Filed
pursuant to Rule 424(b)(5)
Registration No. 333-215404
The information contained in
this preliminary prospectus supplement is not complete and may be
changed. This preliminary prospectus supplement is not an offer to
sell these securities, and we and the selling shareholders are not
soliciting an offer to buy these securities in any state where an
offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED
JANUARY 23, 2017
Preliminary prospectus
supplement
(To prospectus dated January 3,
2017)
7,000,000 Shares
Kornit Digital Ltd.
Ordinary Shares
__________________________________________
We are offering 2,000,000 ordinary
shares and the selling shareholders identified in this prospectus
supplement, including our chief executive officer, are offering an
additional 5,000,000 ordinary shares. The ordinary shares being
sold by our chief executive officer represent less than 10% of his
shares and vested and unvested options. We will not receive any of
the proceeds from the sale of shares being offered by the selling
shareholders.
Our ordinary shares are listed on
the NASDAQ Global Select Market under the symbol
“KRNT.” On January 20, 2017, the last reported sales
price of our ordinary shares was $17.75 per share.
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Public offering
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Underwriting
discounts and commissions
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Proceeds, before
expenses, to us
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Proceeds to the
selling shareholders
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The underwriters may also exercise
their option to purchase up to an additional 300,000 ordinary
shares from us and up to an additional 750,000 ordinary shares from
the selling shareholders, in each case at the public offering
price, less underwriting discounts and commissions, for 30 days
after the date of this prospectus supplement.
We are an “emerging growth
company” as defined under federal securities laws and, as
such, may elect to comply with certain reduced public company
reporting requirements.
Investing in our
ordinary shares involves risks that are described in the
“Risk Factors” section beginning on page S-14 of this
prospectus supplement and in the documents incorporated by
reference.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of
the securities being offered by this prospectus supplement or
accompanying prospectus, or determined if this prospectus
supplement or accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal
offense.
__________________________________________
The underwriters expect to deliver
the ordinary shares to purchasers on or about
, 2017.
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Barclays
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Citigroup
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William Blair
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Stifel
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Canaccord Genuity
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Needham & Company
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__________________________________________
The date of this Prospectus
Supplement is , 2017.
Table of Contents
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About this Prospectus Supplement
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S-ii
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Forward-looking statements
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S-ii
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Prospectus supplement summary
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S-1
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The offering
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S-10
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Summary consolidated financial and other
data
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S-11
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Risk factors
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S-14
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Use of proceeds
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S-32
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Capitalization
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S-33
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Dilution
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S-34
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Price range of ordinary shares
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S-35
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Principal and selling shareholders
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S-36
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Industry
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S-38
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B
usiness
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S-44
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Management
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S-56
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U.S. and Israeli tax consequences for our
shareholders
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S-60
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Underwriting
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S-67
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Legal matters
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S-72
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Experts
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S-72
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Enforceability of civil liabilities
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S-72
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Where you can find more information
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S-73
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Incorporation of certain documents by
reference
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S-73
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About this Prospectus
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1
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Kornit Digital Ltd.
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1
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Risk Factors
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2
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Offer Statistics and Expected
Timetable
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2
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Forward-Looking Statements
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2
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Ratio of Earnings to Fixed Charges
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3
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Capitalization
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3
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Price Range of Ordinary Shares
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3
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Use of Proceeds
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4
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Selling Shareholders
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4
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Description of Securities
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5
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Description of Ordinary Shares
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5
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Description of Warrants
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11
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Description of Rights
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12
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Description of Debt Securities
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13
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Description of Units
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15
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Plan of Distribution
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16
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Expenses Associated with the
Registration
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19
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Legal Matters
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20
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Experts
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20
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Where You Can Find More Information
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20
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Incorporation of Certain Documents By
Reference
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21
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Enforceability of Civil Liabilities
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22
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S-i
About this Prospectus
Supplement
This prospectus supplement and the accompanying prospectus are part
of a registration statement that we filed with the Securities and
Exchange Commission (the “SEC”), utilizing a
“shelf” registration process. The document is in two
parts. The first part is the prospectus supplement, which describes
the specific terms of this offering. The second part is the
prospectus, which provides more general information about
securities we or the selling shareholders referred to therein may
offer from time to time, some of which may not apply to this
offering. Generally, when we refer to this prospectus, we are
referring to both parts of this document combined. We urge you to
carefully read this prospectus supplement and the prospectus, and
the documents incorporated by reference herein and therein, before
buying any of the securities being offered under this prospectus
supplement. This prospectus supplement may add or update
information contained in the prospectus and the documents
incorporated by reference therein. To the extent that any statement
we make in this prospectus supplement is inconsistent with
statements made in the accompanying prospectus or any documents
incorporated by reference therein that were filed before the date
of this prospectus supplement, the statements made in this
prospectus supplement will be deemed to modify or supersede those
made in the accompanying prospectus and such documents incorporated
by reference therein.
You should rely only on the information contained or incorporated
by reference in this prospectus supplement and the accompanying
prospectus, or contained in any free writing prospectus prepared by
or on our behalf. We have not, and the underwriters have not,
authorized anyone to provide you with different information. The
distribution of this prospectus supplement and sale of these
securities in certain jurisdictions may be restricted by law. The
selling shareholders are not making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. This prospectus supplement and the accompanying
prospectus are not, and under no circumstances are to be construed
as, an advertisement or a public offering of securities in Israel.
Any public offer or sale of securities in Israel may be made only
in accordance with the Israeli Securities Law 1968 (which requires,
among other things, the filing of a prospectus in Israel or an
exemption therefrom). Persons in possession of this prospectus
supplement or the accompanying prospectus are required to inform
themselves about and observe any such restrictions. You should
assume that the information appearing in this prospectus
supplement, the accompanying prospectus and the documents
incorporated by reference in this prospectus supplement and the
accompanying prospectus, and in any free writing prospectus that we
have authorized for use in connection with this offering, is
accurate only as of the date of those respective documents.
Unless otherwise mentioned or unless the context requires
otherwise, all references in this prospectus supplement or
prospectus to “the Company,” “we,”
“us,” “our” and “Kornit” refer
to Kornit Digital Ltd. and its subsidiaries.
Forward-looking
statements
This prospectus supplement, the accompanying prospectus and the
documents incorporated by reference herein and therein contain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities
Act”), Section 21E of the Securities Exchange Act of 1934, as
amended (“the “Exchange Act”) and the safe harbor
provisions of the U.S. Private Securities Litigation Reform Act of
1995, that are based on our management’s beliefs and
assumptions and on information currently available to our
management. Forward-looking statements include information
concerning our possible or assumed future results of our business,
financial condition, results of operations, liquidity, plans and
objectives. Forward-looking statements include all statements that
are not historical facts and in some cases can be identified by
terminology such as “believe,” “may,”
“estimate,” “continue,”
“anticipate,” “intend,”
“should,” “plan,” “expect,”
“predict,” “potential,” or the negative of
these terms or other similar expressions that convey uncertainty of
future events or outcomes
Our ability to predict the results of our operations or the effects
of various events on our operating results is inherently uncertain.
Therefore, we caution you to consider carefully the matters
described under the caption “Risk Factors” and certain
other matters discussed in this prospectus supplement, the
accompanying prospectus and the documents incorporated by reference
herein and therein, and other publicly available sources. Such
factors and many other factors beyond the control of our management
could cause our actual results, performance or achievements to
differ materially from any future results, performance or
achievements that may be expressed or implied by the
forward-looking statements. Unless we are required to do so under
U.S. federal securities laws or other applicable laws, we do not
intend to update or revise any forward-looking statements.
S-ii
Prospectus supplement
summary
This summary
highlights selected information contained elsewhere in this
prospectus supplement. This summary does not contain all of the
information you should consider before investing in our ordinary
shares. You should read the entire prospectus supplement and the
accompanying prospectus carefully, including “Risk
Factors” and our consolidated financial statements and
notes to those consolidated financial statements, before
making an investment decision.
Our Company
We develop, design and market innovative digital printing solutions
for the global printed textile industry. Our vision is to
revolutionize this industry by facilitating the transition from
analog processes that have not evolved for decades to digital
methods of production that address contemporary supply, demand and
environmental dynamics. We focus on the rapidly growing high
throughput, direct-to-garment, or DTG, and roll-to-roll, or R2R,
segments of the printed textile industry. Our solutions include our
proprietary digital printing systems, ink and other consumables,
associated software and value added services that allow for large
scale printing of short runs of complex images and designs directly
on finished garments and fabrics. Our solutions are
differentiated from other digital methods of production because
they eliminate the need to pre-treat fabrics prior to printing,
thereby offering our customers the ability to digitally print high
quality images and designs on a variety of fabrics in a streamlined
and environmentally-friendly manner. When compared to analog
methods of production, our solutions also significantly
reduce production lead times and enable customers to more
efficiently and cost-effectively produce smaller quantities of
individually printed designs, thereby mitigating the risk of excess
inventory, which is a significant challenge for the printed
textile industry.
There are a number of trends within the global printed textile
industry that we believe are driving greater demand for our
solutions. Consumers are continuing to seek to differentiate
themselves by wearing customized and personalized garments with
colorful and intricate images and designs. Consumers are also
increasingly purchasing retail products online, with apparel
representing the largest portion of this market. Brand owners and
contract printers are seeking methods to shorten time to market and
reduce production lead times in order to more efficiently and
cost-effectively produce smaller runs of printed textiles and
reduce the risk of excess inventory while concurrently meeting
consumer demands. As consumers increasingly shift to online retail
channels, there is an increased need for brand owners and contract
printers to improve efficiency, as consumers demand more varied
product offerings and faster fulfillment of orders. Simultaneously,
regulatory bodies and consumers are increasingly focused on social
responsibility and eco-friendly manufacturing, demanding that
printed textile manufacturers reduce the negative environmental
impact associated with the manufacturing of printed textiles. Our
solutions address these trends by enabling our customers to print
smaller quantities of customized products in a time efficient,
cost-effective and environmentally friendly manner, effectively
allowing them to transition from customary methods of supply and
demand to demand and supply.
We have developed and offer a broad portfolio of differentiated
digital printing solutions for the DTG market that provide answers
to challenges faced by participants in the global printed textile
industry. Our DTG solutions utilize our patented wet-on-wet
printing methodology that eliminates the common practice of
separately coating and drying textiles prior to printing. This
methodology also enables printing on a wide range of untreated
fabrics, including cotton, wool, polyester, lycra and denim. With
throughputs ranging from 32 to 250 garments per hour, our entry
level and high throughput DTG solutions are suited to the needs of
a variety of customers, from smaller commercial operators with
limited budgets to mass producers with mature operations and
complex manufacturing requirements. Our patented NeoPigment ink and
other consumables have been specially formulated to be compatible
with our systems and overcome the quality-related challenges that
pigment-based inks have traditionally faced when used in digital
printing. Our software solutions simplify workflows in the printing
process, by offering a complete solution from web order intake
through graphic job preparation and execution. We also offer
customers maintenance and support services as well as value added
services aimed at optimizing the use of our systems.
Building on the expertise and capabilities we have accumulated in
developing and offering differentiated solutions for the DTG
market, we market a digital printing solution, the Allegro,
targeting the R2R market. While the DTG market generally involves
printing on finished garments, the R2R market is focused on
printing on fabrics that are subsequently converted into finished
garments, home or office décor and other items. The Allegro
utilizes our proprietary wet-on-wet printing methodology and houses
an integrated drying and curing system. It offers the first
single-step, stand-alone R2R digital textile printing solution
available on the market. We primarily market the Allegro to
web-based businesses that require a high degree of variety and
limited quantity orders, as well as to fabric
S-1
converters, which source large quantities of fabric and convert
untreated fabrics into finished materials to be sold to garment and
home décor manufacturers. We believe that with the Allegro
we are well positioned to take advantage of the growing trend
towards customized home décor. We began selling the Allegro
commercially in the second quarter of 2015.
We were founded in 2002 in Israel, shipped our first system
in 2005 and, as of September 30, 2016, had over 1,000 customers
globally. As of December 31, 2016, we had 390 employees located
across four regions: Israel, the United States, Europe and the Asia
Pacific region. In the nine months ended September 30, 2016,
we generated revenues of $76.7 million, representing an increase of
25.9% over the prior fiscal year. In the nine months ended
September 30, 2016, we generated 69.4% of our revenues from the
Americas, 20.5% from EMEA and 10.1% from the Asia Pacific
region.
Industry
Overview
The global textile and
garment industry, including textile, clothing, footwear and luxury
fashion, was worth nearly $3 trillion in 2015 and is projected to
grow between 2% and 5% annually through 2020, according to a 2016
Digital Textile Printing Industry Forecast 2015-2020 report by
InfoTrends, a provider of market intelligence on the digital
imaging industry. The global printed textile industry represents a
sub-segment of the global textile industry. The global printed
textile industry involves printing on fabric rolls, finished
garments and unsewn pieces of cut fabric at various stages along
the value chain in the production of goods for the apparel,
household, technical and display end markets.
We believe that the vast majority of the output of the global
printed textile industry in 2016, which was projected to be
approximately 32 to 33 billion square meters, was produced using
analog print methods, specifically screen printing, carousels
for printing on garments and rotary screen printers for printing on
rolls of fabric. Our assessment is based on data provided in a 2016
report by Smithers Pira, a provider of market intelligence on the
printed textile industry. The Pira report provides digital printing
output estimates for 2016 and projects the analog printing output
for 2016 as well as the annual digital textile printing growth rate
through 2021, which we used to calculate a projected digital output
of approximately 870 million square meters for 2016, representing
2.9% of total projected annual global printed textile output in
2016. According to the Pira report, digital textile printing output
is forecasted to grow at a 17.5% compound annual growth rate
(“CAGR”) globally from 2016 to 2021. Within digital
textile printing, clothing applications represent the greatest
amount of digital printed textile output and are projected to grow
at a faster rate than household, technical and display
applications.
Evolving consumer behavior is driving the growth in digital
printing as well as the shift to online retail. This behavior is
motivated by increased demand for the variety and complexity of
images and designs on textiles as well as increased desire for
customization and personalization.
Apparel represents the largest segment of the online retail market
and sales are highly influenced by rapidly changing consumer
trends. We believe that four key trends are currently driving
growth in both the online retail market and the demand for digital
printing solutions:
•
Immediate
Gratification.
Consumers are willing to pay more in
order to receive products faster.
•
Personal
Expression.
Consumers are increasingly seeking the
ability to customize products by choosing preferred features from a
menu of options, or the ability to personalize products by adding
an individualized pattern.
•
Influence of Social
Media.
The means through which customers gather
information to inform purchase decisions has evolved with social
media increasingly influencing such decisions.
•
Consumer
Preference.
Today’s consumer is leveraging the
online channel for apparel purchases at a pace that far exceeds
traditional brick and mortar purchases.
New business models have developed in response to the evolution of
these consumer trends and the rapid growth of the online retail
market. Our solutions enable this category of
“web-to-print” businesses to fulfill consumer demand
more quickly and cost-effectively in a manner that is
differentiated from traditional brick and mortar businesses. A
number of large scale web-to-print platforms have emerged. These
platforms often leverage digital printing solutions to facilitate
business for a variety of content creators.
S-2
The ecosystem of web-to-print businesses which we currently serve
includes:
•
Self-Fulfillment
. Companies
manufacturing and selling their own designs which are advertised on
their own websites and through other marketing means.
•
Hybrid
Printers.
Companies who both manufacture in-house and
outsource manufacturing to third party fulfillment providers, who
are often also our customers.
•
Third Party
Fulfillment Centers.
Companies serving as third party
fulfillment for other businesses. Demand for these businesses is
typically generated online through other web retailers.
Proximity to the consumer is a key factor for these businesses
since it minimizes shipping costs and enables them to offer rapid
turnaround. In many cases, retailers have asked us for assistance
in identifying our local customers to help with their
fulfillment.
Across the ecosystem of businesses leveraging our solutions, a
majority of consumer demand is influenced by social media.
According to a study by PricewaterhouseCoopers, 78% of consumers
were influenced by social media in making online shopping decisions
in 2015, up from 68% in the year prior. These businesses offer
personalization capabilities and rapid, on-demand fulfillment for
jobs as small as one unit. These offerings require significant
flexibility for printing setup and preparation, which is enabled
through digital textile printing. Through innovations in on-demand
fulfillment, web-to-print businesses have substantially reduced the
need to stock inventory and shifted the traditional brick and
mortar model of supply and demand to a new model of demand and
supply.
Our Solutions
Our solutions include a combination of proprietary digital textile
printing systems, ink and other consumables and associated software
as well as value added services. Our line of DTG systems offers a
range of performance options depending on the needs of the
customer. These options include the number and size of printing
pallets, number of print heads, printing throughput and process ink
colors, as well as other customizable features. We categorize our
DTG systems into two groups that are focused on the industrial
segment of the DTG market: entry level and high throughput. As our
business and the market we serve have evolved, we have shifted the
mix of our system sales primarily to high throughput systems.
•
Entry
Level
. We currently market one entry level system, the
Breeze system. The Breeze allows businesses to adopt digital
technology with a limited upfront investment and uses the same
technology as our high throughput systems but with smaller garment
printing areas and at lower throughput levels.
•
High
Throughput.
We offer a wide range of high throughput
systems. We market a hybrid platform, the Paradigm II, which
connects to existing screen printing carousels for customers who
want to combine short runs of multicolored images into their
ongoing screen printing operations. Our mid-level platform, the
Storm, which employs one axis of print heads and two pallets,
consists of four models (Storm 2, Storm Hexa, Storm Duo and Storm
1000). Our next level of high throughput systems is based on the
Avalanche platform which employs two print head axes with two
pallets and also comes in four different models (Avalanche,
Avalanche DC, Avalanche 1000 and Avalanche Hexa). During 2016 we
successfully commercially launched our new high throughput
platform, the Vulcan, which is geared towards addressing the needs
of mass production at a significantly lower cost per print relative
to our other systems.
Building on the expertise and capabilities we have accumulated
throughout our history in developing and offering differentiated
solutions for the DTG market, we now market an R2R digital printing
solution, the Allegro. The Allegro offers the first single-step,
stand-alone R2R digital textile printing solution available on the
market and eliminates several preprint and post print steps
required with other digital printing technologies. The Allegro also
utilizes a special version of our NeoPigment ink which is
eco-friendly and meets the highest industry standards. The Allegro
is capable of achieving high throughput volumes and does not
require water or steam for any part of the printing process, making
it friendly to the environment.
Our ink and other consumables consist of our patented NeoPigment
ink, proprietary binding agent, priming fluid, wiping
fluid, and flushing fluid. Our pigment based inks
are available in seven colors and are formulated for optimal use
exclusively in our systems. Our patented wet-on-wet printing
methodology combines the use of pigments rather than dyes in
conjunction with our proprietary binding agent, and enables us to
print on a wide range of fabrics
S-3
without the need for a separate pre-treatment process or system
reconfiguration, resulting in minimal setup times for each
run and high throughput levels. We also continuously invest in the
development of new ink formulas for our systems in order to expand
the range of fabrics on which we can print and further improve the
quality of our high resolution images and designs.
Our Competitive
Strengths
The following are our key competitive strengths:
•
Leading player in
fast-growing digital DTG market
. We are a leading
player in the fast-growing digital DTG market based on our sales
and have over 1,000 customers globally. We estimate that global
revenue from digital textile printing equipment and ink will grow
at a 15.7% CAGR between 2016 and 2021 based on the estimate of such
revenue for 2016 and the projection for 2021, in each case,
contained in the Pira report. We believe that high throughput DTG
applications in the textile printing market are positioned to grow
at a rate greater than the 15.7% overall industry growth rate
projected between 2016 and 2021. We have outperformed the industry
growth rate over the past several years, growing our revenue at a
25.7% CAGR from the 12 months ended June 30, 2014 to the 12 months
ended June 30, 2016, versus an industry CAGR of 15.6% for the same
period, as estimated in the Pira report. The Pira report estimates
that the DTG market has an addressable opportunity of six to 10
billion garments a year. According to a prior Smithers Pira report
published in 2014, over 300,000 sites globally print primarily
t-shirts and other apparel.
•
Well positioned to
disrupt the R2R market with our unique single-step manufacturing
solution
. We believe we are well positioned to
capitalize on the growing trend toward customized home décor
with our unique R2R solution. Our Allegro system combined with our
proprietary process was designed to offer a single-step
manufacturing solution which is especially suited for businesses
which don’t have a vertically integrated textile mill. Unlike
other digital textile printers, the Allegro does not require
multiple pre-processing and post-processing steps which are
customarily used in vertically integrated textile mills and which
utilize high levels of energy and space and have a negative
environmental impact. Given its architecture, it is perfectly
suited for short and micro runs. Allegro is compact in size and
requires a single person to operate and fits very well in an urban
and non-industrial setting. Allegro is unique in its ability to
print on multiple fabric types without the need for different inks
and consumables, while generally other systems and technologies for
R2R digital printing require dedication of discrete printers to
specific fabric types.
•
Disruptive technology
that enables our customers to adopt new or improve existing
business models
. Our digital printing solutions allow
our customers to develop new or improve existing business models by
enabling them to produce short to medium runs of high-quality
customized garments efficiently. This also facilitates “web
to print” business models that manufacture on a
“produce to order” basis and allows brand owners to
produce garments in house. With a constantly growing worldwide
customer base of more than 1,000 customers, we are witnessing the
creation of a global fulfillment network of printing specialists
which are leveraged by large numbers of websites that offer
customizable garment printing services. As demand from these
customers continues to grow so does utilization of our systems
which in turn consume more ink and once used to their full capacity
require purchasing of more systems.
•
Attractive business
model
. Our existing and growing installed base of
systems results in recurring sales of ink and other consumables.
Recurring sales of ink and other consumables have historically
offered us a degree of visibility into a significant
component of our results of operations. We believe that our
recurring sales model also enables us to foster close customer
relationships and allows us to provide value added services to our
customers. Our customer relationships are further strengthened by a
trend towards ownership of multiple systems, as the number of
customers with at least two systems has grown from 155 as of
December 31, 2014, to 219 as of December 31, 2016 and the number of
customers with at least 10 systems has grown from nine as of
December 31, 2014, to 15 as of December 31, 2016. We anticipate
revenue from services to increase over time as we reach upgrade
cycles across our growing installed base. Additionally, sales of
ink and other consumables are generally higher in high throughput
systems such as the Vulcan, Avalanche and Allegro systems. Large
accounts typically run at high utilization rates and can consume up
to five times as much ink per year compared to other accounts. We
have proven our ability to
S-4
grow revenues while maintaining an attractive margin profile and we
intend to continue investing in our business to drive profitable
growth in the future.
•
Robust intellectual
property portfolio driven by an innovation-based
culture
. Our intellectual property portfolio
reflects over a decade of significant investments in
digital textile printing, which we believe creates
significant barriers to entry. We have developed a strong
base of technology know-how, backed by our portfolio of
intellectual property, which includes 19 issued patents and 22
pending patent applications that cover wet-on-wet printing
methodology, ink formulations, printing processes and related
methods and systems.
•
Extensive product
portfolio and strong new product pipeline
. Our DTG
systems are suited for smaller commercial operators with limited
budgets, as well as mass producers with mature operations and
complex needs. We have commercialized two new solutions in the
market: the Allegro, a one-step, integrated R2R printing, drying
and curing system, and the Vulcan, a cost-effective digital
substitution for carousel screen printing. Our future roadmap
remains focused on the continued development of proprietary
processes, continuously expanding the breadth of applications upon
which we can print while pushing the envelope of cost efficient
manufacturing further as a means to expand our servable addressable
markets.
•
Environmentally friendly
printing processes
. A significant portion of
global industrial water pollution comes from textile treatment and
dyeing. Our printing process eliminates the need for separate
pre-treatment, as well as steaming, washing or rinsing of textiles
during the printing process, which leads to a significant
reduction in water consumption compared to conventional printing
methods.
•
Strong management
team
. Our management team’s industry expertise,
history with our company and extensive experience in running global
publicly traded companies will enable us to execute our growth
strategy. We have recently strengthened our management
infrastructure with key hires who are experienced in the management
of people, large scale business, innovation and product development
in larger organizations including Intel, HP, KlA Tencor and
Stratasys. Over the past three years, we have also invested heavily
in human resources to support our growth. Since 2013, our workforce
has more than doubled from 190 to 390 as of December 31, 2016.
Additionally, more than 150 of our employees are in the field,
enabling us to provide more localized service for our
customers.
Our Strategy
The following are the key elements of our growth strategy:
•
increase sales to existing customers;
•
acquire new high volume customers;
•
capitalize on growth in our targeted markets;
•
extend our serviceable addressable market (SAM) by continuing to
enhance our solutions; and
•
extend our leadership position through ongoing investments in
research and development, acquisitions and strategic
partnerships.
Recent
Developments
Purchase Agreement
with Amazon
On January 10, 2017, we entered into a Master Purchase Agreement
with Amazon Corporate LLC, a subsidiary of Amazon.com, Inc.
(“Amazon”). Under the Master Purchase Agreement, Amazon
may purchase and we are committed to supply Avalanche 1000 digital
direct-to-garment printers and NeoPigment ink and other consumables
at agreed upon prices which are subject to volume. We also agreed
to provide maintenance services and extended warranties to Amazon
at agreed prices.
Concurrently with the Master Purchase Agreement, we issued warrants
to an affiliate of Amazon to purchase up to 2,932,176 of our
ordinary shares at an exercise price of $13.04 per share (either
for cash or on a cashless basis). The warrants vest in increments
over a five-year period based on payments by Amazon for products
and services
S-5
purchased from us beginning on May 1, 2016 in an amount of up to
$150 million. We generated approximately 17% of our revenues (net
of $2.0 million related to the fair value of the warrants
associated with the revenue recognized) from Amazon in 2016 and,
based on payments made by Amazon during 2016, some of the warrant
shares were vested at the time of the execution of the Master
Purchase Agreement.
Seasonal
Variations
In the fourth quarter of 2016, our ink and other consumables
revenues reached a record high as a result of significant sales to
large customers, including Amazon. We expect that during the first
quarter of 2017, ink and other consumables revenues will moderate
as a function of the seasonality we generally experience. Because
ink and other consumables sales generate higher gross margins than
system sales, and because our cost structure is relatively fixed
for the short term and we are continuing to invest in the overall
growth of our business, this variability will impact our operating
profit in the first quarter. See “Risk Factors — Our
operating results are subject to seasonal variations, which could
cause the price of our ordinary shares to decline.”
Preliminary Results of Operations for the
Three Months Ended December 31, 2016 and the Year Ended December
31, 2016
Our consolidated financial statements for the three months ended
December 31, 2016 and for the year ended December 31, 2016 are not
yet available. Accordingly, the information presented below
reflects our preliminary results subject to the completion of our
financial closing procedures and any adjustments that may result
from the completion of the annual review of our consolidated
financial statements. As a result, these preliminary results may
differ from the actual results that will be reflected in our
consolidated financial statements for the year when they are
completed and publicly disclosed. These preliminary results may
change and those changes may be material.
Our expectations with respect to our unaudited results for the
period discussed below are based upon management estimates and are
the responsibility of management. Our independent registered public
accounting firm has not audited, reviewed or performed any
procedures with respect to these preliminary results and,
accordingly, does not express an opinion or any other form of
assurance about them.
Because we have not completed our closing processes, we are unable
to estimate our income before taxes on income or the amount of
taxes on income and, accordingly, are unable to estimate our net
income. We have provided below our operating income. Although we
are not able to estimate the amount of taxes on income, we have not
identified any unusual or unique events or trends with respect to
that line item that occurred during the three months ended December
31, 2016 or the year ended December 31, 2016 and that might
materially affect our net income for that period or that year. We
believe that the following information about our operating income,
even when unaccompanied by information regarding our income before
taxes on income or net income, is still helpful to an
investor’s understanding of our operating performance.
|
|
|
|
Three
Months Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
86,405
|
|
$
|
106,677
|
|
$
|
108,677
|
|
$
|
25,498
|
|
$
|
29,970
|
|
$
|
31,970
|
Operating income
|
|
$
|
5,768
|
|
$
|
835
|
|
$
|
1,795
|
|
$
|
2,199
|
|
$
|
209
|
|
$
|
1,169
|
Supplemental Financial Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP revenues
(1)
|
|
$
|
86,405
|
|
$
|
108,707
|
|
$
|
110,707
|
|
$
|
25,498
|
|
$
|
32,000
|
|
$
|
34,000
|
Non-GAAP operating income
(2)
|
|
$
|
10,448
|
|
$
|
9,972
|
|
$
|
10,932
|
|
$
|
3,326
|
|
$
|
4,480
|
|
$
|
5,440
|
S-6
|
|
|
|
Three Months Ended December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Reconciliation of Revenues to
Non-GAAP Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
86,405
|
|
$
|
106,677
|
|
$
|
108,677
|
|
$
|
25,498
|
|
$
|
29,970
|
|
$
|
31,970
|
Fair value of warrants
deducted from revenues
|
|
|
—
|
|
|
2,030
|
|
|
2,030
|
|
|
—
|
|
|
2,030
|
|
|
2,030
|
Non-GAAP
revenues
|
|
$
|
86,405
|
|
$
|
108,707
|
|
$
|
110,707
|
|
$
|
25,498
|
|
$
|
32,000
|
|
$
|
34,000
|
|
|
|
|
Three Months Ended December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Reconciliation of Operating Income to
Non-GAAP Operating Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$
|
5,768
|
|
$
|
835
|
|
$
|
1,795
|
|
$
|
2,199
|
|
$
|
209
|
|
$
|
1,169
|
Fair value of warrants
deducted from revenues
|
|
|
—
|
|
|
2,030
|
|
|
2,030
|
|
|
—
|
|
|
2,030
|
|
|
2,030
|
Share-based
compensation
expense
|
|
|
2,383
|
|
|
2,993
|
|
|
2,993
|
|
|
757
|
|
|
913
|
|
|
913
|
Acquisition-related
expenses
|
|
|
800
|
|
|
881
|
|
|
881
|
|
|
—
|
|
|
50
|
|
|
50
|
Amortization of
acquired intangible assets
|
|
|
222
|
|
|
520
|
|
|
520
|
|
|
115
|
|
|
204
|
|
|
204
|
Compensation related
to our IPO
|
|
|
1,020
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Excess cost of
acquired inventory
|
|
|
—
|
|
|
2,472
|
|
|
2,472
|
|
|
—
|
|
|
1,074
|
|
|
1,074
|
Other non-recurring
expenses
|
|
|
255
|
|
|
241
|
|
|
241
|
|
|
255
|
|
|
—
|
|
|
—
|
Non-GAAP operating
income
|
|
$
|
10,448
|
|
$
|
9,972
|
|
$
|
10,932
|
|
$
|
3,326
|
|
$
|
4,480
|
|
$
|
5,440
|
Non-GAAP revenues and non-GAAP operating income are among the
primary factors management uses in planning for and forecasting
future periods. Furthermore, these non-GAAP measures are used
internally to understand, manage and evaluate our business and make
operating decisions, and we believe that it is useful to investors
as a consistent and comparable measure of the ongoing performance
of our business.
Our non-GAAP revenues and non-GAAP operating income are not meant
to be considered in isolation or as a substitute for comparable
GAAP measures, and should be read only in conjunction with our
consolidated financial
S-7
statements prepared in accordance with GAAP. Additionally, non-GAAP
revenues and non-GAAP operating income may differ materially from
similar non-GAAP measures used by other companies.
Revenues
We estimate our revenues will range from $30.0 million to $32.0
million in the three months ended December 31, 2016 compared to
$25.5 million in the three months ended December 31, 2015. Based on
the midpoint of the range of our estimated results of operation for
2016, the growth in revenues resulted from a 15.3% increase in
system and services revenues to $18.1 million in the three months
ended December 31, 2016 from $15.7 million in the three months
ended December 31, 2015 and a 33.0% increase in sales of ink and
other consumables to $12.9 million in the three months ended
December 31, 2016 from $9.7 million in the three months ended
December 31, 2015. The increase in system and services revenues was
attributable to a change in the mix of systems sold, specifically
sales of more high throughput systems in this period, which sell
for higher average selling prices than our entry level systems. We
believe that the increase in sales of high throughput systems was a
result of the growing maturity of the web-to-print business model
which calls for high throughput systems to meet the growing
consumer demand. The increase in ink and other consumables revenues
was due to the increase in our installed base, particularly of high
throughput systems, which drive higher consumption of ink and other
consumables.
Operating
Income
Operating income fluctuated between a decrease of $1.9 million to a
decrease of $1.0 million, representing a decrease ranging from
approximately 91% to a decrease of approximately 47%, from $2.2
million in the three months ended December 31, 2015 to between $0.2
million and $1.2 million in the same period in 2016. Operating
expenses increased during this period compared to the prior period
mainly due to increases in salaries and related personnel expenses
and share based compensation due to the hiring of additional
personnel, reflecting an increase in headcount compared to the same
period in the previous year, and increases in research and
development and marketing activity.
Risks
Investing in our ordinary shares involves risks. You should
carefully consider the risks described in “Risk
Factors” section beginning on page S-14 before making a
decision to invest in our ordinary shares. If any of these risks
actually occur, our business, financial condition or results of
operations would likely be materially adversely affected. In each
case, the trading price of our ordinary shares would likely
decline, and you may lose all or part of your investment. The
following is a summary of some of the principal risks we face:
•
If the market for digital textile printing does not develop as we
anticipate, our sales may not grow as quickly as expected and our
share price could decline.
•
If our customers use alternative ink or other consumables in our
systems, our gross margin could decline significantly, and our
business could be harmed.
•
We face increased competition and if we do not compete
successfully, our revenues and demand for our solutions could
decline.
•
A significant portion of our sales is concentrated among one of our
independent distributors and a small number of customers, and our
business would be adversely affected by a decline in sales to, or
the loss of, this distributor or these customers.
•
Our quarterly results of operations have fluctuated in the past and
may fluctuate in the future due to variability in our revenues.
•
Our contractual arrangements with Amazon, a significant customer,
contain a number of material undertakings by us and other
agreements, the impact of which cannot be fully predicted in
advance.
•
If our relationships with suppliers, especially with single source
suppliers of components, were to terminate, our business could be
harmed.
•
Disruption of operations at our manufacturing site or those of
third-party manufacturers could prevent us from filling customer
orders on a timely basis.
S-8
•
Systems we introduced during the past two years or that are in
development may not achieve market acceptance or gain adequate
market share.
Our significant
shareholder
Prior to this offering, entities affiliated with Fortissimo Capital
Fund II (Israel) L.P. (“Fortissimo Capital”),
beneficially owned 48.5% of our outstanding shares in the
aggregate. Upon the completion of this offering, Fortissimo Capital
will beneficially own 30.6% of our outstanding shares in the
aggregate (or 28.1% if the underwriters exercise in full their
option to purchase additional shares).
Corporate
information
Our legal name is Kornit Digital Ltd. and we were incorporated
under the laws of the State of Israel on January 16, 2002. Our
registration number with the Israeli Registrar of Companies is
513195420. Our purpose as set forth in our amended and restated
articles of association is to engage in any lawful activity.
We are subject to the provisions of the Israeli Companies Law,
5759-1999, as amended. Our principal executive offices are located
at 12 Ha’Amal Street, Rosh Ha’Ayin 4809246, Israel, and
our telephone number is +972-3-908-5800. Our website address is
www.kornit.com
(the information contained therein or linked thereto shall not be
considered incorporated by reference in this prospectus supplement
or the accompanying prospectus). Our agent for service of process
in the United States is Kornit Digital North America Inc., located
at 10541-10601 North Commerce Street, Mequon, Wisconsin 53092, and
its telephone number is (262) 518-0200.
S-9
The offering
Ordinary shares:
|
|
|
Offered by us
|
|
2,000,000 ordinary shares (or 2,300,000 ordinary
shares if the underwriters exercise in full their option to
purchase additional shares).
|
|
|
|
Offered by the selling shareholders
|
|
5,000,000 ordinary shares (or 5,750,000 ordinary
shares if the underwriters exercise in full their option to
purchase additional shares).
|
|
|
|
Ordinary shares to be outstanding immediately
after this offering
|
|
33,079,873 ordinary shares (or 33,379,873 ordinary shares if the
underwriters exercise in full their option to purchase additional
shares from us).
|
|
|
|
Use of proceeds
|
|
We estimate that the net proceeds to us from
this offering will be approximately $33.1 million, based upon an
assumed offering price of $17.75 per ordinary share, the last
reported sales price of our ordinary shares on the Nasdaq Global
Select Market on January 20, 2017, or approximately $38.2 million
if the underwriters exercise in full their option to purchase
additional ordinary shares from us, in each case after deducting
the underwriting discount and estimated offering expenses. We
intend to use the net proceeds from this offering for general
corporate purposes. We do not currently have any acquisitions or
investments planned, however we may use a portion of the net
proceeds to acquire or invest in complementary companies, products
or technologies in the future. See “Use of proceeds” on
page S-32 for more information. We will not receive any of the
proceeds from the sale of shares by the selling shareholders. See
“Use of proceeds.”
|
|
|
|
NASDAQ Global Select Market symbol
|
|
“KRNT”
|
|
|
|
Risk factors
|
|
See “Risk Factors” and other
information included in this prospectus supplement and the
accompanying prospectus for a discussion of factors you should
carefully consider before deciding to invest in our ordinary
shares.
|
Unless otherwise indicated, the number of ordinary shares to be
outstanding after this offering (1) is based on 30,989,873 ordinary
shares outstanding as of December 31, 2016 and excludes 4,124,036
ordinary shares reserved for issuance under our equity incentive
plans as of December 31, 2016 of which we had outstanding options
to purchase 2,722,161 ordinary shares at a weighted average
exercise price of $6.99 per share, and (2) gives effect to the
issuance of 90,000 ordinary shares pursuant to the exercise of
options by one of the selling shareholders in this offering.
Unless otherwise indicated, all information in this prospectus
supplement assumes (1) no exercise by the underwriters of their
option to purchase up to an additional 300,000 ordinary shares from
us and up to an additional 750,000 ordinary shares from the selling
shareholders, and (2) no exercise of outstanding options or
warrants after December 31, 2016, other than the exercise of
options by one of the selling shareholders, which shares are
reflected in the number of ordinary shares to be outstanding after
this offering.
S-10
Summary consolidated
financial and other data
The following tables set forth our summary consolidated financial
data. You should read the following summary consolidated financial
data in conjunction with “ITEM 3: Key Information —
Selected Financial Data,” “ITEM 5: Operating and
Financial Review and Prospects” and our consolidated
financial statements and the related notes found in our Annual
Report on Form 20-F for the year ended December 31, 2015. The
summary consolidated statements of income data for the years ended
December 31, 2013, 2014 and 2015 and summary consolidated balance
sheet data as of December 31, 2015 are derived from our audited
consolidated financial statements included in “ITEM 18:
Financial Statements” in our Annual Report on Form 20-F for
the year ended December 31, 2015. The summary consolidated
statements of income data for the nine months ended September 30,
2015 and 2016 and the summary consolidated balance sheet data as of
September 30, 2016 are derived from our Current Report on Form 6-K
filed on January 3, 2017, which is incorporated by reference in
this prospectus supplement. The historical results set forth below
are not necessarily indicative of the results to be expected in
future periods. Our financial statements have been prepared in
accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”).
|
|
|
|
Nine
Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands, except share and per share data)
|
Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
49,395
|
|
|
$
|
66,364
|
|
|
$
|
86,405
|
|
|
$
|
60,907
|
|
|
$
|
76,707
|
Cost of revenues
(1)
|
|
|
27,953
|
|
|
|
37,187
|
|
|
|
45,820
|
|
|
|
32,377
|
|
|
|
40,924
|
Gross profit
|
|
|
21,442
|
|
|
|
29,177
|
|
|
|
40,585
|
|
|
|
28,530
|
|
|
|
35,783
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
(1)
|
|
|
7,443
|
|
|
|
9,475
|
|
|
|
11,950
|
|
|
|
8,573
|
|
|
|
12,293
|
Sales and marketing
(1)
|
|
|
7,734
|
|
|
|
10,616
|
|
|
|
13,367
|
|
|
|
9,175
|
|
|
|
13,585
|
General and administrative
(1)
|
|
|
3,278
|
|
|
|
5,266
|
|
|
|
9,500
|
|
|
|
7,213
|
|
|
|
9,279
|
Total operating expenses
|
|
|
18,455
|
|
|
|
25,357
|
|
|
|
34,817
|
|
|
|
24,961
|
|
|
|
35,157
|
Operating income (loss)
|
|
|
2,987
|
|
|
|
3,820
|
|
|
|
5,768
|
|
|
|
3,569
|
|
|
|
626
|
Finance income (expenses), net
|
|
|
(460
|
)
|
|
|
(15
|
)
|
|
|
(334
|
)
|
|
|
(170
|
)
|
|
|
93
|
Income before taxes on income
|
|
|
2,527
|
|
|
|
3,805
|
|
|
|
5,434
|
|
|
|
3,399
|
|
|
|
719
|
Taxes on income
|
|
|
1,393
|
|
|
|
782
|
|
|
|
709
|
|
|
|
739
|
|
|
|
711
|
Net income (loss)
|
|
$
|
1,134
|
|
|
$
|
3,023
|
|
|
$
|
4,725
|
|
|
$
|
2,660
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per ordinary
share
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
|
$
|
0.34
|
|
|
$
|
0.19
|
|
|
$
|
0.12
|
|
|
$
|
0.00
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
0.29
|
|
|
$
|
0.18
|
|
|
$
|
0.11
|
|
|
$
|
0.00
|
Weighted average number of ordinary shares used
in computing income per ordinary share
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,953,565
|
|
|
|
8,969,588
|
|
|
|
24,633,369
|
|
|
|
22,814,312
|
|
|
|
30,474,462
|
Diluted
|
|
|
9,880,049
|
|
|
|
10,446,329
|
|
|
|
26,458,584
|
|
|
|
24,734,519
|
|
|
|
31,739,909
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
Cash and cash equivalents and available for sale
marketable securities
|
|
$
|
56,691
|
|
$
|
90,023
|
Working capital
(4)
|
|
|
60,653
|
|
|
93,985
|
Total assets
|
|
|
132,186
|
|
|
165,518
|
Total long-term liabilities
|
|
|
2,594
|
|
|
2,594
|
Total shareholders’ equity
|
|
|
103,364
|
|
|
136,696
|
S-11
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
Supplemental Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
(5)
|
|
$
|
4,281
|
|
$
|
6,069
|
|
$
|
9,933
|
|
$
|
6,474
|
|
$
|
4,713
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Share-based Compensation
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenues
|
|
$
|
11
|
|
$
|
96
|
|
$
|
306
|
|
$
|
197
|
|
$
|
337
|
Research and
development
|
|
|
21
|
|
|
86
|
|
|
281
|
|
|
208
|
|
|
125
|
Sales and
marketing
|
|
|
66
|
|
|
207
|
|
|
537
|
|
|
339
|
|
|
435
|
General and
administrative
|
|
|
28
|
|
|
508
|
|
|
1,259
|
|
|
882
|
|
|
1,183
|
Total share-based
compensation expense
|
|
$
|
126
|
|
$
|
897
|
|
$
|
2,383
|
|
$
|
1,626
|
|
$
|
2,080
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Reconciliation of Net Income to Adjusted
EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,134
|
|
$
|
3,023
|
|
$
|
4,725
|
|
$
|
2,660
|
|
$
|
8
|
|
Finance (income)
expenses, net
|
|
|
460
|
|
|
15
|
|
|
334
|
|
|
170
|
|
|
(93
|
)
|
Taxes on
income
|
|
|
1,393
|
|
|
782
|
|
|
709
|
|
|
739
|
|
|
711
|
|
Depreciation and
amortization
|
|
|
1,168
|
|
|
1,352
|
|
|
1,782
|
|
|
1,279
|
|
|
2,007
|
|
Share-based
compensation expense
|
|
|
126
|
|
|
897
|
|
|
2,383
|
|
|
1,626
|
|
|
2,080
|
|
Adjusted
EBITDA
|
|
$
|
4,281
|
|
$
|
6,069
|
|
$
|
9,933
|
|
$
|
6,474
|
|
$
|
4,713
|
|
Adjusted EBITDA is a non-GAAP
measure defined as net income before finance income (expenses), net
(including foreign exchange gains and losses), taxes on income,
depreciation and amortization, and share-based compensation expense
for a given period. Adjusted EBITDA is not a measure of our
financial performance under U.S. GAAP and should not be considered
an alternative to net income or any other performance measures
derived in accordance with U.S. GAAP. Accordingly, you should
consider Adjusted EBITDA along with other financial performance
measures, including net income, and our financial results presented
in accordance with U.S. GAAP. Other companies, including companies
in our industry, may calculate Adjusted EBITDA differently or not
at all, which reduces its usefulness as a comparative measure. We
understand that although Adjusted EBITDA is frequently used by
securities analysts, lenders and others in their evaluation of
companies, Adjusted EBITDA has limitations as an analytical tool,
and you should not consider it in isolation, or as a substitute for
analysis of our results as reported under U.S. GAAP. Some of these
limitations are:
•
Adjusted EBITDA does not reflect
our cash expenditures or future requirements for capital
expenditures or contractual commitments;
•
Adjusted EBITDA does not reflect
changes in, or cash requirements for, our working capital needs;
and
•
Although depreciation is a non-cash
charge, the assets being depreciated will often have to be replaced
in the future, and Adjusted EBITDA does not reflect any cash
requirements for such replacements.
S-12
We believe that Adjusted EBITDA is
a useful measure for analyzing the performance of our core business
because it facilitates operating performance comparisons from
period to period and company to company by backing out potential
differences caused by changes in foreign exchange rates that impact
financial assets and liabilities denominated in currencies other
than the dollar (affecting finance income (expenses), net, tax
positions (such as the impact on periods or companies of changes in
effective tax rates), the age and book depreciation of fixed assets
(affecting relative depreciation expense) and share-based
compensation expense (because it is a non-cash expense).
S-13
Risk factors
An investment in our
ordinary shares involves a high degree of risk. Our business,
financial condition or results of operations could be adversely
affected by any of these risks. If any of these risks occur, the
value of our ordinary shares and our other securities may decline.
You should carefully consider the risk factors discussed below,
before making your investment decision.
Risks Related to Our
Business and Our Industry
If the market for digital textile printing does not develop as we
anticipate, our sales may not grow as quickly as expected and our
share price could decline.
The global printed textile industry is currently dominated by
analog printing processes, the most common of which are screen
printing and carousel printing. If the global printed textile
industry does not more broadly accept digital printing as an
alternative to analog printing, our revenues may not grow as
quickly as expected, or may decline, and our share price could
suffer. Widespread adoption of digital textile printing depends on
the willingness and ability of businesses in the printed textile
industry to replace their existing analog printing systems with
digital printing systems. These businesses may decide that digital
printing processes are less reliable, less cost-effective, of lower
quality, or otherwise less suitable for their commercial needs than
analog printing processes. For example, screen printing currently
tends to be faster and less expensive than digital printing on a
cost per print basis for larger production runs. Even if businesses
are persuaded as to the benefits of digital printing, we do not
know whether potential buyers of digital printing systems will
delay their investment decisions. As a result, we may not correctly
estimate demand for our solutions, which could cause us to fail to
meet customer needs in a timely manner or fail to take advantage of
economies of scale in the production of our solutions.
If our customers use alternative ink or other consumables in our
systems, our gross margin could decline significantly, and our
business could be harmed.
Our business model benefits significantly from recurring sales of
our ink and other consumables for our existing and growing
installed base of systems. Third parties could try to sell, and
purchasers of our systems can seek to buy, alternative versions of
our ink or other consumables. We have encountered limited instances
of these activities by third parties in specific markets.
Third-party ink and other consumables might be less expensive or
otherwise more appealing to our customers than our ink and other
consumables. Significant sales of third-party inks and other
consumables to our customers could adversely impact our revenues
and would have a more significant effect on our gross margins and
overall profitability.
Given the sensitivity of our systems and, in particular, print
heads to lower quality ink, which may cause our print heads to clog
or otherwise malfunction, our systems operate at the highest
throughput level only when using our ink and other consumables in
order to protect them from damage. In addition, since we are unable
to control the impact of third-party inks, their use voids the
warranty that comes with our systems. We have also sought to
protect the proprietary technology underlying our ink through
patents and other forms of intellectual property protections. These
steps that we have taken to ensure the smooth operation of our
systems and our ability to fully invoke all our intellectual
property rights may be challenged. Any reduction in our ability to
market and sell our ink and other consumables for use in our
systems may adversely impact our future revenues and our overall
profitability.
We face increased competition and if we do not compete
successfully, our revenues and demand for our solutions could
decline.
The principal competition for our digital printing systems comes
from manufacturers of analog screen printing systems, textile
printers and ink. Our principal competitor in the high throughput
digital DTG market is Aeoon Technologies GmbH. We also face
competition in this market from Brother International Corporation,
Seiko Epson Corporation, Ricoh and a number of smaller competitors
with respect to our entry level system. Our competitors in the R2R
market include: Dover Corporation through its MS Printing Solutions
S.r.l. subsidiary, Durst Phototechnik AG; Electronics for Imaging,
Inc. through its Reggiani Macchine SpA subsidiary; Mimaki
Engineering Co., Ltd.; and a number of smaller competitors. Some of
our current and potential competitors have larger overall installed
bases, longer operating histories and greater name recognition than
we have. In addition, many of these competitors have greater sales
and marketing resources, more advanced manufacturing operations,
broader distribution channels and greater customer support
resources than we have. Some of our competitors in the R2R market
have become
S-14
increasingly interested in moving from rotary screen printing to
digital printing and have broadened their product offering by
merging with or acquiring other companies in the R2R market.
Current and future competitors may be able to respond more quickly
to changes in customer demands and devote greater resources to the
development, promotion and sale of their printers and ink and other
consumables than we can. Our current and potential competitors in
both the DTG and R2R markets may also develop and market new
technologies that render our existing solutions unmarketable or
less competitive. In addition, if these competitors develop
products with similar or superior functionality to our solutions at
prices comparable to or lower than ours, we may be forced to
decrease the prices of our solutions in order to remain
competitive, which could reduce our gross margins.
A significant portion of our sales is concentrated among one of our
independent distributors and a small number of customers, and our
business would be adversely affected by a decline in sales to, or
the loss of, this distributor or these customers.
Our distributor in the United
States, Hirsch International Corporation, accounted for
approximately 18% and, based on the midpoint of the range of our
estimated results of operation for 2016, approximately 21% of
our revenues in 2015 and 2016, respectively. We have entered into a
non-exclusive distributor agreement with Hirsch with a term that
ends in April 2017 subject to automatic renewal for successive
one-year periods unless one party notifies the other party that it
does not wish to renew the agreement. Hirsch may fail to devote the
same level of attention to our solutions as it currently does,
elect to distribute competitors’ products or be less
successful than distributors of competitors’ products in
their territories and, as a result, sales of our solutions may
suffer. In addition, our relationship with Hirsch could be
terminated with little or no notice if Hirsch becomes subject to
bankruptcy or other similar proceedings or otherwise becomes unable
or unwilling to continue its business relationship with us, and we
may not be able to find a qualified and successful replacement in a
timely manner. Additionally, a default by Hirsch at a time that it
has a significant receivables balance with us could harm our
financial condition. Based on the midpoint of the range of our
estimated results of operation for 2016, Amazon Corporate LLC, a
subsidiary of Amazon.com, Inc., accounted for approximately 17% of
our revenues (net of $2.0 million related to the fair value of
warrants issued to an affiliate of Amazon). Our ten largest
customers accounted for approximately 71% of our revenues for the
nine months ended September 30, 2016. The loss of either this
distributor or customer, or another one of our significant
customers, or variability in their order flows could materially
adversely affect our revenues. Due to the concentration of our
revenues with this distributor and customer, any such event could
have a material adverse effect on our results of
operations.
Our operating results are subject to seasonal variations, which
could cause the price of our ordinary shares to decline.
Our business is seasonal. The fourth quarter has historically been
our strongest quarter in terms of revenues and the first quarter
has been our weakest. This seasonality coincides with holiday
spending, which is at its highest at the end of the year,
especially in the United States and Europe. In the last three
fiscal years, we have continuously increased our operating expenses
throughout the year, and as such, the expense run rate at which we
have ended each year is significantly higher than where we started
the given year. The carryover of such costs into the first quarter
of the following year results in downward pressure on operating
margins, which is compounded by seasonally lower revenue in the
first quarter compared to other quarters.
In addition, during the fourth quarter, when customer spending is
at its highest levels, we enjoy a more favorable revenue mix,
generating greater revenues from the sales of ink and other
consumables than in the first quarter. Since sales of ink and other
consumables generate higher gross margins than systems sales, gross
margin in the fourth quarter tends to be higher than gross margin
in the first quarter, when our customers typically reduce their
system utilization rates significantly, and thereby purchase less
ink and other consumables. This impact leads to a reduction in
overall operating margins. As we continue to focus our sales
efforts on larger accounts, and as we continue to invest in the
growth of our business, the impact of this seasonal decline in
revenues generated from sales of ink and other consumables may have
a more pronounced impact on gross margins and operating
margins.
Our quarterly results of operations have fluctuated in the past and
may fluctuate in the future due to variability in our
revenues.
Our revenues and other results of operations have fluctuated from
quarter to quarter in the past and could continue to fluctuate in
the future. Our revenues depend in part on the sale and delivery of
our systems, and we cannot predict with certainty when sales
transactions for our systems will close or when we will be able to
recognize the revenues from such sales, which generally occurs upon
delivery and installation of our systems. Customers that we
S-15
expect to purchase our systems may delay doing so due to a change
in their priorities or business plans, including as a result of
adverse general economic conditions that may disproportionately
impact the ability of the small businesses that constitute a
significant portion of our customer base to expend capital or
access financing sources. Such conditions could also force us to
reduce our prices or limit our ability to profit from economies of
scale, which could harm our gross margins. As a result of these
factors, we may fail to meet market expectations for any given
quarter if sales that we expect for that quarter are delayed until
subsequent quarters. Our Allegro and Vulcan systems are offered at
a higher average selling price than our other systems and, as a
result, have longer sales cycles. The closing of one or more large
transactions in a particular quarter may make it more difficult for
us to meet market expectations in subsequent quarters, and our
failure to close one or more large transactions in a particular
quarter could adversely impact our revenues for that quarter. In
addition, we may experience slower growth in our gross margins as
our new systems gain commercial acceptance. Our gross margins may
also fluctuate based on the regions in which sales of these systems
occur.
Our customers generally purchase our ink and other consumables on
an as-needed basis, and delays in making such purchases by a number
of customers could result in a meaningful shift of revenues from
one quarter to the next. Moreover, because ink and other
consumables have a shelf life of up to 12 months, we typically
maintain inventories of ink and other consumables sufficient to
cover our average sales for one quarter. These inventories may not
match customers’ demands for any given quarter, which could
cause shortages or excesses in our inventory of ink and other
consumables and result in fluctuations of our quarterly revenues.
These inventory requirements may also limit our ability to profit
from economies of scale in the production and marketing of our ink
and other consumables.
Furthermore, we base our current and future expense levels on our
revenue forecasts and operating plans, and our costs are relatively
fixed in the short term, due in part to long lead times required
for ordering certain components of our systems and ordering
assembly of our systems by third-party manufacturers. Accordingly,
we would likely not be able to reduce our costs sufficiently to
compensate for an unexpected shortfall in revenues during a
particular quarter, and even a relatively small decrease in
revenues could disproportionately and adversely affect our
financial results for that quarter. The variability and
unpredictability of these and other factors could result in our
failing to meet financial expectations for a given period.
Our contractual arrangements with Amazon, a significant customer,
contain a number of material undertakings by us and other
agreements the impact of which cannot be fully predicted in
advance.
In January 2017, we entered into a master purchase agreement with
an affiliate of Amazon.com, Inc. governing our sales of our systems
and ink and other consumables at agreed upon prices that vary based
on sales volumes. We also agreed to provide maintenance services
and extended warranties to Amazon at agreed prices. The term of the
agreement is five years beginning on May 1, 2016 and extends
automatically for additional one year periods unless terminated by
Amazon. We have issued to an affiliate of Amazon a warrant to
purchase up to 2,932,176 of our ordinary shares.
Our contractual agreements with Amazon contain a number of material
undertakings and other arrangements:
•
Our revenues are presented net of the relative value of the
warrants in each particular period related to the revenues
recognized. Since the value of the warrants depends, in part, on
the price of our shares and their volatility, our net revenues may
fluctuate due to the non-cash impact of the value of the warrant on
our gross revenues.
•
We have agreed to provide a rebate to Amazon based on the number of
systems and amount of ink and other consumables Amazon purchases.
The timing and scale of any such rebate may be difficult to predict
and may cause fluctuations in our quarterly and annual revenues,
gross profit and operating profit.
•
We are required to notify Amazon 12 months in advance if we intend
to stop supporting one of the products or services that we supply
to Amazon and to continue to manufacture the product or provide
such service during such 12 month period. Subject to certain
exceptions, we are required to continue to supply ink in such
quantities as Amazon requires for at least 36 months after the
earlier of (1) the end of the term of the master purchase agreement
or (2) 18 months following the purchase of the last product sold
pursuant to the agreement.
The impact of the provisions listed above cannot be fully predicted
in advance and could, in certain circumstances, adversely impact
our business or results of operations.
S-16
If our relationships with suppliers, especially with single source
suppliers of components, were to terminate, our business could be
harmed.
We maintain an inventory of parts to facilitate the timely assembly
of our systems, production of our ink and other consumables, and
servicing our installed base. Most components are available from
multiple suppliers, although certain components used in our systems
and ink and other consumables, such as our print heads and certain
chemicals included in our inks, are only available from single or
limited sources as described below.
•
The print heads for our systems are supplied by a sole supplier,
FujiFilm Dimatix, Inc., or FDMX. We entered into an agreement with
FDMX in 2015, pursuant to which FDMX is continuing to sell us
certain off-the-shelf print heads and additional products, all of
which FDMX regularly sells to providers of inkjet systems. The
agreement provides that beginning with the start of the first
one-year renewal period, FDMX may increase the prices of the
products that we purchase from it upon 90-days’ prior notice,
subject to certain conditions. The agreement renews automatically
for successive one-year periods, but FDMX or we can terminate the
agreement upon 90 days’ notice prior to the end of the then
current term. Our current agreement terminates in December 2019 and
provides for one three year renewal period and for further one year
renewal periods thereafter. Our agreement further provides that
FDMX may, at its option, discontinue products supplied under the
agreement, provided that we are given one year notice of the
planned discontinuance and are provided with an end of life
purchase program.
•
A chemical used in some of our inks is supplied by B.G. (Israel)
Technologies Ltd., or BG Bond, a subsidiary of Ashtrom Ltd., a
large public Israeli industrial company. We entered into an
agreement with BG Bond in December 2016 pursuant to which we agree
to purchase and BG Bond agrees to produce this chemical at set
prices. In exchange for an upfront payment, which is refundable
upon the purchase of the chemical, BG Bond agreed to install
additional equipment dedicated to the production of the chemical.
The agreement is for a term of five years or until we purchase a
certain agreed upon minimum quantity and cannot be terminated by us
other than in case of material breach by BG Bond. For some of our
inks, this chemical is supplied by The Dow Chemical Company, a
multinational producer of chemicals and other compounds. We
currently purchase these chemicals from the Dow Chemical Company on
a purchase order basis.
The loss of any of these suppliers, or of a supplier for which
there are limited other sources, could result in the delay of the
manufacture and delivery of our systems. For instance, FDMX has
from time to time indicated that it may discontinue manufacturing
the print head that we currently source from it and use in our
systems, although it has never provided notice that it is actually
doing so. In the event FDMX discontinues manufacturing the print
head, we would be required to qualify a new print head for our
systems. In order to minimize the risk of any impact from a
disruption or discontinuation in the supply of print heads, raw
materials or other components from limited source suppliers, we
maintain an additional inventory of such components, in addition to
the end of life purchase program that would be available to us if
the products we purchase from FDMX were discontinued. Nevertheless,
such inventory may not be sufficient to enable us to continue
supplying our products should we need to locate and qualify a new
supplier.
Other risks stemming from our reliance on suppliers include:
•
if we experience an increase in demand for our solutions, our
suppliers may be unable to provide us with the components that we
need in order to meet that increased demand in a timely manner;
•
our suppliers may encounter financial hardships unrelated to our
demand for components, which could inhibit their ability to fulfill
our orders and meet our requirements;
•
we may experience production delays related to the evaluation and
testing of products from alternative suppliers;
•
we may be subject to price fluctuations due to a lack of long-term
supply arrangements for key components;
•
we or our suppliers may lose access to critical services and
components, resulting in an interruption in the manufacture,
assembly and shipment of our systems or inks and other consumables;
and
•
Fluctuations in demand for components that our suppliers
manufacture for others may affect their ability or willingness to
deliver components to us in a timely manner.
S-17
If any of these risks materialize, the costs associated with
developing alternative sources of supply or assembly in a timely
manner could have a material adverse effect on our ability to meet
demand for our solutions. Our ability to generate revenues could be
impaired, market acceptance of our solutions could be adversely
affected, and customers may instead purchase or use alternative
products. We may not be able to find new or alternative components
of a requisite quality or find that we are unable to reconfigure
our systems and manufacturing processes in a timely manner if the
necessary components become unavailable. As a result, we could
incur increased production costs, experience delays in the delivery
of our solutions and suffer harm to our reputation, which may have
an adverse effect on our business and results of operations.
Disruption of operations at our manufacturing site or those of
third-party manufacturers could prevent us from filling customer
orders on a timely basis.
We manufacture our ink and other consumables at our facility in
Kiryat Gat, Israel. We also rely on contract manufacturing services
provided by ITS Industrial Techno Logic Solutions Ltd and Flex
Israel Ltd., which are also in Israel, to assemble our systems. We
expect that almost all of our revenues in the near term will be
derived from the systems and ink and other consumables manufactured
at these facilities. If operations in any of these facilities were
to be disrupted due to a major equipment failure or power failure
lasting beyond the capabilities of backup generators or other
events outside of our reasonable control, our manufacturing
capacity could be shut down for an extended period, we could
experience a loss of raw materials or finished goods inventory and
our ability to operate our business would be harmed. In addition,
in any such event, the repair or reconstruction of our or our
third-party manufacturers’ manufacturing facilities and
storage facilities could take a significant amount of time. During
this period, we or our third-party manufacturers would be unable to
manufacture some or all of our systems or we may not be able to
produce our ink and other consumables. In addition, at any given
moment we have only a limited inventory of our systems and ink and
other consumables that we can supply to our customers in the event
that our manufacturing is disrupted.
Systems we introduced during the past two years or that are in
development may not achieve market acceptance or gain adequate
market share.
Since 2015, we introduced two new systems to the market. We began
selling our Allegro system commercially in the R2R market in the
second quarter of 2015. During 2016, we commercially launched our
new system, the Vulcan, which is a digital alternative for carousel
screen printing within the DTG segment. We cannot ensure that the
significant investments that we have made in distribution, sales
and customer service teams to launch the new systems will enable us
to continue to market, sell and distribute the systems as planned.
Market acceptance of the new systems will depend on, among other
things, the systems demonstrating a real advantage over existing
printers, the success of our sales and marketing teams in creating
awareness of the systems, the sales price and the return on
investment of the systems relative to alternative printers,
customer recognition of the value of our technology, the
effectiveness of our marketing campaigns, and the general
willingness of potential customers to try new technologies. In the
event that we are unable to achieve market acceptance of our new
systems, our growth and future prospects may be adversely
affected.
Our operating and net profit margins could decline further in the
near-term if we fail to execute on our growth
strategies.
Our operating margin declined from 6.3% in 2015 to 3.5% in 2016
based on the midpoint of the range of our estimated results of
operation for 2016. We also experienced a smaller decline in our
non-GAAP operating margin (see “Prospectus supplement summary
— Recent developments” for an explanation of how we
calculate non-GAAP operating income). Our growth strategies, many
of which are aimed at improving our operating and net profit
margins, include increasing sales to existing customers, acquiring
new high volume customers, capitalizing on growth in our targeted
markets and extending our serviceable addressable market by
continuing to enhance our solutions. If we do not execute these
strategies successfully, it could adversely impact our revenues and
have a negative impact on our operating and net profit margins.
Our business and operations may be negatively affected if we fail
to effectively manage our growth.
We have experienced significant growth in a relatively short period
of time and intend to continue to grow our business. Our revenues
grew from $66.4 million in 2014 to an estimated $108.8 million in
2016 based on the midpoint of the range of our estimated results of
operation for 2016. Our headcount increased from 251 as of December
31, 2014 to 390 as of December 31, 2016. We plan to hire additional
employees across all areas of our company. Our rapid
S-18
growth has placed significant demands on our management, sales and
operational and financial infrastructure, and our growth will
continue to place significant demands on these resources. Further,
in order to manage our future growth effectively, we must continue
to improve and expand our IT and financial infrastructure,
operating and administrative systems and controls and efficiently
manage headcount, capital and processes. We may not be able to
successfully implement these improvements in a timely or efficient
manner, and our failure to do so may materially impact our
projected growth rate.
We are subject to extensive environmental, health and safety laws
and regulations which, if not met, could have a material adverse
effect on our business, financial condition and results of
operations.
Our manufacturing and development facilities use chemicals and
produce waste materials, which require us to hold business licenses
that may include conditions set by the Ministry of Environmental
Protection for the operations of such facilities. We are also
subject to extensive environmental, health and safety laws and
regulations governing, among other things, the use, storage,
registration, handling and disposal of chemicals and waste
materials, the presence of specified substances in electrical
products, air, water and ground contamination, air emissions and
the cleanup of contaminated sites. While we have currently not
identified any material non-compliance with these laws and
regulations, in the future they could potentially require the
expenditure of significant amounts in the event of non-compliance
and/or remediation. If we fail to comply with such laws or
regulations, we may be subject to fines and other civil,
administrative or criminal sanctions, including the revocation of
our toxin permit, business permits, or other permits and licenses
necessary to continue our business activities. In addition, we may
be required to pay damages or civil judgments in respect of
third-party claims, including those relating to personal injury,
including exposure to hazardous substances that we use, store,
handle, transport, manufacture or dispose of, or property damage.
Some environmental, health and safety laws and regulations allow
for strict, joint and several liability for remediation costs,
regardless of comparative fault. We may be identified as a
potentially responsible party under such laws. Such developments
could have a material adverse effect on our business, financial
condition and results of operations. Environmental, health and
safety laws and regulations may also change from time to time.
Complying with any new requirements may involve substantial costs
and could cause significant disruptions to our research,
development, manufacturing, and sales.
Exchange rate fluctuations between the U.S. dollar and the Israeli
shekel, the Euro and other non-U.S. currencies may negatively
affect our earnings.
The dollar is our functional and reporting currency. However, a
significant portion of our operating expenses are incurred in
Israeli shekels, or NIS. As a result, we are exposed to the risk
that the NIS may appreciate relative to the dollar, or, if the NIS
instead devalues relative to the dollar, that the inflation rate in
Israel may exceed such rate of devaluation of the NIS, or that the
timing of such devaluation may lag behind inflation in Israel. In
any such event, the dollar cost of our operations in Israel would
increase and our dollar-denominated results of operations would be
adversely affected. To protect against an increase the
dollar-denominated value of expenses paid in NIS during the year,
we have instituted a foreign currency cash flow hedging program,
which seeks to hedge a portion of the economic exposure associated
with our anticipated NIS-denominated expenses using derivative
instruments. We expect that the substantial majority of our
revenues will continue to be denominated in U.S. dollars for the
foreseeable future and that a significant portion of our expenses
will continue to be denominated in NIS. We cannot provide any
assurances that our hedging activities will be successful in
protecting us in full from adverse impacts from currency exchange
rate fluctuations since we only plan to hedge a portion of our
foreign currency exposure, and we cannot predict any future trends
in the rate of inflation in Israel or the rate of devaluation (if
any) of the NIS against the dollar. For example, based on annual
average exchange rates, the dollar depreciated 0.9% and appreciated
8.6% against the NIS in 2014 and 2015, respectively, and
depreciated by 0.3% against the NIS in 2016. During these periods,
there was deflation in Israel of 0.2%, 1.0% and 0.2% in 2014, 2015
and 2016, respectively. If the dollar cost of our operations
increases, our dollar-measured results of operations will be
adversely affected. See “ITEM 11. Quantitative and
Qualitative Disclosures About Market Risk—Foreign Currency
Risk” in our 2015 Annual Report on Form 20-F for the year
ended December 31, 2015.
Our business could suffer if we are unable to attract and retain
key employees.
Our success depends upon the continued service and performance of
our senior management and other key personnel. Our senior executive
team is critical to the management of our business and operations,
as well as to the development of our strategies. The loss of the
services of any of these personnel could delay or prevent the
continued successful implementation of our growth strategy, or our
commercialization of new applications for our systems and
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ink and other consumables, or could otherwise affect our ability to
manage our company effectively and to carry out our business plan.
Members of our senior management team may resign at any time. High
demand exists for senior management and other key personnel in our
industry. There can be no assurance that we will be able to
continue to retain such personnel.
Our growth and success also depend on our ability to attract and
retain additional highly qualified scientific, technical, sales,
managerial, operational, HR, marketing and finance personnel. We
compete to attract qualified personnel, and, in some jurisdictions
in which we operate, the existence of non-competition agreements
between prospective employees and their former employers may
prevent us from hiring those individuals or subject us to lawsuits
from their former employers. While we attempt to provide
competitive compensation packages to attract and retain key
personnel, some of our competitors have greater resources and more
experience than we have, making it difficult for us to compete
successfully for key personnel. If we cannot attract and retain
sufficiently qualified technical employees for our research and
development operations on acceptable terms, we may not be able to
continue to competitively develop and commercialize our solutions
or new applications for our existing systems. Further, any failure
to effectively integrate new personnel could prevent us from
successfully growing our company.
Under applicable employment laws, we may not be able to enforce
covenants not to compete and therefore may be unable to prevent our
competitors from benefiting from the expertise of some of our
former employees.
We generally enter into non-competition agreements with our
employees. These agreements prohibit our employees, if they cease
working for us, from competing directly with us or working for our
competitors or clients for a limited period. We may be unable to
enforce these agreements under the laws of the jurisdictions in
which our employees work and it may be difficult for us to restrict
our competitors from benefiting from the expertise that our former
employees or consultants developed while working for us. For
example, Israeli labor courts have required employers seeking to
enforce non-compete undertakings of a former employee to
demonstrate that the competitive activities of the former employee
will harm one of a limited number of material interests of the
employer that have been recognized by the courts, such as the
secrecy of a company’s trade secrets or other intellectual
property.
We have a significant presence in international markets and plan to
continue to expand our international operations, which exposes us
to a number of risks that could affect our future
growth.
We have a worldwide sales, marketing and support infrastructure
that is comprised of independent distributors and value added
resellers, and our own personnel resulting in a sales, marketing
and support presence in over 100 countries, including markets in
North America, Western and Eastern Europe, the Asia Pacific region
and Latin America. We expect to continue to increase our sales
headcount, our applications development headcount, our field
support headcount, our marketing headcount and our engineering
headcount and, in some cases, establish new relationships with
distributors, particularly in markets where we currently do not
have a sales or customer support presence. As we continue to expand
our international sales and operations, we are subject to a number
of risks, including the following:
•
greater difficulty in enforcing contracts and accounts receivable
collection, as well as longer collection periods;
•
increased expenses incurred in establishing and maintaining office
space and equipment for our international operations;
•
fluctuations in exchange rates between the U.S. dollar and foreign
currencies in markets where we do business;
•
greater difficulty in recruiting local experienced personnel, and
the costs and expenses associated with such activities;
•
general economic and political conditions in these foreign
markets;
•
economic uncertainty around the world;
•
management communication and integration problems resulting from
cultural and geographic dispersion;
•
risks associated with trade restrictions and foreign legal
requirements, including the importation, certification, and
localization of our solutions required in foreign countries, such
as high import taxes in Brazil and other Latin American markets
where we sell our products;
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•
greater risk of unexpected changes in regulatory practices,
tariffs, and tax laws and treaties;
•
the uncertainty of protection for intellectual property rights in
some countries;
•
greater risk of a failure of employees to comply with both U.S. and
foreign laws, including antitrust regulations, the U.S. Foreign
Corrupt Practices Act (FCPA), and any trade regulations ensuring
fair trade practices; and
•
heightened risk of unfair or corrupt business practices in certain
regions and of improper or fraudulent sales arrangements that may
impact financial results and result in restatements of, or
irregularities in, financial statements.
Any of these risks could adversely affect our international
operations, reduce our revenues from outside the United States or
increase our operating costs, adversely affecting our business,
results of operations and financial condition and growth prospects.
There can be no assurance that all of our employees and channel
partners will comply with the formal policies we have and will
implement, or applicable laws and regulations. Violations of laws
or key control policies by our employees and channel partners could
result in delays in revenue recognition, financial reporting
misstatements, fines, penalties or the prohibition of the
importation or exportation of our software and services and could
have a material adverse effect on our business and results of
operations.
If we are unable to obtain patent protection for our solutions or
otherwise protect our intellectual property rights, our business
could suffer.
The success of our business depends on our ability to protect our
proprietary technology, brand owners and other intellectual
property and to enforce our rights in that intellectual property.
We attempt to protect our intellectual property under patent,
trademark, copyright and trade secret laws, and through a
combination of confidentiality procedures, contractual provisions
and other methods, all of which offer only limited protection.
As of December 31, 2016, we owned nine issued patents in the United
States and 12 provisional or pending U.S. patent applications,
along with ten pending non-U.S. patent applications. We also had
ten patents issued in non-U.S. jurisdictions, and six pending
Patent Cooperation Treaty patent applications, which are
counterparts of our U.S. patent applications. The non-U.S.
jurisdictions in which we have issued patents or pending
applications are China, the European Union or European countries of
the European Union, Hong Kong, Israel and India. We may file
additional patent applications in the future. The process of
obtaining patent protection is expensive, time-consuming, and
uncertain, and we may not be able to prosecute all necessary or
desirable patent applications at a reasonable cost or in a timely
manner all the way through to the successful issuance of a patent.
We may choose not to seek patent protection for certain innovations
and may choose not to pursue patent protection in certain
jurisdictions. Furthermore, it is possible that our patent
applications may not issue as granted patents, that the scope of
our issued patents will be insufficient or not have the coverage
originally sought, that our issued patents will not provide us with
any competitive advantages, and that our patents and other
intellectual property rights may be challenged by others through
administrative processes or litigation resulting in patent claims
being narrowed, invalidated, or unenforceable. In addition,
issuance of a patent does not guarantee that we have an absolute
right to practice the patented invention. Our policy is to require
our employees (and our consultants and service providers, including
third-party manufacturers of our systems and components, that
develop intellectual property included in our systems) to execute
written agreements in which they assign to us their rights in
potential inventions and other intellectual property created within
the scope of their employment (or, with respect to consultants and
service providers, their engagement to develop such intellectual
property), but we cannot assure you that we have adequately
protected our rights in every such agreement or that we have
executed an agreement with every such party. Finally, in order to
benefit from the protection of patents and other intellectual
property rights, we must monitor and detect infringement and pursue
infringement claims in certain circumstances in relevant
jurisdictions, all of which are costly and time-consuming. As a
result, we may not be able to obtain adequate protection or to
effectively enforce our issued patents or other intellectual
property rights.
In addition to patents, we rely on trade secret rights, copyrights,
trademarks, and other rights to protect our proprietary
intellectual property and technology. Despite our efforts to
protect our proprietary intellectual property and technology,
unauthorized parties, including our employees, consultants, service
providers or customers, may attempt to copy aspects of our
solutions or obtain and use our trade secrets or other confidential
information. We generally enter into confidentiality agreements
with our employees, consultants, service providers, vendors,
channel partners and customers, and generally limit access to and
distribution of our proprietary information and proprietary
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technology through certain procedural safeguards. These agreements
may not effectively prevent unauthorized use or disclosure of our
intellectual property or technology and may not provide an adequate
remedy in the event of unauthorized use or disclosure of our
intellectual property or technology. We cannot assure you that the
steps taken by us will prevent misappropriation of our intellectual
property or technology or infringement of our intellectual property
rights. In addition, the laws of some foreign countries where we
sell or distribute our solutions do not protect intellectual
property rights and technology to the same extent as the laws of
the United States, and these countries may not enforce these laws
as diligently as government agencies and private parties in the
United States. Based on the 2013 report on intellectual property
rights protection and enforcement published by the Office of the
United States Trade Representative, such countries included Ukraine
(designated a priority foreign country) and Chile, China, India,
Indonesia, Russia and Thailand (designated as priority watch list
countries).
If we are unable to protect our trademarks from infringement, our
business prospects may be harmed.
We own trademarks that identify “Kornit” and
“NeoPigment” among others, and have registered these
trademarks in certain key markets. Although we take steps to
monitor the possible infringement or misuse of our trademarks,
third parties may violate our trademark rights. Any unauthorized
use of our trademarks could harm our reputation or commercial
interests. In addition, efforts to enforce our trademarks may be
expensive and time-consuming, and may not effectively prevent
infringement.
We may become subject to claims of intellectual property
infringement by third parties or may be required to indemnify our
distributors or other third parties against such claims, which,
regardless of their merit, could result in litigation, distract our
management and materially adversely affect our business, results of
operations or financial condition.
We have in the past and may in the future become subject to
third-party claims that assert that our solutions, services and
intellectual property infringe, misappropriate or otherwise violate
third-party intellectual property or other proprietary rights.
Intellectual property disputes can be costly and disruptive to our
business operations by diverting the attention and energies of
management and key technical personnel, and by increasing our costs
of doing business. Even if a claim is not directly against us, our
agreements with distributors generally require us to indemnify them
against losses from claims that our products infringe third-party
intellectual property rights and entitle us to assume the defense
of any claim as part of the indemnification undertaking. Our
assumption of the defense of such a claim may result in similar
costs, disruption and diversion of management attention to an
extent similar to that of a claim that is asserted directly against
us. We may not prevail in any such dispute or litigation, and an
adverse decision in any legal action involving intellectual
property rights could harm our intellectual property rights and the
value of any related technology or limit our ability to execute our
business.
Adverse outcomes in intellectual property disputes could:
•
require us to redesign our technology or force us to enter into
costly settlement or license agreements on terms that are
unfavorable to us;
•
prevent us from manufacturing, importing, using, or selling some or
all of our solutions;
•
disrupt our operations or the markets in which we compete;
•
impose costly damage awards;
•
require us to indemnify our distributors and customers; and
•
require us to pay royalties.
We may become subject to claims for remuneration or royalties for
assigned service invention rights by our employees, which could
result in litigation and adversely affect our business.
A significant portion of our intellectual property has been
developed by our employees in the course of their employment for
us. Under the Israeli Patent Law, 5727-1967, or the Patent Law,
inventions conceived by an employee in the course and as a result
of or arising from his or her employment with a company are
regarded as “service inventions,” which belong to the
employer, absent a specific agreement between the employee and
employer giving the
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employee proprietary rights. The Patent Law also provides under
Section 134 that if there is no agreement between an employer and
an employee as to whether the employee is entitled to consideration
for service inventions, and to what extent and under which
conditions, the Israeli Compensation and Royalties Committee, or
the Committee, a body constituted under the Patent Law, shall
determine these issues. Section 135 of the Patent law provides
criteria for assisting the Committee in making its decisions.
According to case law handed down by the Committee, an
employee’s right to receive consideration for service
inventions is a personal right and is entirely separate from the
proprietary rights in such invention. Therefore, this right must be
explicitly waived by the employee. A decision handed down in May
2014 by the Committee clarifies that the right to receive
consideration under Section 134 can be waived and that such waiver
can be made orally, in writing or by behavior like any other
contract. The Committee will examine, on a case by case basis, the
general contractual framework between the parties, using
interpretation rules of the general Israeli contract laws. Further,
the Committee has not yet determined one specific formula for
calculating this remuneration, nor the criteria or circumstances
under which an employee’s waiver of his right to remuneration
will be disregarded. Similarly, it remains unclear whether waivers
by employees in their employment agreements of the alleged right to
receive consideration for service inventions should be declared as
void being a depriving provision in a standard contract. We
generally enter into assignment-of-invention agreements with our
employees pursuant to which such individuals assign to us all
rights to any inventions created in the scope of their employment
or engagement with us. Although our employees have agreed to assign
to us service invention rights and have specifically waived their
right to receive any special remuneration for such service
inventions beyond their regular salary and benefits, we may face
claims demanding remuneration in consideration for assigned
inventions.
Undetected defects in the design or manufacturing of our products
may harm our business and results of operations.
Our systems, ink and other consumables, and associated software may
contain undetected errors or defects when first introduced or as
new versions are released. We have experienced these errors or
defects in the past during the introduction of new systems and
system upgrades. We expect that these errors or defects will be
found from time to time in new or enhanced systems after
commencement of commercial distribution or upon software upgrades.
These problems may cause us to incur significant warranty and
repair costs, divert the attention of our engineers from our
product development and customer service efforts and harm our
reputation. We may experience a delay in revenue recognition or
collection of due payments from relevant customers as a result of
our systems’ inability to meet agreed performance metrics. In
addition, the use of third-party inks may harm the operation of our
systems and reduce customer satisfaction with them, which could
harm our reputation and adversely affect sales of our systems. We
may also be subject to liability claims for damages related to
system errors or defects. Although we carry insurance policies
covering this type of liability, these policies may not provide
sufficient protection should a claim be asserted against us. Any
product liability claim brought against us could force us to incur
significant expenses, divert management time and attention, and
harm our reputation and business. In addition, costs or payments
made in connection with warranty and product liability claims and
system recalls could materially affect our financial condition and
results of operations.
We may need substantial additional capital in the future, which may
cause dilution to our existing shareholders, restrict our
operations or require us to relinquish rights to our pipeline
products or intellectual property. If additional capital is not
available, we may have to delay, reduce or cease
operations.
Based on our current business plan, we believe our cash flows from
operating activities and our existing cash resources will be
sufficient to meet our currently anticipated cash requirements
through the next 12 months without drawing on our lines of credit
or using significant amounts of the net proceeds from our initial
public offering and this offering. Nevertheless, to the extent our
anticipated cash requirements change, we may seek additional
funding in the future. This funding may consist of equity
offerings, debt financings or any other means to expand our sales
and marketing capabilities, develop our future solutions or pursue
other general corporate purposes. Securing additional financing may
divert our management from our day-to-day activities, which may
adversely affect our ability to market our current solutions and
develop and sell future solutions. Additional funding may not be
available to us on acceptable terms, or at all.
To the extent that we raise additional capital through, for
example, the sale of equity or convertible debt securities, your
ownership interest will be diluted, and the terms may include
liquidation or other preferences that adversely affect your rights
as a shareholder. The incurrence of indebtedness or the issuance of
certain equity securities could result in increased fixed payment
obligations and could also result in certain restrictive covenants,
such as limitations on our ability to incur additional debt,
limitations on our ability to acquire or license intellectual
property rights and
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other operating restrictions that could adversely impact our
ability to conduct our business. In addition, the issuance of
additional equity securities by us, or the possibility of such
issuance, may cause the market price of our ordinary shares to
decline.
We have acquired businesses and may acquire other businesses and/or
companies, which could require significant management attention,
disrupt our business, dilute shareholder value, and adversely
affect our results of operations.
As part of our business strategy and in order to remain
competitive, we have acquired businesses and may acquire or make
investments in other complementary companies, products or
technologies. However, we have only made small acquisitions and our
experience in acquiring and integrating other companies, products
or technologies is limited. We may not be able to find suitable
acquisition candidates, and we may not be able to complete such
acquisitions on favorable terms, if at all. If we do complete other
acquisitions, we may not ultimately strengthen our competitive
position or achieve our goals, and any acquisitions we complete
could be viewed negatively by our customers, analysts and
investors. In addition, if we are unsuccessful at integrating such
acquisitions or the technologies associated with such acquisitions,
our revenues and results of operations may be adversely affected.
Any integration process may require significant time and resources,
and we may not be able to manage the process successfully. We may
not successfully evaluate or utilize the acquired technology or
personnel, or accurately forecast the financial impact of an
acquisition transaction, including accounting charges. We may have
to pay cash, incur debt or issue equity securities to pay for any
such acquisition, each of which could adversely affect our
financial condition or the value of our ordinary shares. The sale
of equity or issuance of debt to finance any such acquisitions
could result in dilution to our shareholders. The incurrence of
indebtedness would result in increased fixed obligations and could
also include covenants or other restrictions that would impede our
ability to manage our operations.
Risks Related to Our
Ordinary Shares and the Offering
Our share price may be volatile.
Our ordinary shares were first offered publicly in our initial
public offering in April 2015 at a price of $10.00 per share, and
our ordinary shares have subsequently traded as high as $18.40 and
as low as $8.00 through January 20, 2017. The market price of our
ordinary shares could be highly volatile and may fluctuate
substantially as a result of many factors, including:
•
actual or anticipated variations in our and/or our
competitors’ results of operations and financial
condition;
•
variance in our financial performance from the expectations of
market analysts;
•
announcements by us or our competitors of significant business
developments, changes in service provider relationships,
acquisitions, strategic relationships or expansion plans;
•
changes in the prices of our solutions;
•
our involvement in litigation;
•
our sale of ordinary shares or other securities in the future;
•
market conditions in our industry;
•
changes in key personnel;
•
the trading volume of our ordinary shares;
•
changes in the estimation of the future size and growth rate of our
markets; and
•
general economic and market conditions.
In addition, the stock markets have experienced extreme price and
volume fluctuations. Broad market and industry factors may
materially harm the market price of our ordinary shares, regardless
of our operating performance. In the past, following periods of
volatility in the market price of a company’s securities,
securities class action litigation has often been instituted
against that company. If we were involved in any similar litigation
we could incur substantial costs and our management’s
attention and resources could be diverted.
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Investors in this offering will experience immediate substantial
dilution in net tangible book value.
The price of our ordinary shares in this offering is considerably
greater than the net tangible book value per share of our
outstanding ordinary shares immediately after this offering.
Accordingly, investors in this offering will incur immediate
dilution of $13.88 per share, based on an assumed offering price of
$17.75 per share, the last reported sales price of our ordinary
shares on the Nasdaq Global Select Market on January 20, 2017. In
addition, if outstanding options to purchase our ordinary shares
are exercised in the future, you will experience additional
dilution. See “Dilution.”
Fortissimo Capital has, and upon completion of this offering will
continue to have, a significant influence over matters requiring
shareholder approval, which could delay or prevent a change of
control.
Upon completion of this offering, Fortissimo Capital will
beneficially own 30.6% of our outstanding shares in the aggregate
(or 28.1% if the underwriters exercise in full their option to
purchase additional shares).
As a result, this shareholder could exert significant influence
over our operations and business strategy and may have sufficient
voting power to control the outcome of matters requiring
shareholder approval. These matters may include:
•
the composition of our board of directors, which has the authority
to direct our business and to appoint and remove our officers;
•
approving or rejecting a merger, consolidation or other business
combination;
•
raising future capital; and
•
amending our articles, which govern the rights attached to our
ordinary shares.
This concentration of ownership of our ordinary shares could delay
or prevent proxy contests, mergers, tender offers, open-market
purchase programs or other purchases of our ordinary shares. This
concentration of ownership may also adversely affect our share
price.
We have never paid cash dividends on our share capital, and we do
not anticipate paying any cash dividends in the foreseeable
future.
We have never declared or paid cash dividends on our share capital,
nor do we anticipate paying any cash dividends on our share capital
in the foreseeable future. We currently intend to retain all
available funds and any future earnings to fund the development and
growth of our business. As a result, capital appreciation, if any,
of our ordinary shares will be investors’ sole source of gain
for the foreseeable future. In addition, Israeli law limits our
ability to declare and pay dividends, and may subject our dividends
to Israeli withholding taxes. Furthermore, our payment of dividends
(out of tax-exempt income) may retroactively subject us to certain
Israeli corporate income taxes, to which we would not otherwise be
subject.
As a foreign private issuer whose shares are listed on the NASDAQ
Global Select Market, we may follow certain home country corporate
governance practices instead of otherwise applicable SEC and NASDAQ
requirements, which may result in less protection than is accorded
to investors under rules applicable to domestic U.S.
issuers.
As a foreign private issuer
whose shares are listed on the NASDAQ Global Select Market, we are
permitted to follow certain home country corporate governance
practices instead of those otherwise required under the corporate
governance standards for U.S. domestic issuers. We currently follow
Israeli home country practices with regard to the (i) quorum
requirement for shareholder meetings, (ii) independent director
oversight requirement for director nominations and (iii)
independence requirement for the board of directors. See
“ITEM 16G. Corporate Governance” in our Annual Report
on Form 20-F for the year ended December 31, 2015. Furthermore, we
may in the future elect to follow Israeli home country practices
with regard to other matters such as the requirement to have a
compensation committee, separate executive sessions of independent
directors or to obtain shareholder approval for certain dilutive
events (such as for the establishment or amendment of certain
equity-based compensation plans, issuances that will result in a
change of control of the company, certain transactions other than a
public offering involving issuances of a 20% or more interest in
the company and certain acquisitions of the stock or assets of
another company). Accordingly, our shareholders may not be afforded
the same protection as provided under NASDAQ corporate governance
rules. Following our home country governance practices as opposed
to the requirements that would otherwise apply to a United States
company listed on NASDAQ may provide less protection than is
accorded to
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investors of domestic issuers.
See “ITEM 16G. Corporate Governance” in our Annual
Report on Form 20-F for the year ended December 31,
2015.
As a foreign private issuer, we are not subject to the provisions
of Regulation FD or U.S. proxy rules and are exempt from filing
certain Exchange Act reports.
As a foreign private issuer, we are exempt from a number of
requirements under U.S. securities laws that apply to public
companies that are not foreign private issuers. In particular, we
are exempt from the rules and regulations under the Exchange Act
related to the furnishing and content of proxy statements, and our
officers, directors and principal shareholders are exempt from the
reporting and short-swing profit recovery provisions contained in
Section 16 of the Exchange Act. In addition, we are not required
under the Exchange Act to file annual and current reports and
financial statements with the SEC as frequently or as promptly as
U.S. domestic companies whose securities are registered under the
Exchange Act and we are generally exempt from filing quarterly
reports with the SEC under the Exchange Act. We are also exempt
from the provisions of Regulation FD, which prohibits issuers from
making selective disclosure of material nonpublic information to,
among others, broker-dealers and holders of a company’s
securities under circumstances in which it is reasonably
foreseeable that the holder will trade in the company’s
securities on the basis of the information. These exemptions and
leniencies will reduce the frequency and scope of information and
protections to which you are entitled as an investor.
We are not required to comply with the proxy rules applicable to
U.S. domestic companies, including the requirement applicable to
emerging growth companies to disclose the compensation of our Chief
Executive Officer and other two most highly compensated executive
officers on an individual, rather than on an aggregate, basis.
Nevertheless, the Companies Law requires us to disclose in the
notice of convening an annual general meeting the annual
compensation of our five most highly compensated office holders on
an individual basis, rather than on an aggregate basis, as was
previously permitted for Israeli public companies listed overseas.
This disclosure is not as extensive as that required of a U.S.
domestic issuer.
We would lose our foreign private issuer status if a majority of
our directors or executive officers are U.S. citizens or residents
and we fail to meet additional requirements necessary to avoid loss
of foreign private issuer status. Although we have elected to
comply with certain U.S. regulatory provisions, our loss of foreign
private issuer status would make such provisions mandatory. The
regulatory and compliance costs to us under U.S. securities laws as
a U.S. domestic issuer may be significantly higher. If we are not a
foreign private issuer, we will be required to file periodic
reports and registration statements on U.S. domestic issuer forms
with the SEC, which are more detailed and extensive than the forms
available to a foreign private issuer. We would also be required to
follow U.S. proxy disclosure requirements, including the
requirement to disclose more detailed information about the
compensation of our senior executive officers on an individual
basis. We may also be required to modify certain of our policies to
comply with good governance practices associated with U.S. domestic
issuers. Such conversion and modifications will involve additional
costs. In addition, we would lose our ability to rely upon
exemptions from certain corporate governance requirements on U.S.
stock exchanges that are available to foreign private issuers.
We are an “emerging growth company” and the reduced
disclosure requirements applicable to emerging growth companies may
make our ordinary shares less attractive to investors.
We are an “emerging growth company,” as defined in the
Jumpstart Our Business Startups Act of 2012 effective on April 5,
2012, or the JOBS Act, and we may take advantage of certain
exemptions from various requirements that are applicable to other
public companies that are not emerging growth companies. Most of
such requirements relate to disclosures that we would only be
required to make if we cease to be a foreign private issuer in the
future. Nevertheless, as a foreign private issuer that is an
emerging growth company, we are not required to comply with the
auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act for up to five fiscal years after April 2, 2015,
the date of our initial public offering. We will remain an emerging
growth company until the earliest of: (a) the last day of our
fiscal year during which we have total annual gross revenues of at
least $1.0 billion; (b) the last day of our fiscal year following
the fifth anniversary of the completion of our initial public
offering; (c) the date on which we have, during the previous
three-year period, issued more than $1.0 billion in non-convertible
debt; or (d) the date on which we are deemed to be a “large
accelerated filer” under the Exchange Act. When we are no
longer deemed to be an emerging growth company, we will not be
entitled to the exemptions provided in the JOBS Act discussed
above. We cannot predict if investors will find our ordinary shares
less attractive as a result of our reliance on exemptions under the
JOBS Act. If some investors find our ordinary shares less
attractive as a result, there may be a less active trading market
for our ordinary shares and our share price may be more
volatile.
S-26
The market price of our ordinary shares could be negatively
affected by this offering and future sales of our ordinary
shares.
Future sales by us or our shareholders of a substantial number of
ordinary shares in the public market, or the perception that these
sales might occur, could cause the market price of our ordinary
shares to decline or could impair our ability to raise capital
through a future sale of, or pay for acquisitions using, our equity
securities. Shares held by our pre-IPO shareholders are now
eligible for sale under Rule 144 of the Securities Act, which could
cause additional downward pressure on the market price of our
ordinary shares.
We, the selling shareholders, and our executive officers and
directors have agreed with the underwriters that, subject to
limited exceptions, for a period of 90 days after the date of this
prospectus supplement, we and they will not directly or indirectly
offer, pledge, sell, contract to sell, grant any option to purchase
or otherwise dispose of any ordinary shares or any securities
convertible into or exercisable or exchangeable for ordinary
shares, or in any manner transfer all or a portion of the economic
consequences associated with the ownership of ordinary shares, or
cause a registration statement covering any ordinary shares to be
filed except for the ordinary shares offered in this offering,
without the prior written consent of Barclays Capital Inc. and
Citigroup Global Markets Inc., who may, in their sole discretion
and at any time without notice, release all or any portion of the
shares subject to these lock-up agreements. See
“Underwriting.”
Furthermore, following the closing of this offering, but subject to
the 90-day lock-up agreements entered into with the underwriters,
Fortissimo is entitled to require that we conduct additional
underwritten offerings under the U.S. Securities Act of 1933 with
respect to the resale of its shares into the public markets. In
addition, Amazon is also entitled to certain registration rights
starting on January 10, 2018. All shares sold pursuant to an
offering covered by a registration statement will be freely
transferable except if purchased by an affiliate. See “ITEM
7.B — Related Party Transactions — Investors’
Rights Agreement” in our Annual Report on Form 20-F for the
year ended December 31, 2015
4,124,036 million ordinary shares are reserved for issuance under
currently exercisable share options granted to employees and office
holders as of December 31, 2016. We have filed registration
statements on Form S-8 under the U.S. Securities Act of 1933
registering ordinary shares that we may issue under our share
incentive plans, of which as of December 31, 2016 there were
options to purchase 2,722,161 million shares outstanding. Shares
included in such registration statements may be freely sold in the
public market upon issuance, except for shares held by affiliates
who have certain restrictions on their ability to sell.
We have broad discretion over the use of proceeds we receive in
this offering and may not apply the proceeds in ways that increase
th
e
value of your investment.
Our management will have broad discretion in the application of the
net proceeds from this offering and, as a result, you will have to
rely upon the judgment of our management with respect to the use of
these proceeds. Our management may spend a portion or all of the
net proceeds in ways that not all shareholders approve of or that
may not yield a favorable return. The failure by our management to
apply these funds effectively could harm our business. See
“Use of proceeds.”
Under Section 404 of the Sarbanes-Oxley Act and as an emerging
growth company, we are currently not required to obtain an auditor
attestation regarding our internal control over financial
reporting.
We are not required to comply with the internal control, evaluation
and certification requirements of Section 404 of the Sarbanes-Oxley
Act until we file our Annual Report on Form 20-F for the year
ending December 31, 2016. In addition, once we no longer qualify as
an “emerging growth company” under the JOBS Act and
lose the ability to rely on the exemptions related thereto
discussed above, our independent registered public accounting firm
will also need to attest to the effectiveness of our internal
control over financial reporting under Section 404. We have not yet
completed the process of determining whether our existing internal
control over financial reporting systems are compliant with Section
404 and whether there are any material weaknesses or significant
deficiencies in our existing internal controls. The process of
evaluating our internal control over financial reporting requires
an investment of substantial time and resources, including by our
Chief Financial Officer and other members of our senior management.
As a result, this process has diverted and may continue to divert
internal resources and take a significant amount of time and effort
to complete. In addition, we cannot predict the outcome of this
determination and whether we will
S-27
need to implement remedial actions in order to implement effective
internal control over financial reporting. The determination and
any remedial actions required could result in us incurring
additional costs that we did not anticipate. Irrespective of
compliance with Section 404, any failure of our internal controls
could have a material adverse effect on our stated results of
operations and harm our reputation. As a result, we may experience
higher than anticipated operating expenses, as well as higher
independent auditor fees during and after the implementation of
these changes. If we are unable to implement any of the required
changes to our internal control over financial reporting
effectively or efficiently or are required to do so earlier than
anticipated, it could adversely affect our operations, financial
reporting and/or results of operations and could result in an
adverse opinion on internal controls from our independent
auditors.
Our U.S. shareholders may suffer adverse tax consequences if we are
classified as a passive foreign investment company.
Generally, if for any taxable year 75% or more of our gross income
is passive income, or at least 50% of the average quarterly value
of our assets (which may be determined in part by the market value
of our ordinary shares, which is subject to change) are held for
the production of, or produce, passive income, we would be
characterized as a passive foreign investment company, or PFIC, for
U.S. federal income tax purposes. Based on historic and certain
estimates of our gross income, gross assets and market
capitalization (which may fluctuate from time to time) and the
nature of our business, we do not believe that we were a PFIC for
the taxable year ending 2016 and we do not expect that we will be
classified as a PFIC for the taxable year ending December 31, 2017.
Because PFIC status is based on our income, assets and activities
for the entire taxable year, it is not possible to determine
whether we will be characterized as a PFIC for our 2017 taxable
year until after the close of the year. There can be no assurance
that we will not be considered a PFIC for any taxable year. If we
are characterized as a PFIC, our U.S. shareholders may suffer
adverse tax consequences, including having gains realized on the
sale of our ordinary shares treated as ordinary income, rather than
as capital gain, the loss of the preferential rate applicable to
dividends received on our ordinary shares by individuals who are
U.S. Holders (as defined in “U.S. and Israeli tax
consequences for our shareholders — U.S. federal income tax
consequences”), and having interest charges apply to
distributions by us and the proceeds of sales of our ordinary
shares. Certain elections exist that may alleviate some of the
adverse consequences of PFIC status and would result in an
alternative treatment (such as mark-to-market treatment) of our
ordinary shares. For a more detailed discussion, see “U.S.
and Israeli tax consequences for our shareholders — U.S.
federal income tax consequences.”
Risks Related to Our
Operations in Israel
Our headquarters, manufacturing and other significant operations
are located in Israel and, therefore, our results may be adversely
affected by political, economic and military instability in
Israel.
Our headquarters, research and development and manufacturing
facility, and the manufacturing facilities of our third-party
manufacturers, are located in Israel. In addition, the majority of
our key employees, officers and directors are residents of Israel.
Accordingly, political, economic and military conditions in Israel
may directly affect our business. Since the establishment of the
State of Israel in 1948, a number of armed conflicts have taken
place between Israel and its neighboring countries. In recent
years, these have included hostilities between Israel and Hezbollah
in Lebanon and Hamas in the Gaza strip, both of which resulted in
rockets being fired into Israel, causing casualties and disruption
of economic activities. In addition, Israel faces threats from more
distant neighbors, in particular, Iran. Our commercial insurance
does not cover losses that may occur as a result of an event
associated with the security situation in the Middle East. Although
the Israeli government is currently committed to covering the
reinstatement value of direct damages that are caused by terrorist
attacks or acts of war, we cannot assure you that this government
coverage will be maintained, or if maintained, will be sufficient
to compensate us fully for damages incurred. Any losses or damages
incurred by us could have a material adverse effect on our
business. While we are currently considering evaluating a business
continuity plan to provide for alternative sites outside of Israel,
there can be no assurance that we will be able to implement such a
plan on a cost-effective basis, or at all, and even if implemented,
whether such plan would be successful. Any armed conflict involving
Israel could adversely affect our operations and results of
operations.
Further, our operations could be disrupted by the obligations of
personnel to perform military service. As of December 31, 2016, we
had 249 employees based in Israel, certain of whom may be called
upon to perform up to 54 days in each three year period (and in the
case of non-officer commanders or officers, up to 70 or 84 days,
respectively, in each three year period) of military reserve duty
until they reach the age of 40 (and in some cases, depending on
their specific military profession up to 45 or even 49 years of
age) and, in certain emergency circumstances, may be called
S-28
to immediate and unlimited active duty. Our operations could be
disrupted by the absence of a significant number of employees
related to military service, which could materially adversely
affect our business and results of operations.
Several countries, principally in the Middle East, restrict doing
business with Israel and Israeli companies, and additional
countries may impose restrictions on doing business with Israel and
Israeli companies whether as a result of hostilities in the region
or otherwise. In addition, there have been increased efforts by
activists to cause companies and consumers to boycott Israeli goods
based on Israeli government policies. Such actions, particularly if
they become more widespread, may adversely impact our ability to
sell our solutions.
In addition, the shipping and delivery of our systems and ink and
other consumables from our manufacturing facilities and those of
our third-party manufacturers in Israel could be delayed or
interrupted by political, economic, military, and other events
outside of our reasonable control, including labor strikes at ports
in Israel or at ports of destination, military attacks on
transportation facilities or vessels, and severe weather events. If
delivery and installation of our products is delayed or prevented
by any such events, our revenues could be materially and adversely
impacted.
The government tax benefits that we currently receive require us to
meet several conditions and may be terminated or reduced in the
future, which would increase our costs.
We and our wholly-owned Israeli subsidiary, Kornit Digital
Technologies Ltd., or Kornit Technologies, are entitled to various
tax benefits under the Israeli Law for the Encouragement of Capital
Investments, 1959, or the Investment Law. As a result of this
status, the effective tax rate for our taxable income generated in
Israel is expected to be between zero and 5% in 2016. However, if
we do not meet the requirements for maintaining these benefits,
they may be reduced or cancelled and the relevant operations would
be subject to Israeli corporate tax at the standard rate, which was
26.5% in 2014 and 2015, 25% in 2016, and is currently set at 24%
for 2017 and 23% for 2018. In addition to being subject to the
standard corporate tax rate, we could be required to refund any tax
benefits that we have already received, as adjusted by the Israeli
consumer price index, plus interest and penalties thereon. Even if
we continue to meet the relevant requirements, the tax benefits
that our current beneficiary enterprises receive may not be
continued in the future at their current levels or at all. If these
tax benefits were reduced or eliminated, the amount of taxes that
we pay would likely increase, as all of our operations would
consequently be subject to corporate tax at the standard rate,
which could adversely affect our results of operations.
Additionally, if we increase our activities outside of Israel, for
example, via acquisitions, our increased activities may not be
eligible for inclusion in Israeli tax benefit programs. See
“ITEM 5. Operating and Financial Review and Prospects -
Taxation and Israeli Government Programs Applicable to our Company
— Law for the Encouragement of Capital Investments,
5719-1959” in our Annual Report on Form 20-F for the year
ended December 31, 2015.
We received Israeli government grants for certain research and
development activities. The terms of those grants restrict our
ability to transfer manufacturing operations or technology outside
of Israel.
Our research and development efforts were financed in part through
grants from the Israeli National Authority for Technological
Innovation, or the Innovation Authority (previously known as the
Israeli Office of the Chief Scientist), which we repaid in full in
2015. Even though we have fully repaid our Innovation Authority
grants, we must nevertheless continue to comply with the
requirements of the Encouragement of Research, Development and
Technological Innovation in the Industry Law, 5744-1984 (formerly
known as the Law for the Encouragement of Research and Development
in Industry 5744-1984), and related regulations, or collectively,
the Innovation Law.
When a company develops know-how, technology or products and
related services using grants provided by the Innovation Authority,
the terms of these grants and the Innovation Law, among others,
restrict the transfer outside of Israel of such Innovation
Authority-supported know-how (including by a way of license for
research and development purposes), the transfer inside Israel of
such know-how and the transfer of manufacturing or manufacturing
rights of such products, and technologies outside of Israel,
without the prior approval of the Innovation Authority. We may not
receive those approvals.
Although we have repaid our grants in full, we remain subject to
the restrictions set forth under the Innovation Law, including:
•
Transfer of know-how
outside of Israel
. Transfer of the know-how that was
developed with the funding of the Innovation Authority outside of
Israel requires prior approval of the Innovation Authority, and, in
certain circumstances, the payment of a redemption fee, which
cannot exceed 600% of the grant amount plus interest. Upon payment
of such fee, the know-how and the production rights for the
products supported by such funding cease to be subject to the
Innovation Law.
S-29
•
Local manufacturing
obligation.
The terms of the grants under the
Innovation Law require that the manufacturing of products resulting
from the Innovation Authority funded programs are carried out in
Israel, unless a prior written approval of the Innovation Authority
is obtained. Such approval may be given in special circumstances
and upon the fulfillment of certain conditions set forth in the
Innovation Law, including payment of increased royalties. Such
approval is not required for the transfer of less than 10% of the
manufacturing capacity in the aggregate, and in such event, a
notice to the Innovation Authority is required.
•
Certain reporting
obligations
. A recipient of a grant or a benefit under
the Innovation Law is required to notify the Innovation Authority
of events enumerated in the Innovation Law.
These restrictions and requirements for payment may impair our
ability to sell our technology assets outside of Israel or to
outsource or transfer manufacturing activities with respect to any
product or technology outside of Israel; however, they do not
restrict the export of our products that incorporate know how
funded by the Innovation Authority. Furthermore, the consideration
available to our shareholders in a sale transaction involving the
actual transfer outside of Israel of technology or know-how
developed with funding by the Innovation Authority pursuant to a
merger or similar transaction may be reduced by any amounts that we
are required to pay to the Innovation Authority. Failure to comply
with the requirements under the Innovation Law may subject us to
mandatory repayment of grants received by us, together with
interest and penalties, as well as expose us to criminal
proceedings.
We have received grants from the Office of the Chief Scientist
prior to an extensive amendment to the Innovation Law that came
into effect as of January 1, 2016, or the Amendment, which may also
affect the terms of existing grants. The Amendment provides for an
interim transition period, which has not yet expired, after which
time our grants will be subject to terms of the Amendment and the
Innovation Authority’s new guidelines, if and when issued.
Furthermore, the Innovation Law following the Amendment includes
new provisions with respect to sanctions imposed for violations of
the Innovation Law. Under the Innovation Law, as amended by the
Amendment, the Innovation Authority has the power to modify the
terms of existing grants. Such changes, if introduced by the
Authority in the future, may impact the terms governing our grants.
As of the date of this prospectus supplement, we are unable to
assess the effect of such changes, if any, on our business.
Provisions of Israeli law and our articles may delay, prevent or
otherwise impede a merger with, or an acquisition of, our company,
even when the terms of such a transaction are favorable to us and
our shareholders.
Israeli corporate law regulates mergers, requires tender offers for
acquisitions of shares above specified thresholds, requires special
approvals for transactions involving directors, officers or
significant shareholders and regulates other matters that may be
relevant to such types of transactions. For example, a tender offer
for all of a company’s issued and outstanding shares can only
be completed if the acquirer receives positive responses from the
holders of at least 95% of the issued share capital, otherwise, the
acquirer may not own more than 90% of a company’s issued and
outstanding share capital. Completion of the tender offer also
requires approval of a majority in number of the offerees that do
not have a personal interest in the tender offer, unless at least
98% of the company’s outstanding shares are tendered.
Furthermore, the shareholders, including those who indicated their
acceptance of the tender offer (unless the acquirer stipulated in
its tender offer that a shareholder that accepts the offer may not
seek appraisal rights), may, at any time within six months
following the completion of the tender offer, petition an Israeli
court to alter the consideration for the acquisition. See
“ITEM 10.B — Articles of Association —
Acquisitions under Israeli Law” in our Annual Report on Form
20-F for the year ended December 31, 2015 for additional
information.
Our articles provide that our directors (other than external
directors) are elected on a staggered basis, such that a potential
acquirer cannot readily replace our entire board of directors at a
single annual general shareholder meeting.
Furthermore, Israeli tax considerations may make potential
transactions unappealing to us or to our shareholders whose country
of residence does not have a tax treaty with Israel exempting such
shareholders from Israeli tax. For example, Israeli tax law does
not recognize tax-free share exchanges to the same extent as U.S.
tax law. With respect to mergers involving an exchange of shares,
Israeli tax law allows for tax deferral in certain circumstances
but makes the deferral contingent on the fulfillment of a number of
conditions, including, in some cases, a holding period of two years
from the date of the transaction during which sales and
dispositions of shares of the participating companies are subject
to certain restrictions. Moreover, with respect to certain share
swap transactions in which the sellers receive shares in the
acquiring entity that are publicly traded on a stock exchange, the
tax deferral is limited in time, and when
S-30
such time expires, the tax becomes payable even if no disposition
of such shares has occurred. In order to benefit from the tax
deferral, a pre-ruling from the Israel Tax Authority might be
required.
It may be difficult to enforce a judgment of a U.S. court against
us, our officers and directors or the Israeli experts named in this
prospectus supplement in Israel or the United States, to assert
U.S. securities laws claims in Israel or to serve process on our
officers and directors and these experts.
We are incorporated in Israel. The majority of our directors and
executive officers, and the Israeli experts listed in this
prospectus supplement reside outside of the United States, and most
of our assets and most of the assets of these persons are located
outside of the United States. Therefore, a judgment obtained
against us, or any of these persons, including a judgment based on
the civil liability provisions of the U.S. federal securities laws,
may not be collectible in the United States and may not be enforced
by an Israeli court. It also may be difficult for you to effect
service of process on these persons in the United States or to
assert U.S. securities law claims in original actions instituted in
Israel. Israeli courts may refuse to hear a claim based on an
alleged violation of U.S. securities laws reasoning that Israel is
not the most appropriate forum in which to bring such a claim. In
addition, even if an Israeli court agrees to hear a claim, it may
determine that Israeli law and not U.S. law is applicable to the
claim. If U.S. law is found to be applicable, the content of
applicable U.S. law must be proven as a fact by expert witnesses,
which can be a time consuming and costly process. Certain matters
of procedure will also be governed by Israeli law. There is little
binding case law in Israel that addresses the matters described
above. As a result of the difficulty associated with enforcing a
judgment against us in Israel, you may not be able to collect any
damages awarded by either a U.S. or foreign court. See
“Enforceability of Civil Liabilities” for additional
information on your ability to enforce a civil claim against us and
our executive officers or directors named in this prospectus
supplement.
Your rights and responsibilities as a shareholder are governed by
Israeli law, which differs in some material respects from the
rights and responsibilities of shareholders of U.S.
companies.
The rights and responsibilities of the holders of our ordinary
shares are governed by our articles and by Israeli law. These
rights and responsibilities differ in some material respects from
the rights and responsibilities of shareholders in U.S.-based
corporations. In particular, a shareholder of an Israeli company
has a duty to act in good faith and in a customary manner in
exercising its rights and performing its obligations towards the
company and other shareholders, and to refrain from abusing its
power in the company, including, among other things, in voting at a
general meeting of shareholders on matters such as amendments to a
company’s articles of association, increases in a
company’s authorized share capital, mergers and acquisitions
and related party transactions requiring shareholder approval. In
addition, a shareholder who is aware that it possesses the power to
determine the outcome of a shareholder vote or to appoint or
prevent the appointment of a director or executive officer in the
company has a duty of fairness toward the company. There is limited
case law available to assist us in understanding the nature of this
duty or the implications of these provisions. These provisions may
be interpreted to impose additional obligations and liabilities on
holders of our ordinary shares that are not typically imposed on
shareholders of U.S. corporations.
S-31
Use of
proceeds
We estimate that we will receive net proceeds from this offering,
after deducting underwriting discounts and commissions and
estimated offering expenses payable by us, of approximately $33.1
million, based upon an assumed offering price of $17.75 per
ordinary share, the last reported sales price of our ordinary
shares on the Nasdaq Global Select Market on January 20, 2017, or
approximately $38.2 million if the underwriters exercise in full
their option to purchase additional ordinary shares. We will not
receive any of the proceeds from the sale of shares by the selling
shareholders.
We intend to use the net proceeds from this offering for general
corporate purposes. We do not currently have any acquisitions or
investments planned, however we may use a portion of the net
proceeds to acquire or invest in complementary companies, products
or technologies in the future. Until we use the net proceeds we
receive from this offering, we intend to invest those proceeds in
short-term, investment-grade interest-bearing securities.
S-32
Capitalization
The following table sets forth our cash and cash equivalents,
available for sale marketable securities and total capitalization
as of September 30, 2016:
•
on an actual basis; and
•
on an as adjusted basis to give effect to (i) the issuance and sale
of 2,000,000 ordinary shares by us in this offering at an assumed
public offering price of $17.75 per ordinary share, the last
reported sales price of our ordinary shares on the Nasdaq Global
Select Market on January 20, 2017, after deducting underwriting
discounts and commissions and estimated offering expenses payable
by us, and (ii) the issuance of 90,000 ordinary shares and the
receipt by us of $200,000 in connection with the exercise of
options by one of the selling shareholders.
There has been no material change in our capitalization from debt
or equity issuances, re-capitalizations or special dividends
between September 30, 2016 and the date of this prospectus
supplement. This table should be read in conjunction with
“Risk factors” above, “ITEM 5: Operating and
Financial Review and Prospects,” and our consolidated
financial statements and the related notes incorporated by
reference from our Annual Report on Form 20-F for the year ended
December 31, 2015 and our unaudited interim condensed consolidated
financial statements for the nine months ended September 30, 2016
incorporated by reference from our Current Report on Form 6-K filed
on January 3, 2017. See “Where you can find more
information.”
|
|
|
|
|
|
|
|
|
|
(in
thousands, except share data)
|
Cash and cash equivalents and available for sale
marketable securities
|
|
$
|
56,691
|
|
$
|
90,023
|
Ordinary shares, NIS 0.01 par value: 200,000,000
shares authorized, actual and as adjusted; 30,295,949 shares issued
and outstanding, actual, and 32,385,949 shares issued and
outstanding, as adjusted
|
|
|
77
|
|
|
82
|
Additional paid-in capital
|
|
|
91,714
|
|
|
125,046
|
Accumulated other comprehensive income
(loss)
|
|
|
167
|
|
|
167
|
Retained earnings
|
|
|
11,406
|
|
|
11,406
|
Total shareholders’ equity
|
|
|
103,364
|
|
|
136,701
|
Total capitalization
|
|
$
|
160,555
|
|
$
|
226,723
|
The preceding table excludes 4,124,036 ordinary shares reserved for
issuance under our equity incentive plans as of December 31, 2016
of which we had outstanding options to purchase 2,722,161 ordinary
shares at a weighted average exercise price of $6.99 per share.
S-33
Dilution
If you invest in our ordinary shares in this offering, your
ownership interest will be immediately diluted to the extent of the
difference between the public offering price per share and the net
tangible book value per ordinary share after this offering.
Consolidated net tangible book value per ordinary share was
calculated by:
•
subtracting our consolidated liabilities from our consolidated
tangible assets; and
•
dividing the difference by the number of ordinary shares
outstanding.
As adjusted net tangible book value per ordinary share furthermore
reflects (i) the sale of 2,000,000 ordinary shares that we are
offering at an assumed public offering price of $17.00 per share
(the last reported share price on the NASDAQ Global Select Market
on January 19, 2017), and (ii) the issuance of 90,000 ordinary
shares and the receipt by us of $200,000 in connection with the
exercise of options by one of the selling shareholders. After
giving effect to adjustments relating to this offering, and after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us, our net tangible book value on an
adjusted basis as of September 30, 2016 would have been
approximately $128.0 million, equivalent to $3.87 per ordinary
share. This amount represents an immediate increase in the net
tangible book value of $0.74 per ordinary share to our existing
shareholders and an immediate decrease in net tangible book value
of $13.88 per ordinary share to new investors purchasing ordinary
shares in this offering. We determine dilution by subtracting the
net tangible book value per share after this offering from the
amount of cash that a new investor paid for an ordinary share.
The following table illustrates this dilution:
Public offering price per ordinary
share
|
|
|
|
|
$
|
17.75
|
Net tangible book value per ordinary share as of
September 30, 2016
|
|
$
|
3.12
|
|
|
|
Increase per ordinary share attributable to this
offering
|
|
|
0.74
|
|
|
|
As adjusted net tangible book value per ordinary
share immediately after this offering
|
|
|
|
|
|
3.87
|
Dilution per ordinary share to new investors in
this offering
|
|
|
|
|
$
|
13.88
|
If the underwriters exercise their option to purchase additional
ordinary shares in full in this offering, the as adjusted net
tangible book value after the offering would be $3.99 per share,
the increase in net tangible book value per share to existing
shareholders would be $0.87 and the dilution in net tangible book
value per share to investors in this offering would be $13.76 per
share, in each case based on the assumed public offering price of
$17.75 per ordinary share, the last reported sales price of our
ordinary shares on the Nasdaq Global Select Market on January 20,
2017.
The above discussion and table exclude 4,124,036 ordinary shares
reserved for issuance under our equity incentive plans as of
December 31, 2016, of which we had granted options to purchase
2,722,161 ordinary shares at a weighted average exercise price of
$6.99 per share.
S-34
Price range of ordinary
shares
Our ordinary shares have been quoted on the NASDAQ Global Select
Market under the symbol “KRNT” since April 2, 2015.
Prior to that date, there was no public trading market for our
ordinary shares. Our initial public offering was priced at $10.00
per share on April 1, 2015. The following table sets forth for the
periods indicated the high and low closing sales prices per
ordinary share as reported on NASDAQ:
|
|
|
|
|
|
|
(in
U.S. dollars)
|
Annual:
|
|
|
|
|
|
|
2016
|
|
$
|
8.10
|
|
$
|
14.70
|
2015 (beginning April 2, 2015)
|
|
|
9.91
|
|
|
17.50
|
Quarterly:
|
|
|
|
|
|
|
First Quarter 2017 (through January 20,
2017)
|
|
|
12.05
|
|
|
18.25
|
Fourth Quarter 2016
|
|
|
9.00
|
|
|
14.70
|
Third Quarter 2016
|
|
|
8.90
|
|
|
11.70
|
Second Quarter 2016
|
|
|
8.10
|
|
|
11.19
|
First Quarter 2016
|
|
|
8.91
|
|
|
12.00
|
Fourth Quarter 2015
|
|
|
9.91
|
|
|
13.80
|
Third Quarter 2015
|
|
|
11.42
|
|
|
15.85
|
Second Quarter 2015
|
|
|
11.76
|
|
|
17.50
|
Most
Recent Six Months (and Most Recent Partial
Month):
|
|
|
|
|
|
|
January 2017 (through January 20,
2017)
|
|
|
12.05
|
|
|
18.25
|
December 2016
|
|
|
11.25
|
|
|
14.70
|
November 2016
|
|
|
9.00
|
|
|
12.30
|
October 2016
|
|
|
9.35
|
|
|
10.60
|
September 2016
|
|
|
8.90
|
|
|
11.37
|
August 2016
|
|
|
9.50
|
|
|
11.70
|
July 2016
|
|
|
9.39
|
|
|
10.46
|
The last reported sales price of our ordinary shares on the Nasdaq
Global Select Market on January 20, 2017 was $17.75.
S-35
Principal and selling
shareholders
The following table sets forth information with respect to the
beneficial ownership of our ordinary shares as of January 3, 2017
and after this offering by:
•
each person or entity known by us to own beneficially 5% or more of
our outstanding ordinary shares;
•
the selling shareholders;
•
each of our directors and executive officers individually; and
•
all of our executive officers and directors as a group.
The beneficial ownership of our ordinary shares is determined in
accordance with the rules of the Commission and generally includes
any ordinary shares over which a person exercises sole or shared
voting or investment power, or the right to receive the economic
benefit of ownership. For purposes of the table below, we deem
ordinary shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days of January 3, 2017 to be
outstanding and to be beneficially owned by the person holding the
options for the purposes of computing the percentage ownership of
that person, but we do not treat them as outstanding for the
purpose of computing the percentage ownership of any other person.
The percentage of ordinary shares beneficially owned prior to the
offering is based on 30,989,873 ordinary shares outstanding as of
January 3, 2017. Except where otherwise indicated, we believe,
based on information furnished to us by such owners, that the
beneficial owners of the ordinary shares listed below have sole
investment and voting power with respect to such shares.
Unless otherwise noted below, each shareholder’s address is
c/o Kornit Digital Ltd., 12 Ha’Amal Street, Rosh
Ha’Ayin 4809246, Israel.
|
|
Shares
beneficially owned prior to offering
|
|
Number
of shares
|
|
Shares
beneficially owned after offering
|
|
Number
of shares offered pursuant to option granted by selling
|
|
Shares
beneficially owned after exercise of option granted by company and selling shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5%
and Selling Shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fortissimo
Capital Fund II (Israel), L.P.
(1)
|
|
15,037,481
|
|
48.5
|
%
|
|
4,910,000
|
|
10,127,481
|
|
30.6
|
%
|
|
750,000
|
|
9,377,481
|
|
28.1
|
%
|
Directors,
Executive Officers and Selling Shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yuval
Cohen
(2)
|
|
15,047,351
|
|
48.5
|
%
|
|
—
|
|
10,137,351
|
|
30.6
|
%
|
|
—
|
|
9,387,351
|
|
28.1
|
%
|
Ofer
Ben-Zur
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
Eli
Blatt
(3)
|
|
15,044,390
|
|
48.5
|
%
|
|
—
|
|
10,134,390
|
|
30.6
|
%
|
|
—
|
|
9,384,390
|
|
28.1
|
%
|
Marc
Lesnick
(4)
|
|
15,044,390
|
|
48.5
|
%
|
|
—
|
|
10,134,390
|
|
30.6
|
%
|
|
—
|
|
9,384,390
|
|
28.1
|
%
|
Lauri
Hanover
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
Alon
Lumbroso
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
Jerry
Mandel
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
Dov
Ofer
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
Gabi
Seligsohn
(5)
|
|
528,914
|
|
1.7
|
%
|
|
90,000
|
|
438,914
|
|
1.3
|
%
|
|
—
|
|
438,914
|
|
1.3
|
%
|
Nuriel
Amir
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Guy
Avidan
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
Gilad
Yron
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
Ofer
Sandelson
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
Guy
Zimmerman
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
|
—
|
|
*
|
|
|
*
|
All
Directors and Executive Officers as a Group
(14 persons)
(6)
|
|
15,993,997
|
|
50.5
|
%
|
|
5,000,000
|
|
10,993,997
|
|
32.7
|
%
|
|
750,000
|
|
10,243,997
|
|
30.2
|
%
|
S-36
S-37
Industry
Overview
The global textile and garment
industry, including textile, clothing, footwear and luxury fashion,
was worth nearly
$3 trillion in 2015 and is projected to
grow between 2% and 5% annually through 2020, according to a 2016
Digital Textile Printing Industry Forecast 2015-2020 report by
InfoTrends, a provider of market intelligence on the digital
imaging industry. The global printed textile industry represents a
sub-segment of the global textile industry. The global printed
textile industry involves printing on fabric rolls, finished
garments and unsewn pieces of cut fabric at various stages along
the value chain in the production of goods for the apparel,
household, technical and display end markets.
There is a diverse ecosystem of businesses that utilize textile
printing processes, such as custom decorators, online businesses,
brand owners and contract printers. Custom decorators of varying
sizes use their own manufacturing facilities to print promotional,
sports, educational and souvenir products. Online businesses use
textile printing in a “produce to order” business model
through online platforms that facilitate the rapid printing and
shipping of customized and personalized goods to consumers. Brand
owners typically use contract printers for textile production and
printing and are increasingly aware of the benefits of
various printing processes, which influences their choice of
contract printer.
We believe that the vast majority of the output of the global
printed textile industry in 2016, which was projected to be
approximately 32 to 33 billion square meters, was produced using
analog print methods, specifically screen printing, carousels
for printing on garments and rotary screen printers for printing on
rolls of fabric. Our assessment is based on data provided in a 2016
report by Smithers Pira, a provider of market intelligence on the
printed textile industry. The Pira report provides digital printing
output estimates for 2016 and projects the analog printing output
for 2016 as well as the annual digital textile printing growth rate
through 2021, which we used to calculate a projected digital output
of approximately 870 million square meters for 2016, representing
2.9% of total projected annual global printed textile output in
2016. According to the Pira report, initial growth rates in the
digital textile printing market were more than 45% between 2004 and
2009, declining to an average CAGR of 25% between 2009 and 2012, an
average CAGR of 18.8% between 2012 and 2014 and an average CAGR of
15.6% for 2014 to 2016 as the market became more mature and, in
part, due to the impact of the global economic slowdown. Digital
textile printing output is forecasted to grow at a 17.5% CAGR
globally from 2016 to 2021 driven by projected CAGR over the same
period of approximately 16.5% in North America, 15.0% in Western
Europe, 13.5% in Eastern Europe and 20.1% in Asia according to the
Pira report. Within digital textile printing, clothing applications
represent the greatest amount of digital printed textile output and
are projected to grow at a faster rate than household, technical
and display applications.
We estimate that global revenue from digital textile printing
equipment and ink will grow at a 15.7% CAGR between 2016 and 2021
based on the estimate of such revenue for 2016 and the projection
for 2021, in each case, contained in the Pira report. There is
currently a global installed base of approximately 42,000 digital
textile printers.
Trends Impacting Digital
Textile Printing
Evolving consumer behavior is driving the growth in digital
printing as well as the shift to online retail. This behavior is
motivated by increased demand for variety and complexity of images
and designs as well as increased desire for customization and
personalization. In order to distinguish themselves from the
masses, consumers demand, and brand owners seek to supply, a wide
range of styles that are innovative and diverse.
Apparel represents the largest segment of the online retail market
and sales are highly influenced by rapidly changing consumer
trends. We believe that four key trends are currently driving
growth in both the online retail market and the demand for digital
printing solutions:
•
Immediate
Gratification.
According to a 2016 report by Consumer
Intelligence Research Partners, from 2013 to 2015 the number of
Amazon customers in the United States willing to pay more in order
to receive products faster more than doubled to 54 million. This
change in consumer behavior is causing retailers to alter their
approach to inventory management in order to retain the business of
discrete shoppers. In addition to retooling their internal
fulfillment capabilities, many retail brands have begun to leverage
the capacity of third party online stores in order to meet customer
demands for delivery speed and product quality. We believe that the
industry will see an increase in proximity production, whereby
traditional retailers will use more localized digital printing
capacity in order to satisfy consumer demands.
S-38
•
Personal
Expression.
We believe consumers are increasingly
seeking the ability to customize products by choosing preferred
features from a menu of options, or the ability to personalize
products by adding an individualized pattern. We believe this trend
is driving the shift to digital printing and online retail in both
our DTG and R2R end markets.
•
Influence of Social
Media.
The means through which customers gather
information to inform purchase decisions has also evolved in
today’s digital world. According to a study by PwC, 78% of
consumers were influenced by social media in making online shopping
decisions in 2015, up from 68% in the prior year. We believe this
trend further promotes the shift to the online retail channel.
•
Consumer
Preference.
Today’s consumer is leveraging the
online channel for apparel purchases at a pace that far exceeds
traditional brick and mortar purchases. According to a report by
Internet Retailer, the online channel represented 17.0% of U.S.
apparel sales in 2015, up from 14.8% in 2014. The market share gain
corresponds to apparel revenue growth of 19.7% in the online
channel and only 1.1% growth in the brick and mortar channel. We
believe our installed base reflects the convergence of the growth
in online apparel retail and the growth in digital printing. As of
December 2016, we estimate that our top 10 accounts in terms of
revenue have the capacity to produce 60 million garments per year
in aggregate, and that total production across our installed base
in 2016 was 70 to 80 million garments.
New business models have developed in response to the evolution of
these consumer trends and the rapid growth of the online retail
market. Our solutions enable this category of
“web-to-print” businesses to fulfill consumer demand
more quickly and cost-effectively in a manner that is
differentiated from traditional brick and mortar businesses.
A number of large scale web-to-print platforms have emerged. These
platforms often leverage digital printing solutions to facilitate
business for a variety of content creators. The ecosystem of
web-to-print businesses which we currently serve includes:
•
Self-Fulfillment
. Companies
manufacturing and selling their own designs which are advertised on
their own websites and through other marketing means.
•
Hybrid
Printers.
Companies who both manufacture in-house and
outsource manufacturing to third party fulfillment providers, who
are often also our customers.
•
Third Party
Fulfillment Centers.
Companies serving as third party
fulfillment for other businesses. Demand for these businesses is
typically generated online through other web retailers.
Proximity to the consumer is a key factor for these businesses
since it minimizes shipping costs and enables them to offer rapid
turnaround. In many cases, retailers have asked us for assistance
in identifying our local customers to help with their
fulfillment.
The following characteristics of digital textile printing have
enabled these new business models and are driving the shift from
analog to digital textile printing:
•
Manufacturing
flexibility.
Digital textile printing allows a full
image or design to be printed on a garment or cut fabric in one
manufacturing step compared to multiple steps in an analog printing
process. Digital textile printing gives manufacturers the ability
to print small runs, with personalization capabilities, in a
cost-effective manner with a minimum order quantity of one
unit.
•
Reduced time between
design and production.
The digital textile printing
process allows for samples to be quickly produced, evaluated, and
modified, which permits brand owners to increase the
frequency and variety of replenishment cycles in response to
fashion trends.
•
Decreased risk of
excess inventory.
The costly and time-consuming upfront
setup required in analog production methods is avoided when using
digital printing technologies. Therefore, digital printing enables
the cost efficient production of a smaller quantity of garments
which mitigates excess inventory risk and improves
profitability. Stocking blank garments or fabric and
decorating them only when demand is identified significantly
reduces the amount of inventory at risk. This reduction in working
capital requirements has enabled the emergence of numerous online
businesses which are focused on the sales of printed textiles.
S-39
•
Reduced labor and
physical space requirements.
Digital textile printing
requires significantly less labor to print an equivalent
output due to the significant reduction in process steps. The
digital textile printing process also reduces the need for
floor space for manufacturing equipment by eliminating
certain process steps and by consolidating multiple process steps
into a single printing system. The combination of labor savings and
smaller shop floor footprint, coupled with lower energy
consumption and a lack of environmental impact, enables
manufacturers to move production closer to consumers in a
cost-effective manner.
In addition to these consumer driven trends, the textile printing
industry is being impacted by environmental considerations.
Regulatory bodies and consumers are increasingly focused on social
responsibility and eco-friendly manufacturing, demanding that
custom decorators, online businesses, brand owners and contract
printers reduce the negative environmental impact of textile
treatment and dyeing, which represents a significant portion
of total industrial waste water. Digital textile printing
significantly reduces industrial water consumption and
discharge of toxic chemicals by eliminating the need to wash
screens for color changes and repeated use. We believe that this
results in reduced environmental impact and, in turn, enables
manufacturers to comply with regulatory and brand guidelines at a
location of their choosing.
Overview of Textile
Printing Processes
The graphic and accompanying description below present various
textile printing processes:
Anal
o
g Printing
P
r
ocesses
Screen printing is the most commonly used printing process for
textiles. The two primary methods of screen printing are rotary
screen printing and automated carousel screen printing.
The following chart summarizes the key steps involved in the analog
printing process:
•
Rotary screen printing
.
Rotary
screen printing is commonly used to print on outerwear, underwear,
sportswear, upholstery and linens. It involves multiple,
time-consuming process steps. Rolls of fabric pass through rotating
cylinders that are engraved with the image or design to be printed.
Each cylinder then applies ink of a different color, which forms
part of the image or design. This process is generally used to
print a pattern on a fabric roll that is then cut and sewn into
finished products. Rotary screen engraving is a costly
process that takes between four and five hours per cylinder
and is frequently done offsite. Preparation of colors typically
takes an additional 30 minutes and the setup of the printer itself
typically takes nearly 1.5 hours. The process can require up to
seven people. The maximum size of an image or design is limited
based on the circumference of the cylinders, which is typically no
more than 60 centimeters.
S-40
The following chart depicts the analog rotary screen printing
process:
•
Automated carousel screen printing
. Automated carousel
screen printing is commonly used to print on t-shirts and jeans. In
automated carousel screen printing, a blade or squeegee squeezes
printing paste or ink through mesh stencils onto fabric. The
process typically employs a series of printing stations arranged in
a carousel. At each station, one color of ink is pressed through
specially prepared mesh stencils, or screens, on to the textile
surface. Between color stations, there are also flash drying
stations and cool down stations to ensure that deposited ink does
not inadvertently mix with the next color to be applied.
Preparation of the mesh stencils is a specialized process and its
complexity is a function of the number of discrete color
separations and screens that need to be prepared for a given
design. The process of color separations, film production,
and screen exposure and alignment, typically takes approximately
1.5 hours for six colors. Once the screens and color separations
are complete, preparation of the carousel typically takes between
40 and 60 minutes. After being manually loaded, the textile moves
along the carousel from station to station where each color is
applied separately. Unlike rotary screen printing, carousel screen
printing does not require fixing the image or design with
steam or hot air and, in most cases, does not require washing and
drying the textile afterward.
S-41
The following chart depicts the automated carousel screen printing
process:
Digital Printing P
r
ocesses
Digital textile printing uses specially engineered inkjet heads,
rather than screens and cylinders or mesh stencils, to print images
and designs directly onto fabrics. As such, the use of digital
technology eliminates multiple complicated, costly and time
consuming steps, such as screen preparation or cylinder engraving,
preparation of pastes or inks, and screen or cylinder
alignment.
Most fabrics need to be pre-treated before printing by submerging
them in a solution that is designed specifically for the type
of fabric and ink being used. This coating process is essential for
achieving the desired chemical reaction between the ink and the
fabric. The fabric is dried following pre-treatment. After the ink
drops are applied, the printed fabric undergoes a process of
fixation that is also specific to the type of fabric
and ink being used. Digital textile printing generally uses either
dye-based or pigment-based ink.
S-42
The digital textile printing market principally includes two types
of printing processes:
•
Direct-to-Garment (DTG)
.
In DTG
printing, an inkjet printer prints directly on the textile. DTG
printing allows for printing images and designs onto finished
textiles, such as t-shirts that have already been sewn and dyed.
The following chart summarizes the key steps involved in the DTG
printing process:
•
Roll-to-Roll (R2R)
.
In R2R
printing, rolls of fabric pass in-line through wide-format inkjet
printers that are utilized to directly print images and designs
onto rolling fabric. The following chart summarizes the key steps
involved in the R2R printing process:
Recent technological developments in digital printing have
supported the adoption of digital printing by the global printed
textile industry, including by custom decorators, online
businesses, brand owners and contract printers. As a result of
consumer and macro trends impacting these businesses, we believe
that the global printed textile industry offers a significant
and rapidly growing market for digital printing solutions.
S-43
Business
Overview
We develop, design and market innovative digital printing solutions
for the global printed textile industry. Our vision is to
revolutionize this industry by facilitating the transition from
analog processes that have not evolved for decades to digital
methods of production that address contemporary supply, demand and
environmental dynamics. We focus on the rapidly growing high
throughput, direct-to-garment, or DTG, and roll-to-roll, or R2R,
segments of the printed textile industry. Our solutions include our
proprietary digital printing systems, ink and other consumables,
associated software and value added services that allow for large
scale printing of short runs of complex images and designs directly
on finished garments and fabrics. Our solutions are
differentiated from other digital methods of production because
they eliminate the need to pre-treat fabrics prior to printing,
thereby offering our customers the ability to digitally print high
quality images and designs on a variety of fabrics in a streamlined
and environmentally-friendly manner. When compared to analog
methods of production, our solutions also significantly
reduce production lead times and enable customers to more
efficiently and cost-effectively produce smaller quantities of
individually printed designs, thereby mitigating the risk of excess
inventory, which is a significant challenge for the printed
textile industry.
There are a number of trends within the global printed textile
industry that we believe are driving greater demand for our
solutions. Consumers are continuing to seek to differentiate
themselves by wearing customized and personalized garments with
colorful and intricate images and designs. Consumers are also
increasingly purchasing retail products online, with apparel
representing the largest portion of this market. Brand owners and
contract printers are seeking methods to shorten time to market and
reduce production lead times in order to more efficiently and
cost-effectively produce smaller runs of printed textiles and
reduce the risk of excess inventory while concurrently meeting
consumer demands. As consumers increasingly shift to online retail
channels, there is an increased need for brand owners and contract
printers to improve efficiency, as consumers demand more varied
product offerings and faster fulfillment of orders. Simultaneously,
regulatory bodies and consumers are increasingly focused on social
responsibility and eco-friendly manufacturing, demanding that
printed textile manufacturers reduce the negative environmental
impact associated with the manufacturing of printed textiles. Our
solutions address these trends by enabling our customers to print
smaller quantities of customized products in a time efficient,
cost-effective and environmentally friendly manner, effectively
allowing them to transition from customary methods of supply and
demand to demand and supply.
We have developed and offer a broad portfolio of differentiated
digital printing solutions for the DTG market that provide answers
to challenges faced by participants in the global printed textile
industry. Our DTG solutions utilize our patented wet-on-wet
printing methodology that eliminates the common practice of
separately coating and drying textiles prior to printing. This
methodology also enables printing on a wide range of untreated
fabrics, including cotton, wool, polyester, lycra and denim. With
throughputs ranging from 32 to 250 garments per hour, our entry
level and high throughput DTG solutions are suited to the needs of
a variety of customers, from smaller commercial operators with
limited budgets to mass producers with mature operations and
complex manufacturing requirements. Our patented NeoPigment ink and
other consumables have been specially formulated to be compatible
with our systems and overcome the quality-related challenges that
pigment-based inks have traditionally faced when used in digital
printing. Our software solutions simplify workflows in the printing
process, by offering a complete solution from web order intake
through graphic job preparation and execution. We also offer
customers maintenance and support services as well as value added
services aimed at optimizing the use of our systems.
Building on the expertise and capabilities we have accumulated in
developing and offering differentiated solutions for the DTG
market, we market a digital printing solution, the Allegro,
targeting the R2R market. While the DTG market generally involves
printing on finished garments, the R2R market is focused on
printing on fabrics that are subsequently converted into finished
garments, home or office décor and other items. The Allegro
utilizes our proprietary wet-on-wet printing methodology and houses
an integrated drying and curing system. It offers the first
single-step, stand-alone R2R digital textile printing solution
available on the market. We primarily market the Allegro to
web-based businesses that require a high degree of variety and
limited quantity orders, as well as to fabric converters, which
source large quantities of fabric and convert untreated fabrics
into finished materials to be sold to garment and home décor
manufacturers. We believe that with the Allegro we are well
positioned to take advantage of the growing trend towards
customized home décor. We began selling the Allegro
commercially in the second quarter of 2015.
S-44
We were founded in 2002 in Israel, shipped our first system
in 2005 and, as of September 30, 2016, had over 1,000 customers
globally. As of December 31, 2016, we had 390 employees located
across four regions: Israel, the United States, Europe and the Asia
Pacific region. In the nine months ended September 30, 2016,
we generated revenues of $76.7 million, representing an increase of
25.9% over the prior fiscal year. In the nine months ended
September 30, 2016, we generated 69.4% of our revenues from the
Americas, 20.5% from EMEA and 10.1% from the Asia Pacific
region.
Our Competitive
Strengths
The following are our key competitive strengths:
•
Leading player in
fast-growing digital DTG market
. We are a leading
player in the fast-growing digital DTG market based on our sales
and have over 1,000 customers globally. We estimate that global
revenue from digital textile printing equipment and ink will grow
at a 15.7% CAGR between 2016 and 2021 based on the estimate of such
revenue for 2016 and the projection for 2021, in each case,
contained in the Pira report. In 2014, we grew our revenues 34.4%
compared to 2013 and, in 2015, we grew our revenues 30.2% compared
to 2014. We believe that high throughput DTG applications in the
textile printing market are positioned to grow at a rate greater
than the 15.7% overall industry growth rate projected between 2016
and 2021. We have outperformed the industry growth rate over the
past several years, growing our revenue at a 26.7% CAGR from the 12
months ended June 30, 2014 to the 12 months ended June 30, 2016,
versus an industry CAGR of 15.6% for the same period, as estimated
in the Pira report. The Pira report estimates that the DTG market
has an addressable opportunity of six to 10 billion garments a
year. According to a prior Smithers Pira report published in 2014,
over 300,000 sites globally print primarily t-shirts and other
apparel.
•
Well positioned to disrupt the R2R market
with our unique single-step manufacturing
solution
. We
believe we are well
positioned to capitalize on the growing trend toward customized
home décor with our unique R2R solution. Our Allegro system
combined with our proprietary process was designed to offer a
single-step manufacturing solution which is especially suited for
businesses which don’t have a vertically integrated textile
mill. Unlike other digital textile printers, the Allegro does not
require multiple pre-processing and post-processing steps which are
customarily used in vertically integrated textile mills and which
utilize high levels of energy and space and have a negative
environmental impact. Given its architecture, it is perfectly
suited for short and micro runs. Allegro is compact in size and
requires a single person to operate and fits very well in an urban
and non-industrial setting. Allegro is unique in its ability to
print on multiple fabric types without the need for different inks
and consumables, while generally other systems and technologies for
R2R digital printing require dedication of discrete printers to
specific fabric types.
•
Disruptive technology
that enables our customers to adopt new or improve existing
business models
. Our digital printing solutions allow
our customers to develop new or improve existing business models by
enabling them to produce short to medium runs of high-quality
customized garments efficiently. This also facilitates “web
to print” business models that manufacture on a
“produce to order” basis and allows brand owners to
produce garments in house. With a constantly growing worldwide
customer base of more than 1,000 customers, we are witnessing the
creation of a global fulfillment network of printing specialists
which are leveraged by large numbers of websites that offer
customizable garment printing services. As demand from these
customers continues to grow so does utilization of our systems
which in turn consume more ink and once used to their full capacity
require purchasing of more systems.
•
Attractive business
model
. We currently offer a broad portfolio of
differentiated digital printing solutions for the digital DTG
market. Our existing and growing installed base of systems results
in recurring sales of ink and other consumables, which are
specially formulated to enable our systems to operate at the
highest throughput level. These recurring sales are generated at
attractive gross margins. Recurring sales of ink and other
consumables have historically offered us a degree of visibility
into a significant component of our results of operations. We
believe that our recurring sales model also enables us to foster
close customer relationships as it facilitates ongoing engagement
with our customers, which positions us to provide tailored
solutions and expands our ability to provide value added services
to our customers. Our customer relationships are further
strengthened by a trend towards ownership of multiple systems, as
the
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number of customers with at least two systems has grown from 155 as
of December 31, 2014, to 219 as of December 31, 2016 and the number
of customers with at least 10 systems has grown from nine as of
December 31, 2014, to 15 as of December 31, 2016. We anticipate
revenue from services to increase over time as we reach upgrade
cycles across our growing installed base. Additionally, sales of
ink and other consumables are generally higher in high throughput
systems such as the Vulcan, Avalanche and Allegro systems. Large
accounts typically run at high utilization rates and can consume up
to five times as much ink per year compared to other accounts. By
developing and implementing proprietary end-to-end solutions for
our customers, we believe our business model is differentiated from
more commoditized solutions serving the same end markets. We have
proven our ability to grow revenues while maintaining an attractive
margin profile and we intend to continue investing in our business
to drive profitable growth in the future.
•
Robust intellectual
property portfolio driven by an innovation-based
culture
. Our intellectual property portfolio
reflects over a decade of significant investments in
digital textile printing, which we believe creates
significant barriers to entry. We have developed a strong
base of technology know-how, backed by our portfolio of
intellectual property, which includes 19 issued patents and 22
pending patent applications that cover wet-on-wet printing
methodology, ink formulations, printing processes and related
methods and systems. Our team of over 110 researchers and
developers, including chemists, electrical engineers, system
engineers and mechanical engineers, ensures that our systems remain
technologically advanced, and are well engineered, user-friendly
and highly reliable.
•
Extensive product
portfolio and strong new product pipeline
. With
throughputs ranging from 32 to 250 garments per hour, our DTG
systems are suited for smaller commercial operators with limited
budgets, as well as mass producers with mature operations and
complex needs. We have commercialized two new solutions in the
market: the Allegro, a one-step, integrated R2R printing, drying
and curing system, and the Vulcan, a cost-effective digital
substitution for carousel screen printing. Our future roadmap
remains focused on the continued development of proprietary
processes, continuously expanding the breadth of applications upon
which we can print while pushing the envelope of cost efficient
manufacturing further as a means to expand our servable addressable
markets.
•
Environmentally friendly
printing processes
. A significant portion of
global industrial water pollution comes from textile treatment and
dyeing. We believe that environmental factors are beginning to
assume a significant role in the decision-making process of
our existing and potential customers, with an increasing number of
countries adopting restrictions on the use of technologies like
screen printing that generate significant wastewater. Our
printing process eliminates the need for separate pre-treatment, as
well as steaming, washing or rinsing of textiles during the
printing process, which leads to a significant reduction in
water consumption compared to conventional printing methods. In
addition, our inks are biodegradable and certified by leading
industry groups as being safe for system operators, consumers and
the environment. Finally, our systems offer energy saving processes
that result in the use of significantly less power compared
to traditional printing processes. We believe that these
environmental benefits will further drive market penetration
of our solutions and enable manufacturers to move production closer
to the consumer in a cost-effective manner.
•
Strong management
team
. Our Chief Executive Officer, Gabi Seligsohn, and
our Chief Financial Officer, Guy Avidan, bring extensive experience
of managing publicly traded companies. Our management team’s
industry expertise, history with our company and extensive
experience in running global publicly traded companies will enable
us to execute our growth strategy. We have recently strengthened
our management infrastructure with key hires who are experienced in
the management of people, large scale business, innovation and
product development in larger organizations including Intel, HP,
KlA Tencor and Stratasys. Over the past three years, we have also
invested heavily in human resources to support our growth. Since
2013, our workforce has more than doubled from 190 to 390 as of
December 31, 2016. Additionally, more than 150 of our employees are
in the field, enabling us to provide more localized service for our
customers.
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Our Strategy
The following are the key elements of our growth strategy:
•
Increase sales to
existing customers
. We are focused on increasing sales
to existing customers by introducing new digital printing
applications, developing new features and functionality of our
systems, increasing sales of software and services, selling systems
from our additional product families and enabling our customers to
increase utilization of systems by improving productivity and
reliability. We also intend to actively refer business to our
customers by connecting them with online businesses that seek
fulfillment partners, which will enhance customer intimacy. Our
direct sales and marketing teams and application development
professionals play an active role in customer education and this
referral process. Our objective is to help customers operate their
businesses more efficiently and to increase utilization of their
systems, thereby requiring more ink and other consumables purchases
as well as potential investment in new systems as our customers
require additional capacity.
•
Acquire new high volume
customers
. Our technology is ideally positioned to
enable business models focused on mass customization and
personalization. We plan to continue growing our customer base by
targeting customers with growth business models and demand for our
high throughput solutions, including multiple systems or fleets of
our systems. An example of this strategy is the Master Purchase
Agreement, signed on January 10, 2017, with an affiliate of
Amazon.com, Inc. Under the Purchase Agreement, Amazon may purchase,
and we have committed to supply, multiple Avalanche 1000 digital
DTG systems and NeoPigment ink and other consumables. We have also
agreed to provide maintenance services and extended warranties to
Amazon. Prior to the Purchase Agreement, we had more than 20
systems in production with Amazon and expect to growth this
relationship meaningfully in the future.
•
Capitalize on growth in
our targeted markets
. Evolving consumer behavior is
driving the growth in digital printing as well as the shift to
online retail. Since the online shopping experience relies heavily
on the display of large varieties of designs as well as short cycle
times from order to delivery, webstores are faced with a need to
carefully manage inventories, which requires the new paradigm of
demand and supply. Our solutions enable our customers to print in
smaller, customized quantities in a time efficient, cost-effective
and environmentally-friendly manner, effectively leading them to
move from customary methods of supply and demand to this new
paradigm. Digital textile printing allows retailers to establish
new fulfillment centers (or re-task existing ones) in different
parts of the world to support consumers’ demand for variety,
while shortening lead times from order to delivery and protecting
against excess or obsolete inventory risks. With over 1,000
customers globally, many of which operate as fulfillment centers,
we believe we are well positioned to play an enabling role for this
trend. Our high throughput systems and proprietary inks ensure
replicable quality and maximum uptime, which in turn, allow our
customers to address the demands of online retail. We will continue
tailoring our solutions to meet the needs of our customers in this
evolving consumer environment through the ongoing development of
our technology and the continued investment in the development of
new ink formulas for our systems in order to expand the range of
fabrics on which we can print and further improve the quality of
our high resolution images and designs.
•
Extend our serviceable
addressable market (SAM) by continuing to enhance our
solutions
. We will continue to expand our SAM as we
introduce new features and functionality that enhance the
capabilities of our systems and inks, and enable our systems to
print on new types of media. We are also continuing to drive
adoption of digital DTG printing solutions by customers who
primarily use screen printing carousels, which is how the majority
of DTG printing jobs are currently performed. While we have started
to penetrate this market by offering standalone DTG solutions, such
as our Avalanche and Storm II systems, we plan to deepen our
penetration and further transition users of these analog systems to
digital printing technologies through our Vulcan system. Given
Vulcan’s ease of setup, lower cost per print, and high
throughput levels, we are seeking to disrupt the core screen
printed textile industry and target replacement of a significant
installed base of automated carousels We have also begun to expand
our SAM by selectively targeting the digital R2R market through our
Allegro system, which offers customers the ability to produce
limited quantity orders with a high degree of variety and uniquely
supports multiple fabric types in a single-step R2R printing
process. We believe that our technology portfolio and the industry
expertise of our employees and partners will allow us to continue
to deliver a broad base of textile solutions to our customers that
meet
S-47
the challenges of printing on textile substrates. Continuing to
respond to these challenges will enable us to further expand our
SAM as we produce higher quality prints on a wider set of fabrics.
This will enable us to expand into areas such as the $97 billion
“athleisure” market, where clothing designed for
workouts and other athletic activities is worn in other
settings.
•
Extend our leadership
position through ongoing investments in research and development,
acquisitions and strategic partnerships
. We seek to
continue to differentiate ourselves and extend our leadership
position by investing in research and development, acquisitions and
strategic partnerships. We intend to leverage our customer
relationships to identify emerging industry needs and innovate and
develop new intellectual property and applications that address
those needs. We are also developing new systems and intend to
develop and introduce additional systems in the future. From time
to time, we may also supplement our internal efforts with
complementary inorganic initiatives such as acquisitions and
strategic partnerships in order to enhance our positioning. For
example, our acquisition of Polymeric Imaging in 2015 expanded our
ink technology capabilities, and our acquisition of the digital DTG
printing assets of SPSI in 2016 enabled us to strengthen our sales
channel and gain access to a large screen printing customer base
that we can now target for sales of digital solutions. Each of
these acquisitions enhanced the positioning of our company. Future
acquisitions may also allow us to strengthen our existing portfolio
of solutions or add new capabilities. In an effort to better inform
current and prospective customers about the capabilities of our
solutions, we have also made investments in our direct sales and
marketing teams and application development professionals.
Our Systems
Our line of DTG systems offers a range of performance options
depending on the needs of the customer. These options include the
number and size of printing pallets, number of print heads,
printing throughput and process ink colors, as well as other
customizable features. We categorize our DTG systems into two
groups that are focused on the industrial segment of the DTG
market: entry level and high throughput. As our business and
marketplace has evolved, we have shifted the mix of our system
sales primarily to high throughput systems.
•
Entry
Level
. We currently have one entry level system, our
Breeze system. This system reduces the need for floor space
for manufacturing equipment by eliminating certain process steps
and by consolidating multiple process steps into a single printing
system. The Breeze allows businesses to adopt digital technology
with a limited upfront investment and use the same technology as
our high throughput systems but with smaller garment printing areas
and at lower throughput levels.
•
High
Throughput.
We offer a wide range of high throughput
systems. We market a hybrid platform, the Paradigm II, which
connects to existing screen printing carousels for customers who
want to combine short runs of multicolor images into their ongoing
screen printing operations. Our mid-level platform, the Storm,
which employs one axis of print heads and two pallets, consists of
four models (Storm 2, Storm Hexa, Storm Duo and Storm 1000). Our
next level of high throughput systems is based on the Avalanche
platform which employs two print head axis with two pallets and
also comes in four different models (Avalanche, Avalanche DC,
Avalanche 1000 and Avalanche Hexa). During 2016, we successfully
commercially launched our new high throughput platform, the Vulcan
which is geared towards addressing the needs of mass production at
a significantly lower cost per print relative to our other
systems.
Our systems vary in throughput and productivity, applications of
use, breadth of color gamut and cost per print. The underlying
strategy behind our system lineup is to accommodate a variety of
customer needs with a variety of capabilities and at a variety of
price points. All of our DTG systems utilize our patented
wet-on-wet printing methodology that involves spraying a wetting
solution on the fabric before applying our proprietary
pigment-based inks. This unique capability enables our systems to
reach high throughput levels while still producing high quality
images and designs. The wetting solution prevents the ink from
bleeding into the textile and fixes the ink drops, which
enables digital printing with high color-intensity and image
sharpness. This methodology eliminates the common practice of
separately coating and drying textiles prior to printing and allows
for printing on a wide range of untreated fabrics.
Our Vulcan system is designed to enable mass production of
customized garments with high and consistent printing quality. It
is designed to run at throughputs higher than any of our existing
systems. The system’s architecture takes a different
ergonomic approach to the sequence of loading and unloading of
garments than that of our existing
S-48
systems, enabling higher throughputs. The system utilizes state of
the art print head technology and specially designed inks which
allow for significant reduction in cost per print due to an
increase in color intensity which allows for use of less ink per
printed area as well as a reduction in wasted ink as a result of a
transition to recirculating print heads. We began beta testing of
the Vulcan at customer sites in the first quarter of 2016 and began
realizing revenue from Vulcan sales in the fourth quarter of 2016.
Given the Vulcan’s ease of setup and high throughput levels,
we are seeking to disrupt the core screen printed textile industry
and target replacement of a significant installed base of automated
carousels. The Vulcan also capitalizes on our advanced print head
and ink technology to limit waste, allowing for installation in
locations where carousels cannot be installed due to environmental,
health and safety laws and regulations.
Our Allegro system was the first R2R printing system to allow for
one-step R2R printing. It combines a printing system and a drying
and curing module so that a full end to end manufacturing process
is enabled. Unlike the Allegro, all other R2R printers require
additional steps. The Allegro takes advantage of our patented
wet-on-wet methodology to allow for in-line printing on various
fabrics, without requiring a separate pre-treatment process,
thereby avoiding the need to use textiles that are specifically
designed for digital printing. The Allegro is designed to achieve
high throughputs and does not require water or steam for any part
of the printing process, making it friendly to the environment. By
using our proprietary pigment based ink, Allegro is able to print
on a variety of natural and synthetic fabrics providing customers
with a significant level of flexibility. Other dye-based systems
are specifically designed to either print on natural fabrics or on
synthetics and these systems cannot be used with other types of
fabric as the processes and consumables used vary considerably from
one to the other.
Our systems range in price from $60,000 to over $800,000 and
consume an average of $5,000 to $300,000 of ink and consumables
annually per system.
DTG Systems
The following table summarizes key aspects of our DTG systems, all
of which are compatible with a wide range of fabrics, including
cotton, wool, polyester, lycra and denim and print at maximum
resolutions ranging from 600 to 1,200 DPI. Our systems are
currently unable to print at a level of quality acceptable for
large scale manufacturing on dyed polyester or nylon. However, we
are in advanced stages of developing the capability to print on
dyed polyester, giving us the opportunity to penetrate the $97
billion athleisure market.
|
|
|
|
Effective
Throughput Dark/Light Garments
(1)
|
|
|
|
|
Breeze
|
|
Entry Level
|
|
32/25
|
|
CMYK + White
|
|
14 x 18 in
|
Storm
II
|
|
High Throughput
|
|
120/65
|
|
CMYK + White
|
|
20 x 28 in
|
Storm
1000
|
|
High Throughput
|
|
170/85
|
|
CMYK + White
|
|
20 x 28 in
|
Storm
Hexa
|
|
High Throughput
|
|
170/85
|
|
CMYKRG + White
|
|
20 x 28 in
|
Avalanche
|
|
High Throughput
|
|
150/100
|
|
CMYK + White
|
|
23.5 x 35 in
|
Avalanche DC Pro
|
|
High Throughput
|
|
150/100
|
|
CMYK + White + Discharge ink
|
|
23.5 x 35 in
|
Avalanche 1000
|
|
High Throughput
|
|
220/160
|
|
CMYK + White
|
|
23.5 x 35 in
|
Avalanche Hexa
|
|
High Throughput
|
|
180/140
|
|
CMYKRG + White
|
|
23.5 x 35 in
|
Paradigm II
|
|
High Throughput
|
|
120/120
|
|
CMYK
|
|
15.5 x 19.5 in
|
Vulcan
|
|
High Throughput
|
|
250/250
|
|
CMYKRG + White
|
|
28 x 39 in
|
Ink and Other
Consumables
Our ink and other consumables consist of our patented NeoPigment
ink, proprietary binding agent, priming fluid, wiping
fluid, and flushing fluid. Our pigment based inks
are available in seven colors and are formulated for optimal use
exclusively in our systems. Our patented wet-on-wet printing
methodology combines the use of pigments rather than dyes in
conjunction with our proprietary binding agent, and allows us to
print on a wide range of fabrics without
S-49
the need for a separate pre-treatment process or system
reconfiguration, resulting in minimal setup times for each
run and high throughput levels. Given the proprietary nature of our
printing methodology, our ink and consumables attachment rate is
near 100%. We also continuously invest in the development of new
ink formulas for our systems in order to expand the range of
fabrics on which we can print and further improve the quality of
our high resolution images and designs.
We have developed two patented methods for printing on dark or
colored fabrics. The first method involves printing a layer
of specially formulated white ink as a base upon which to print
colored images and designs. Printing on top of this foundation
enhances color intensity and creates contrast against the dark or
colored fabric. In addition, we have developed a patented discharge
ink for printing on dark or colored fabrics. The discharge ink
bleaches the fabric dye and applies colored ink in the locations
where the discharge ink removed the fabric dye. This method, which
is primarily used by brand owners and contract printers, allows the
printing of high resolution images and designs without compromising
the texture or feel of the garment.
Integrated
Software
All of our DTG systems arrive with our QuickP Production software
embedded. The software manages the system operation and prepares
image files for print. QuickP Production is a simple to use
solution that allows users to control key operating parameters,
such as ink dots per inch, or DPI, perform maintenance and
calibration procedures and import image files and prepare
them for print.
Many of our customers also purchase our QuickP Designer standalone
software. QuickP Designer is a software package that combines our
own internally developed Ruster Image Processing, or RIP, software
with other print job management capabilities and includes an
advanced ink consumption estimation tool. A single QuickP Designer
license can be used to support multiple Kornit systems.
We also offer our QuickP Plus 2.0 software suite, which provides
customers with a full workflow solution from design creation
and acceptance of job orders through production and order
management.
Another solution that we are developing for use with our systems is
Konnect, a cloud based service that gathers production data from
our systems and presents it in a coherent and accessible way. With
Konnect, customers can easily monitor their systems and identify
different production trends, gaining important business insights
relating to production costs, system utilization, system uptime and
other metrics.
Our Services
Our services consist of maintenance and support, and professional
services. We are seeking to increase the number of customers that
rely on us to provide services for their systems by expanding our
service capabilities. As of December 31, 2016, we had service
contracts in place with approximately 16% of our installed base. In
addition to driving gross margin improvement, we believe this will
provide us an opportunity for direct contact with customers with
the goal of reducing system down-time, educating customers about
optimal use of our systems to drive increased utilization,
expanding the variety of print applications and increasing sales of
post-warranty service contracts and other professional application
development services. During 2016 we began to introduce hardware
and software upgrades to our existing systems. These upgrades are
geared towards improving productivity, adding important features
and functionality while improving user experience, extending
application usage and improving system reliability. We plan to
continue to develop upgrade packages over time as part of our
commitment to protecting customers’ investment in our
solutions.
Maintenance and Suppo
r
t
Our systems include a one-year warranty, which covers parts, labor
and remote support. Our customers can also purchase an additional
year of warranty coverage in conjunction with their initial
purchase of our systems. Thereafter, customers can renew
maintenance and support contracts for additional periods by
purchasing a maintenance and support package that covers remote
support, software upgrades and onsite yearly maintenance or they
can choose to rely on our support on a non-contractual time and
material basis. In the United States, we provide maintenance and
support directly to our customers. In EMEA, we provide maintenance
and support to approximately half of our customers, depending on
their location. In the Asia Pacific region, our independent
distributors provide initial maintenance and support, and we
provide second-line support when needed.
S-50
P
r
o
f
essional Services
Our systems are designed such that customers can operate them
without our assistance or that of our independent distributors.
However, nearly all customers purchase our basic installation
package and some take our advanced training program. Our advanced
training program is an onsite tutorial ranging from three to
five days, which includes customized consulting aimed at
optimizing the use of our systems. Courses are also provided at our
regional offices. We continuously seek to expand the number and
content of the training programs. We provide professional services
to customers in all regions both in person and through advanced web
based learning systems.
Our Customers
Our diverse global customer base consisted of more than 1,000
customers as of September 30, 2016.
Throughout our growing installed base, our customers are able to
serve a variety of different business models, particularly the new
business models that have developed in response to the evolution of
consumer trends and the rapid growth of the online retail market.
Our solutions enable this category of “web-to-print”
businesses to fulfill consumer demand more quickly and
cost-effectively in a manner that is differentiated from
traditional brick and mortar businesses. A number of large scale
web-to-print platforms have emerged. These platforms often leverage
digital printing solutions to facilitate business for other content
providers.
The ecosystem of web-to-print businesses which we currently serve
includes:
•
Self-Fulfillment
. Companies
manufacturing and selling their own designs which are advertised on
their own websites and through other marketing means.
•
Hybrid
Printers.
Companies who both manufacture in-house and
outsource manufacturing to third party fulfillment providers, who
are often also our customers.
•
Third Party
Fulfillment Centers.
Companies serving as third party
fulfillment for other businesses. Third party fulfillment providers
include a number of our customers. Demand for these businesses is
typically generated online through other web retailers.
Proximity to the end customer is a key factor for these businesses
since it minimizes shipping costs and enables them to offer rapid
turnaround to consumers, which is a key factor in choosing where to
buy online apparel. In many cases, retailers have asked us for
assistance in identifying our local customers to help with their
fulfillment.
Sales and
Distribution
Our go to market strategy consists of a hybrid model of indirect
and direct sales. We generate a significant portion of our sales
through a global network of independent distributors and value
added resellers that we refer to as our channel partners. Our
channel partners, in turn, sell the solutions they purchase from us
to customers for whom we provide installation services, or sell and
install our solutions on their own. Our channel partners work
closely with our sales force and assist us by identifying potential
sales targets, closing new business and maintaining relationships
with and, in certain jurisdictions, providing support directly to
our customers. Almost all of our independent distributors have our
systems available for tradeshows, product demonstrations at their
facilities, and other promotional activities. As of September 30,
2016, our global network of channel partners consisted of
approximately 70 independent distributors and resellers. Sales by
our distributors accounted for approximately 50% of our revenues in
the nine months ended September 30, 2016, approximately 64% of our
revenues in 2015 and approximately 72% in 2014. In addition to
working closely with our channel partners, our direct sales force
engages in direct sales in certain geographies, and also with our
largest customers, irrespective of their location. We continually
evaluate our go to market strategy in the geographies we serve in
an effort to best serve our direct or indirect customers. As our
roadmap continues to evolve, the sophistication of our systems and
our selling prices will require us to continue to advance the
capabilities of our sales and marketing teams as well as those of
our distributors.
A substantial portion of our sales in North America are performed
through independent distributors. Hirsch International Corporation
and SPSI, Inc. were our top two independent distributors by
revenues in 2014, 2015, and the nine months ended September 30,
2016, accounting for 25%, 18% and 21% of our revenues in each such
period in the case of Hirsch, and SPSI accounting for 15%, 15% and
6% of our revenues in each such period. We entered into a
distributor agreement with Hirsch, dated April 1, 2014, with an
initial term of three years, which will renew
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automatically for successive one-year periods unless one party
notifies the other party that it does not wish to renew the
agreement, by providing 90 days’ notice prior to the end of
the initial term of renewal period, as applicable. Our agreement
with Hirsch is a non-exclusive distribution contract across North
America, including 28 states concentrated on the East and West
Coasts of the United States, as well as five Canadian
provinces. We maintain projected sales plans for a number of
different systems on a yearly basis and there is a minimum yearly
sales requirement for systems and ink and other consumables.
In July 2016 we acquired the digital direct to garment printing
assets of SPSI. We had been partners with SPSI since 2004 and our
agreement with SPSI was previously a non-exclusive distribution
contract across the United States, including 20 states mainly in
the Midwest, Northwest and Southwest regions. The decision to
acquire the SPSI assets was made in light of the fact that the
territory covered by SPSI had an increasing number of larger
accounts which required a more direct relationship with such
customers. By fostering direct relationships with these customers,
we aim to deepen our technical relationship with them as well
better align our product roadmap to meet their needs. Through the
acquisition we attained access to over 5,000 screen printing
customers of SPSI, who represent a market opportunity for us to
potentially provide systems that will facilitate their transition
to digital printing.
Marketing
Our marketing strategy is aimed at positioning us as a global
leader in digital textile printing. We are focused on increasing
awareness of our brand and communicating the benefits of our
disruptive technology and how it addresses market needs in order to
develop leads and increase sales to existing customers. We market
our systems as a comprehensive solution to the growing trend
towards mass customization and personalization. We seek to execute
our strategy by leveraging a combination of internal marketing
professionals and a network of channel partners to communicate the
value proposition and differentiation of our systems, generating
qualified leads for our direct sales force and channel
partners. By investing in analytics-driven lead development and
through detailed interactions with key customers, we seek to create
and update our product roadmaps and individual marketing plans to
optimize distribution while helping facilitate the process of
release, ramp-up and sales.
We use a variety of advanced inbound and outbound online marketing
methods to reach and communicate with potential customers. Inbound
methods include a variety of online marketing strategies comprised
of search marketing (for example, search engine optimization and
pay per click advertising), social media, blogs, syndication,
webinars and white papers. Outbound channels include a fully
automated e-mailer and web based customer nurturing and scoring
process, as well as more traditional marketing methods such as
print advertisements, direct mail and e-mail, tradeshows,
newsletters and referrals. In addition, we have developed domestic
and international onsite demonstration capabilities in our regional
offices in the United States, Germany, Hong Kong and China and we
also rely on demonstration facilities setup by our channel
partners.
Manufacturing, Inventory
and Suppliers
Ma
n
u
f
acturing
Our systems are assembled by ITS Industrial Techno-logic Solutions
Ltd., or ITS, at its facilities in Rosh Ha’Ayin, Israel and
by Flex Ltd., or Flex, at its facilities in Yavne, Israel. Aside
from our print heads, we source many of the components of our
systems directly, which we believe allows us to manage our material
costs and take advantage of the overall volume of systems
manufactured at both facilities without the overhead of having in
house manufacturing.
We entered into our first manufacturing agreement with ITS in
May 2009. We replaced that agreement with a new agreement dated
November 19, 2014, pursuant to which ITS manufactures the
Avalanche, Avalanche 1000, Storm II, and Allegro systems in
accordance with our bill of materials, drawings and designs. The
initial term of the new agreement is for two years and it renews
automatically for successive one-year periods thereafter unless
either party notifies the other party that it does not wish
to renew the agreement by providing 30 days’ notice prior to
the end of the initial two-year term or any subsequent one-year
renewal term. Either party can also terminate the agreement at any
time upon 365 days’ notice. Prices are set forth in the
agreement and are determined separately with respect to the
printers, services and raw materials.
We entered into a manufacturing services agreement with Flex in May
2015, pursuant to which Flex manufactures our Avalanche, Storm,
Breeze and Paradigm II systems and also manufactures our Vulcan
system on a full turnkey basis in accordance with our bill of
materials, drawings and designs. The initial term of the agreement
is three years
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and it renews automatically for additional periods of 24 months
unless notice of termination is given by either party at least 180
days prior to the end of the initial term or a renewal term. We can
terminate the agreement at any time upon 180 days’ notice and
Flex may terminate the agreement at any time upon 365 days’
notice. Prices are set in advance for periods of 18 months but are
subject to change based on certain enumerated circumstances set
forth in the agreement or as agreed between Flex and us.
We produce and bottle our ink and other consumables at our facility
in Kiryat Gat, Israel using raw materials purchased from various
suppliers for milling pigments and mixing, bottling and
packaging.
Inventory and Suppliers
We purchase our print heads from FujiFilm Dimatix, Inc., or FDMX,
and then customize them at our Kiryat Gat, Israel facility, for
optimal use in our systems. We maintain an inventory of parts to
facilitate the timely assembly of our systems and for servicing our
installed base. Most components are available from multiple
suppliers, although certain components used in our systems and
consumables are only available from single or limited sources.
We first entered into an agreement with FDMX in 2006. In December
2015, we entered into a new agreement with FDMX. Pursuant to this
agreement, FDMX sells us print heads and additional by-products.
Under the agreement, we are entitled to sell, lease and use the
FDMX products and components subject to certain limitations,
including the use of FDMX products or components for applications
other than printing images and designs on textiles, reselling print
heads other than as integral components of our systems, or as spare
or replacement parts, and distributing in markets reserved by FDMX.
The agreement with FDMX also provides that we are required to make
an additional semi-annual payment to FDMX based on the amount of
inks, other than inks and other consumables sold by FDMX, that we
sell over a relevant period or, if we do not sell ink and other
consumables, a payment based on sales of our systems. We have
granted customary audit rights to FDMX to verify the amount of
sales that we make. The agreement provides that beginning with the
start of the first one-year renewal period, FDMX may increase the
prices of the products that we purchase from it upon 90-days’
prior notice, subject to certain conditions. Our current agreement
terminates in December 2019 and provides for one three-year renewal
period and one-year renewal periods thereafter. Our agreement
further provides that FDMX may, at its option, discontinue products
supplied under the agreement, provided that we are given one
year’s notice of the planned discontinuance and are provided
with an end of life purchase program.
A chemical used in some of our inks is supplied by BG Bond. We
entered into an agreement with BG Bond in December 2016 pursuant to
which we agree to purchase and BG Bond agrees to produce this
chemical at set prices. In exchange for an upfront payment, which
is refundable upon the purchase of the chemical, BG Bond agreed to
install additional equipment dedicated to the production of the
chemical. The agreement is for a term of five years or until we
purchase a certain agreed upon minimum quantity and cannot be
terminated by us other than in case of material breach by BG Bond.
For some of our other inks, this chemical is supplied by The Dow
Chemical Corporation, a large multinational manufacturer of
chemicals. We currently purchase these chemicals on a purchase
order basis.
We consider our single and limited-source suppliers to be reliable,
but the loss of any one of these suppliers could result in the
delay of the manufacture and delivery of our systems. In order to
minimize the risk of any impact from a disruption or
discontinuation in the supply of print heads, emulsion or
components from limited source suppliers, we maintain an additional
inventory of such components. Nevertheless, such inventory may not
be sufficient to enable us to continue supplying our products
during the period that may be required to locate and qualify a new
supplier. See “Risk Factors — If our relationships with
suppliers, especially with single source suppliers of components,
were to terminate, our business could be harmed.”
Research and
Development
We believe that continued investment in research and development is
important to position us as a global leader in digital textile
printing. We conduct our research and development activities in
Israel and we believe this provides us with access to world-class
engineers and chemists. Our research and development efforts are
focused on improving and enhancing our existing systems and
services, as well as developing new systems, software, features and
functionality. We are also focused on enhancing our current DTG
systems with new features and functionality, improving system
reliability and uptime and making our systems even more
user-friendly, and investing in new chemistry for broadening our
span of applications. Our research and development expenses were
$9.5 million and $12.0 million in the year
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ended December 31, 2014 and 2015, respectively, and $8.6 million
and $12.3 million in the nine months ended September 30, 2016,
respectively.
Intellectual
Property
We consider our proprietary technology to be important to the
development, manufacture, and sale of our systems and seek to
protect such technology through a combination of patents, trade
secrets, confidentiality agreements and other contractual
arrangements with our employees, consultants, customers and
manufacturers.
As of December 31, 2016, we owned nine issued patents in the United
States and 12 provisional or pending U.S. patent applications. We
also had ten patents issued in non-U.S. jurisdictions, along with
ten pending non-U.S. applications, and have six pending Patent
Cooperation Treaty patent applications, which are counterparts of
our U.S. patent applications. The non-U.S. jurisdictions in which
we have issued patents or pending applications are China, the
European Union or European countries of the European Union, Hong
Kong, Israel and India. The principal granted patents relate to our
wet-on-wet printing methodology, ink formulations, printing
processes and related methods and systems, with expiration dates
ranging from 2020 to 2035.
We enter into confidentiality agreements with our employees,
consultants, channel partners, customers and manufacturers and
limit internal and external access to, and distribution of, our
proprietary technology through certain procedural safeguards. These
agreements may not effectively prevent unauthorized use or
disclosure of our intellectual property or technology and may not
provide an adequate remedy in the event of unauthorized use or
disclosure of our intellectual property or technology.
In addition, we own the registered trademarks “KORNIT”
and “NEOPIGMENT” and make use of a number of additional
unregistered trademarks.
There can be no assurance that our patents or other intellectual
property rights will afford us a meaningful competitive advantage.
We believe that our success depends primarily on our research and
development, marketing, business development, applications know-how
and service support teams and application experts as well as our
ongoing relationships with our large customer base. Accordingly, we
believe that the expiration or termination of any of our patents or
patent licenses, or the failure of any of our patent applications
to result in an issued patent, would not have a material adverse
effect on our business or financial position.
Competition
Textile printing is most commonly conducted using automated
carousel screen printing. In recent years, manufacturers of digital
printers have increased their penetration of this market. As such,
we compete with companies that manufacture automated carousel
screen printers as well as those that manufacture digital printers.
Our principal competitor in the high throughput digital DTG market
is Aeoon Technologies GmbH. We also face competition from Brother
International Corporation, Seiko Epson Corporation and a number of
smaller competitors with respect to our entry level systems. Our
technologies allow us to offer a wide spectrum of digital textile
printing systems of varying features, capacities and price points.
We believe that this strategy will enable us to effectively compete
with the other textile printer and ink manufacturers in the digital
DTG market.
Within the R2R market, we continue to see conversion from rotary
screen printing to digital printing, as high throughput digital R2R
systems are now increasingly capable of printing complex,
customized images and designs. Our competitors in the R2R market
include Dover Corporation, through its MS Printing Solutions S.r.l.
subsidiary, Durst Phototechnik AG, Electronics for Imaging, Inc.,
through its Reggiani Macchine SpA subsidiary, Mimaki Engineering
Co., Ltd., and a number of smaller competitors. Our digital R2R
solutions offer customers the ability to produce limited quantity
orders, with a high degree of variety, and allow us to uniquely
support multiple fabric types in a single step R2R printing
process, whereas competitive solutions require multiple
pre-processing and post-processing steps. We believe our
differentiated, end-to-end solutions will enable us to effectively
compete with other textile printer and ink manufacturers in the
digital R2R market.
Property and
Infrastructure
Our corporate headquarters are located in Rosh Ha’Ayin,
Israel in an office and research and development facility
consisting of approximately 72,000 square feet. The lease for this
office expires in December 2020, with
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an option to extend the lease for an additional five years. We
recently leased an additional facility of approximately 8,000
square feet near our corporate headquarters. The lease for this
additional space expires in December 2020, with an option to extend
the lease for an additional 18 months. In Israel, we also lease a
manufacturing facility in Kiryat Gat, which consists of
approximately 15,000 square feet. The lease for the Kiryat Gat
manufacturing facility expires on May 30, 2018, and we have an
option to lease this facility for an additional three years. The
current utilization of the total production capacity at this
facility would allow us to more than double our current output at
the facility by increasing the number of shifts on the existing
production lines by hiring additional manufacturing personnel and
without requiring us to expand the physical structure of the
facility. Our U.S. offices are located in Mequon, Wisconsin,
consisting of approximately 12,000 square feet. The lease for this
office expires in June 2018. We maintain additional sales, support
and marketing offices in Dusseldorf, Hong Kong, Shanghai and
Florida.
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Management
Executive Officers and
Directors
The following table sets forth the name, age and position of each
of our executive officers and directors as of the date of this
prospectus supplement.
|
|
|
|
|
Executive Officers
|
|
|
|
|
Gabi Seligsohn
|
|
50
|
|
Chief Executive Officer and Director
|
Nuriel Amir
|
|
49
|
|
Chief Technology Officer
|
Guy Avidan
|
|
54
|
|
Chief Financial Officer
|
Gilad Yron
|
|
44
|
|
Executive Vice President of Global
Business
|
Ofer Sandelson
|
|
62
|
|
Chief Operating Officer
|
Guy Zimmerman
|
|
49
|
|
Vice President of Marketing & Business
Development
|
|
|
|
|
|
Directors
|
|
|
|
|
Yuval Cohen
|
|
54
|
|
Chairman of the Board of Directors
|
Gabi Seligsohn
|
|
50
|
|
Chief Executive Officer and Director
|
Eli Blatt
|
|
54
|
|
Director
|
Lauri Hanover
(1)(2)(3)(4)
|
|
57
|
|
Director
|
Marc Lesnick
|
|
50
|
|
Director
|
Alon Lumbroso
(3)
|
|
59
|
|
Director
|
Jerry Mandel
(1)(2)(3)(4)
|
|
52
|
|
Director
|
Dov Ofer
(1)(2)(3)
|
|
62
|
|
Director
|
Ofer Ben-Zur
|
|
52
|
|
Director
|
Executive Officers
Gabi Seligsohn
has served as a member of our board of directors since March 2015
and has served as our Chief Executive Officer since April 2014.
From August 2006 until August 2013, Mr. Seligsohn served as the
President and Chief Executive Officer of Nova Measuring Instruments
Ltd., (“Nova”) (NASDAQ: NVMI), a designer, developer
and producer of optical metrology solutions. From 1998 until 2006,
Mr. Seligsohn served in several key positions in Nova, including
Executive Vice President of the Global Business Management Group
from August 2005 to August 2006. From August 2002 until August
2005, he served as President of Nova’s U.S. subsidiary, Nova
Measuring Instruments Inc. Additionally, prior to August 2002, Mr.
Seligsohn was Vice President Strategic Business Development of Nova
Measuring Instruments Inc. where he established Nova’s OEM
group and managed the Applied Materials and Lam Research accounts
between 2000 and 2002. From 1998 until 2000, he served as Global
Strategic Account Manager for Nova’s five leading
customers. Mr. Seligsohn joined Nova after serving two years as
Sales Manager for key financial accounts at Digital Equipment
Corporation. Currently, Mr. Seligsohn serves as a director of DSP
Group Inc. (NASDAQ: DSPG). In 2010, he was voted Chief Executive
Officer of the year by the Israeli Institute of Management for
hi-tech industries in the large company category. He holds an LL.B.
from the University of Reading in Reading, England.
Nuriel Amir
has served as our Chief Technology Officer since July 2016. From
2012 until mid-2016, Dr. Amir served as the Tech director of
KLA-Tencor, focusing on application development and marketing. From
2008 until 2012, Dr. Amir served as the R&D director for
Numonyx B.V. and Micron Technology, Inc. (NASDAQ: MU), leading the
technology development and transfer to production of 45nm flash NOR
technology. From 1977 until 2008, Dr. Amir served in several
positions at Intel in Israel and the U.S. in the fields of:
R&D, transfer to production, Process Integration, Yield,
Device, Labs and Quality and Reliability, culminating as Yield
department manager. Dr. Amir holds a Ph.D. from the microelectronic
research center at the Electrical Engineering Faculty at the
Technion, and has taught
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at several universities and colleges. Dr. Amir has 20 patent
applications and over 40 publications including talks in the
Society of Photo-Optical Instrumentation Engineers International,
or SPIE.
Guy Avidan
has
served as our Chief Financial Officer since September 2014. From
July 2010 until November 2014, Mr. Avidan served as Vice President
of Finance and Chief Financial Officer of AudioCodes Ltd.
(“AudioCodes”) (NASDAQ: AUDC). Prior to joining
AudioCodes, Mr. Avidan served for 15 years in various managerial
positions, including Co-President, at MRV Communications Inc.
(NASDAQ: MRVC), a global provider of optical communications network
infrastructure equipment and services. While at MRV Communications,
he served as Chief Financial Officer between 2007 and 2009, Vice
President and General Manager of MRV International from 2001 to
2007. From 1992 to 1995, Mr. Avidan served as Vice President of
Finance and Chief Financial Officer of Ace North Hills, which was
acquired by MRV Communications. Mr. Avidan is a CPA in Israel and
holds a B.A. in Economics and Accounting from Haifa University in
Israel.
Gilad Yron
has
served as our Executive Vice President of Global Business since May
2016. From February 2015 until April 2016, Mr. Yron served as
Senior Vice President of Products at Stratasys, Ltd. (NASDAQ:
SSYS). His previous positions with Stratasys included VP Business
Development and strategic alliances and Managing Director of Asia
Pacific and Japan operating out of Hong Kong. From 2006 until 2010,
Mr. Yron served in various positions for Nur Macroprinters, which
later became part of HP, including Business Manager for the
Asia-Pacific region and Service Director. Mr. Yron holds a Bs.C. in
Physics from Tel Aviv University.
Ofer Sandelson
has served as our Chief Operating Officer since July 2013. Prior to
joining our company, Mr. Sandelson served as Chief Executive
Officer of RVB Holdings Ltd. (“RVB”), a Cleantech
technology company. From 2010 to 2011, Mr. Sandelson served as the
Chief Executive Officer of BrightView Systems Ltd., provider of a
Thin Film Solar defect detection system. From 2008 to 2010, Mr.
Sandelson served as Managing Director at Aurum Ventures, where he
led the private fund’s Cleantech investments. Prior to
joining Aurum Ventures, Mr. Sandelson held executive management
positions, including Chief Executive Officer and President of
CogniTens in Israel, Chief Executive Officer of both Lifewatch Inc.
and Instromedix, medical devices companies in the United States and
affiliates of Card Guard AG. Prior to serving in these roles, Mr.
Sandelson spent 14 years as a senior executive with Orbotech
(NASDAQ: ORBK), where he served in several positions, including
Executive VP and Co-President of the PCB Division, as well as
Corporate VP Operations and VP Customer Support. Mr. Sandelson
studied Physics and Chemistry at Dawson College in Montreal,
Canada.
Guy Zimmerman
has served as our Vice President of Marketing and Business
Development since April 2013. From 2010 to April 2013, Mr.
Zimmerman served as VP of Global Sales and Business Development at
Tefron Ltd., a provider of seamless garment technology, where he
led the sales and sales support organization serving global retail
and fashion brands. From 2008 to 2010, he served as Vice President
of Strategy and Business Development at Tnuva Group, Israel’s
largest food manufacturer. Prior to joining Tnuva Group, Mr.
Zimmerman spent eight years at McKinsey & Company from 2000 to
2008, where he specialized in retail and consumer goods, leaving as
an Associate Partner. From 1997 to 2000, Mr. Zimmerman led a
software startup in the field of operational healthcare
management systems. Mr. Zimmerman holds a B.Sc. in Industrial
Engineering from Tel Aviv University in Israel.
Directors
Yuval Cohen
has served as the Chairman of our board of directors since August
2011. Mr. Cohen is the founding and managing partner of Fortissimo
Capital, a private equity fund established in 2004 and our
controlling shareholder. From 1997 through 2002, Mr. Cohen was a
General Partner at Jerusalem Venture Partners (“JVP”),
an Israeli-based venture capital fund, where he led investments in,
and served on the boards of directors of, several portfolio
companies. Prior to joining JVP, he held executive positions at
various Silicon Valley companies, including DSP Group, Inc.
(NASDAQ: DSPG), and Intel Corporation (NASDAQ: INTC). Currently,
Mr. Cohen serves as a director of Wix.com Ltd. (NASDAQ: WIX). He
also serves on the board of directors of several privately held
portfolio companies of Fortissimo Capital. Mr. Cohen holds a B.Sc.
in Industrial Engineering from Tel Aviv University in Israel and an
M.B.A. from Harvard Business School in Massachusetts.
Eli Blatt
has
served as a member of our board of directors since August 2011. Mr.
Blatt joined Fortissimo Capital in 2004. From March 1999 to May
2004, Mr. Blatt worked at Noosh, Inc., a provider of cloud-based
integrated project and procurement solutions, serving as its Chief
Financial Officer from 2002 to 2004 and Vice President of
Operations from 1999 to 2002. From 1997 to 1999, Mr. Blatt served
as Director of Operations for CheckPoint Software Technologies Inc.
(NASDAQ: CHKP), an internet security company. Currently, Mr. Blatt
serves on the
S-57
board of directors of RadView Software Ltd. (NASDAQ: RDVW) and
several privately held portfolio companies of Fortissimo Capital.
Mr. Blatt holds a B.Sc. in Industrial Engineering from Tel Aviv
University in Israel and an M.B.A. from Indiana University in
Indiana.
Lauri Hanover
has served as a member of our board of directors since March 2015
and is an external director under the Companies Law, the
chairperson of our audit committee and a member of our compensation
committee. Ms. Hanover has served as the Chief Financial Officer of
Netafim Ltd., a global leader in smart irrigation systems, since
August 2013. From 2009 to 2013, she served as Chief Financial
Officer and Executive Vice President of the Tnuva Group,
Israel’s largest food manufacturer. From 2008 to 2009, Ms.
Hanover served as Chief Executive Officer of Gross, Kleinhendler,
Hodak, Halevy and Greenberg & Co., an Israeli law firm. From
2004 to 2007, she served as Chief Financial Officer and Senior Vice
President of Lumenis Ltd. (NASDAQ: LMNS), a medical laser device
company. From 2000 to 2004, Ms. Hanover served as the Chief
Financial Officer and Corporate Vice President of NICE Systems Ltd.
(NASDAQ: NICE), an interaction analytics company, and from 1997 to
2000, as Chief Financial Officer and Executive Vice President of
Sapiens International Corporation N.V. (NASDAQ: SPNS), a provider
of software solutions for the insurance industry. From 1981 to
2007, she served in a variety of financial management positions,
including Corporate Controller and Director of Corporate Budgeting
and Financial Analysis at Scitex Corporation Ltd., a developer and
manufacturer of inkjet printers, and Senior Financial Analyst at
Philip Morris Inc. (Altria), a leading consumer goods manufacturer.
Currently, Ms. Hanover serves as a director and chairman of the
audit and compensation committees of SodaStream International Ltd
(NASDAQ: SODA). Ms. Hanover holds a B.A. from the University of
Pennsylvania, a B.S. in Economics from The Wharton School of the
University of Pennsylvania, as well as an M.B.A. from New York
University in New York
Marc Lesnick
has served as a member of our board of directors since August 2011.
Mr. Lesnick joined Fortissimo Capital in 2004. From 2001 through
2003 prior to joining Fortissimo Capital, Mr. Lesnick served as an
independent consultant to various high tech companies and
institutional investors. From 1997 to 2001, Mr. Lesnick served as
the Managing Director of Jerusalem Global, a boutique investment
bank based in Israel, and its affiliated entities. From 1992 to
1997 prior to joining Jerusalem Global, Mr. Lesnick was an attorney
at Weil, Gotshal & Manges LLP in New York, where he focused on
public offerings and mergers and acquisitions. Currently, Mr.
Lesnick serves on the board of directors of several privately held
portfolio companies of Fortissimo Capital. Mr. Lesnick received a
B.A. in Economics from Yeshiva University in New York and a J.D.
from the University of Pennsylvania in Pennsylvania.
Alon Lumbroso
has served as a member of our board of directors since March 2015.
Since June 2015, Mr. Lumbroso has been the chief executive officer
of DipTech Ltd. From January 2014 until March 2015, Mr. Lumbroso
was a founder and partner of WebUP, an internet enterprise
established in 2014 that acquires and manages internet sites. From
2011 to 2014, Mr. Lumbroso served as President of Mul-T-Lock Ltd.,
a subsidiary of ASSA ABLOY, a global supplier of locks and security
solutions, as well as Market Region Manager of ASSA ABLOY. From
2005 to 2011, he served as Chief Executive Officer and director of
Larotec Ltd., a developer and manufacturer of web-based end-to-end
solutions. In addition, from 2004 to 2012, Mr. Lumbroso served as
Chairman of BioExplorers Ltd., a developer of homeland security
systems for the detection of explosives. From 2003 to 2004, he
served as Chief Executive Officer of MindGuard, a developer and
producer of medical devices. From 2000 to 2003, he served as
Managing Director of Creo Europe (now CreoEMEA and formerly
CreoScitex), a manufacturer and supplier of digital presses and
printers. In addition, from 1998 to 2000, Mr. Lumbroso served as
Managing Directors of Scitex and CreoScitex Asia Pacific,
Hong Kong. Currently, he serves as a partner and director of iCar
2007 Ltd. Mr. Lumbroso holds a B.Sc. in Industrial Engineering from
Tel Aviv University in Israel and an M.B.A. from Bar-Ilan
University in Israel.
Jerry Mandel
has served as a member of our board of directors since March 2015
and is an external director under the Companies Law, chairman of
our compensation committee and a member of our audit committee. Mr.
Mandel is the owner and CEO of Galil Capital Finance Ltd., a
privately held company that provides financial advisory and
investment management services. Mr. Mandel is also the founder,
Chief Executive Officer, and managing member of GC Florida Group, a
group of partnerships established in 2009 that invests in and
manages residential and commercial properties. From 2007 to 2009,
he served as Chief Executive Officer and a director of GMF Ltd., an
investment firm that provides mezzanine financing to
middle-market companies. From 2005 to 2008, Mr. Mandel served as a
director for Chen Yahav, the pension funds arm of Bank Yahav, and
from 2004 to 2005, he served as a director and audit committee
member of Cellcom Israel Ltd., a leading Israeli cellular company.
From 1998 to 2003, Mr. Mandel was the Director of Investment
Banking of EEMEA for Merrill Lynch & Co. and responsible for
the origination and execution of investment banking activities in
Israel. Currently, Mr. Mandel serves as a director and audit
committee member of Direct Insurance — Financial Investments
Ltd. (TASE: DIFI). Mr. Mandel holds a B.Sc. in Industrial
Engineering from Tel Aviv University in Israel and an M.B.A. from
Columbia Business School in New York.
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Dov Ofer
has
served as a member of our board of directors since March 2015 and
is a member of our audit and compensation committees. From 2007 to
2013, Mr. Ofer served as Chief Executive Officer of Lumenis Ltd.
(NASDAQ: LMNS), a medical laser device company. From 2005 to 2007,
he served as Corporate Vice President and General Manager of HP
Scitex (formerly a subsidiary of Scailex Corporation Ltd. (TASE:
SCIX)), a producer of large format printing equipment. From 2002 to
2005, Mr. Ofer served as President and Chief Executive Officer of
Scitex Vision Ltd. Prior to joining Scitex, Mr. Ofer held various
managerial positions in the emerging Israeli high tech sector and
participated in different mergers and acquisitions within the
industry. Currently, Mr. Ofer serves as chairman of Hanita Coatings
RCA Ltd., chairman of Plastopil Hazorea Company Ltd. (TASE: PPIL),
vice chairman of Scodix Ltd. and director of Orbix Medical Ltd. He
holds a B.A. in Economics from the Hebrew University in Israel as
well as an M.B.A. from the University of California Berkeley in
California.
Ofer Ben-Zur
is a co-founder of our company and has served as director since
2002. From April 2014 to July 2016, Mr. Ben-Zur served as our
President and Chief Technology Officer. From 2002 to April 2014,
Mr. Ben-Zur served as our Chief Executive Officer, as well as the
manager of our department of research and development. Prior to
establishing our company, Mr. Ben-Zur worked as a consultant for
several companies in the inkjet and semi-conductor industries. From
March 1998 until November 1999, Mr. Ben-Zur led a development team
at Idanit — Scitex, a world leader in wide format printers.
From 1993 to 1998, he worked as a mechanical development engineer
at Applied-Materials (NASDAQ: AMAT). Mr. Ben-Zur holds a B.Sc. in
Mechanical Engineering from the Technion — Israel Institute
of Technology in Israel, an M.Sc. in Mechanical Engineering from
Tel Aviv University in Israel, and an M.B.A. from Bradford
University in England.
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U.S. and Israeli tax
consequences for our shareholders
The following is a discussion of the material U.S. and Israeli tax
consequences relevant to an investment decision by a U.S. Holder,
as defined below, with respect to our ordinary shares. It is not
intended to constitute a complete analysis of all tax consequences
relating to the acquisition, ownership and disposition of our
ordinary shares. You should consult your own tax advisor concerning
the tax consequences of your particular situation, as well as any
tax consequences that may arise under the laws of any state, local,
foreign or other taxing jurisdiction.
Israeli tax
consequences
This section contains a discussion of material Israeli tax
consequences concerning the ownership and disposition of our
ordinary shares purchased by investors in this offering. This
summary does not discuss all the aspects of Israeli tax law that
may be relevant to a particular investor in light of his or her
personal investment circumstances or to some types of investors
subject to special treatment under Israeli law. Examples of such
investors include residents of Israel or traders in securities who
are subject to special tax regimes not covered in this discussion.
Because parts of this discussion are based on new tax legislation
that has not yet been subject to judicial or administrative
interpretation, we cannot assure you that the appropriate tax
authorities or the courts will accept the views expressed in this
discussion. The discussion below is subject to change, including
due to amendments under Israeli law or changes to the applicable
judicial or administrative interpretations of Israeli law, which
change could affect the tax consequences described below.
Taxation of our shareholders
Capital
Gains Taxes Applicable to Non-Israeli Resident
Shareholders.
Generally, a non-Israeli resident who
derives capital gains from the sale of shares in an Israeli
resident company that were purchased after the company was listed
for trading on a stock exchange outside of Israel should be exempt
from Israeli tax so long as the shares were not held through a
permanent establishment that the non-resident maintains in Israel.
However, non-Israeli corporations will not be entitled to the
foregoing exemption if Israeli residents: (i) have a controlling
interest of more than 25% in such non-Israeli corporation or (ii)
are the beneficiaries of, or are entitled to, 25% or more of the
revenues or profits of such non-Israeli corporation, whether
directly or indirectly. Such exemption is not applicable to a
person whose gains from selling or otherwise disposing of the
shares are deemed to be business income.
Additionally, a sale of shares by a non-Israeli resident may be
exempt from Israeli capital gains tax under the provisions of an
applicable tax treaty. For example, under the United States-Israel
Tax Treaty, the disposition of shares by a shareholder who (i) is a
U.S. resident (for purposes of the treaty), (ii) holds the shares
as a capital asset, and (iii) is entitled to claim the benefits
afforded to such person by the treaty, is generally exempt from
Israeli capital gains tax. Such exemption will not apply if (i) the
capital gain arising from the disposition can be allocated to a
permanent establishment in Israel; (ii) the shareholder holds,
directly or indirectly, shares representing 10% or more of the
voting capital during any part of the 12-month period preceding the
disposition subject to certain conditions; or (iii) such U.S.
resident is an individual and was present in Israel for 183 days or
more during the relevant taxable year. In each case, the sale,
exchange or disposition of our ordinary shares would be subject to
Israeli tax, to the extent applicable; however, under the United
States-Israel Tax Treaty, the taxpayer would be permitted to claim
a credit for such taxes against the U.S. federal income tax imposed
with respect to such sale, exchange or disposition, subject to the
limitations under U.S. law applicable to foreign tax credits. The
United States-Israel Tax Treaty does not relate to U.S. state or
local taxes.
In some instances where our shareholders may be liable for Israeli
tax on the sale of their ordinary shares, the payment of the
consideration may be subject to the withholding of Israeli tax at
source. Shareholders may be required to demonstrate that they are
exempt from tax on their capital gains in order to avoid
withholding at source at the time of sale. Specifically, in
transactions involving a sale of all of the shares of an Israeli
resident company, in the form of a merger or otherwise, the Israel
Tax Authority may require from shareholders who are not liable for
Israeli tax to sign declarations in forms specified by this
authority or obtain a specific exemption from the Israel Tax
Authority to confirm their status as non Israeli resident, and, in
the absence of such declarations or exemptions, may require the
purchaser of the shares to withhold taxes at source.
In addition, with respect to mergers involving an exchange of
shares, Israeli tax law allows for tax deferral in certain
circumstances but makes the deferral contingent on the fulfillment
of a number of conditions, including, in some cases, a holding
period of two years from the date of the transaction during which
sales and dispositions of
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shares of the participating companies are subject to certain
restrictions. Moreover, with respect to certain share swap
transactions in which the sellers receive shares in the acquiring
entity that are publicly traded on a stock exchange, the tax
deferral is limited in time, and when such time expires, the tax
becomes payable even if no disposition of such shares has occurred.
In order to benefit from the tax deferral, a pre-ruling from the
Israel Tax Authority might be required only with respect to
shareholders which cannot demonstrate that they are exempt from tax
on their capital gains from such transaction.
Taxation
of Non-Israeli Shareholders on Receipt of
Dividends
. Non-Israeli residents are generally
subject to Israeli income tax on the receipt of dividends paid on
our ordinary shares at the rate of 25%, unless relief is provided
in a treaty between Israel and the shareholder’s country of
residence. With respect to a person who is a “substantial
shareholder” at the time of receiving the dividend or on any
time during the preceding twelve months, the applicable tax rate is
30%. A “substantial shareholder” is generally a person
who alone or together with such person’s relative or another
person who collaborates with such person on a permanent basis,
holds, directly or indirectly, at least 10% of any of the
“means of control” of the corporation. “Means of
control” generally include the right to vote, receive
profits, nominate a director or an executive officer, receive
assets upon liquidation, or order someone who holds any of the
aforesaid rights how to act, regardless of the source of such
right. Dividends paid on publicly traded shares, like our ordinary
shares, to non-Israeli residents, although subject to the same tax
rates applicable to dividends paid for non-publicly traded shares,
are generally subject to Israeli withholding tax at a rate of 25%,
so long as the shares are registered with a nominee company
(whether the recipient is a substantial shareholder or not), unless
a lower rate is provided under an applicable tax treaty. However, a
distribution of dividends to non-Israeli residents is subject to
withholding tax at source at a rate of 15% if the dividend is
distributed from income attributed to an Approved Enterprise or a
Benefited Enterprise (and 20% if the dividend is distributed from
income attributed to a Preferred Enterprise), unless a reduced tax
rate is provided under an applicable tax treaty. We cannot assure
you that we will designate the profits that we may distribute in a
way that will reduce shareholders’ tax liability.
For example, under the United States-Israel Tax Treaty, the maximum
rate of tax withheld at source in Israel on dividends paid to a
holder of our ordinary shares who is a U.S. resident (for purposes
of the United States-Israel Tax Treaty) is 25%. However, for
dividends not generated by an Approved Enterprise, a Benefited
Enterprise or a Preferred Enterprise and paid to a U.S. corporation
holding 10% or more of the outstanding voting capital throughout
the tax year in which the dividend is distributed as well as during
the previous tax year, the maximum rate of withholding tax is
generally 12.5%, provided that not more than 25% of the gross
income for such preceding year consists of certain types of
dividends and interest. Notwithstanding the foregoing, dividends
distributed from income attributed to an Approved Enterprise, a
Benefited Enterprise or a Preferred Enterprise are subject to
withholding tax at ’the rate of 15% for such a United States
corporate shareholder, provided that the condition related to our
gross income for the previous year (as set forth in the previous
sentence) is met.
If the dividend is attributable partly to income derived from an
Approved Enterprise, Benefited Enterprise or Preferred Enterprise,
and partly to other sources of income, the withholding rate will be
a blended rate reflecting the relative portions of the two types of
income. U.S. residents who are subject to Israeli withholding tax
on a dividend may be entitled to a credit or deduction for Untied
States federal income tax purposes in the amount of the taxes
withheld, subject to detailed rules contained in U.S. tax
legislation.
A non-Israeli resident who receives dividends from which tax was
withheld is generally exempt from the obligation to file tax
returns in Israel in respect of such income, provided that (i) such
income was not derived from a business conducted in Israel by the
taxpayer, and (ii) the taxpayer has no other taxable sources of
income in Israel with respect to which a tax return is required to
be filed.
Excess tax
Individuals who are subject to tax in Israel are also subject to an
additional tax at a rate of 2% on annual income exceeding NIS
810,720 for 2016, which amount is linked to the annual change in
the Israeli consumer price index, including, but not limited to,
dividends, interest and capital gain, subject to the provisions of
an applicable tax treaty. Pursuant to a new legislation enacted
recently, as of 2017 such tax rate is increased to 3% on annual
income exceeding NIS 640,000 (which amount is linked to the annual
change in the Israeli consumer price index).
Estate and gift tax
Israeli law presently does not impose estate or gift taxes.
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U.S. federal income tax
consequences
The following is a description of the material U.S. federal income
tax consequences relating to the ownership and disposition of our
ordinary shares by a U.S. Holder (as defined below). This
description addresses only the U.S. federal income tax consequences
to U.S. Holders that are initial purchasers of our ordinary shares
pursuant to the offering and that will hold such ordinary shares as
capital assets. This description does not address tax
considerations applicable to U.S. Holders that may be subject to
special tax rules, including, without limitation:
•
banks, financial institutions or insurance companies;
•
real estate investment trusts, regulated investment companies or
grantor trusts;
•
brokers, dealers or traders in securities, commodities or
currencies;
•
tax-exempt entities or organizations, including an
“individual retirement account” or “Roth
IRA” as defined in Section 408 or 408A of the Code,
respectively;
•
certain former citizens or long-term residents of the United
States;
•
persons that receive our shares as compensation for the performance
of services;
•
persons that will hold our shares as part of a
“hedging,” “integrated” or
“conversion” transaction or as a position in a
“straddle” for U.S. federal income tax purposes;
•
partnerships (including entities classified as partnerships for
U.S. federal income tax purposes) or other pass-through entities,
or persons that will hold our shares through such an entity;
•
S-corporations;
•
persons holding our shares in connection with a trade or business
conducted outside the United States;
•
U.S. Holders whose “functional currency” is not the
U.S. Dollar; or
•
persons that own directly, indirectly or through attribution 10.0%
or more of the voting power or value of our shares.
Moreover, this description does not address the United States
federal estate, gift or alternative minimum tax consequences, or
any state, local or foreign tax consequences, of the ownership and
disposition of our ordinary shares.
This description is based on the U.S. Internal Revenue Code of
1986, as amended (the “Code”), existing, proposed and
temporary U.S. Treasury Regulations and judicial and administrative
interpretations thereof, in each case as in effect and available on
the date hereof. All of the foregoing are subject to change, which
change could apply retroactively and could affect the tax
consequences described below. There can be no assurances that the
U.S. Internal Revenue Service (“IRS”) will not take a
different position concerning the tax consequences of the ownership
and disposition of our ordinary shares or that such a position
would not be sustained. U.S. Holders should consult their own tax
advisors concerning the U.S. federal, state, local and foreign tax
consequences of owning and disposing of our ordinary shares in
their particular circumstances.
For purposes of this description, a “U.S. Holder” is a
beneficial owner of our ordinary shares that, for U.S. federal
income tax purposes, is:
•
a citizen or individual resident of the United States;
•
a corporation, or other entity treated as a corporation for U.S.
federal income tax purposes, created or organized in or under the
laws of the United States or any state thereof, including the
District of Columbia;
•
an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or
•
a trust if such trust has validly elected to be treated as a United
States person for U.S. federal income tax purposes or if (1) a
court within the United States is able to exercise primary
supervision over its administration and (2) one or more United
States persons have the authority to control all of the substantial
decisions of such trust.
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If a partnership (or any other entity treated as a partnership for
U.S. federal income tax purposes) holds our ordinary shares, the
tax treatment of a partner in such partnership will generally
depend on the status of the partner and the activities of the
partnership. Such a partner or partnership should consult its tax
advisor as to the particular U.S. federal income tax consequences
of owning and disposing of our ordinary shares in its particular
circumstance.
You should consult your
tax advisor with respect to the United States federal, state, local
and foreign tax consequences of owning and disposing of our
ordinary shares.
Distributions
Subject to the discussion under “— Passive foreign
investment company considerations” below, any distribution of
cash or property with respect to our ordinary shares (including any
amount of any Israeli tax withheld) will generally be treated as a
dividend to the extent paid out of our current and accumulated
earnings and profits, as determined under U.S. federal income tax
principles, and will be includible in the gross income of a U.S.
Holder on the date the distribution is actually or constructively
received (other than certain pro rata distributions of shares to
all shareholders). The company does not intend to maintain
calculations of its earnings and profits under U.S. federal income
tax principles; therefore, any distribution (including for the
avoidance of doubt any amount of any Israeli withholding tax) will
generally be treated as a “dividend” for U.S. federal
income tax purposes. Any such dividend income will not be eligible
for the dividends-received deduction allowed to corporate U.S.
Holders.
Subject to the discussion under “— Passive foreign
investment company considerations” below, and subject to
certain holding period requirements and other conditions, dividends
paid to non-corporate U.S. Holders, including individual U.S.
Holders, may be eligible for preferential rates of taxation if the
dividends are “qualified dividends” for U.S. federal
income tax purposes. Dividends received with respect to our
ordinary shares will be qualified dividends provided that (i) our
ordinary shares are readily tradable on an established securities
market in the United States or the company is eligible for the
benefits of a comprehensive income tax treaty with the United
States that the IRS has approved for the purposes of the qualified
dividend rules, and (ii) the company was not, in the year prior to
the year in which the dividend was paid, and is not, in the year in
which the dividend is paid, a passive foreign investment company,
or PFIC, for U.S. federal income tax purposes. Although no
assurances can be given, we believe that dividends the company pays
on its ordinary shares generally will be qualified dividends
provided that we are not classified as a PFIC in the last year
prior to the year in which such dividend is paid and the year in
which such dividend is paid.
The amount of any dividend paid in a currency other than the U.S.
dollar, or foreign currency, will be the U.S. dollar amount
calculated by reference to the exchange rate in effect on the date
of receipt, regardless of whether the payment is, in fact,
converted into U.S. dollars. If the dividend is converted into U.S.
dollars on the date of receipt, U.S. Holders generally will not be
required to recognize foreign currency gain or loss in respect of
the dividend income. However, a U.S. Holder may have foreign
currency gain or loss if the dividend is converted into U.S.
dollars after the date of receipt. The gain or loss will be equal
to the difference, if any, between (i) the U.S. dollar value of the
amount included in income when the dividend was received and (ii)
the amount received on the conversion of the foreign currency into
U.S. dollars. Generally, any such gain or loss will be treated as
ordinary income or loss and generally will be treated as U.S.
source income. U.S. Holders are encouraged to consult their tax
advisers regarding the treatment of foreign currency gain or loss
on any foreign currency received that is converted into U.S.
dollars on a date subsequent to the date of receipt.
A dividend distribution will generally be treated as foreign-source
“passive” income for U.S. foreign tax credit purposes.
A U.S. Holder will be treated as having actually received the
amount of Israeli taxes withheld from a dividend distribution and
as having paid such amount to the Israeli taxing authorities. The
amount that the U.S. Holder will include in gross income as a
dividend will be greater than the amount of cash the U.S. Holder
actually receives. A U.S. Holder may be entitled to deduct or
credit any non-refundable Israeli withholding taxes on dividends,
after any reduction in rates available to such U.S. Holder under
the United States-Israel Tax Treaty, in determining its U.S. income
tax liability, subject to certain limitations (including that the
election to deduct or credit foreign taxes applies to all of such
U.S. Holder’s foreign taxes for a particular tax year). The
rules governing the calculation and timing of foreign tax credits
and the deduction of foreign taxes are complex and depend upon a
U.S. Holder’s particular circumstances. U.S. Holders should
consult their tax advisers regarding the availability of the
foreign tax credit in their particular circumstances.
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Sale, exchange, redemption or other taxable disposition of ordinary
shares
Subject to the discussion below under “Passive foreign
investment company considerations,” a U.S. Holder generally
will recognize gain or loss, for U.S. federal income tax purposes,
on the sale, exchange or other taxable disposition of our ordinary
shares, in an amount equal to the difference, if any, between the
amount realized on such sale, exchange or other taxable disposition
and the U.S. Holder’s adjusted tax basis in such ordinary
shares, and such gain or loss will be capital gain or loss, and
will be long-term capital gain or loss if the ordinary shares have
been held for more than one year. The adjusted tax basis in an
ordinary share generally will be equal to the cost of such ordinary
share. If you are a non-corporate U.S. Holder, long-term capital
gain from the sale, exchange or other taxable disposition of
ordinary shares is generally eligible for a preferential rate of
taxation applicable to capital gains. The deductibility of capital
losses for U.S. federal income tax purposes is subject to
limitations under the Code. Any such gain or loss that a U.S.
Holder recognizes generally will be treated as U.S. source income
or loss for foreign tax credit limitation purposes.
Passive foreign investment company considerations
If we were to be classified as a PFIC in any taxable year, a U.S.
Holder would be subject to special rules generally intended to
reduce or eliminate any benefits from the deferral of U.S. federal
income tax that a U.S. Holder could derive from investing in a
non-U.S. company that does not distribute all of its earnings on a
current basis.
A non-U.S. corporation, such as our company, will be classified as
a PFIC for federal income tax purposes in any taxable year in
which, after applying certain look-through rules with respect to
the income and assets of subsidiaries, either:
•
at least 75% of its gross income is “passive income”;
or
•
at least 50% of the average quarterly value of its total gross
assets (the total value of our assets may be measured in part by
the market value of our ordinary shares, which is subject to
change) is attributable to assets that produce “passive
income” or are held for the production of passive income.
Passive income for this purpose generally includes dividends,
interest, royalties, rents, gains from commodities and securities
transactions, the excess of gains over losses from the disposition
of assets which produce passive income, and includes amounts
derived by reason of the temporary investment of funds raised in
offerings of our ordinary shares. If a non-U.S. corporation owns
directly or indirectly at least 25% by value of the stock of
another corporation, the non-U.S. corporation is treated for
purposes of the PFIC tests as owning its proportionate share of the
assets of the other corporation and as receiving directly its
proportionate share of the other corporation’s income. If we
are classified as a PFIC in any year with respect to which a U.S.
Holder owns our ordinary shares, we will generally continue to be
treated as a PFIC with respect to such U.S. Holder in all
succeeding years during which the U.S. Holder owns our ordinary
shares, regardless of whether we continue to meet the tests
described above.
Based on historic and certain estimates of our gross income, gross
assets, and market capitalization (which may fluctuate from time to
time) and the nature of our business, we do not believe that we
were a PFIC for the taxable year ending December 31, 2016 and we do
not expect that we will be classified as a PFIC for the taxable
year ending December 31, 2017. However, because PFIC status is
based on our income, assets and activities for the entire taxable
year, it is not possible to determine whether we will be
characterized as a PFIC for the 2017 taxable year until after the
close of the year. Moreover, we must determine our PFIC status
annually based on tests which are factual in nature, and our status
in future years will depend on our income, assets, market
capitalization and activities in those years. In addition, our
status as a PFIC may depend on how quickly we utilize the cash
proceeds from this offering in our business. There can be no
assurance that we will not be considered a PFIC for any taxable
year.
Under certain attribution rules, if we are a PFIC, U.S. Holders
will be deemed to own their proportionate share of our PFIC
subsidiaries, such subsidiaries referred to as “lower-tier
PFICs,” and will be subject to U.S. federal income tax in the
manner discussed below on (1) a distribution to us on the shares of
a “lower-tier PFIC” and (2) a disposition by us of
shares of a “lower-tier PFIC,” both as if the U.S.
Holder directly held the shares of such “lower-tier
PFIC.”
If we, or any of our subsidiaries, are treated as a PFIC for any
taxable year during which a U.S. Holder holds (or, as discussed in
the previous paragraph, is deemed to hold) its ordinary shares,
such holder will be subject to adverse U.S. federal income tax
rules. In general, if a U.S. Holder disposes of shares of a PFIC
(including an indirect disposition or a constructive disposition of
shares of a “lower-tier PFIC”), gain recognized or
deemed recognized by
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such holder would be allocated ratably over such holder’s
holding period for the shares. The amounts allocated to the taxable
year of disposition and to years before the entity became a PFIC,
if any, would be treated as ordinary income. The amount allocated
to each other taxable year would be subject to tax at the highest
rate in effect for such taxable year for individuals or
corporations, as appropriate, and an interest charge would be
imposed on the tax attributable to such allocated amounts. Further,
any distribution in respect of shares of a PFIC (or a distribution
by a lower-tier PFIC to its shareholders that is deemed to be
received by a U.S. Holder) in excess of 125% of the average of the
annual distributions on such shares received or deemed to be
received during the preceding three years or the U.S.
Holder’s holding period, whichever is shorter, would be
subject to taxation in the manner described above. In addition,
dividend distributions made to you will not qualify for the
preferential rates of taxation applicable to long-term capital
gains discussed above under “Distributions.”
Where a company that is a PFIC meets certain reporting
requirements, a U.S. Holder can avoid certain adverse PFIC
consequences described above by making a “qualified electing
fund” (“QEF”) election to be taxed currently on
its proportionate share of the PFIC’s ordinary income and net
capital gains. However, we do not intend to provide the information
necessary for a U.S. Holder to make a QEF election if we are
classified as a PFIC.
If we are a PFIC and our ordinary shares are “regularly
traded” on a “qualified exchange,” a U.S. Holder
may make a mark-to-market election with respect to our ordinary
shares (but not the shares of any lower-tier PFICs), which may help
to mitigate the adverse tax consequences resulting from our PFIC
status (but not that of any lower-tier PFICs). Our ordinary shares
will be treated as “regularly traded” in any calendar
year in which more than a de minimis quantity of the ordinary
shares are traded on a qualified exchange on at least 15 days
during each calendar quarter (subject to the rule that trades that
have as one of their principal purposes the meeting of the trading
requirement are disregarded). The NASDAQ Global Select Market is a
qualified exchange for this purpose and, consequently, if the
ordinary shares are regularly traded, the mark-to-market election
will be available to a U.S. Holder; however, there can be no
assurance that trading volumes will be sufficient to permit a
mark-to-market election. In addition, because a mark-to-market
election with respect to us does not apply to any equity interests
in “lower-tier PFICs” that we own, a U.S. Holder
generally will continue to be subject to the PFIC rules with
respect to its indirect interest in any investments held by us that
are treated as equity interests in a PFIC for U.S. federal income
tax purposes.
If a U.S. Holder makes the mark-to-market election, for each year
in which we are a PFIC, such holder will generally include as
ordinary income the excess, if any, of the fair market value of
ordinary shares at the end of the taxable year over their adjusted
tax basis, and will be permitted an ordinary loss in respect of the
excess, if any, of the adjusted tax basis of our ordinary shares
over their fair market value at the end of the taxable year (but
only to the extent of the net amount of previously included income
as a result of the mark-to-market election). If a U.S. Holder makes
the election, such holder’s tax basis in our ordinary shares
will be adjusted to reflect any such income or loss amounts. Any
gain recognized on a sale or other disposition of our ordinary
shares will be treated as ordinary income. Any losses recognized on
a sale or other disposition of our ordinary shares will be treated
as ordinary loss to the extent of any net mark-to-market gains for
prior years. U.S. Holders should consult their own tax advisors
regarding the availability and consequences of making a
mark-to-market election in their particular circumstances. In
particular, U.S. Holders should consider carefully the impact of a
mark-to-market election with respect to our ordinary shares if we
have “lower-tier PFICs” for which such election is not
available. Once made, the mark-to-market election cannot be revoked
without the consent of the IRS unless our ordinary shares cease to
be “regularly traded.”
If a U.S. Holder owns ordinary shares during any year in which we
are a PFIC, the U.S. Holder generally will be required to file an
IRS Form 8621 (Information Return by a Shareholder of a Passive
Foreign Investment Company or Qualified Electing Fund) with respect
to the company, generally with the U.S. Holder’s federal
income tax return for that year. If our company were a PFIC for a
given taxable year, then you should consult your tax advisor
concerning your annual filing requirements.
U.S. Holders should consult their tax advisors regarding the
potential application of the PFIC rules to their investment in our
ordinary shares.
Medicare tax
Certain U.S. Holders that are individuals, estates or trusts are
subject to a 3.8% tax on all or a portion of their “net
investment income,” which may include all or a portion of
their dividend income and net gains from the disposition of
ordinary shares. Each U.S. Holder that is an individual, estate or
trust is urged to consult its tax advisors regarding the
applicability of the Medicare tax to its income and gains in
respect of its investment in our ordinary shares.
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Backup withholding tax and information reporting
requirements
U.S. backup withholding tax and information reporting requirements
may apply to certain payments to certain U.S. Holders of stock.
Information reporting generally will apply to payments of dividends
on, and to proceeds from the sale or redemption of, our ordinary
shares made within the United States, or by a U.S. payor or U.S.
middleman, to a U.S. Holder of our ordinary shares, other than an
exempt recipient. A payor will be required to withhold backup
withholding tax from any payments of dividends on, or the proceeds
from the sale or redemption of, ordinary shares within the United
States, or by a U.S. payor or U.S. middleman, to a U.S. Holder,
other than an exempt recipient, if such holder fails to furnish its
correct taxpayer identification number or otherwise fails to comply
with, or establish an exemption from, such backup withholding tax
requirements. Any amounts withheld under the backup withholding
rules will be allowed as a credit against the beneficial
owner’s U.S. federal income tax liability, if any, and any
excess amounts withheld under the backup withholding rules may be
refunded, provided that the required information is timely
furnished to the IRS.
Foreign asset reporting
Certain U.S. Holders who are individuals (and certain entities) may
be required to report information relating to an interest in our
ordinary shares, subject to certain exceptions (including an
exception for shares held in accounts maintained by U.S. financial
institutions) by filing IRS Form 8938 (Statement of Specified
Foreign Financial Assets) with their federal income tax return.
U.S. Holders are urged to consult their tax advisors regarding
their information reporting obligations, if any, with respect to
their ownership and disposition of our ordinary shares.
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Underwriting
Barclays Capital Inc. and Citigroup Global Markets Inc. are acting
as representatives of the underwriters and joint book-running
managers of this offering. Under the terms of an underwriting
agreement, which will be filed as an exhibit to the registration
statement, each of the underwriters named below has severally
agreed to purchase from us and the selling shareholders the
respective number of ordinary shares shown opposite its name
below:
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Barclays Capital Inc.
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Citigroup Global Markets Inc.
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William Blair & Company, L.L.C.
|
|
|
Stifel, Nicolaus & Company,
Incorporated
|
|
|
Canaccord Genuity Inc.
|
|
|
Needham & Company, LLC
|
|
|
Total
|
|
7,000,000
|
The underwriting agreement provides that the underwriters’
obligation to purchase ordinary shares depends on the satisfaction
of the conditions contained in the underwriting agreement
including:
•
the obligation to purchase all of the ordinary shares offered
hereby (other than those ordinary shares covered by their option to
purchase additional shares as described below), if any of the
shares are purchased;
•
the representations and warranties made by us and the selling
shareholders to the underwriters are true;
•
there is no material change in our business or the financial
markets; and
•
we and the selling shareholders deliver customary closing documents
to the underwriters.
Commissions and
Expenses
The following table summarizes the underwriting discounts and
commissions we and the selling shareholders will pay to the
underwriters. These amounts are shown assuming both no exercise and
full exercise of the underwriters’ option to purchase
additional shares. The underwriting fee is the difference between
the initial price to the public and the amount the underwriters pay
to us and the selling shareholders for the ordinary shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Total
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
The representatives have advised us that the underwriters propose
to offer the ordinary shares directly to the public at the public
offering price set forth on the cover of this prospectus supplement
and to selected dealers, which may include the underwriters, at
such offering price less a selling concession not in excess of
$ per share. After the offering, the
representatives may change the offering price and other selling
terms.
The expenses of the offering that are payable by us are estimated
to be approximately $500,000 (excluding underwriting discounts and
commissions). We have agreed to pay expenses incurred by the
selling shareholders in connection with the offering, other than
the underwriting discounts and commissions. We have also agreed to
reimburse the underwriters for expenses relating to clearance of
this offering with the Financial Industry Regulatory Authority up
to $15,000.
Option to Purchase
Additional Shares
We and the selling shareholders have granted the underwriters an
option exercisable for 30 days after the date of this prospectus
supplement to purchase, from time to time, in whole or in part, up
to an aggregate of 300,000 shares from us and 750,000 shares from
the selling shareholders at the public offering price less
underwriting discounts and commissions. To the extent that this
option is exercised, each underwriter will be obligated, subject to
certain conditions, to purchase its pro rata portion of these
additional shares based on the underwriter’s percentage
underwriting commitment in the offering as indicated in the table
at the beginning of this Underwriting Section.
S-67
Lock-Up
Agreements
We, and all of our directors and executive officers and the selling
shareholders, have agreed that, for a period of 90 days after the
date of this prospectus supplement subject to certain limited
exceptions, including those described below, we and they will not
directly or indirectly, without the prior written consent of each
of Barclays Capital Inc. and Citigroup Global Markets Inc., (1)
offer for sale, sell, pledge, or otherwise dispose of (or enter
into any transaction or device that is designed to, or could be
expected to, result in the disposition by any person at any time in
the future of) any ordinary shares (including, without limitation,
ordinary shares that may be deemed to be beneficially owned by us
or them in accordance with the rules and regulations of the SEC and
ordinary shares that may be issued upon exercise of any options) or
securities convertible into or exercisable or exchangeable for
ordinary shares (other than, with respect to us, ordinary shares
issued pursuant to employee benefit plans, qualified share option
plans, or other employee compensation plans existing on the date of
this prospectus supplement), or sell or grant options or rights
with respect to any ordinary shares or securities convertible into
or exchangeable for ordinary shares (other than, with respect to
us, the grant of options pursuant to option plans existing on the
date of this prospectus supplement), (2) enter into any swap or
other derivatives transaction that transfers to another, in whole
or in part, any of the economic benefits
or risks of ownership of ordinary shares,
whether any such transaction described in clause (1) or (2) above
is to be settled
by delivery of ordinary shares or other
securities, in cash or otherwise, (3) make any demand for or
exercise any right or file or cause to be filed a registration
statement, including any amendments thereto, with respect to the
registration of any ordinary shares or securities convertible into
or exercisable or exchangeable for ordinary shares or any of our
other securities (other than any registration statement on Form
S-8), or (4) publicly disclose the intention to do any of the
foregoing.
Barclays Capital Inc. and Citigroup Global Markets Inc., in their
sole discretion, may release the ordinary shares and other
securities subject to the lock-up agreements described above in
whole or in part at any time. When determining whether or not to
release ordinary shares and other securities from lock-up
agreements, Barclays Capital Inc. and Citigroup Global Markets Inc.
will consider, among other factors, the holder’s reasons for
requesting the release, the number of ordinary shares and other
securities for which the release is being requested and market
conditions at the time.
Indemnification
We and the selling shareholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act, and to contribute to payments that the
underwriters may be required to make for these liabilities.
Stabilization, Short
Positions and Penalty Bids
The representatives may engage in stabilizing transactions, short
sales and purchases to cover positions created by short sales, and
penalty bids or purchases for the purpose of pegging, fixing or
maintaining the price of the ordinary shares, in accordance with
Regulation M under the Exchange Act:
•
Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified
maximum.
•
A short position involves a sale by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase in the offering, which creates the syndicate short
position. This short position may be either a covered short
position or a naked short position. In a covered short position,
the number of shares involved in the sales made by the underwriters
in excess of the number of shares they are obligated to purchase is
not greater than the number of shares that they may purchase by
exercising their option to purchase additional shares. In a naked
short position, the number of shares involved is greater than the
number of shares in their option to purchase additional shares. The
underwriters may close out any short position by either exercising
their option to purchase additional shares and/or purchasing shares
in the open market. In determining the source of shares to close
out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase shares
through their option to purchase additional shares. A naked short
position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the
shares in the open market after pricing that could adversely affect
investors who purchase in the offering.
S-68
•
Syndicate covering transactions involve purchases of the ordinary
shares in the open market after the distribution has been completed
in order to cover syndicate short positions.
•
Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the ordinary shares
originally sold by the syndicate member is purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions.
These stabilizing transactions, syndicate covering transactions and
penalty bids may have the effect of raising or maintaining the
market price of our ordinary shares or preventing or retarding a
decline in the market price of the ordinary shares. As a result,
the price of the ordinary shares may be higher than the price that
might otherwise exist in the open market. These transactions may be
effected on the NASDAQ Global Market or otherwise and, if
commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the ordinary
shares. In addition, neither we nor any of the underwriters make
any representation that the representatives will engage in these
stabilizing transactions or that any transaction, once commenced,
will not be discontinued without notice.
Passive Market
Making
In connection with the offering, underwriters and selling group
members may engage in passive market making transactions in the
ordinary shares on the NASDAQ Global Select Market in accordance
with Rule 103 of Regulation M under the Exchange Act during the
period before the commencement of offers or sales of the ordinary
shares and extending through the completion of distribution. A
passive market maker must display its bids at a price not in excess
of the highest independent bid of the security. However, if all
independent bids are lowered below the passive market maker’s
bid that bid must be lowered when specified purchase limits are
exceeded.
Electronic
Distribution
A prospectus in electronic format may be made available on the
Internet sites or through other online services maintained by one
or more of the underwriters and/or selling group members
participating in this offering, or by their affiliates. In those
cases, prospective investors may view offering terms online and,
depending upon the particular underwriter or selling group member,
prospective investors may be allowed to place orders online. The
underwriters may agree with us to allocate a specific amount of
ordinary shares for sale to online brokerage account holders. Any
such allocation for online distributions will be made by the
representatives on the same basis as other allocations.
Other than the prospectus in electronic format, the information on
any underwriter’s or selling group member’s web site
and any information contained in any other web site maintained by
an underwriter or selling group member is not part of the
prospectus or the registration statement of which this prospectus
forms a part, has not been approved and/or endorsed by us or any
underwriter or selling group member in its capacity as underwriter
or selling group member and should not be relied upon by
investors.
Listing on the NASDAQ
Global Select Market
Our ordinary shares are listed on the Nasdaq Global Select Market
under the symbol “KRNT.”
Stamp Taxes
If you purchase ordinary shares offered in this prospectus outside
the United States, you may be required to pay stamp taxes and other
charges under the laws and practices of the country of purchase, in
addition to the offering price listed on the cover page of this
prospectus.
Other
Relationships
The underwriters and certain of their affiliates are full service
financial institutions engaged in various activities, which may
include securities trading, commercial and investment banking,
financial advisory, investment management, investment research,
principal investment, hedging, financing and brokerage activities.
The underwriters and certain of their affiliates may in the future
perform various commercial and investment banking and financial
advisory services for the issuer and its affiliates, for which they
may receive customary fees and expenses.
S-69
In the ordinary course of their various business activities, the
underwriters and certain of their affiliates may make or hold a
broad array of investments and actively trade debt and equity
securities (or related derivative securities) and financial
instruments (including bank loans) for their own account and for
the accounts of their customers, and such investment and securities
activities may involve securities and/or instruments of the issuer
or its affiliates. If the underwriters or their affiliates have a
lending relationship with us, the underwriters or their affiliates
may hedge, their credit exposure to us consistent with their
customary risk management policies. Typically, the underwriters and
their affiliates would hedge such exposure by entering into
transactions which consist of either the purchase of credit default
swaps or the creation of short positions in our securities or the
securities of our affiliates, including potentially the ordinary
shares offered hereby. Any such credit default swaps or short
positions could adversely affect future trading prices of the
ordinary shares offered hereby. The underwriters and certain of
their affiliates may also communicate independent investment
recommendations, market color or trading ideas and/or publish or
express independent research views in respect of such securities or
instruments and may at any time hold, or recommend to clients that
they acquire, long and/or short positions in such securities and
instruments.
Selling Restrictions
Outside the United States
This prospectus supplement does not constitute an offer to sell to,
or a solicitation of an offer to buy from, anyone in any country or
jurisdiction (i) in which such an offer or solicitation is not
authorized, (ii) in which any person making such offer or
solicitation is not qualified to do so or (iii) in which any such
offer or solicitation would otherwise be unlawful. No action has
been taken that would, or is intended to, permit a public offer of
the ordinary shares or possession or distribution of this
prospectus or any other offering or publicity material relating to
the ordinary shares in any country or jurisdiction (other than the
United States) where any such action for that purpose is required.
Accordingly, each underwriter has undertaken that it will not,
directly or indirectly, offer or sell any ordinary shares or have
in its possession, distribute or publish any prospectus, form of
application, advertisement or other document or information in any
country or jurisdiction except under circumstances that will, to
the best of its knowledge and belief, result in compliance with any
applicable laws and regulations and all offers and sales of
ordinary shares by it will be made on the same terms.
Canada
The shares may be sold only to purchasers purchasing, or deemed to
be purchasing, as principal that are accredited investors, as
defined in National Instrument 45-106 Prospectus Exemptions or
subsection 73.3(1) of the Securities Act (Ontario), and are
permitted clients, as defined in National Instrument 31-103
Registration Requirements, Exemptions and Ongoing Registrant
Obligations. Any resale of the shares must be made in accordance
with an exemption from, or in a transaction not subject to, the
prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of
Canada may provide a purchaser with remedies for rescission or
damages if this prospectus supplement (including any amendment
thereto) contains a misrepresentation, provided that the remedies
for rescission or damages are exercised by the purchaser within the
time limit prescribed by the securities legislation of the
purchaser’s province or territory. The purchaser should refer
to any applicable provisions of the securities legislation of the
purchaser’s province or territory for particulars of these
rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or
guaranteed by the government of a non-Canadian jurisdiction,
section 3A.4) of National Instrument 33-105 Underwriting Conflicts
(NI 33-105), the underwriters are not required to comply with the
disclosure requirements of NI 33-105 regarding underwriter
conflicts of interest in connection with this offering.
European Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
“Relevant Member State”) an offer to the public of any
ordinary shares which are the subject of the offering contemplated
herein may not be made in that Relevant Member State, except that
an offer to the public in that Relevant Member State of any
ordinary shares may be made at any time under the following
exemptions under the Prospectus Directive, if they have been
implemented in that Relevant Member State:
•
to legal entities which are qualified investors as defined under
the Prospectus Directive;
S-70
•
by the underwriters to fewer than 100, or, if the Relevant Member
State has implemented the relevant provisions of the 2010 PD
Amending Directive, 150, natural or legal persons (other than
qualified investors as defined in the Prospectus Directive), as
permitted under the Prospectus Directive, subject to obtaining the
prior consent of the representatives of the underwriters for any
such offer; or
•
in any other circumstances falling within Article 3(2) of the
Prospectus Directive, provided that no such offer of ordinary
shares shall result in a requirement for us, the selling
shareholders or any underwriter to publish a prospectus pursuant to
Article 3 of the Prospectus Directive or supplement a prospectus
pursuant to Article 16 of the Prospectus Directive.
Each person in a Relevant Member State who receives any
communication in respect of, or who acquires any ordinary shares
under, the offers contemplated here in this prospectus will be
deemed to have represented, warranted and agreed to and with each
underwriter, the selling shareholders and us that:
•
it is a qualified investor as defined under the Prospectus
Directive; and
•
in the case of any ordinary shares acquired by it as a financial
intermediary, as that term is used in Article 3(2) of the
Prospectus Directive, (i) the ordinary shares acquired by it in the
offering have not been acquired on behalf of, nor have they been
acquired with a view to their offer or resale to, persons in any
Relevant Member State other than qualified investors, as that term
is defined in the Prospectus Directive, or in the circumstances in
which the prior consent of the representatives of the underwriters
has been given to the offer or resale or (ii) where ordinary shares
have been acquired by it on behalf of persons in any Relevant
Member State other than qualified investors, the offer of such
ordinary shares to it is not treated under the Prospectus Directive
as having been made to such persons.
For the purposes of this representation and the provision above,
the expression an “offer of ordinary shares to the
public” in relation to any ordinary shares in any Relevant
Member State means the communication in any form and by any means
of sufficient information on the terms of the offer and any
ordinary shares to be offered so as to enable an investor to decide
to purchase or subscribe for the ordinary shares, as the same may
be varied in that Relevant Member State by any measure implementing
the Prospectus Directive in that Relevant Member State, the
expression “Prospectus Directive” means Directive
2003/71/EC (and amendments thereto, including the 2010 PD Amending
Directive, to the extent implemented in the Relevant Member State),
and includes any relevant implementing measure in each Relevant
Member State and the expression “2010 PD Amending
Directive” means Directive 2010/73/EU.
United Kingdom
This prospectus has only been communicated or caused to have been
communicated and will only be communicated or caused to be
communicated as an invitation or inducement to engage in investment
activity (within the meaning of Section 21 of the Financial
Services and Markets Act of 2000 (the “FSMA”)) as
received in connection with the issue or sale of the ordinary
shares in circumstances in which Section 21(1) of the FSMA does not
apply to us. All applicable provisions of the FSMA will be complied
with in respect to anything done in relation to the ordinary shares
in, from or otherwise involving the United Kingdom.
Israel
This document does not constitute a prospectus under the Israeli
Securities Law, 5728-1968, and has not been filed with or approved
by the Israel Securities Authority. In Israel, this prospectus is
being distributed only to, and is directed only at, investors
listed in the first addendum, or the Addendum, to the Israeli
Securities Law, consisting primarily of joint investment in trust
funds; provident funds; insurance companies; banks; portfolio
managers, investment advisors, members of the Tel Aviv Stock
Exchange Ltd., underwriters, each purchasing for their own account;
venture capital funds; entities with equity in excess of NIS 50
million and “qualified individuals,” each as defined in
the Addendum (as it may be amended from time to time), collectively
referred to as qualified investors. Qualified investors shall be
required to submit written confirmation that they fall within the
scope of the Addendum.
S-71
Legal matters
The validity of the ordinary shares being offered by this
prospectus supplement and other legal matters concerning this
offering relating to Israeli law will be passed upon for us by
Meitar Liquornik Geva Leshem Tal, Ramat Gan, Israel. Certain legal
matters in connection with this offering relating to U.S. law will
be passed upon for us by White & Case LLP, New York, New York.
Certain legal matters in connection with this offering will be
passed upon for the underwriters by Gross, Kleinhendler, Hodak,
Halevy, Greenberg & Co., Tel Aviv, Israel, with respect to
Israeli law, and by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York, with respect to U.S. law.
Experts
The consolidated financial statements of Kornit Digital Ltd.
incorporated by reference in this prospectus supplement by
reference to Kornit Digital Ltd.’s Annual report on Form 20-F
for the year ended December 31, 2015 have been audited by Kost
Forer Gabbay & Kasierer, a member of Ernst & Young Global,
an independent registered public accounting firm, as set forth in
their report therein, included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated
by reference in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
Enforceability of civil
liabilities
We are incorporated under the laws of the State of Israel. Service
of process upon us and upon our directors, officers and any Israeli
experts named in this prospectus supplement, substantially all of
whom reside outside of the United States, may be difficult to
obtain within the United States. Furthermore, because substantially
all of our assets and substantially all of our directors and
officers are located outside of 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, Meitar
Liquornik Geva Leshem Tal, that it may be difficult to assert U.S.
securities law claims in original actions instituted in Israel.
Israeli courts may refuse to hear a claim based on an alleged
violation of U.S. securities laws because Israel is not the most
appropriate forum in which to bring such a claim. In addition, even
if an Israeli court agrees to hear a claim, it may determine that
Israeli law and not U.S. law is applicable to the claim. If U.S.
law is found to be applicable, the content of applicable U.S. law
must be proven as a fact, which can be a time-consuming and costly
process. Certain matters of procedure will also be governed by
Israeli law.
We have irrevocably appointed Kornit Digital North America Inc. as
our agent to receive service of process in any action against us in
any United States federal or state court arising out of the
offerings under this prospectus supplement or any purchase or sale
of securities in connection with any such offering(s). Subject to
specified time limitations and legal procedures, Israeli courts may
enforce a United States judgment in a civil matter which, subject
to certain exceptions, is non-appealable, including a judgment
based upon the civil liability provisions of the Securities Act or
the Exchange Act and including a monetary or compensatory judgment
in a non-civil matter, provided that, among other things:
•
the judgment is obtained after due process before a court of
competent jurisdiction, according to the laws of the state in which
the judgment is given and the rules of private international law
prevailing in Israel;
•
the prevailing law of the foreign state in which the judgment is
rendered allows for the enforcement of judgments of Israeli
courts;
•
adequate service of process has been effected and the defendant has
had a reasonable opportunity to be heard and to present his or her
evidence;
•
the judgment is not contrary to public policy of Israel, and the
enforcement of the civil liabilities set forth in the judgment is
not likely to impair the security or sovereignty of Israel;
•
the judgment was not obtained by fraud and does not conflict with
any other valid judgment in the same matter between the same
parties;
S-72
•
an action between the same parties in the same matter was not
pending in any Israeli court at the time at which the lawsuit was
instituted in the foreign court; and
•
the judgment is enforceable according to the laws of Israel and
according to the law of the foreign state in which the relief was
granted.
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 the annual statutory rate set by Israeli
regulations prevailing at the time. Judgment creditors must bear
the risk of unfavorable exchange rates.
Where you can find more
information
We have filed with the SEC a registration statement on Form F-3
under the Securities Act, with respect to the securities offered by
this prospectus supplement. This prospectus supplement and the
accompanying prospectus do not contain all the information
contained in the registration statement, including its exhibits and
schedules. You should refer to the registration statement,
including the exhibits and schedules, for further information about
us and the securities we may offer. Statements we make in this
prospectus supplement and the accompanying prospectus about certain
contracts or other documents are not necessarily complete. When we
make such statements, we refer you to the copies of the contracts
or documents that are filed as exhibits to the registration
statement, because those statements are qualified in all respects
by reference to those exhibits. The registration statement,
including exhibits and schedules, is on file at the office of the
SEC and may be inspected without charge.
We are subject to the information reporting requirements of the
Exchange Act. Under the Exchange Act, we are required to file
annual and special reports and other information with the SEC. As a
foreign private issuer, we are exempt from the rules under the
Exchange Act prescribing the furnishing and content of proxy
statements and our officers, directors and principal shareholders
are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act. In
addition, we are not required under the Exchange Act to file
annual, quarterly and current reports and financial statements as
frequently or as promptly as U.S. companies whose securities are
registered under the Exchange Act. However, we file with the SEC,
within 120 days after the end of each fiscal year, or such
applicable time as required by the SEC, an annual report on Form
20-F containing financial statements audited by an independent
registered public accounting firm, and we submit to the SEC, on
Form 6-K, unaudited quarterly financial information.
You may read and copy the registration statement, including the
related exhibits and schedules, as well as any document we file
with the SEC without charge at the Public Reference Room maintained
by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may
also obtain copies of this information by mail from the Public
Reference Section of the SEC at prescribed rates. Further
information on the operation of the SEC’s Public Reference
Room in Washington, D.C. can be obtained by calling the SEC at
1-800-SEC-0330. The SEC also maintains a website that contains
reports, proxy and information statements and other information
about issuers, such as us, who file electronically with the SEC.
The address of that website is
http://www.sec.gov
.
We maintain a corporate website at
www.kornit.com
.
Information contained on, or that can be accessed through, our
website does not constitute a part of this prospectus supplement or
the accompanying prospectus. We have included our website address
in this prospectus supplement solely as an inactive textual
reference.
Incorporation of certain
documents by reference
The SEC allows us to “incorporate by reference” into
this prospectus supplement and the accompanying prospectus the
information in documents we file with it. This means that we can
disclose important information to you by referring you another
document filed by us with the SEC. Each document incorporated by
reference is current only as of the date of such document, and the
incorporation by reference of such documents shall not create any
implication that there has been no change in our affairs since the
date thereof or that the information contained therein is current
as of any time subsequent to its date. The information incorporated
by reference is considered to be a part of this prospectus
supplement and the accompanying prospectus and should be read with
the same care. When we
S-73
update the information contained in documents that have been
incorporated by reference by making future filings with the SEC,
the information incorporated by reference in this prospectus
supplement and the accompanying prospectus is considered to be
automatically updated and superseded. In other words, in the case
of a conflict or inconsistency between information contained in
this prospectus supplement and the accompanying prospectus and
information incorporated by reference into this prospectus
supplement and the accompanying prospectus, you should rely on the
information contained in the document that was filed later.
We incorporate by reference into this prospectus supplement and the
accompanying prospectus documents listed below and any future
filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act, and, to the extent specifically designated
therein, reports on Form 6-K we furnish to the SEC until we
terminate the offering. : In addition, we will incorporate by
reference certain future materials furnished to the SEC on Form
6-K, but only to the extent specifically indicated in those
submissions or in a future prospectus supplement.
•
our Annual Report on Form 20-F for the fiscal year ended December
31, 2015; and
•
our reports of foreign private issuer on Form 6-K filed with the
SEC on:
o
May 6, 2016 (only the U.S. GAAP financial statements with respect
to the quarter ended March 31, 2016 attached to the press release
annexed as Exhibit 99.1 thereto);
o
July 14, 2016;
o
August 3, 2016 (only the U.S. GAAP financial statements with
respect to the quarter and six months ended June 30, 2016 attached
to the press release annexed as Exhibit 99.1 thereto);
o
November 9, 2016 (only the U.S. GAAP financial statements with
respect to the quarter and nine months ended, September 30, 2016
attached to the press release appended as Exhibit 99.1 thereto);
and
o
January 3, 2017 (including our condensed interim consolidated
financial statements as of September 30, 2016 and our
Management’s Discussion and Analysis of Financial Condition
and Results of Operations for the nine months ended September 30,
2016 appended as Exhibits 99.1 and 99.2 thereto, respectively) (in
each case, solely to the extent filed and not furnished).
•
the description of our ordinary shares contained under the heading
“Item 1. Description of Registrant’s Securities to be
Registered” in our registration statement on Form 8-A, as
filed with the SEC on March 31, 2015, including any subsequent
amendment or any report filed for the purpose of updating such
description.
Any statement contained herein or in a document all or a portion of
which is incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of
this registration statement to the extent that a statement
contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this registration
statement.
Unless expressly incorporated by reference, nothing in this
prospectus supplement and the accompanying prospectus shall be
deemed to incorporate by reference information furnished to, but
not filed with, the SEC. Copies of all documents incorporated by
reference in this prospectus supplement and the accompanying
prospectus, other than exhibits to those documents unless such
exhibits are specially incorporated by reference in this prospectus
supplement and the accompanying prospectus, will be provided at no
cost to each person, including any beneficial owner, who receives a
copy of this prospectus supplement and the accompanying prospectus
on the written or oral request of that person made to:
Kornit Digital Ltd.
Attention: Chief Financial Officer
12 Ha’Amal Street, Afek Park
Rosh Ha’Ayin 4809246, Israel
Tel: +972-3-908-5800
S-74
The information in this prospectus is
not complete and may be changed. Neither we nor the selling
shareholders may sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
Subject to completion, dated January 3,
2017
PROSPECTUS
$100,000,000 of Ordinary Shares,
Warrants, Rights, Debt Securities
and/or Units Offered by the Company
and
Up to 15,127,481 Ordinary Shares Offered by the Selling
Shareholders
Kornit Digital
Ltd.
We may offer from time to time in one or more series or issuances
ordinary shares, warrants to purchase ordinary shares, rights, debt
securities consisting of debentures, notes or other evidences of
indebtedness and/or securities and units comprised of, or other
combinations of, the foregoing securities. We refer to the ordinary
shares, warrants, rights, debt securities and units collectively as
“securities” in this prospectus.
In addition, the selling shareholders identified in this prospectus
may offer up to 15,127,481 ordinary shares. We will not receive any
of the proceeds from the sale of ordinary shares by the selling
shareholders.
Each time we or the selling shareholders sell securities pursuant
to this prospectus, we will provide a supplement to this prospectus
that contains specific information about the offering and the
specific terms of the securities offered. You should read this
prospectus and the applicable prospectus supplement carefully
before you invest in our securities.
We may, from time to time,
offer the securities and the selling shareholders may, from time to
time, offer the ordinary shares through public or private
transactions, directly or through underwriters, agents or dealers,
on or off the NASDAQ Stock Market at prevailing market prices or at
privately negotiated prices. If any underwriters, agents or dealers
are involved in the sale of any of these securities, the applicable
prospectus supplement will set forth the names of the underwriter,
agent or dealer and any applicable fees, commissions or
discounts.
Our ordinary shares are
traded on the NASDAQ Global Select Market under the symbol
“KRNT.” The closing price of our ordinary shares, as
reported on the NASDAQ Global Select Market on December 30, 2016
was $12.65.
___________________
We are an “emerging growth
company” as defined under U.S. federal securities laws and,
as such, may elect to comply with certain reduced public company
reporting requirements.
___________________
Investing in these
securities involves certain risks. Please carefully consider the
“Risk Factors”
in Item 3 of our most recent annual report on
Form 20-F incorporated by reference in this prospectus and in any
applicable supplement to this prospectus, for a discussion of the
factors you should consider carefully before deciding to purchase
these securities.
___________________
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of
the securities being offered by this prospectus, or determined if
this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
___________________
The date of this prospectus is
,
2017
TABLE OF
CONTENTS
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|
|
About this Prospectus
|
|
1
|
Kornit Digital Ltd.
|
|
1
|
Risk Factors
|
|
2
|
Offer Statistics and Expected
Timetable
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|
2
|
Forward-Looking Statements
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|
2
|
Ratio of Earnings to Fixed Charges
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3
|
Capitalization
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3
|
Price Range of Ordinary Shares
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3
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Use of Proceeds
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4
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Selling Shareholders
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4
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Description of Securities
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5
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Description of Ordinary Shares
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5
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Description of Warrants
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11
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Description of Rights
|
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12
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Description of Debt Securities
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13
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Description of Units
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|
15
|
Plan of Distribution
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|
16
|
Expenses Associated with the
Registration
|
|
19
|
Legal Matters
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|
20
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Experts
|
|
20
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Where You Can Find More Information
|
|
20
|
Incorporation of Certain Documents By
Reference
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21
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Enforceability of Civil Liabilities
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|
22
|
i
ABOUT THIS
PROSPECTUS
This prospectus is part of a registration statement that we filed
with the Securities and Exchange Commission, or SEC, utilizing a
“shelf” registration process. Under this process, we
may offer and sell our securities under this prospectus and the
selling shareholders referred to in this prospectus and identified
in supplements to this prospectus may also offer and sell our
ordinary shares under this prospectus.
Under this shelf process, we may sell the securities described in
this prospectus in one or more offerings up to a total price to the
public of $100 million. The selling shareholders may sell up to
15,127,481 ordinary shares in one or more offerings. The offer and
sale of securities under this prospectus may be made from time to
time, in one or more offerings, in any manner described under the
section in this prospectus entitled “Plan of
Distribution.”
This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities, we will
provide a prospectus supplement that will contain specific
information about the terms of that offering, if required. The
prospectus supplement may also add, update or change information
contained in this prospectus, and may also contain information
about any material federal income tax considerations relating to
the securities covered by the prospectus supplement. You should
read both this prospectus and any prospectus supplement together
with additional information under the headings “Where You Can
Find More Information” and “Incorporation of Certain
Documents by Reference.”
This summary may not contain all of the information that may be
important to you. You should read this entire prospectus, including
the financial data and related notes incorporated by reference in
this prospectus, before making an investment decision. This summary
contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that
might cause or contribute to such differences include those
discussed in “Risk Factors” and “Forward-Looking
Statements.”
KORNIT DIGITAL
LTD.
Overview
We develop, design and market innovative digital printing solutions
for the global printed textile industry. Our vision is to
revolutionize this industry by facilitating the transition from
analog processes that have not evolved for decades to digital
methods of production that address contemporary supply, demand and
environmental dynamics. We focus on the rapidly growing high
throughput, direct-to-garment, or DTG, and roll-to-roll, or R2R,
segments of the printed textile industry. Our solutions include our
proprietary digital printing systems, ink and other consumables,
associated software and value added services that allow for large
scale printing of short runs of complex images and designs directly
on finished garments and fabrics. Our solutions are differentiated
from other digital methods of production because they eliminate the
need to pre-treat fabrics prior to printing, thereby offering our
customers the ability to digitally print high quality images and
designs on a variety of fabrics in a streamlined and
environmentally-friendly manner. When compared to analog methods of
production, our solutions also significantly reduce production lead
times and enable customers to more efficiently and cost-effectively
produce smaller quantities of individually printed designs, thereby
mitigating the risk of excess inventory, which is a significant
challenge for the printed textile industry.
Corporate
Information
Our legal name is Kornit Digital Ltd. and we were incorporated
under the laws of the State of Israel on January 16, 2002. Our
registration number with the Israeli Registrar of Companies is
513195420. Our purpose as set forth in our amended and restated
articles of association is to engage in any lawful activity.
We are subject to the provisions of the Israeli Companies Law,
5759-1999. Our principal executive offices are located at 12
Ha’Amal Street, Rosh Ha’Ayin 4809246, Israel, and our
telephone number is +972-3-908-5800. Our website address is
www.kornit.com
(the information contained therein or linked thereto shall not be
considered incorporated by reference in this prospectus). Our agent
for service of process in the United States is Kornit Digital North
America Inc., located at 10541-10601 North Commerce Street, Mequon,
Wisconsin 53092, and its telephone number is (262) 518-0200.
1
RISK FACTORS
An investment in our securities involves a high degree of risk. Our
business, financial condition or results of operations could be
adversely affected by any of these risks. If any of these risks
occur, the value of our ordinary shares and our other securities
may decline. You should carefully consider the risk factors
discussed under the caption “Risk Factors” in our
annual report on Form 20-F for the year ended December 31, 2015 and
in any other filings we make with the SEC subsequent to the date of
this prospectus which are incorporated herein by reference, and in
any supplement to this prospectus, before making your investment
decision.
OFFER STATISTICS AND
EXPECTED TIMETABLE
We may sell from time to time pursuant to this prospectus (as may
be detailed in a prospectus supplement) an indeterminate number of
ordinary shares, warrants to purchase ordinary shares, rights
and/or units comprised of any of the foregoing securities as shall
have a maximum aggregate offering price of $100 million. The
selling shareholders may sell from time to time pursuant to this
prospectus up to 15,127,481 ordinary shares. The actual price per
share or per security of the securities that we or the selling
shareholders will offer pursuant hereto will depend on a number of
factors that may be relevant as of the time of offer. See
“Plan of Distribution.”
FORWARD-LOOKING
STATEMENTS
This prospectus and the documents incorporated in it by reference
contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the
“Securities Act”), Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)
and the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995, that are based on our
management’s beliefs and assumptions and on information
currently available to our management. Forward-looking statements
include information concerning our possible or assumed future
results of our business, financial condition, results of
operations, liquidity, plans and objectives. Forward-looking
statements include all statements that are not historical facts and
in some cases can be identified by terminology such as
“believe,” “may,” “estimate,”
“continue,” “anticipate,”
“intend,” “should,” “plan,”
“expect,” “predict,”
“potential,” or the negative of these terms or other
similar expressions that convey uncertainty of future events or
outcomes.
Our ability to predict the results of our operations or the effects
of various events on our operating results is inherently uncertain.
Therefore, we caution you to consider carefully the matters
described under the caption “Risk Factors” and certain
other matters discussed in this prospectus, the documents
incorporated by reference in this prospectus, and other publicly
available sources. Such factors and many other factors beyond the
control of our management could cause our actual results, level of
activity, performance or achievements to differ materially from any
future results, level of activity, performance or achievements that
may be expressed or implied by the forward-looking statements.
Unless we are required to do so under U.S. federal securities laws
or other applicable laws, we do not intend to update or revise any
forward-looking statements.
2
RATIO OF EARNINGS TO
FIXED CHARGES
The following table sets forth our ratio of earnings to fixed
charges for the periods indicated. The ratio of earnings to fixed
charges is computed by dividing fixed charges into earnings before
income taxes plus fixed charges.
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges
(1)
|
|
8.78
|
|
5.54
|
|
7.10
|
|
8.70
|
|
4.09
|
As of the date of this prospectus, we have no preferred shares
outstanding and have neither declared nor paid any dividends on
preferred shares for the periods set forth above.
CAPITALIZATION
Our capitalization will be set forth in a prospectus supplement to
this prospectus or in a report of a foreign private issuer on Form
6-K subsequently furnished to the SEC and specifically incorporated
herein by reference.
PRICE RANGE OF ORDINARY
SHARES
Our ordinary shares have been quoted on the NASDAQ Global Select
Market under the symbol “KRNT” since April 2, 2015.
Prior to that date, there was no public trading market for our
ordinary shares. Our initial public offering was priced at $10.00
per share on April 1, 2015. The following table sets forth for the
periods indicated the high and low closing sales prices per
ordinary share as reported on NASDAQ:
|
|
|
|
|
|
|
(in
U.S. dollars)
|
Annual:
|
|
|
|
|
|
|
2016
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|
$
|
8.10
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|
$
|
14.70
|
2015 (beginning April 2, 2015)
|
|
|
9.91
|
|
|
17.50
|
Quarterly:
|
|
|
|
|
|
|
Fourth Quarter 2016
|
|
|
9.00
|
|
|
14.70
|
Third Quarter 2016
|
|
|
8.90
|
|
|
11.70
|
Second Quarter 2016
|
|
|
8.10
|
|
|
11.19
|
First Quarter 2016
|
|
|
8.91
|
|
|
12.00
|
Fourth Quarter 2015
|
|
|
9.91
|
|
|
13.80
|
Third Quarter 2015
|
|
|
11.42
|
|
|
15.85
|
Second Quarter 2015
|
|
|
11.76
|
|
|
17.50
|
Most
Recent Six Months (and Most Recent Partial
Month):
|
|
|
|
|
|
|
December 2016 (through December 30,
2016)
|
|
|
11.25
|
|
|
14.70
|
November 2016
|
|
|
9.00
|
|
|
12.30
|
October 2016
|
|
|
9.35
|
|
|
10.60
|
September 2016
|
|
|
8.90
|
|
|
11.37
|
August 2016
|
|
|
9.50
|
|
|
11.70
|
July 2016
|
|
|
9.39
|
|
|
10.46
|
June 2016
|
|
|
8.48
|
|
|
10.49
|
The closing price of our ordinary shares, as reported on NASDAQ on
December 30, 2016, was $12.65.
3
USE OF
PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement,
we intend to use the net proceeds from the sale of securities
offered by us pursuant to this prospectus for general corporate and
working capital purposes. The timing and amount of our actual
expenditures will be based on many factors, including cash flows
from operations and the anticipated growth of our business. As a
result, unless otherwise indicated in the applicable prospectus
supplement, our management will have broad discretion to allocate
the net proceeds of the offerings.
We will not receive any proceeds from the sale of ordinary shares
by the selling shareholders.
SELLING
SHAREHOLDERS
In addition to the securities that may be offered by us from time
to time, this prospectus relates to the possible offering and sale,
from time to time, of up to 15,127,481 ordinary shares by the
selling shareholders.
The following table sets forth: (1) the number and percentage of
our ordinary shares that each selling shareholder beneficially
owned prior to the offering of the shares; (2) the number of our
ordinary shares offered by each selling shareholder from time to
time; and (3) the number and percentage of our ordinary shares to
be beneficially owned by each selling shareholder assuming the sale
of all of the ordinary shares offered by such selling shareholder.
The applicable percentages of beneficial ownership are based on an
aggregate of 30,989,873 ordinary shares outstanding as of December
31, 2016.
|
|
Shares Beneficially Owned
Prior to Offering
|
|
Number of Shares to be
Offered
|
|
Shares Beneficially Owned
After Offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fortissimo Capital Fund II
(Israel), L.P.
(1)
|
|
15,037,481
|
|
48.5
|
%
|
|
15,037,481
|
|
48.5
|
%
|
|
—
|
|
—
|
|
Gabi Seligsohn
(2)
|
|
528,914
|
|
1.7
|
%
|
|
90,000
|
|
0.3
|
%
|
|
438,914
|
|
1.4
|
%
|
4
DESCRIPTION OF
SECURITIES
The descriptions of the securities contained in this prospectus,
together with the applicable prospectus supplements, summarize the
material terms and provisions of the various types of securities
that we may offer. We will describe in the applicable prospectus
supplement the particular terms of any securities offered by such
prospectus supplement. If we so indicate in the applicable
prospectus supplement, the terms of the securities may differ from
the terms we have summarized below.
We may sell from time to time, in one or more offerings, ordinary
shares, warrants, rights and/or units comprising any combination of
these securities.
DESCRIPTION OF ORDINARY
SHARES
A description of our ordinary shares can be found under the heading
“Item 1. Description of Registrant’s Securities to be
Registered” in our registration statement on Form 8-A as
filed with the SEC on March 31, 2015 and incorporated by reference
herein.
The following description of our share capital and provisions of
our amended and restated articles of association, or our articles
and the Israeli Companies Law, are summaries and do not purport to
be complete.
General
Our authorized share capital consists of 200,000,000 ordinary
shares, par value NIS 0.01 per share, of which 30,989,873 shares
were issued and outstanding as of December 31, 2016. As of December
31, 2016, no preferred shares were authorized under our articles of
association.
All of our outstanding ordinary shares are validly issued, fully
paid and non-assessable. Our ordinary shares are not redeemable and
do not have any preemptive rights.
Our registration number with the Israeli Registrar of Companies is
51-319542-0. Our purpose as set forth in our articles of
association is to engage in any lawful activity.
Voting Rights
All ordinary shares have identical voting and other rights in all
respects.
Transfer of
Shares
Our fully paid ordinary shares are issued in registered form and
may be freely transferred under our articles, unless the transfer
is restricted or prohibited by another instrument, applicable law
or the rules of a stock exchange on which the shares are listed for
trade. The ownership or voting of our ordinary shares by
non-residents of Israel is not restricted in any way by our
articles or the laws of the State of Israel, except for ownership
by nationals of some countries that are, or have been, in a state
of war with Israel.
Election of
Directors
Our ordinary shares do not have cumulative voting rights for the
election of directors. As a result, the holders of a majority of
the voting power represented at a shareholders meeting have the
power to elect all of our directors, subject to the special
approval requirements for external directors.
Under our articles of association, our board of directors must
consist of not less than five but no more than nine directors,
including two external directors as required by the Israeli
Companies Law. Pursuant to our articles, each of our directors,
other than the external directors, for whom special election
requirements apply under the Israeli Companies Law, will be
appointed by a simple majority vote of holders of our voting
shares, participating and voting at an annual general meeting of
our shareholders. In addition, our directors, other than the
external directors, are divided into three classes that are each
elected at the third annual general meeting of our shareholders, in
a staggered fashion (such that one class is elected each annual
general meeting), and serve on our board of directors unless they
are removed by a vote of 65% of the total voting power of our
shareholders at a general meeting of our shareholders or upon the
occurrence of certain events, in accordance with the Israeli
Companies Law and our articles. In addition,
5
our articles allow our board of directors to fill vacancies on the
board of directors or to appoint new directors up to the maximum
number of directors permitted under our articles. Such directors
serve for a term of office equal to the remaining period of the
term of office of the directors(s) whose office(s) have been
vacated or in the case of new directors, for a term of office
according to the class to which such director was assigned upon
appointment. External directors are elected for an initial term of
three years, may be elected for additional terms of three years
each under certain circumstances, and may be removed from office
pursuant to the terms of the Israeli Companies Law.
Dividend and Liquidation
Rights
We may declare a dividend to be paid to the holders of our ordinary
shares in proportion to their respective shareholdings. Under the
Israeli Companies Law, dividend distributions are determined by the
board of directors and do not require the approval of the
shareholders of a company unless the company’s articles of
association provide otherwise. Our articles do not require
shareholder approval of a dividend distribution and provide that
dividend distributions may be determined by our board of
directors.
Pursuant to the Israeli Companies Law, the distribution amount is
limited to the greater of retained earnings or earnings generated
over the previous two years, according to our then last reviewed or
audited financial statements, provided that the end of the period
to which the financial statements relate is not more than six
months prior to the date of the distribution. If we do not meet
such criteria, we may only distribute dividends with court
approval. In each case, we are only permitted to distribute a
dividend if our board of directors and the court, if applicable,
determines that there is no reasonable concern that payment of the
dividend will prevent us from satisfying our existing and
foreseeable obligations as they become due.
In the event of our liquidation, after satisfaction of liabilities
to creditors, our assets will be distributed to the holders of our
ordinary shares in proportion to their shareholdings. This right,
as well as the right to receive dividends, may be affected by the
grant of preferential dividend or distribution rights to the
holders of a class of shares with preferential rights that may be
authorized in the future.
Exchange
Controls
There are currently no Israeli currency control restrictions on
remittances of dividends on our ordinary shares, proceeds from the
sale of the shares or interest or other payments to non-residents
of Israel, except for shareholders who are subjects of countries
that are, or have been, in a state of war with Israel.
Shareholder
Meetings
Under Israeli law, we are required to hold an annual general
meeting of our shareholders once every calendar year that must be
held no later than 15 months after the date of the previous annual
general meeting. All meetings other than the annual general meeting
of shareholders are referred to in our articles as special general
meetings. Our board of directors may call special general meetings
whenever it sees fit, at such time and place, within or outside of
Israel, as it may determine. In addition, the Israeli Companies Law
provides that our board of directors is required to convene a
special general meeting upon the written request of (i) any two of
our directors or one-quarter of the members of our board of
directors or (ii) one or more shareholders holding, in the
aggregate, either (a) 5% or more of our outstanding issued shares
and 1% of our outstanding voting power or (b) 5% or more of our
outstanding voting power.
Subject to the provisions of the Israeli Companies Law and the
regulations promulgated thereunder, shareholders entitled to
participate and vote at general meetings are the shareholders of
record on a date to be decided by the board of directors, which may
be between four and 40 days prior to the date of the meeting.
Furthermore, the Israeli Companies Law requires that resolutions
regarding the following matters must be passed at a general meeting
of our shareholders:
•
amendments to our articles;
•
appointment or termination of our auditors;
•
appointment of external directors;
•
approval of certain related party transactions;
•
increases or reductions of our authorized share capital;
6
•
a merger; and
•
the exercise of our board of director’s powers by a general
meeting, if our board of directors is unable to exercise its powers
and the exercise of any of its powers is required for our proper
management.
The Israeli Companies Law and our articles require that notice of
any annual general meeting or special general meeting be provided
to shareholders at least 21 days prior to the meeting and if the
agenda of the meeting includes, among other matters, the
appointment or removal of directors, the approval of transactions
with office holders or interested or related parties, approval of
the company’s general manager to serve as the chairman of its
board of directors or an approval of a merger, notice must be
provided at least 35 days prior to the meeting.
The Israeli Companies Law allows one or more of our shareholders
holding at least 1% of the voting power of a company to request the
inclusion of an additional agenda item for an upcoming shareholders
meeting, assuming that it is appropriate for debate and action at a
shareholders meeting. Under recently adopted regulations, such a
shareholder request must be submitted within three or, for certain
requested agenda items, seven days following our publication of
notice of the meeting. If the requested agenda item includes the
appointment of director(s), the requesting shareholder must comply
with particular procedural and documentary requirements. If our
board of directors determines that the requested agenda item is
appropriate for consideration by our shareholders, we must publish
an updated notice that includes such item within seven days
following the deadline for submission of agenda items by our
shareholders. The publication of the updated notice of the
shareholders meeting does not impact the record date for the
meeting. In lieu of this process, we may opt to provide pre-notice
of our shareholders meeting at least 21 days prior to publishing
official notice of the meeting. In that case, our 1% shareholders
are given a 14-day period in which to submit proposed agenda items,
after which we must publish notice of the meeting that includes any
accepted shareholder proposals.
Under the Israeli Companies Law and under our articles,
shareholders are not permitted to take action by way of written
consent in lieu of a meeting.
Voting Rights
Quorum requirements
Pursuant to our articles, holders of our ordinary shares have one
vote for each ordinary share held on all matters submitted to a
vote before the shareholders at a general meeting. As a foreign
private issuer, the quorum required for our general meetings of
shareholders consists of at least two shareholders present in
person, by proxy or written ballot who hold or represent between
them at least 25% of the total outstanding voting rights. A meeting
adjourned for lack of a quorum is generally adjourned to the same
day in the following week at the same time and place or to a later
time or date if so specified in the notice of the meeting. At the
reconvened meeting, any number of shareholders present in person or
by proxy shall constitute a quorum, unless a meeting was called
pursuant to a request by our shareholders, in which case the quorum
required is one or more shareholders, present in person or by proxy
and holding the number of shares required to call the meeting.
Vote Requirements
Our articles provide that all resolutions of our shareholders
require a simple majority vote, unless otherwise required by the
Israeli Companies Law or by our articles. Under the Israeli
Companies Law, each of (i) the approval of an extraordinary
transaction with a controlling shareholder, (ii) the terms of
employment or other engagement of the controlling shareholder of
the company or such controlling shareholder’s relative (even
if such terms are not extraordinary) and (iii) approval of certain
compensation-related matters requires the approval of special
majorities by shareholders. Under our articles, the alteration of
the rights, privileges, preferences or obligations of any class of
our shares requires a simple majority of the class so affected (or
such other percentage of the relevant class that may be set forth
in the governing documents relevant to such class), in addition to
the ordinary majority vote of all classes of shares voting together
as a single class at a shareholder meeting. Our articles also
require that the removal of any director from office (other than
our external directors) or the amendment of the provisions of our
articles relating to our staggered board requires the vote of 65%
of the voting power of our shareholders.
Another exception to the simple majority vote requirement is a
resolution for the voluntary winding up, or an approval of a scheme
of arrangement or reorganization, of the company pursuant to
Section 350 of the Israeli Companies Law, which requires the
approval of holders of 75% of the voting rights represented at the
meeting, in person or by proxy and voting on the resolution.
7
Access to Corporate
Records
Under the Israeli Companies Law, shareholders are provided access
to: minutes of our general meetings; our shareholders register and
principal shareholders register, articles of association and annual
audited financial statements; and any document that we are required
by law to file publicly with the Israeli Registrar of Companies or
the Israel Securities Authority. These documents are publicly
available and may be found and inspected at the Israeli Registrar
of Companies. In addition, shareholders may request to be provided
with any document related to an action or transaction requiring
shareholder approval under the related party transaction provisions
of the Israeli Companies Law. We may deny this request if we
believe it has not been made in good faith or if such denial is
necessary to protect our interest or protect a trade secret or
patent.
Modification of Class
Rights
Under the Israeli Companies Law and our articles, the rights
attached to any class of share, such as voting, liquidation and
dividend rights, may be amended by adoption of a resolution by the
holders of a majority of the shares of that class present at a
separate class meeting, or otherwise in accordance with the rights
attached to such class of shares, as set forth in our articles.
Registration
Rights
We are party to an amended and restated investors’ rights
agreement, dated March 18, 2015, or the Investors’ Rights
Agreement, with certain of our shareholders.
Demand Registration
Rights
At any time, Fortissimo Capital Fund II (Israel), L.P., or
Fortissimo Capital, which owns 48.5% of our outstanding shares as
of the date of this prospectus, may request that we file a
registration statement. Upon receipt of such registration request,
we are obligated to use our reasonable commercial efforts to file
the registration statement as soon as possible. We have the right
not to effect such filing during the period that is within 90 days
after we have filed another such registration statement or
completed certain other registered offerings or if we intend to
file a registration statement for our own account within 90 days.
We are not obligated to file more than two registration statements
on Form F-1 pursuant to these demand provisions. Any other holder
of registrable securities has the right to include its registrable
securities in an underwritten registration pursuant to a demand
registration.
Piggyback
Registration Rights
If we propose to offer any of our ordinary shares in a public
offering, the holders of registrable securities are entitled to at
least 15 days’ notice prior to the filing of the relevant
registration statement or prospectus and may include all or a
portion of their shares in the offering subject to becoming party
to a customary underwriting agreement.
Shelf Registration
Rights
If we become eligible to register any of our shares on Form F-3,
Fortissimo Capital may request that we file a shelf registration
statement for an offering to be made on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act registering the
resale from time to time by Fortissimo Capital of registrable
shares. In such event, we are required to give written notice of
such request to all holders of registrable securities, who may
elect to join in such request. Subsequently, upon notice from
Fortissimo Capital or from the holders of a majority of the
outstanding registrable securities, we are required to effect up to
two underwritten takedowns from such shelf registration statement
within any 12-month period. We are not required to effect any
underwritten offering with 90 days of another underwritten
offering.
Other
Provisions
We have the right not to effect any filing or offering if, in the
good faith judgment of our board of directors, it would be
seriously detrimental to us or our stockholders for such filing or
offering to be effected. We may exercise this right twice in any
12-month period for an aggregate of up to 90 days during such
period.
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We will pay all registration expenses (other than underwriting
discounts and selling commissions) and the reasonable fees and
expenses of a single counsel for the selling shareholders, related
to any demand, piggyback or shelf registration.
The rights of any shareholder who is a party to the
Investors’ Rights Agreement to request registration or
inclusion of registrable securities in any registration pursuant
hereunder shall terminate when such shareholder holds less than 3%
of our outstanding shares and such shareholder’s registrable
securities could be sold without volume restrictions, manner of
sale restrictions or notice requirements pursuant to Rule 144 under
the Securities Act.
Acquisitions under
Israeli Law
Full Tender
Offer
A person wishing to acquire shares of an Israeli public company and
who would as a result hold over 90% of the target company’s
issued and outstanding share capital is required by the Israeli
Companies Law to make a tender offer to all of the company’s
shareholders for the purchase of all of the issued and outstanding
shares of the company. A person wishing to acquire shares of a
public Israeli company and who would as a result hold over 90% of
the issued and outstanding share capital of a certain class of
shares is required to make a tender offer to all of the
shareholders who hold shares of the relevant class for the purchase
of all of the issued and outstanding shares of that class. If the
shareholders who do not accept the offer hold less than 5% of the
issued and outstanding share capital of the company or of the
applicable class, and more than half of the shareholders who do not
have a personal interest in the offer accept the offer, all of the
shares that the acquirer offered to purchase will be transferred to
the acquirer by operation of law. However, a tender offer will also
be accepted if the shareholders who do not accept the offer hold
less than 2% of the issued and outstanding share capital of the
company or of the applicable class of shares.
Upon a successful completion of such a full tender offer, any
shareholder that was an offeree in such tender offer, whether such
shareholder accepted the tender offer or not, may, within six
months from the date of acceptance of the tender offer, petition an
Israeli court to determine whether the tender offer was for less
than fair value and that the fair value should be paid as
determined by the court. However, under certain conditions, the
offeror may include in the terms of the tender offer that an
offeree who accepted the offer will not be entitled to petition the
Israeli court as described above.
If a tender offer is not accepted in accordance with the
requirements set forth above, the acquirer may not acquire shares
from shareholders who accepted the tender offer that will increase
its holdings to more than 90% of the company’s issued and
outstanding share capital or of the applicable class.
Special Tender
Offer
The Israeli Companies Law provides that an acquisition of shares of
an Israeli public company must be made by means of a special tender
offer if as a result of the acquisition the purchaser would become
a holder of 25% or more of the voting rights in the company. This
requirement does not apply if there is already another holder of at
least 25% of the voting rights in the company. Similarly, the
Israeli Companies Law provides that an acquisition of shares in a
public company must be made by means of a special tender offer if
as a result of the acquisition the purchaser would become a holder
of more than 45% of the voting rights in the company, if there is
no other shareholder of the company who holds more than 45% of the
voting rights in the company, subject to certain exceptions.
A special tender offer must be extended to all shareholders of a
company but the offeror is not required to purchase shares
representing more than 5% of the voting power attached to the
company’s outstanding shares, regardless of how many shares
are tendered by shareholders. A special tender offer may be
consummated only if (i) the offeror acquired shares representing at
least 5% of the voting power in the company and (ii) the number of
shares tendered by shareholders who accept the offer exceeds the
number of shares held by shareholders who object to the offer
(excluding the purchaser, controlling shareholders, holders of 25%
or more of the voting rights in the company or any person having a
personal interest in the acceptance of the tender offer, including
their relatives and companies under their control). If a special
tender offer is accepted, the purchaser or any person or entity
controlling it or under common control with the purchaser or such
controlling person or entity may not make a subsequent tender offer
for the purchase of shares of the target company and may not enter
into a merger with the target company for a period of one year from
the date of the offer, unless the purchaser or such person or
entity undertook to effect such an offer or merger in the initial
special tender offer.
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Merger
The Israeli Companies Law permits merger transactions if approved
by each party’s board of directors and, unless certain
requirements described under the Israeli Companies Law are met, by
a majority vote of each party’s shareholders. In the case of
the target company, approval of the merger further requires a
majority vote of each class of its shares.
For purposes of the shareholder vote, unless a court rules
otherwise, the merger will not be deemed approved if a majority of
the votes of shares represented at the meeting of shareholders that
are held by parties other than the other party to the merger, or by
any person (or group of persons acting in concert) who holds (or
hold, as the case may be) 25% or more of the voting rights or the
right to appoint 25% or more of the directors of the other party,
vote against the merger. If, however, the merger involves a merger
with a company’s own controlling shareholder or if the
controlling shareholder has a personal interest in the merger, then
the merger is instead subject to the same Special Majority approval
that governs all extraordinary transactions with controlling
shareholders.
If the transaction would have been approved by the shareholders of
a merging company but for the separate approval of each class or
the exclusion of the votes of certain shareholders as provided
above, a court may still approve the merger upon the petition of
holders of at least 25% of the voting rights of a company. For such
petition to be granted, the court must find that the merger is fair
and reasonable, taking into account the respective values assigned
to each of the parties to the merger and the consideration offered
to the shareholders of the target company.
Upon the request of a creditor of either party to the proposed
merger, the court may delay or prevent the merger if it concludes
that there exists a reasonable concern that, as a result of the
merger, the surviving company will be unable to satisfy the
obligations of the merging entities, and may further give
instructions to secure the rights of creditors.
In addition, a merger may not be consummated unless at least 50
days have passed from the date on which a proposal for approval of
the merger is filed with the Israeli Registrar of Companies and at
least 30 days have passed from the date on which the merger was
approved by the shareholders of each party.
Anti-takeover Measures
under Israeli Law
The Israeli Companies Law allows us to create and issue shares
having rights different from those attached to our ordinary shares,
including shares providing certain preferred rights with respect to
voting, distributions or other matters and shares having preemptive
rights. No preferred shares are authorized under our articles. In
the future, if we do authorize, create and issue a specific class
of preferred shares, such class of shares, depending on the
specific rights that may be attached to it, may have the ability to
frustrate or prevent a takeover or otherwise prevent our
shareholders from realizing a potential premium over the market
value of their ordinary shares. The authorization and designation
of a class of preferred shares will require an amendment to our
articles, which requires the prior approval of the holders of a
majority of the voting power attaching to our issued and
outstanding shares at a general meeting. The convening of the
meeting, the shareholders entitled to participate and the majority
vote required to be obtained at such a meeting will be subject to
the requirements set forth in the Israeli Companies Law.
Borrowing
Powers
Pursuant to the Israeli Companies Law and our articles, our board
of directors may exercise all powers and take all actions that are
not required under law or under our articles to be exercised or
taken by our shareholders, including the power to borrow money for
company purposes.
Transfer Agent and
Registrar
The transfer agent and registrar for our ordinary shares is
American Stock Transfer & Trust Company, New York,
New Y
ork.
Listing
Our ordinary shares are listed on the NASDAQ Global Select Market
under the symbol “KRNT.”
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DESCRIPTION OF
WARRANTS
We may issue warrants to purchase our ordinary shares in one or
more series together with other securities or separately, as
described in the applicable prospectus supplement. Each series of
warrants will be issued under a separate warrant agreement to be
entered into between us and a warrant agent. The warrant agent will
act solely as our agent and will not assume any obligation or
relationship of agency for or with holders or beneficial owners of
warrants. The terms of any warrants to be issued and a description
of the material provisions of the applicable warrant agreement will
be set forth in the applicable prospectus supplement.
The applicable prospectus supplement will describe the following
terms of any warrants in respect of which this prospectus is being
delivered:
•
the title of such warrants;
•
the aggregate number of such warrants;
•
the price or prices at which such warrants will be issued;
•
the price at which, and the currency or currencies in which, the
securities upon exercise of such warrants may be purchased;
•
the designation, amount and terms of the securities purchasable
upon exercise of such warrants;
•
the date on which the right to exercise such warrants shall
commence and the date on which such right shall expire;
•
if applicable, the minimum or maximum amount of such warrants which
may be exercised at any one time;
•
if applicable, the designation and terms of the securities with
which such warrants are issued and the number of such warrants
issued with each such security;
•
if applicable, the date on and after which such warrants and the
related securities will be separately transferable;
•
information with respect to book-entry procedures, if any;
•
if applicable, any material Israeli and U.S. federal income tax
considerations;
•
the anti-dilution provisions of such warrants, if any; and
•
any other terms of such warrants, including terms, procedures and
limitations relating to the exchange and exercise of such
warrants.
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DESCRIPTION OF
RIGHTS
General
We may issue subscription rights to purchase our ordinary shares.
Rights may be issued independently or together with any other
offered security and may or may not be transferable by the person
purchasing or receiving the rights. In connection with any rights
offering to our shareholders, we may enter into a standby
underwriting arrangement with one or more underwriters pursuant to
which such underwriters will purchase any offered securities
remaining unsubscribed for after such rights offering. We may also
appoint a rights agent that may act solely as our agent in
connection with the rights that are sold. Any such agent will not
assume any obligation or relationship of agency or trust with any
of the holders of the rights. In connection with a rights offering
to our shareholders, we will distribute certificates evidencing the
rights and a prospectus supplement to our shareholders on the
record date that we set for receiving rights in such rights
offering.
The applicable prospectus supplement will describe the following
terms of rights in respect of which this prospectus is being
delivered:
•
the title of such rights;
•
the exercise price for such rights;
•
the number of such rights issued with respect to each ordinary
share;
•
the extent to which such rights are transferable;
•
if applicable, a discussion of the material Israeli and U.S. income
tax considerations applicable to the issuance or exercise of such
rights;
•
the date on which the right to exercise such rights shall commence,
and the date on which such rights shall expire (subject to any
extension);
•
the extent to which such rights include an over-subscription
privilege with respect to unsubscribed securities;
•
if applicable, the material terms of any standby underwriting or
other purchase arrangement, or any agency agreement, that we may
enter into in connection with the rights offering; and
•
any other terms of such rights, including terms, procedures and
limitations relating to the exchange and exercise of such
rights.
Exercise of
Rights
Each right will entitle the holder of the right to purchase for
cash such number of ordinary shares at such exercise price as shall
in each case be set forth in, or be determinable as set forth in,
the prospectus supplement relating to the rights offered thereby.
Rights may be exercised at any time up to the close of business on
the expiration date for such rights set forth in the prospectus
supplement. After the close of business on the expiration date, all
unexercised rights will become void.
Rights may be exercised as set forth in the prospectus supplement
relating to the rights offered thereby. Upon receipt of payment and
the rights certificate properly completed and duly executed at the
corporate trust office of the rights agent or any other office
indicated in the prospectus supplement, we will forward, as soon as
practicable, the securities purchasable upon such exercise. We may
determine to offer any unsubscribed offered securities directly to
persons other than shareholders, to or through agents, underwriters
or dealers or through a combination of such methods, including
pursuant to standby underwriting arrangements, as set forth in the
applicable prospectus supplement.
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DESCRIPTION OF DEBT
SECURITIES
We may issue debt securities together with other securities or
separately, as described in the applicable prospectus supplement,
under an indenture to be entered into between Kornit Digital Ltd.
and the trustee identified in the applicable prospectus supplement.
The terms of the debt securities will include those stated in the
indenture and those made part of the indenture by reference to the
Trust Indenture Act of 1939, as in effect on the date of the
indenture. The indenture will be subject to and governed by the
terms of the Trust Indenture Act of 1939.
We may issue the debt securities in one or more series with the
same or various maturities, at par, at a premium, or at a discount.
We will describe the particular terms of each series of debt
securities in a prospectus supplement relating to that series,
which we will file with the SEC.
The prospectus supplement will set forth, to the extent required,
the following terms of the debt securities in respect of which the
prospectus supplement is delivered:
•
the title of the series;
•
the aggregate principal amount;
•
the issue price or prices, expressed as a percentage of the
aggregate principal amount of the debt securities;
•
any limit on the aggregate principal amount;
•
the date or dates on which principal is payable;
•
the interest rate or rates (which may be fixed or variable) or, if
applicable, the method used to determine such rate or rates;
•
the date or dates from which interest, if any, will be payable and
any regular record date for the interest payable;
•
the terms and conditions upon which we may, or the holders may
require us to, redeem or repurchase the debt securities;
•
the denominations in which such debt securities may be issuable, if
other than denomination of $1,000, or any integral multiple of that
number;
•
whether the debt securities are to be issuable in the form of
certificated debt securities or global debt securities;
•
the portion of principal amount that will be payable upon
declaration of acceleration of the maturity date if other than the
principal amount of the debt securities;
•
the currency of denomination;
•
the designation of the currency, currencies or currency units in
which payment of principal and, if applicable, premium and
interest, will be made;
•
if payments of principal and, if applicable, premium or interest,
on the debt securities are to be made in one or more currencies or
currency units other than the currency of denominations, the manner
in which exchange rate with respect to such payments will be
determined;
•
if amounts of principal and, if applicable, premium and interest
may be determined by reference to an index based on a currency or
currencies, or by reference to a commodity, commodity index, stock
exchange index, or financial index, then the manner in which such
amounts will be determined;
•
the provisions, if any, relating to any collateral provided for
such debt securities;
•
any events of default;
•
the terms and conditions, if any, for conversion into or exchange
for ordinary shares;
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•
any depositaries, interest rate calculation agents, exchange rate
calculation agents, or other agents; and
•
the terms and conditions, if any, upon which the debt securities
shall be subordinated in right of payment to other indebtedness of
Kornit Digital Ltd.
One or more debt securities may be sold at a substantial discount
below their stated principal amount. We may also issue debt
securities in bearer form, with or without coupons. If we issue
discount debt securities or debt securities in bearer form, we will
describe material U.S. federal income tax considerations and other
material special considerations which apply to these debt
securities in the applicable prospectus supplement.
We may issue debt securities denominated in or payable in a foreign
currency or currencies or a foreign currency unit or units. If we
do, we will describe the restrictions, elections, and general tax
considerations relating to the debt securities and the foreign
currency or currencies or foreign currency unit or units in the
applicable prospectus supplement.
The debt securities of a series may be issued in whole or in part
in the form of one or more global securities that will be deposited
with, or on behalf of, a depositary identified in the prospectus
supplement. Global securities will be issued in registered form and
in either temporary or definitive form. Unless and until it is
exchanged in whole or in part for individual debt securities, a
global security may not be transferred except as a whole by the
depositary for such global security to a nominee of such depositary
or by a nominee of such depositary to such depositary or another
nominee of such depositary or by such depositary or any such
nominee to a successor of such depositary or a nominee of such
successor. The specific terms of the depositary arrangement with
respect to any debt securities of a series and the rights of and
limitations upon owners of beneficial interests in a global
security will be described in the applicable prospectus
supplement.
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DESCRIPTION OF
UNITS
As specified in the applicable prospectus supplement, we may issue
units consisting of our ordinary shares, warrants, rights, debt
securities and/or any combination of such securities. The
applicable prospectus supplement will describe:
•
the terms of the units and of the ordinary shares, warrants, rights
and/or debt securities comprising the units, including whether and
under what circumstances the securities comprising the units may be
traded separately;
•
a description of the terms of any unit agreement governing the
units or any arrangement with an agent that may act on our behalf
in connection with the unit offering; and
•
a description of the provisions for the payment, settlement,
transfer or exchange of the units.
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PLAN OF
DISTRIBUTION
We or the selling shareholders may sell the securities included in
this prospectus from time to time in one or more transactions,
including without limitation:
•
through agents;
•
to or through one or more underwriters on a firm commitment or
agency basis;
•
through put or call option transactions relating to the
securities;
•
through broker-dealers (acting as agent or principal);
•
directly to purchasers, through a specific bidding or auction
process, on a negotiated basis or otherwise;
•
through any other method permitted pursuant to applicable law;
or
•
through a combination of any such methods of sale.
At any time a particular offer of the securities covered by this
prospectus is made, a revised prospectus or prospectus supplement,
if required, will be distributed which will set forth the aggregate
amount of securities covered by this prospectus being offered and
the terms of the offering, including the name or names of any
underwriters, dealers, brokers or agents, any discounts,
commissions, concessions and other items constituting compensation
from us and any discounts, commissions or concessions allowed or
reallowed or paid to dealers. Such prospectus supplement, and, if
necessary, a post-effective amendment to the registration statement
of which this prospectus is a part, will be filed with the SEC to
reflect the disclosure of additional information with respect to
the distribution of the securities covered by this prospectus. In
order to comply with the securities laws of certain jurisdictions,
if applicable, the securities sold under this prospectus may only
be sold through registered or licensed brokers or dealers. In
addition, in some states the securities may not be sold unless they
have been registered or qualified for sale in the applicable state
or an exemption from registration or qualification requirements is
available and is complied with.
Any public offering price and any discounts or concessions allowed
or reallowed or paid to dealers may be changed from time to
time.
The distribution of securities may be effected from time to time in
one or more transactions, including block transactions and
transactions on NASDAQ or any other organized market where the
securities may be traded. The securities may be sold at a fixed
price or prices, which may be changed, or at market prices
prevailing at the time of sale, at prices relating to the
prevailing market prices or at negotiated prices. The consideration
may be cash or another form negotiated by the parties. Agents,
underwriters or broker-dealers may be paid compensation for
offering and selling the securities. That compensation may be in
the form of discounts, concessions or commissions to be received
from us or from the purchasers of the securities. Any dealers and
agents participating in the distribution of the securities may be
deemed to be underwriters, and compensation received by them on
resale of the securities may be deemed to be underwriting
discounts. If any such dealers or agents were deemed to be
underwriters, they may be subject to statutory liabilities under
the Securities Act.
Agents may from time to time solicit offers to purchase the
securities. If required, we will name in the applicable prospectus
supplement any agent involved in the offer or sale of the
securities and set forth any compensation payable to the agent.
Unless otherwise indicated in the prospectus supplement, any agent
will be acting on a best efforts basis for the period of its
appointment. Any agent selling the securities covered by this
prospectus may be deemed to be an underwriter, as that term is
defined in the Securities Act, of the securities.
If underwriters are used in a sale, securities will be acquired by
the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices
determined at the time of sale, or under delayed delivery contracts
or other contractual commitments. Securities may be offered to the
public either through underwriting syndicates represented by one or
more managing underwriters or directly by one or more firms acting
as underwriters. If an underwriter or underwriters are used in the
sale of securities, an underwriting agreement will be executed with
the underwriter or underwriters, as well as any other underwriter
or underwriters, with respect to a particular underwritten offering
of securities, and will set forth the terms of the transactions,
including compensation of the underwriters and dealers and the
public offering price, if applicable. The prospectus and prospectus
supplement will be used by the underwriters to resell the
securities.
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If a dealer is used in the sale of the securities, we, the selling
shareholders or an underwriter will sell the securities to the
dealer, as principal. The dealer may then resell the securities to
the public at varying prices to be determined by the dealer at the
time of resale. To the extent required, we will set forth in the
prospectus supplement the name of the dealer and the terms of the
transactions.
We or the selling shareholders may directly solicit offers to
purchase the securities and may make sales of securities directly
to institutional investors or others. These persons may be deemed
to be underwriters within the meaning of the Securities Act with
respect to any resale of the securities. To the extent required,
the prospectus supplement will describe the terms of any such
sales, including the terms of any bidding or auction process, if
used.
Agents, underwriters and dealers may be entitled under agreements
which may be entered into with us or the selling shareholders to
indemnification by us against specified liabilities, including
liabilities incurred under the Securities Act, or to contribution
by us or the selling shareholders to payments they may be required
to make in respect of such liabilities. If required, the prospectus
supplement will describe the terms and conditions of the
indemnification or contribution. Some of the agents, underwriters
or dealers, or their affiliates may be customers of, engage in
transactions with or perform services for us or our
subsidiaries.
Any person participating in the distribution of securities
registered under the registration statement that includes this
prospectus will be subject to applicable provisions of the Exchange
Act, and the applicable SEC rules and regulations, including, among
others, Regulation M, which may limit the timing of purchases and
sales of any of our securities by that person. Furthermore,
Regulation M may restrict the ability of any person engaged in the
distribution of our securities to engage in market-making
activities with respect to our securities. These restrictions may
affect the marketability of our securities and the ability of any
person or entity to engage in market-making activities with respect
to our securities.
Certain persons participating in an offering may engage in
over-allotment, stabilizing transactions, short-covering
transactions and penalty bids that stabilize, maintain or otherwise
affect the price of the offered securities. These activities may
maintain the price of the offered securities at levels above those
that might otherwise prevail in the open market, including by
entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids, each of which is described
below.
•
A stabilizing bid means the placing of any bid, or the effecting of
any purchase, for the purpose of pegging, fixing or maintaining the
price of a security.
•
A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any
purchase to reduce a short position created in connection with the
offering.
•
A penalty bid means an arrangement that permits the managing
underwriter to reclaim a selling concession from a syndicate member
in connection with the offering when offered securities originally
sold by the syndicate member are purchased in syndicate covering
transactions.
These transactions may be effected on an exchange, if the
securities are listed on that exchange, or in the over-the-counter
market or otherwise.
In the event that any underwriter or agent acts as principal, or
broker-dealer acts as underwriter, it may engage in certain
transactions that stabilize, maintain or otherwise affect the price
of our securities. We will describe any such activities in the
prospectus supplement relating to the transaction.
If so indicated in the applicable prospectus supplement, we will
authorize agents, underwriters or dealers to solicit offers from
certain types of institutions to purchase offered securities from
us at the public offering price set forth in such prospectus
supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. Such
contracts will be subject only to those conditions set forth in the
prospectus supplement and the prospectus supplement will set forth
the commission payable for solicitation of such contracts.
In addition, ordinary shares may be issued upon conversion of or in
exchange for debt securities or other securities.
Any underwriters to whom offered securities are sold for public
offering and sale may make a market in such offered securities, but
such underwriters will not be obligated to do so and may
discontinue any market making at any
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time without notice. The offered securities may or may not be
listed on a national securities exchange. No assurance can be given
that there will be a market for the offered securities.
Any securities that qualify for sale pursuant to Rule 144 or
Regulation S under the Securities Act may be sold under Rule 144 or
Regulation S rather than pursuant to this prospectus.
To the extent that we or the selling shareholders make sales to or
through one or more underwriters or agents in at-the-market
offerings, we or the selling shareholders will do so pursuant to
the terms of a distribution agreement between us or the selling
shareholders and the underwriters or agents. If we engage in
at-the-market sales pursuant to a distribution agreement, we or the
selling shareholders will sell our ordinary shares to or through
one or more underwriters or agents, which may act on an agency
basis or on a principal basis. During the term of any such
agreement, we or the selling shareholders may sell ordinary shares
on a daily basis in exchange transactions or otherwise as we agree
with the underwriters or agents. The distribution agreement will
provide that any ordinary shares sold will be sold at prices
related to the then prevailing market prices for our ordinary
shares. Therefore, exact figures regarding proceeds that will be
raised or commissions to be paid cannot be determined at this time
and will be described in a prospectus supplement. Pursuant to the
terms of the distribution agreement, we or the selling shareholders
also may agree to sell, and the relevant underwriters or agents may
agree to solicit offers to purchase, blocks of our ordinary shares
or warrants. The terms of each such distribution agreement will be
set forth in more detail in a prospectus supplement to this
prospectus.
Offers to purchase the securities offered by this prospectus may be
solicited, and sales of the securities may be made, by us or the
selling shareholders directly to institutional investors or others,
who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any re-sales of the securities. The
terms of any offer made in this manner will be included in the
prospectus supplement relating to the offer.
In connection with offerings made through underwriters or agents,
we or the selling shareholders may enter into agreements with such
underwriters or agents pursuant to which we receive our outstanding
securities in consideration for the securities being offered to the
public for cash. In connection with these arrangements, the
underwriters or agents may also sell securities covered by this
prospectus to hedge their positions in these outstanding
securities, including in short sale transactions. If so, the
underwriters or agents may use the securities received from us or
the selling shareholders under these arrangements to close out any
related open borrowings of securities.
We or the selling shareholders may enter into derivative
transactions with third parties or sell securities not covered by
this prospectus to third parties in privately negotiated
transactions. If the applicable prospectus supplement indicates, in
connection with those derivatives, such third parties (or
affiliates of such third parties) may sell securities covered by
this prospectus and the applicable prospectus supplement, including
in short sale transactions. If so, such third parties (or
affiliates of such third parties) may use securities pledged by us
or the selling shareholders or borrowed from us, the selling
shareholders or others to settle those sales or to close out any
related open borrowings of shares, and may use securities received
from us or the selling shareholders in settlement of those
derivatives to close out any related open borrowings of shares. The
third parties (or affiliates of such third parties) in such sale
transactions will be underwriters and, if not identified in this
prospectus, will be identified in the applicable prospectus
supplement (or a post-effective amendment).
We or the selling shareholders may loan or pledge securities to a
financial institution or other third party that in turn may sell
the securities using this prospectus. Such financial institution or
third party may transfer its short position to investors in our
securities or in connection with a simultaneous offering of other
securities offered by this prospectus or in connection with a
simultaneous offering of other securities offered by this
prospectus.
18
EXPENSES ASSOCIATED WITH
THE REGISTRATION
The following is a statement of expenses in connection with the
distribution of the securities registered. All amounts shown are
estimates except the SEC registration fee and the FINRA filing fee.
The estimates do not include expenses related to offerings of
particular securities. Each prospectus supplement describing an
offering of securities will reflect the estimated expenses related
to the offering of securities under that prospectus supplement.
SEC registration fee
|
|
$
|
34,085
|
FINRA filing fee
|
|
|
44,613
|
Legal fees and expenses
|
|
|
25,000
|
Accountants’ fees and expenses
|
|
|
15,000
|
Printing fees
|
|
|
500
|
Miscellaneous
|
|
|
802
|
TOTAL
|
|
$
|
120,000
|
19
LEGAL MATTERS
Certain legal matters with respect to Israeli law and with respect
to the validity of the offered securities under Israeli law will be
passed upon for us by Meitar Liquornik Geva Leshem Tal, Ramat Gan,
Israel. Certain legal matters with respect to New York law and the
validity of the debt securities under New York law will be passed
upon for us by White & Case LLP, New York, New York.
EXPERTS
The consolidated financial statements of Kornit Digital Ltd.
incorporated by reference in this prospectus by reference to Kornit
Digital Ltd.’s annual report on Form 20-F for the year ended
December 31, 2015 have been audited by Kost Forer Gabbay &
Kasierer, a member of Ernst & Young Global, an independent
registered public accounting firm, as set forth in their report
therein, included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated by
reference in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE
INFORMATION
We have filed with the SEC a registration statement on Form F-3
under the Securities Act, with respect to the securities offered by
this prospectus. This prospectus and any accompanying prospectus
supplement do not contain all the information contained in the
registration statement, including its exhibits and schedules. You
should refer to the registration statement, including the exhibits
and schedules, for further information about us and the securities
we may offer. Statements we make in this prospectus and any
accompanying prospectus supplement about certain contracts or other
documents are not necessarily complete. When we make such
statements, we refer you to the copies of the contracts or
documents that are filed as exhibits to the registration statement,
because those statements are qualified in all respects by reference
to those exhibits. The registration statement, including exhibits
and schedules, is on file at the office of the SEC and may be
inspected without charge.
We are subject to the information reporting requirements of the
Exchange Act. Under the Exchange Act, we are required to file
annual and special reports and other information with the SEC. As a
foreign private issuer, we are exempt from the rules under the
Exchange Act prescribing the furnishing and content of proxy
statements and our officers, directors and principal shareholders
are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act. In
addition, we are not required under the Exchange Act to file
annual, quarterly and current reports and financial statements as
frequently or as promptly as U.S. companies whose securities are
registered under the Exchange Act. However, we file with the SEC,
within 120 days after the end of each fiscal year, or such
applicable time as required by the SEC, an annual report on Form
20-F containing financial statements audited by an independent
registered public accounting firm, and we submit to the SEC, on
Form 6-K, unaudited quarterly financial information.
You may read and copy the registration statement, including the
related exhibits and schedules, as well as any document we file
with the SEC without charge at the Public Reference Room maintained
by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may
also obtain copies of this information by mail from the Public
Reference Section of the SEC at prescribed rates. Further
information on the operation of the SEC’s Public Reference
Room in Washington, D.C. can be obtained by calling the SEC at
1-800-SEC-0330. The SEC also maintains a website that contains
reports, proxy and information statements and other information
about issuers, such as us, who file electronically with the SEC.
The address of that website is
http://www.sec.gov
.
We maintain a corporate website at
www.kornit.com.
Information contained on, or that can be accessed through, our
website does not constitute a part of this prospectus. We have
included our website address in this prospectus solely as an
inactive textual reference.
20
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
The SEC allows us to “incorporate by reference” into
this prospectus the information in documents we file with it. This
means that we can disclose important information to you by
referring you another document filed by us with the SEC. Each
document incorporated by reference is current only as of the date
of such document, and the incorporation by reference of such
documents shall not create any implication that there has been no
change in our affairs since the date thereof or that the
information contained therein is current as of any time subsequent
to its date. The information incorporated by reference is
considered to be a part of this prospectus and should be read with
the same care. When we update the information contained in
documents that have been incorporated by reference by making future
filings with the SEC, the information incorporated by reference in
this prospectus is considered to be automatically updated and
superseded. In other words, in the case of a conflict or
inconsistency between information contained in this prospectus and
information incorporated by reference into this prospectus, you
should rely on the information contained in the document that was
filed later.
We incorporate by reference into this prospectus documents listed
below and any future filings made with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act, and, to the extent
specifically designated therein, reports on Form 6-K we furnish to
the SEC on or after the date on which this registration statement
is first filed with the SEC and until the termination or completion
of that offering under this prospectus:
•
our annual report on Form 20-F for the fiscal year ended December
31, 2015; and
•
our reports of foreign private issuer on Form 6-K furnished to the
SEC on:
O
May 5, 2016 (only the GAAP financial statements with respect to the quarter ended March 31, 2016 attached to the press release
annexed as Exhibit 99.1 thereto);
O
July 14, 2016;
O
August 3, 2016 (only the GAAP financial statements with respect to the quarter and six months ended
June 30, 2016 attached to the press release annexed as Exhibit 99.1 thereto);
O
November 9, 2016 (only the GAAP financial statements with respect
to the quarter and nine months ended September 30, 2016 attached to the press release annexed as Exhibit 99.1 thereto); and
O
January 3, 2017 (including our condensed interim consolidated financial statements as of, and for the
nine months ended, September 30, 2016, and our management’s Operating and Financial Review and Prospects for that nine month
period appended as Exhibits 99.1 and 99.2 thereto, respectively).
•
the description of our ordinary shares contained under the heading
“Item 1. Description of Registrant’s Securities to be
Registered” in our registration statement on Form 8-A, as
filed with the SEC on March 31, 2015, including any subsequent
amendment or any report filed for the purpose of updating such
description.
Any statement contained herein or in a document all or a portion of
which is incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of
this registration statement to the extent that a statement
contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this registration
statement.
Unless expressly incorporated by reference, nothing in this
prospectus shall be deemed to incorporate by reference information
furnished to, but not filed with, the SEC. Copies of all documents
incorporated by reference in this prospectus, other than exhibits
to those documents unless such exhibits are specially incorporated
by reference in this prospectus, will be provided at no cost to
each person, including any beneficial owner, who receives a copy of
this prospectus on the written or oral request of that person made
to:
Kornit Digital Ltd.
Attention: Chief Financial Officer
12 Ha’Amal Street, Afek Park
Rosh Ha’Ayin 4809246, Israel
Tel: +972-3-908-5800
21
ENFORCEABILITY OF CIVIL
LIABILITIES
We are incorporated under the laws of the State of Israel. Service
of process upon us and upon our directors, officers and any Israeli
experts named in this registration statement, substantially all of
whom reside outside of the United States, may be difficult to
obtain within the United States. Furthermore, because substantially
all of our assets and substantially all of our directors and
officers are located outside of 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, Meitar
Liquornik Geva Leshem Tal, that it may be difficult to assert U.S.
securities law claims in original actions instituted in Israel.
Israeli courts may refuse to hear a claim based on an alleged
violation of U.S. securities laws because Israel is not the most
appropriate forum in which to bring such a claim. In addition, even
if an Israeli court agrees to hear a claim, it may determine that
Israeli law and not U.S. law is applicable to the claim. If U.S.
law is found to be applicable, the content of applicable U.S. law
must be proven as a fact which can be a time-consuming and costly
process. Certain matters of procedure will also be governed by
Israeli law.
We have irrevocably appointed Kornit Digital North America Inc. as
our agent to receive service of process in any action against us in
any United States federal or state court arising out of the
offerings under this prospectus or any purchase or sale of
securities in connection with any such offering(s). Subject to
specified time limitations and legal procedures, Israeli courts may
enforce a United States judgment in a civil matter which, subject
to certain exceptions, is non-appealable, including a judgment
based upon the civil liability provisions of the Securities Act or
the Exchange Act and including a monetary or compensatory judgment
in a non-civil matter, provided that, among other things:
•
the judgment is obtained after due process before a court of
competent jurisdiction, according to the laws of the state in which
the judgment is given and the rules of private international law
prevailing in Israel;
•
the prevailing law of the foreign state in which the judgment is
rendered allows for the enforcement of judgments of Israeli
courts;
•
adequate service of process has been effected and the defendant has
had a reasonable opportunity to be heard and to present his or her
evidence;
•
the judgment is not contrary to public policy of Israel, and the
enforcement of the civil liabilities set forth in the judgment is
not likely to impair the security or sovereignty of Israel;
•
the judgment was not obtained by fraud and does not conflict with
any other valid judgment in the same matter between the same
parties;
•
an action between the same parties in the same matter was not
pending in any Israeli court at the time at which the lawsuit was
instituted in the foreign court; and
•
the judgment is enforceable according to the laws of Israel and
according to the law of the foreign state in which the relief was
granted.
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 the annual statutory rate set by Israeli
regulations prevailing at the time. Judgment creditors must bear
the risk of unfavorable exchange rates.
22
Kornit Digital Ltd.
Ordinary Shares
___________________
Prospectus Supplement
___________________
Barclays
|
|
Citigroup
|
|
|
|
William Blair
|
|
Stifel
|
|
|
|
Canaccord Genuity
|
|
Needham & Company
|