EXHIBIT 1
PROXY STATEMENT
TOWER SEMICONDUCTOR LTD.
HAMADA AVENUE, RAMAT GAVRIEL INDUSTRIAL PARK
P.O. BOX 619
MIGDAL HAEMEK 23105, ISRAEL
SPECIAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 2003
The enclosed proxy is being solicited by the board of directors (the
"Board of Directors") of Tower Semiconductor Ltd. (the "Company" or "Tower") for
use at our Special General Meeting of Shareholders (the "Meeting") to be held on
May 14, 2003, or at any adjournment thereof. The record date for determining
shareholders entitled to notice of, and to vote at, the Meeting is established
as the close of business on April 20, 2003. On that date, we had outstanding and
entitled to vote 43,435,532 of our ordinary shares, par value New Israeli
Shekels ("NIS") 1.00 (the "Ordinary Shares").
The proxy solicited hereby may be revoked at any time prior to its
exercise, by means of a written notice delivered to us, by substitution of a new
proxy bearing a later date or by a request for the return of the proxy at the
Meeting. We expect to solicit proxies by mail and to mail this proxy statement
and the accompanying proxy card to shareholders on or about April 21, 2003. We
will bear the cost of the preparation and mailing of these proxy materials and
the solicitation of proxies. We will, upon request, reimburse banks, brokerage
houses, other institutions, nominees, and fiduciaries for their reasonable
expenses in forwarding solicitation materials to beneficial owners.
Upon the receipt of a properly executed proxy in the form enclosed, the
persons named as proxies therein will vote the Ordinary Shares covered thereby
in accordance with the instructions of the shareholder executing the proxy. With
respect to the proposals set forth in the accompanying Notice of Meeting, a
shareholder may vote in favor of any of the proposals or against any of the
proposals or may abstain from voting on any of the proposals. Shareholders
should specify their choices on the accompanying proxy card. If no specific
instructions are given with respect to the matters to be acted upon, the shares
represented by a signed proxy will be voted FOR the proposals set forth in the
accompanying Notice of Meeting. Management is not aware of any other matters to
be presented at the Meeting.
Any shareholder returning the accompanying proxy may revoke such proxy
at any time prior to its exercise by (i) giving written notice to us of such
revocation, (ii) voting in person at the Meeting or requesting the return of the
proxy at the Meeting or (iii) executing and delivering to us a later-dated
proxy. Written revocations and later-dated proxies should be sent to: Corporate
Secretary, Tower Semiconductor Ltd., Hamada Avenue, Ramat Gavriel Industrial
Park, Post Office Box 619, Migdal Haemek 23105, Israel.
Each Ordinary Share is entitled to one vote on each matter to be voted
on at the Meeting. Two or more shareholders present, personally or by proxy, who
hold or represent together at least 33% of the voting rights of our issued share
capital will constitute a quorum for the Meeting. Proposal 1 to be presented at
the Meeting requires the affirmative vote of shareholders present in person or
by proxy and holding Ordinary Shares amounting in the aggregate to (i) the
majority of the votes actually cast with respect to such proposal including at
least one-third of the voting power of the disinterested shareholders who are
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present in person or by proxy and vote on such proposal, or (ii) the majority of
the votes cast on such proposal at the Meeting, provided that the total votes
cast in opposition to such proposal by the disinterested shareholders does not
exceed 1% of all the voting power in the Company. Proposals 2 and 3 to be
presented at the Meeting require the affirmative vote of shareholders present in
person or by proxy and holding Ordinary Shares amounting in the aggregate to at
least a majority of the votes actually cast with respect to such proposals.
Proposal 4 to be presented at the Meeting requires the affirmative vote of
shareholders present in person or by proxy and holding Ordinary Shares amounting
in the aggregate to at least a majority of the votes actually cast with respect
to such proposal including the affirmative vote of at least two thirds of the
votes of the Ordinary Shares present in person or by proxy at the Meeting and
voting thereon that are not held by the controlling shareholders of the Company.
If within half an hour from the time appointed for the Meeting a quorum is not
present, the Meeting shall stand adjourned for one week, to May 21, 2003 at the
same hour and place, without it being necessary to notify the shareholders. If a
quorum is not present at the adjourned date of the Meeting within half an hour
of the time fixed for the commencement thereof, the persons present shall
constitute a quorum.
PRINCIPAL SHAREHOLDERS
The following table and notes thereto set forth information, as of
March 31, 2003, concerning the beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended), and on a diluted basis,
of Ordinary Shares by any person who is known to own at least 5% of the our
Ordinary Shares. The following table takes into account Ordinary Shares issuable
pursuant to the current terms of the fifth milestone payment under the Fab 2
investment agreements and does not take into account Ordinary Shares issuable
pursuant to the terms of the proposed amendment to the fifth milestone payment
terms under the Fab 2 investment agreements described in Proposal 1 of this
proxy statement. On such date, 43,435,532 Ordinary Shares were issued and
outstanding. The voting rights of our major shareholders do not differ from the
voting rights of other holders of our Ordinary Shares. However, certain of our
shareholders have entered into a shareholders agreement pursuant to which they
may be able to exercise control over matters requiring shareholder approval,
including the election of directors and approval of significant corporate
transactions.
PERCENT OF CLASS
IDENTITY OF PERSON OR GROUP AMOUNT OWNED PERCENT OF CLASS(1) (DILUTED)(2)
- ----------------------------------------- ------------------ -------------------------- -----------------------
Israel Corporation Technologies (ICTech)
Ltd. ("ICTech") (3) (4) 13,776,753(5) 30.72 23.52
Alliance Semiconductor Corporation(4) 6,791,537(6) 15.38 11.60
SanDisk Corporation(4) 6,827,961(7) 15.46 11.66
Macronix International Co. Ltd.(4) 6,595,795(8) 14.96 11.26
Ontario Teachers' Pension Plan Board
("OTPP") 4,350,000(9) 9.71 7.43
(1) Assumes the holder's beneficial ownership of all Ordinary Shares that the
holder has a right to purchase within 60 days.
(2) Assumes that all currently outstanding rights to purchase Ordinary Shares
have been exercised by all holders.
(3) On January 31, 2001, Israel Corp. transferred all its beneficial ownership
of shares of Tower to ICTech.
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(4) Pursuant to a shareholders agreement among Israel Corp., Alliance
Semiconductor Corporation, SanDisk Corporation and Macronix Co. Ltd., each
of ICTech, Alliance Semiconductor Corporation, SanDisk Corporation and
Macronix Co. Ltd. may be said to have shared voting and dispositive control
over 72.38% of the outstanding shares of Tower.
(5) Based on information provided by ICTech, represents 12,366,430 shares
currently owned by ICTech, a minimum of 244,445 shares and a maximum of
586,667 shares issuable pursuant to a Share Purchase Agreement, dated as of
December 12, 2000, and 823,656 shares issuable upon the exercise of
currently exercisable warrants.
(6) Based upon information provided by Alliance, represents 6,067,100 shares
currently owned by Alliance, 366,690 shares issuable pursuant to a Share
Purchase Agreement dated as of August 30, 2000, and 357,747 shares issuable
upon the exercise of currently exercisable warrants.
(7) Based on information provided by SanDisk, represents 6,100,959 shares
currently owned by SanDisk, 366,690 shares issuable pursuant to a Share
Purchase Agreement dated as of July 4, 2000, and 360,312 shares issuable
upon the exercise of currently exercisable warrants.
(8) Based on information provided by Macronix, represents 5,932,105 shares
currently owned by Macronix, 366,690 shares issuable pursuant to a Share
Purchase Agreement dated as of December 12, 2000, and 297,000 shares
issuable upon the exercise of currently exercisable warrants.
(9) Based on information provided by OTPP, represents 3,000,000 shares
currently owned by OTPP and 1,350,000 shares issuable upon the exercise of
currently exercisable warrants issued pursuant to a Share Purchase
Agreement dated July 23, 2002.
MATTERS RELATING TO THE SPECIAL GENERAL MEETING
At the Meeting, the shareholders will be asked to vote on the following
proposals:
PROPOSAL NO. 1
In January 2001, we commenced construction of Fab 2, our new advanced
wafer fab adjacent to our current facility in Migdal Haemek. The new fab will
operate in geometries of 0.18 micron and below, using advanced materials and
advanced CMOS technology from Toshiba Corporation and Motorola Inc., as well as
other technologies that we develop independently or might acquire from third
parties. When production ramp-up is completed, we expect that Fab 2 will have a
capacity of up to 33,000 200-mm wafers per month and employ approximately 1,100
people.
During the second half of 2000, we entered into a series of agreements
("Fab 2 Wafer Partner Agreements") with four wafer partners: SanDisk Corporation
("SanDisk"), the world's largest supplier of Flash data products; Alliance
Semiconductor Corporation ("Alliance"), a leading provider of high performance
memory and memory intensive logic products; Macronix International Co., Ltd.
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("Macronix"), a leading provider of application driven non-volatile memory
products and QuickLogic Corporation ("QuickLogic"), a pioneer in the development
of embedded standard products (SanDisk, Alliance, Macronix and QuickLogic, as a
group, shall be referred to as the "Wafer Partners"). The Wafer Partners agreed
to invest an aggregate of $250 million in Fab 2 over five milestone-linked
payments; SanDisk, Alliance and Macronix each committed to invest $75 million
and QuickLogic committed to invest $25 million in exchange for ordinary shares
and credits towards the purchase of wafers from Fab 2 under the terms set forth
in the Fab 2 Wafer Partner Agreements, as amended from time to time, or, in
certain circumstances, to purchase additional ordinary shares. We also agreed to
reserve a portion of our Fab 2 capacity for each of the Wafer Partners.
To date, the Wafer Partners have all honored their respective milestone
based investment commitments. In addition, SanDisk, Alliance and Macronix
invested an aggregate of $11.28 million in the share capital of the Company
pursuant to their exercise of rights distributed by us in September 2002 to our
shareholders and employees. Taking into account amounts received as part of the
Wafer Partners committed investments as well amounts received in connection with
our September 2002 rights offering, to date, we have received an aggregate of
$225,099,827 million from the Wafer Partners, $177,853,768 million of which has
been applied to the purchase of 19,857,532 ordinary shares and $47,246,059
million of which has been established as long-term customer advances ("Wafer
Credits") to be credited against purchases by the Wafer Partners.
In December 2000, Israel Corporation Ltd., the parent company of our
current principal shareholder and one of Israel's major holding companies,
agreed to invest $50 million in several closings contemporaneous with the
closings with the Wafer Partners through its wholly-owned subsidiary, Israel
Corporation Technologies (ICTech) Ltd. ("ICTech").
In February 2001, the Challenge Fund-Etgar II, LP (the "Challenge
Fund"), a Delaware venture capital partnership, agreed to invest $5 million in
Tower on substantially the same terms as ICTech (ICTech and Challenge Fund shall
each be referred to as an "Equity Partner" and collectively as the "Equity
Partners")(Equity Partners and Wafer Partners shall be collectively referred to
as "Investment Partners").
To date, our Equity Partners have all honored their respective
milestone based investment commitments. In addition, ICTech invested $9.2
million in the share capital of the Company pursuant to its exercise of rights
distributed by us in September 2002 to our shareholders and employees. Taking
into account amounts received as part of the Equity Partners committed
investments as well amounts received in connection with our September 2002
rights offering, to date, we have received an aggregate of $56,085,064 from the
Equity Partners, which has been applied to the purchase of 7,166,701 of our
ordinary shares.
In September 2001, we entered into agreements with all of the Wafer
Partners to convert $53.7 million in Wafer Credits into ordinary shares at a
price per share of $12.75. This agreement was approved by our Audit Committee,
Board of Directors and shareholders, all as required by applicable law.
From March 2002 to May 2002, we entered into agreements with the Wafer
Partners and with the Equity Partners, pursuant to which all of the Wafer
Partners and the Equity Partners advanced the third and fourth Fab 2 milestone
payments irrespective of the achievement of these milestones. In consideration
of our partners advancement of the third and fourth milestone payments, the
Wafer Partners were issued ordinary shares equivalent to sixty percent of the
aggregate amount of their third and fourth milestone payments divided by the
average trading price for the ordinary shares during the 30 consecutive trading
days preceding the date of payment ($6.16 and $4.908, respectively) and the
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remaining forty percent of their advanced payments was established as Wafer
Credits; the aggregate amount of Wafer Credits that was credited to the Wafer
Partners in connection with each of the third and fourth milestone payments was
$14,667,600 or a total of $29,335,200 in Wafer Credits for both milestone
payments, and the Equity Partners were issued ordinary shares equivalent to the
aggregate amount of their third and fourth milestone payments divided by the
average trading price for the ordinary shares during the 30 consecutive trading
days preceding the date of payment ($6.16 and $4.908, respectively). These
agreements were approved by our Audit Committee, Board of Directors and
shareholders, all as required by applicable law.
As part of the Fab 2 investment agreements, as amended (the "Fab 2
Investment Agreements"), we committed to our Wafer Partners to raise a
cumulative total of $50 million from new wafer partners by March 31, 2003. We
did not raise this sum from new wafer partners by the prescribed date, the
raising of which is a condition to all of our Wafer Partners' obligation to
complete their fifth milestone investment under the Fab 2 Investment Agreements.
Had we achieved the March 2003 fundraising requirement, the fifth milestone,
which is the successful production of 5,000 wafer starts per month for two full
consecutive months, would have been the only remaining milestone which we would
have been required to achieve in order for the major Investment Partners to
complete their committed investments. Under our Fab 2 Investment Agreements, the
fifth milestone is to be achieved by July 2003 when taking into account a seven
and a half month grace period. Due to current market conditions we have deferred
a portion our Fab 2 equipment purchases and we therefore do not expect to
achieve the fifth milestone by its prescribed completion date.
In January 2001, we entered into a credit facility agreement with two
leading Israeli banks (the "Credit Facility") pursuant to which the banks
committed to make available to us, as amended, up to $500 million of loans for
the Fab 2 project. To date, our banks have provided us with $274 million of
financing for the project, $102 million of which was provided in 2001, $142
million of which was provided in 2002 and $30 million of which was provided in
February of this year. The Credit Facility, as amended, currently requires us to
continue to raise minimum amounts from specified financial sources as follows:
$110 million by the end of December 2002 (of which we have raised $86.2 million
to date) and $34 million by the end of December 2003. We are in negotiations
with our banks to reschedule our December 2002 additional financing obligations
and have proposed that should the major Wafer Partners and ICTech prepay the
fifth milestone under the Fab 2 Investment Agreements such amounts that are
advanced by our Investment Partners will postpone our additional financing
obligations. Our banks consent to such postponement is a condition to the
effectiveness of the amendment to the Fab 2 Investment Agreements, the approval
of which you are being asked to vote on in this proposal. To date, we have not
reached any definitive agreements with our banks in connection with the
postponement of the December 2002 additional financing date, and there is no
certainty that the banks will agree to this postponement.
Due to changes that have occurred in the semiconductor market and world
economy we are in the process of retaining a world leading first-tier consulting
firm to review our Fab 2 plan and the capital expenditures we have made and
expect to continue to make. We expect that our banks will look to the results of
the report of the consultant we are retaining in evaluating the terms under
which the banks will continue to fund the Fab 2 project.
Amendment to Fab 2 Investment Agreements. As discussed below, our Audit
Committee and Board of Directors have approved an amendment to the Fab 2
Investment Agreements (the "Amendment") with each of our Wafer Partners and
Equity Partners. Although all the Wafer Partners and Equity Partners may sign
the Amendment, the signature of Wafer Partners and Equity Partners that in the
aggregate are committed to invest no more than $4,400,234 upon the achievement
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of the fifth milestone (a "Non-Participating Partner") is not a condition to its
effectiveness. To date, the Company has entered into the Amendment with each of
ICTech, SanDisk, Alliance and Macronix, under the following terms and has
entered into a similar amendment with Challenge Fund:
1. Subject to and effective upon the Company receiving
all required approvals, the Wafer Partners and the
Equity Partners will advance their investments in
connection with the fifth milestone payment in two
installments.
The first installment, which will be in the amount of
60% of the total fifth milestone payment (between
$24,201,264 and $26,841,404.40, depending on whether
all of our Wafer Partners and Equity Partners sign the
Amendment), shall be paid by no later than five
business days following the receipt of all required
approvals of the Amendment (the "First Installment").
Upon payment of the First Installment, the Wafer
Partners and Equity Partners will be issued fully-paid
and non-assessable ordinary shares of the Company
equivalent to the amount of the First Installment
divided by $2.983, which is the average trading price
for the ordinary shares during the 30 consecutive
trading days preceding the date of board approval of
the amendment to the Fab 2 Investment Agreements.
The second installment (the "Second Installment"),
which will be in the amount of 40% of the total fifth
milestone payment (between $16,134,176 and
$17,894,269.60, depending on whether all of our Wafer
Partners and Equity Partners sign the Amendment), will
be paid upon the later of (i) August 1, 2003, and (ii)
five business days following the date upon which the
Company has raised equity or convertible debt of the
Company or any other form of fund raising permitted
under our Credit Facility in the amount of (a)
$22,105,730, provided that if a Non-Participating
Partner does not sign the Amendment, our banks agree
to lower the amount that we are committed to raise
from such Non-Participating Partner upon the
achievement of the fifth milestone, or (b) if a
Non-Participating Partner does not sign the Amendment
and the banks do not agree to lower the amount that we
are committed to raise, $22,105,730 plus the dollar
amount that such Non-Participating Partner is
committed to invest upon the achievement of the fifth
milestone (the "Minimum Financing"). The Minimum
Financing must be completed by December 31, 2003. Upon
the payment of the Second Installment, the Wafer
Partners and Equity Partners will be issued fully-paid
and non-assessable ordinary shares of the Company
equivalent to the amount of the Second Installment
divided by the price per ordinary share of the Company
paid in connection with the Minimum Financing (the
"Minimum Financing Price"); provided, however, that if
the Minimum Financing Price cannot reasonably be
calculated from the documents evidencing the Minimum
Financing, then the Minimum Financing Price will be
the average trading price for the ordinary shares of
the Company during the 30 consecutive trading days
preceding the date the Second Installment is paid.
2. Between December 31, 2005 and January 31, 2006, each
of the Wafer Partners may convert the Wafer Credits it
received in connection with its advancement of the
fourth milestone payment in October 2002 (the "4th
Milestone Wafer Credits") into fully-paid and
non-assessable ordinary shares of Tower equivalent to
the amount of the 4th Milestone Wafer Credits as
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outstanding on December 31, 2005 divided by the average
trading price for the ordinary shares during the 30
consecutive trading days preceding December 31, 2005 (the
"Conversion Price"). The aggregate dollar amount of 4th
Milestone Wafer Credits currently outstanding and which may
be so converted is $14,667,660.
3. To the extent that any of the Wafer Partners convert their
4th Milestone Wafer Credits into fully-paid and
non-assessable ordinary shares, and provided that such
amount of converted 4th Milestone Wafer Credits are
equivalent to or greater than five percent of the Company's
outstanding share capital, we have undertaken to file a
registration statement, within a reasonable time following
the issuance of the ordinary shares to the Wafer Partners in
connection with their conversion of the 4th Milestone Wafer
Credits, for the distribution of rights to all of our
shareholders (including each of the Equity Partners, but
excluding the Wafer Partners), to purchase additional shares
in Tower at the Conversion Price to maintain their
percentage of ordinary shares held in Tower immediately
prior to the conversion of the 4th Milestone Wafer Credits.
4. Upon the Company receiving all required approvals, the
parties to the Amendment irrevocably agree to fully and
indefinitely waive our obligation to raise an additional $50
million from additional wafer partners in connection with
the provisions set forth in the Fab 2 Investment Agreements
and related letters with respect to this obligation.
5. The Amendment is subject to the approval of our Audit
Committee and Board of Directors, each of which has been
obtained, as well as the approval of our shareholders and
required Israel governmental agencies, and further provided
that the Investment Center shall not have informed the
Company that it is not continuing its funding of the Fab 2
project (the "Investment Center Notice"). Subject to the
following sentence, the Amendment is further subject to the
receipt of the consent of our banks (i) to the postponement
of the December 31, 2002 deadline by which we were required
to have raised $110 million in equity financing (of which we
have raised $86.2 million to date), and (ii) to recognize a
portion of the proceeds from the payment of the First
Installment in satisfaction of our obligation to raise
funds. In the event that pending their approval of the terms
of the Amendment our banks agree to provide interim funding
in the amount of $33 million (in cash, letters of credit or
bank guarantees) and provided the Company has not received
an Investment Center Notice, we are currently discussing
with the parties to the Amendment the receipt of a
commitment to advance to the Company (i) an aggregate amount
of $13.3 million of the First Installment payment following
the receipt of such interim funding and shareholder approval
of the Amendment, and (ii) an additional $213,000 in the
aggregate of their fifth milestone commitments (up to a
total of $2.5 million in the aggregate from all of the
parties to the Amendment) for each $1 million of interim
funding in excess of $33 million which the banks agree to
provide.
6. Except as expressly set forth above and effective upon
payment of the First Installment in full, the Company
shall irrevocably waive, forever excuse and release
the Wafer Partners and their respective officers,
directors and employees, from their obligation to
advance the fifth milestone payment as provided for in
the Fab 2 Investment Agreements. All other provisions
of the Fab 2 Investment Agreements shall remain
unchanged.
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7. Ordinary shares of Tower to be issued with respect to
the fifth milestone payment will be subject to (i) the
restrictions on transfer which are applicable to the
Wafer Partner's and the Equity Partner's other
holdings in Tower in connection with their committed
investments, and (ii) registration rights.
The Audit Committee and the Board of Directors of the Company have each
approved this Amendment and recommend that the shareholders of the Company
approve the Amendment as it serves to significantly improve our immediate cash
position, and though not certain, may induce our banks to agree to a
postponement of the December 2002 additional financing date under the Credit
Facility or to provide interim funding pending their approval of the terms of
the Amendment. Furthermore, the Amendment will require the participating Wafer
Partners and Equity Partners to complete their investments under the Fab 2
Investment Agreements even though we did not raise funds from new wafer partners
by March 31, 2003 and without our need to achieve the fifth milestone by July
2003, which we do not expect to achieve by its prescribed completion date.
Any material changes to the terms of the Amendment to the Fab 2
Investment Agreements shall be submitted to the Audit Committee and the Board of
Directors of the Company for their approval but shall not, unless required by
law or our Articles of Association, be presented to a General Meeting of the
Shareholders.
THE BOARD OF DIRECTORS WILL PRESENT THE FOLLOWING RESOLUTION AT THE
MEETING:
"RESOLVED THAT THE AMENDMENT TO THE FAB 2 INVESTMENT AGREEMENTS,
PROVIDING FOR THE ADVANCEMENT OF THE FIFTH MILESTONE PAYMENT, ON
THE TERMS AS DESCRIBED IN THE PROXY STATEMENT, IS HEREBY
APPROVED."
Since certain Wafer Partners (SanDisk, Alliance and Macronix) and
ICTech are deemed to be controlling shareholders as defined in the Companies
Law, the approval of these agreements with each of SanDisk, Alliance, Macronix
and ICTech, to the extent that they constitute a transaction with a controlling
member pursuant to the Companies Law, requires shareholder approval and must
satisfy special majority voting requirements as described below.
This proposal approving the amendments to the Fab 2 Investment
Agreements may be subject to special approval provisions of the Companies Law
which require that the Proposal be approved by (i) the majority of the votes
cast at the Meeting including at least one-third of the voting power of the
disinterested shareholders who are present in person or by proxy and vote on the
Proposal, or (ii) the majority of the votes cast on the Proposal at the Meeting,
provided that the total votes cast in opposition to the Proposal by the
disinterested shareholders does not exceed 1% of all the voting power in the
Company.
EACH SHAREHOLDER VOTING AT THE MEETING OR PRIOR THERETO BY MEANS OF THE
ACCOMPANYING PROXY CARD IS REQUESTED TO NOTIFY US IF HE OR SHE HAS A PERSONAL
INTEREST IN CONNECTION WITH THIS PROPOSAL AS A CONDITION FOR HIS OR HER VOTE TO
BE COUNTED WITH RESPECT TO THIS PROPOSAL. IF ANY SHAREHOLDER CASTING A VOTE IN
CONNECTION HERETO DOES NOT NOTIFY US IF HE OR SHE HAS A PERSONAL INTEREST WITH
RESPECT TO THIS PROPOSAL NO. 1, HIS OR HER VOTE WITH RESPECT TO THIS PROPOSAL
WILL BE DISQUALIFIED. FOR THIS PURPOSE, "PERSONAL INTEREST" IS DEFINED AS: (1) A
SHAREHOLDER'S PERSONAL INTEREST IN THE APPROVAL OF AN ACT OR A TRANSACTION OF
THE COMPANY, INCLUDING (I) THE PERSONAL INTEREST OF HIS OR HER RELATIVE (WHICH
INCLUDES FOR THESE PURPOSES ANY MEMBERS OF HIS/HER IMMEDIATE FAMILY OR THE
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SPOUSES OF ANY SUCH MEMBERS OF HIS OR HER IMMEDIATE FAMILY); AND (II) A PERSONAL
INTEREST OF A BODY CORPORATE IN WHICH A SHAREHOLDER, OR ANY OF HIS/HER
AFOREMENTIONED RELATIVES SERVES AS A DIRECTOR OR THE CHIEF EXECUTIVE OFFICER,
OWNS AT LEAST 5% OF ITS ISSUED SHARE CAPITAL OR ITS VOTING RIGHTS OR HAS THE
RIGHT TO APPOINT A DIRECTOR OR CHIEF EXECUTIVE OFFICER, BUT (2) EXCLUDES A
PERSONAL INTEREST ARISING SOLELY FROM THE FACT OF HOLDING SHARES IN THE COMPANY
OR IN A BODY CORPORATE.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF ENTERING INTO AMENDMENTS TO THE FAB 2 INVESTMENT AGREEMENTS WITH THE
WAFER PARTNERS AND ICTECH CONCERNING THE ADVANCEMENT OF THE FIFTH MILESTONE
PAYMENTS.
PROPOSAL NO. 2
For the purpose of reserving sufficient quantities of shares to permit
the issuance of shares in connection with the raising of capital for the Fab 2
project, the Company desires to increase its authorized share capital from
70,000,000 shares NIS 1.00 per share to 100,000,000, NIS 1.00 per share.
THE BOARD OF DIRECTORS WILL PRESENT THE FOLLOWING RESOLUTION AT THE
MEETING:
"RESOLVED THAT THE INCREASE IN THE NUMBER OF THE COMPANY'S
AUTHORIZED ORDINARY SHARES TO 100,000,000 AND AUTHORIZED SHARE
CAPITAL TO NIS 100,000,000 AND THE AMENDMENT OF THE COMPANY'S
ARTICLES OF ASSOCIATION TO REFLECT SUCH INCREASE, IS HEREBY
APPROVED."
The affirmative vote of the holders of a majority of the voting power
of the Company represented at the Meeting in person or by proxy and voting
thereon is necessary for approval of Proposal No. 2 approving an increase in the
Company's authorized share capital.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF AN INCREASE IN THE COMPANY'S AUTHORIZED ORDINARY SHARES TO
100,000,000 AND AUTHORIZED SHARE CAPITAL TO NIS 100,000,000.
PROPOSAL NO. 3
The Articles of Association of the Company provide for the appointment
by the shareholders of the Company of one of the members of its Board of
Directors to serve as its chairman. The Company's Board of Directors has
nominated Mr. Carmel Vernia to serve, effective June 1, 2003, as a member and
the chairman of the Board of Directors of the Company until the annual meeting
following his appointment. Mr. Vernia has indicated that if elected, he would be
prepared to serve as a member of the Company's Board of Directors as well as its
chairman. Mr. Vernia has further indicated that if elected, he would be prepared
to dedicate the equivalent of at least four work days a week to the business of
the Company.
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MR. VERNIA'S PROFESSIONAL BACKGROUND
Most recently, Mr. Vernia served as chief scientist in the Government
of Israel's Ministry of Industry and Trade. In that position, he was responsible
for setting the government's research and development policy and managing a
budget dedicated to the growth of Israel's high-tech industry. Previous to that,
he spent 16 years with Comverse Technology (Nasdaq: CMVT), a leading provider of
software and systems enabling network-based multimedia enhanced communications
services. During his tenure there, he served in positions of increasing
responsibility, culminating with his appointment to the dual positions of chief
operating officer of Comverse and CEO of Comverse Infosys, a subsidiary of
Comverse that has since become Verint Systems (NASDAQ: VRNT).
Mr. Vernia began his career at Intel Corporation (Nasdaq: INTC), where
he worked as an application engineer on the world's first single
digital-signal-processing (DSP) chip. He earned a master's degree in electrical
and computer engineering from the University of California, Davis and a
bachelor's degree in electrical engineering from the Technion - Israel Institute
of Technology.
COMPENSATION PACKAGE
Under Israeli law, the terms of service of the members of the Board of
Directors of the Company requires the approval of the Audit Committee, Board of
Directors and Shareholders of the Company, in such order. In exchange for
services to be rendered by Mr. Vernia as the chairman of the Board of Directors
of the Company, each of the Audit Committee and the Board of Directors of the
Company has approved the payment to Mr. Vernia of annual compensation at a total
cost to the Company of NIS 1,040,000 (approximately $223,200) which includes
customary benefits provided to officers of the Company, the future grant of
options to purchase up to 1,043,000 ordinary shares of the Company at an
exercise price of $2.983 (see below for additional option terms), and
termination terms as set forth below. Each of the Audit Committee and the Board
of Directors of the Company has also agreed to enter into an exemption and
indemnification agreement with Mr. Vernia (see below for the terms of this
agreement).
OPTIONS PACKAGE
In addition to obtaining the requisite shareholder approval and
commencement of Mr. Vernia's service as chairman of the Board of Directors of
the Company, the grant of Mr. Vernia's options is conditioned upon and will only
take place upon the Company's adoption of an option plan in accordance with
Israel's new tax laws and the passing of 30 days from the time of the submission
of such plan and the related documentation to the Israeli tax authorities.
Israel's new tax laws allow the Company to elect a taxation alternative with
respect to the options to be granted under its option plans. In the event the
Company seeks to obtain capital gains treatment with respect to Mr. Vernia's
options, Mr. Vernia would in general be required to pay 25% capital gains tax on
gains from his sale of the Company's ordinary shares purchased through the
exercise of his options and Tower would not be entitled to claim any deduction
for tax purposes with respect to the issuance of the options to Mr. Vernia.
The options to be granted to Mr. Vernia will vest over 5 years, with
417,200 options (40%) vesting on May 31, 2005 and an additional 208,600 options
(20%) vesting on May 31st of each of 2006, 2007 and 2008. The vesting of the
options will be subject to Mr. Vernia's serving as the chairman of the Board of
Directors on the relevant vesting date. Other than as set forth below, the
options will be exercisable for a period of 5 years from the date on which the
options vest. The Company and Mr. Vernia will come to an agreement as to how to
value the ordinary shares of the Company in the event that they are not publicly
traded at the time of an option exercise.
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In the event of the termination of Mr. Vernia's relationship with the
Company, the options to be granted to Mr. Vernia will be treated as follows:
o Should Mr. Vernia voluntarily terminate his relationship with the
Company, his vested options will be exercisable during the 1 year
period following such termination.
o Should Mr. Vernia choose to terminate his relationship with the Company
"with reason" as a result of a "change of control" in the Company, all
of his options will become vested and will be exercisable during the 1
year period following such termination.
o Should the Company terminate Mr. Vernia "without cause", any vested
options held by Mr. Vernia may be exercised until the final date for
the exercise thereof in accordance with the terms of the relevant
grant. In addition, should such termination take place during the
period between May 31, 2004 and May 30, 2005 a proportional amount of
the 417,200 options that would otherwise become vested on May 31, 2005
will vest at such time.
o Should the Company terminate Mr. Vernia for "cause", all his
options (including vested options) will terminate at such time.
TERMINATION PROVISIONS
Should Mr. Vernia voluntarily terminate his relationship with the
Company or should the Company terminate his employment "without cause", he will
be paid his regular compensation for a three month period. It has also been
agreed that should the Company terminate Mr. Vernia for "cause", the Company may
immediately cease to pay him his compensation.
EXEMPTION AND INDEMNIFICATION AGREEMENT
Pursuant to the terms of the exemption and indemnification agreement to
be entered into between the Company and Mr. Vernia, subject to the limitations
set forth in the Israel Companies Law and the Company's Articles of Association,
Mr. Vernia will be exempt from liability for breaches of the duty of care owed
by him to the Company and indemnified for certain costs, expenses and
liabilities with respect to events specified in the exemption and
indemnification agreement. Such indemnification will be limited to up to 25% of
the then current fully paid-in-equity of the Company (in addition to any amounts
paid under insurance) with respect to specified events, in each case of
indemnification (including all matters connected therewith).
THE BOARD OF DIRECTORS WILL PRESENT THE FOLLOWING RESOLUTION AT THE
MEETING:
"RESOLVED THAT THE APPOINTMENT OF MR. CARMEL VERNIA, EFFECTIVE
JUNE 1, 2003, AS A MEMBER OF THE BOARD OF DIRECTORS OF THE
COMPANY AS WELL AS ITS CHAIRMAN, ON THE TERMS AS DESCRIBED IN
THE PROXY STATEMENT, IS HEREBY APPROVED."
The affirmative vote of the holders of a majority of the voting power
of the Company represented at the Meeting in person or by proxy and voting
thereon is necessary for approval of Proposal No. 3 approving the appointment
and terms of appointment of Mr. Carmel Vernia, effective June 1, 2003, as a
member of the Board of Directors of the Company as well as its chairman.
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THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE APPOINTMENT AND TERMS OF APPOINTMENT OF MR. CARMEL VERNIA,
EFFECTIVE JUNE 1, 2003, AS A MEMBER OF THE BOARD OF DIRECTORS OF THE COMPANY AS
WELL AS ITS CHAIRMAN.
PROPOSAL NO. 4
On March 4, 2003, Dr. Yoav Nissan-Cohen and Dr. Rafi Levin notified the
Company that they intend to resign from their positions as Co-CEO's of the
Company. These resignations will come into effect on June 1, 2003. The Board of
the Directors of the Company has nominated Mr. Carmel Vernia to serve, effective
June 1, 2003, as the acting CEO of the Company. Mr. Vernia has indicated that if
elected, he would be prepared to serve as both chairman of the Company's Board
of Directors as well as its acting CEO. Mr. Vernia has further indicated that if
elected, he would be prepared to dedicate his full professional time and
attention to the business of the Company during the period in which he serves as
acting CEO of the Company.
Under Israeli law, special shareholder approval is required before a
company's chairman of its board of directors may serve as its CEO or exercise
the powers which the law grants to the CEO. Upon obtaining the requisite
shareholder approval, a company's chairman of its board of directors may serve
as its CEO or exercise the powers which the law grants to the CEO for a period
of up to three years.
THE BOARD OF DIRECTORS WILL PRESENT THE FOLLOWING RESOLUTION AT THE
MEETING:
"RESOLVED THAT THE APPOINTMENT OF MR. CARMEL VERNIA, EFFECTIVE
JUNE 1, 2003, AS ACTING CEO OF THE COMPANY FOR A PERIOD OF UP TO
3 YEARS, IS HEREBY APPROVED."
In accordance with the special approval provisions of the Companies
Law, the affirmative vote of the holders of a majority of the voting power of
the Company represented at the Meeting in person or by proxy and voting thereon,
including the affirmative vote of at least two thirds of the votes of Ordinary
Shares present in person or by proxy at the Meeting and voting thereon that are
not held by the controlling shareholders of the Company, is necessary for
approval of Proposal No. 4 approving the appointment of Mr. Carmel Vernia,
effective June 1, 2003, as acting CEO of the Company for a period of up to 3
years. For purposes of the approval of Proposal No. 4, SanDisk, Alliance,
Macronix and ICTech are deemed to be controlling shareholders of the Company as
defined in the Companies Law.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE APPOINTMENT OF MR. CARMEL VERNIA, EFFECTIVE JUNE 1, 2003, AS
ACTING CEO OF THE COMPANY FOR A PERIOD OF UP TO 3 YEARS.
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ADDITIONAL INFORMATION
Foreign Private Issuer. We are subject to the informational
requirements of the United States Securities Exchange Act of 1934 (the "Exchange
Act"), as amended, as applicable to foreign private issuers. Accordingly, we
file reports and other information with the SEC. Shareholders may read and copy
any document that we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549 U.S.A. Shareholders can call the SEC at
1-800-SEC-0330 for further information on using the public reference room. In
addition, similar information concerning us can be inspected and copied at the
offices of the National Association of Securities Dealers, Inc., 9513 Key West
Avenue, Rockville, Maryland 20850 USA, the offices of the Israel Securities
Authority at 22 Kanfei Nesharim Street, Jerusalem Israel, the offices of the Tel
Aviv Stock Exchange at 54 Ahad Ha'am Street, Tel Aviv Israel and the offices of
the Israeli Registrar of Companies at 97 Jaffa Street, Jerusalem Israel. All
documents which we will file on the SEC's EDGAR system will be available for
retrieval on the SEC's website at www.sec.gov.
Forward-looking Statements. This proxy statement includes
forward-looking statements, which are subject to risks and uncertainties. Our
actual results may vary from those projected or implied by such forward-looking
statements. Potential risks and uncertainties include, without limitation, risks
and uncertainties associated with (i) our ability to raise funding by the
deadlines set forth in our agreement with our banks and/or a failure by us to
reach an agreement with our banks to extend the deadlines to raise additional
financing in 2002 and 2003 and/or to receive the approval of our banks to the
amendment to the Fab 2 investment agreements, our failure to succeed in any of
which would result in an event of default of our loan agreement, in which event
our banks would have the right to call our loans and exercise their liens
against our assets, (ii) obtaining required approvals of our shareholders and
regulatory authorities to the amendment to the Fab 2 investment agreements,
(iii) raising at least $22 million before the end of 2003, which is a condition
to our major shareholders payment of the remaining portion of the fifth
milestone, (iv) our ability to obtain additional financing for the Fab 2 project
from equity and/or wafer partners, the Israeli Investment Center, our banks,
and/or other sources, as required under the Fab 2 business plan and pursuant to
our agreements with our equity and/or wafer partners, banks and the Israeli
Investment Center (v) our wafer partners, financial investors and the Investment
Center of the State of Israel claiming a breach of the agreements with them and
refusing to perform their obligation under such agreements should our banks call
our loans, (vi) our satisfaction of all other conditions under our agreements
with our Fab 2 equity and wafer partners, the Israeli Investment Center and our
banks, (vii) obtaining the approval of the Israeli Investment Center of
amendments to our business plan, (viii) completion of the construction of a new
wafer manufacturing facility, (ix) conditions in the market for foundry
manufacturing services and in the market for semiconductor products generally,
(x) completion of the development and/or transfer of advanced CMOS process
technologies to be utilized in our existing facility and in Fab 2, (xi)
obtaining additional business from new and existing customers, (xii) market
acceptance and competitiveness of the products to be manufactured by us for
customers using these technologies, (xiii) ramp-up of production at Fab 2, (xiv)
obtaining the required approval of our shareholders to the appointment of Carmel
Vernia as Chairman of our Board of Directors and acting CEO, and (xv) possible
loss of our exclusive foundry license with Saifun if we fail to meet certain
sales levels and other conditions. A more complete discussion of risks and
uncertainties that may affect the accuracy of these statements, and our business
generally, is included at "Risk Factors" in our most recent Registration
Statement on Form F-2, as filed with the Securities and Exchange Commission, and
the most recent Prospectus as filed with the Israel Securities Authority.
As a "foreign private issuer", we are exempt from the rules under the
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Exchange Act prescribing certain disclosure and procedural requirements for
proxy solicitations. Also, 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 and the rules thereunder, with
respect to their purchases and sales of securities. In addition, we are not
required under the Exchange Act to file periodic reports and financial
statements with the SEC as frequently or as promptly as United States companies
whose securities are registered under the Exchange Act.
ISA Exemption. With the exception of the reporting obligations
applicable to a company organized under the laws of the State of Israel whose
shares are traded on approved securities exchanges outside of Israel and in
Israel as specified in Chapter Five (iii) of the Israeli Securities Law, 1968
(the "Israeli Securities Law"), we have received from the Securities Authority
of the State of Israel an exemption from the reporting obligations as specified
in Chapter Six of the Israeli Securities Law. We must, however, make available
for public review at our offices in Israel a copy of each report that is filed
in accordance with applicable U.S. law. These documents are available for
inspection at our offices at Hamada Avenue, Ramat Gavriel Industrial Park,
Migdal Haemek, Israel.
By Order of the Board of Directors,
Idan Ofer
Chairman of the Board of Directors
Migdal Haemek, Israel
April 21, 2003
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