in return for the private allotment of Company shares
based on the value of 2.1 dollars per share and an allotment of
450,000 option deeds to Ben and Martin Lieberman (250,000 option deeds
to each of them) (hereinafter collectively: "THE TRANSACTION").
This Transaction will enable the Company to penetrate markets and new
customers who are mass-market customers in North America. In the
Company's assessment, such markets embody significant purchasing
potential of such customers from the Company, in a manner likely to
make a positive contribution to the Company's operating results, thus
benefiting the Company.
In addition, within the framework of the Transaction the Company's
financing banks are supposed to increase the credit line provided by
them in favor of the Company by an additional 5,000,000 dollars. The
investments and loans by the said banks will grant the Company greater
flexibility in the ongoing management of its activities.
It should be noted that the Shareholder also recognizes the importance
of the Transaction for the Company and notes as follows at section 6.1
of the Position Announcement:
"THERE IS NO DOUBT THAT THE ENGAGEMENT WITH NOUVELLE AND
NOUVELLE'S INVESTORS CREATE AN IMPORTANT STRATEGIC OPPORTUNITY
FOR THE COMPANY TO CREATE AND BUOY ITS VALUE, INCLUDING A
SUBSTANTIAL FLOW OF ORDERS (AS WE ALL HOPE) TO SATISFY THE
COMPANY'S CURRENT SURPLUS PRODUCTION. THE INCREASE IN SHARE
PRICES SINCE THE PLANNED TRANSACTION WAS ANNOUNCED SHOWS THAT THE
SHAREHOLDERS IN THE CAPITAL MARKET SHARE THIS ASSESSMENT."
In light of all the aforesaid, and in light of all the other grounds
of the audit committee and board in favour of approving the
Transaction, as set forth in section 16 of the Immediate Report, the
Company's audit committee and board are of the opinion that engaging
in the Transaction would be for the Company's benefit.
2. CONDUCTING NEGOTIATIONS BETWEEN THE COMPANY AND THE INVESTORS AND THE
TERMS OF THE TRANSACTION
The Shareholder denied the fact that the Investors were given the
opportunity of participating in the Transaction and investing in the
Company in return for a share allotment based on a price of 2.1
dollars per share, which price is too low according to the Shareholder
(in terms of the investment made by the Investors). In addition, the
Shareholder expressed surprise with regard to the identity of the
party who conducted the negotiations vis-a-vis the Investors, some of
whom are interested parties in the Company, with regard to the extent
of risk (or lack thereof) of the Investors within the framework of the
Transaction and with regard to the shareholders agreement supposed to
be signed with Nouvelle, Nouvelle Investors, and Mivtach Shamir.
Below we shall present the response of the Company's board to the main
arguments of the Shareholder:
2.1 Firstly, it should be noted that the negotiations on behalf of
the Company with Nouvelle and with each of the other Investors
were conducted by the Company's management, headed by Company's
CEO, Mr. Amit Meridor.
2.2 Within the framework of the negotiations between Nouvelle and the
Company (hereinafter collectively: the "NOUVELLE GROUP"),
Nouvelle and Nouvelle Investors insisted that, INTER ALIA, an
investment by Mivtach Shamir in the Company and an engagement by
Nouvelle Investors in an agreement with Mivtach Shamir, which
would result in the Nouvelle Group and Mivtach Shamir jointly
holding the Company's core control at a rate exceeding 45% of the
voting rights in the Company(1), had to be conditions precedent
for the Transaction.
- ---------------------------
(1) Pursuant to the provisions of section 328 of the Companies Law, no
acquisition shall be effected in a public company as a result of which the
purchaser`s holdings exceed 45% of the voting rights in such company, if no
other person holds more than forty-five percent of the voting rights in the
company, other than by way of a tender offer from all the shareholders in the
company. However, the aforesaid does not apply to a private bidder, provided
that the acquisition has been approved by the general meeting as a private bid
aimed at disposing of forty-five percent of the voting rights in the company if
no person in the company holds forty-five percent of the voting rights in the
company, as took place within the framework of the Transaction under
consideration which is being brought for the approval of the general meeting as
as a transaction which grants the Norfet Group and Mivtach Shamir more than 45%
of the voting rights in the Company.
To the Company's best knowledge, the demand by Nouvelle Investors with
regard to Mivtach Shamir was designed to ensure the existence of an
Israeli "anchor" investor in the Company, in other words: a well-known
Israeli entity, which knows the Israeli capital market and has
significant financial strength. Accordingly, Mivtach Shamir's
investment in the Company constituted a condition precedent to the
engagement with Nouvelle within the framework of the memorandum of
understanding executed between the parties on August 19, 2010. For
further particulars see section 16.6 of the Immediate Report.
Furthermore, Nouvelle Investors attached significant importance to the
Company being held jointly with Mivtach Shamir, which will grant the
Company's management the backing required in order to implement its
plans in practice and to grow.
Due to this state of affairs, the Company's management turned to
Mivtach Shamir, which agreed to participate in the Transaction, and it
was obvious to all that without Mivtach Shamir's consent to invest in
the Company the Transaction would not materialize.
Mivtach Shamir made its consent to invest in the Company subject to
the condition that it would not be discriminated against with regard
to Nouvelle and Nouvelle Investors and that its investment in the
Company would be effected on the basis of the same share price.
It should be noted that prior to the publication of the Immediate
Report it was clarified to the Nouvelle Group and to Mivtach Shamir
that at this stage it would not be possible to join Norfet Limited
Partnership(2) (hereinafter: "Norfet"), which holds approximately
14.5% of the entire voting rights in Company, as a party to the
shareholders agreement, so that the holdings of the Nouvelle Group and
Mivtach Shamir, together, would remain less than 45% of the Company's
entire voting rights. Hence, Nouvelle insisted that an additional
investment be made by it or by Mivtach Shamir so that its joint
holdings would not exceed the 45% threshold. In light of the
aforesaid, and after Nouvelle had clarified to the Company that it
would agree only to a transaction structure in which the holdings of
the Nouvelle Group and Mivtach Shamir together did not exceed 45% of
the Company's voting rights, the audit committee and the board
approved an increase of the volume of investment by Nouvelle Investors
by an additional 613,000 dollars so that the holdings of the Nouvelle
Group and Mivtach Shamir together would not exceed the 45% threshold
since the audit committee and the broad were of the opinion that the
Transaction as a whole was reasonable and fair and benefited the
Company.
- --------------------------------------------------------------------------------
(2) To the Company's best knowledge, the general partner in Norfet, is jointly
controlled by Mivtach Shamir and Fimi 2001 Ltd.
2.3 An additional condition precedent, which Nouvelle insisted on, is that
the Company will reach a settlement with its financing banks
(hereinafter: "THE BANKS"), to Nouvelle's satisfaction. Accordingly,
simultaneously with the negotiations with Nouvelle concerning the
final wording of the agreements, the Company's management approached
the Banks in order to receive their approval for a settlement within
the framework of which the credit line and the loans provided in favor
of the Company would be increased and the financial criteria fixed in
the existing agreements with the Banks updated.
Within the framework of the negotiations being conducted with the
Banks the latter made their consent subject to provide additional
financing to the Company subject to the provision that the
shareholders of the Company invest an additional amount in the Company
of approximately 1.2 million dollars.
In this context should be noted that in the course of the negotiations
Nouvelle emphasized the importance that the agreements between it and
the Company would be executed and performed as soon as possible; the
company was advised that this was due to the fact that within the
framework of the Transaction Nouvelle was preparing to close its plant
in Montreal Canada and to dismiss its workers at the plant and any
delay in the execution of the agreements and the performance thereof
would mean a delay in the closure of such plant, which would result in
additional costs for Nouvelle.
Due to the urgent need to find an investor who would agree to invest
1.2 million dollars in the Company under the time pressure described
above the company approached Mr. Zvi Limon, a director of the Company,
to investigate the possibility of his investing the said amount. Mr
Zvi Limon granted his consent to effecting the said investment and
recruited the bodies Fima and Zilkha for the purpose of providing the
complete amount of 1.2 million dollars with the shortest amount of
time and subject to the condition that the investment would be made
based on a share price additional to the one for which Nouvelle's
investment in the company would be made.
IN THIS CONTEXT IT SHOULD BE NOTED THAT THE RIGHT ISSUE PROCESS IN A
COMPANY SUCH AS TEFRON, ALTHOUGH POSSIBLE, IS AN EXPENSIVE AND VERY
TIME-CONSUMING ONE. TEFRON'S SHARES ARE TRADED BOTH ON THE TEL AVIV
STOCK EXCHANGE LTD (HEREINAFTER: "THE STOCK EXCHANGE"), AND ON THE
OVER-THE-COUNTER BULLETIN BOARD (HEREINAFTER: "OTCBB"), WHICH REQUIRES
THE PUBLICATION OF A PROSPECTUS BOTH IN ISRAEL AND IN THE US AND
COORDINATION BETWEEN THE ISRAELI SECURITIES AUTHORITY, THE STOCK
EXCHANGE, THE OTCBB AND THE US SECURITIES AND EXCHANGE COMMISSION
(HEREINAFTER: "THE SEC"). IN THE AFOREMENTIONED CIRCUMSTANCES THE
COMPANY DID NOT HAVE THE AMOUNT OF TIME REQUIRED TO ENABLE AN
INVESTMENT OF 1.2 MILLION DOLLARS WITHIN THE FRAMEWORK OF THE RIGHT
ISSUE.
2.4 Regarding the share price for the purposes of the Transaction, this
was discussed in negotiations between the Company and Nouvelle, and it
was eventually set according to a weighted average of the share price
in the 90 days of trade preceding August 19, 2010, the date on which
the memorandum of understanding was executed. Moreover, in the period
preceding execution of the memorandum of understanding, the Company's
traded share price was going down. Thus, 2.1 dollars per share
represented a premium paid to Nouvelle, the Nouvelle Investors, and
the Investors, at a rate of approximately 22% above the average
weighted price for Company shares on the Stock Exchange in the 60 days
of trade that preceded execution of the memorandum of understanding
and a premium at a rate of approximately 12% above the average
weighted price for Company shares on the Stock Exchange in the 30 days
of trade that preceded execution of the memorandum of understanding.
It is thus clear that all the Shareholder's arguments, that the price
embodied a benefit intended only for Nouvelle and Nouvelle Investors,
are unfounded, as the price was set according to market conditions,
whereby the price of 2.1 dollars per share was significantly higher
than the share price on the Stock Exchange in the period shortly prior
to the execution of the memorandum of understanding.
Another error in the Shareholder's Position Announcement relates to
the examination, in retrospect, of the share price for the purposes of
the Transaction - 2.1 dollars, compared with the share price on the
Stock Exchange at the end of trading on November 24, 2010. As
aforesaid, the price of 2.1 dollars per share reflected market
assessments of the Company before the Transaction was carried out,
while the share price on November 24, 2010 reflected market
assessments of the Company's shares after the Company had reported the
memorandum of understanding between it and Nouvelle and after the
Company had reported the execution of the final agreements with regard
to the Transaction(3). It may reasonably be assumed that the main
increase in share price stemmed from the reports submitted by the
Company about the Transaction.
In this context, it should be noted that the Shareholder also states
in his Position Announcement (in another section, other than the one
dealing with the share price for the Transaction), that the increase
in share price stemmed from the very disclosure of the Transaction:
"THERE IS NO DOUBT THAT THE ENGAGEMENT WITH NOUVELLE AND
NOUVELLE'S INVESTORS CREATE AN IMPORTANT STRATEGIC OPPORTUNITY
FOR THE COMPANY TO CREATE AND BUOY ITS VALUE, INCLUDING A
SUBSTANTIAL FLOW OF ORDERS (AS WE ALL HOPE) TO SATISFY THE
COMPANY'S CURRENT SURPLUS PRODUCTION. THE INCREASE IN SHARE
PRICES SINCE THE PLANNED TRANSACTION WAS ANNOUNCED SHOWS THAT THE
SHAREHOLDERS IN THE CAPITAL MARKET SHARE THIS ASSESSMENT."
(Emphasis not in the original).
2.5 Another argument raised by the Shareholder is that the investment in
the Company's shares by the investors is a risk-free one. The
Company's board believes that investor willingness to join the
Transaction on the terms set out above is not without risk, and
accordingly should not at all be taken for granted. In general, the
global financial crisis is still leaving its mark on markets
worldwide, and any argument that an investment under current market
conditions in a Company such as Tefron is risk-free, is patently
false. Furthermore, the Company operates in a field saturated with
competition, which has undergone many changes in recent years (with
the changeover to manufacturing through subcontractors in the Far
East), while the Company has in recent years shown losses (including
negative EBITDA (earning before interest, tax depreciation and
amortization)) and is in the throes of implementing a rehabilitation
program.
- ---------------------------
(3) See the Company's Immediate Report dated November 17, 2010 (reference
number: 2010- 01-683016).
Moreover, as we are dealing with an investment being made as part of a
private allotment of securities, a resale of securities assigned to
investors will be subject to the restrictions in section 15C of the
Securities Law, 5728-1968 (hereunder: "THE SECURITIES LAW"). The said
restrictions on the ability of investors to sell the securities
allotted to them increases even more the risk associated with
investing in the Company. The aforesaid applies with even greater
force in light of the fact that the terms of the Transaction, having
regard, in particular, to the price per share have already been agreed
upon, although the completion of the Transaction is only expected
towards the end of the year and the restrictions by virtue of the
provisions of section 15C of the Securities Law will apply with effect
from the date of completion, so that the Investors are assuming a
significant risk in the event that in the course of the period
commencing from the date on which the terms of the Transaction were
agreed a significant deterioration in the condition the Company and a
decline in share prices should ensue, whereby their ability to sell
their shares is limited.
2.6 With respect to the Shareholder's argument regarding inside
information (as such term is defined in the Securities Law), the
Company's board rejects these arguments outright and wished to clarify
that the Company operates in accordance with the law.
2.7 At the end of his application, the Shareholder demands that the
Company undertake to issue rights to all Company shareholders at a
price of 2.1 dollars per share in a quantity to be fixed in proportion
to the number of shares offered to investors.
In light of the contents of section 2 above, the board is of the
opinion that the Shareholder's argument lacks any substance and,
accordingly, it would be totally inappropriate to acquiescing to his
demand to issue rights to all Company shareholders, and especially
where this involves the issuing of rights based on the share value
which represented the share price on the Stock Exchange a number of
months ago and prior to disclosure of the Transaction.
More importantly, as noted in section 2.2 above, one of Nouvelle's
conditions for the Transaction is that the holdings by the Nouvelle
Group and by Mivtach Shamir jointly exceed 45% of voting rights in the
Company. Accepting the Shareholder's position, aside from the fact
that it lacks any basis, would, in all probability, lead to
cancellation of the Transaction and loss of an important business
opportunity for the Company, harming the Company's shareholders.
3. In light of all the aforesaid, the Company's board reaffirms its
position that there is no substance to the arguments raised in the
Position Announcement, and that the Transaction being brought before
the shareholders for approval constitutes an especially important
business opportunity for the Company, under which, INTER ALIA,
substantial sums will flow into the Company, allowing it to deal with
the challenges that it is currently facing, including continued
implementation of the Company's turnaround program, financial
flexibility and penetration of new markets and new customers in a
manner likely to make a positive contribution to its operating
results.
It should be noted that the Company made the disclosure within the
framework of the Immediate Report concerning the Transaction,
including the entire set of agreements included therein, and the
Transaction, in its entirety, is being brought for the approval of the
general meeting of shareholders, which is able to express its position
with regard to the Transaction by their very votes in favor or against
the Transaction, whereby the approval of the Transaction requires a
special majority of shareholders who have no personal interest in the
Transaction pursuant to the provisions of section 275 of the Companies
Law.
YOURS FAITHFULLY,
BOARD OF DIRECTORS, TEFRON LTD