Kornit Digital, manufactures and markets industrial digital printing technologies for the garment, apparel, and textile industries, Signs an Agreements with Amazon
Haaretz.com, the online edition of Haaretz Newspaper in Israel has quoted Ronen Samuel, CEO of Kornit Digital saying: “The business is on fire – fashion companies are moving online and to textile printing on demand.” He was speaking as the Israeli company conducted its fourth share offering in the past two and a half years and signed an expanded agreement with Amazon that will triple its sales to the online retail giant.
Kornit digital printing solution for textile and fashion enables mass customization of printed textile products in on-demand short and micro runs to shorten the supply chain to days instead of months and does so within the target markets to reduce negative environmental impacts. According to the company, the online digital fashion and textile printing market will grow to $25 billion by 2023, up from $18 billion in 2018.
Amazon Is Expanding Printing Capacity for Its Booming On-Demand Apparel and Merchandise Service
Until now, Amazon has used Kornit products only for its Merch by Amazon service, which enables independent designers to sell products like personalized T-shirts, with Amazon handling production, shipping and collection. The company now wants to expand its digital-printed offerings to housewares and sports equipment, and will use new Kornit’s Presto printer, that can be used to print upholstery and bedspreads.
Kornit digital printers can rapidly produce short runs of complex images and designs directly on finished garments and fabrics, enabling clothing makers to produce products as needed, rather than prestocking inventory at the start of each season, and/or create custom products.
Amazon has committed to buying products and services from Kornit totaling $400 million over the next five years. The commitment is divided into two – $250 million in existing products (digital printers, inks and services) in exchange for warrants covertible into 1.9 million shares, and $150 million in future products in exchange for warrants for 1.5 million shares. The warrants will be allocated in tranches each time Amazon hits a $5 million milestone for purchases. (See the Master Purchase Agreement below).
Kornit Presto: Direct To Fabric Printer
Kornit Presto is a one stop shop with one-step process to every fabric printing aspect and domain.
Like its former Allegro, the Kornit Presto eliminate the need for external process steps, enabling you to achieve the best results from PFP (Prepared-For-Print) to finished digitally printed fabric faster than ever.
Now, with the new NeoPigment™ Robusto Softener, the Presto is a complete solution for printing, softening and drying in a single step.
With no water waste and in the most smart and sustainable way, the Presto opens your market reach to a wide range of applications. From fashion, baby textiles to home décor, the Presto provides high quality prints, vivid colors and great hand-feel to multiple fabric types, on-demand.
Kornit Digital has disclosed the following information in the SEC filings on September 14, 2020.
Master Purchase Agreement between Kornit Digital and Amazon
In January 2017, we entered into a Master Purchase Agreement (the “Purchase Agreement”) with Amazon Corporate LLC, a subsidiary of Amazon.com, Inc., or Amazon. Under the Purchase Agreement, as amended in March 2017, January 2018, June 2018 and May 2020, Amazon may purchase, and we have committed to supply, Kornit AVHD6 and Kornit Atlas digital direct-to-garment printers, NeoPigment ink and other consumables at agreed-upon prices that are subject to volume discounts. We also agreed to provide maintenance services and extended warranties to Amazon at agreed-upon prices.
The Purchase Agreement provides for an “end of life” program. We are required to notify Amazon 12 months in advance if we intend to stop supporting one of the products or services supplied by us and to continue to manufacture the product or provide such service during the applicable 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 Purchase Agreement or (2) 18 months following the purchase of the last product sold pursuant to the Purchase Agreement. The Purchase Agreement requires us to make arrangements to ensure continuity of our supply of products if we do not comply with its requirements to supply the products or the services under the agreement or we become insolvent. The Purchase Agreement also provides for penalties on a sliding scale in the case of late delivery or if our systems are unavailable for certain specific periods. There are no minimum spending commitments under the Purchase Agreement.
The term of the Purchase Agreement is five years beginning on May 1, 2016 and extends automatically for additional one-year periods unless terminated by Amazon. The Purchase Agreement is subject to customary termination provisions, including material uncured breaches, insolvency or our acquisition by a competitor of Amazon. The Purchase Agreement may also be terminated by Amazon without cause subject to an agreed advance notice period.
Original Transaction Agreement and Original Warrant
Concurrently with the Purchase Agreement, we and Amazon entered into a Transaction Agreement (the “Original Transaction Agreement” pursuant to which we agreed to issue to an affiliate of Amazon a warrant, or the Warrant, as amended (the “Original Warrant”), to acquire up to 2,932,176 of our ordinary shares at a purchase price of $13.04 per share, which was based on the 30-trading day VWAP, as adjusted, prior to the execution of the Original Transaction Agreement. The Original Warrant also allows for cashless (net) exercise.
The shares underlying the Original Warrant are subject to vesting as a function of payments for purchased products and services of up to $150 million over a five-year period, with the shares vesting incrementally each time Amazon or its affiliates make a payment totaling $5 million to us. As of September 11, 2020, 2,052,507 shares underlying the Original Warrant were vested and exercisable. Amazon is exercising the Original Warrant on a cashless (net) exercise basis in connection with this offering resulting in the issuance to it, and the sale of, 1,600,000 ordinary shares.
New Transaction Agreement and New Warrant
On September 14, 2020, we and Amazon entered into a new Transaction Agreement (the “New Transaction Agreement”) pursuant to which we have agreed to issue to an affiliate of Amazon a warrant (the “New Warrant”) to acquire up to 3,401,028 of our ordinary shares at a purchase price of $59.26 per share, which is based on the 30-trading day VWAP prior to the execution of the New Transaction Agreement. The New Warrant also provides for cashless (net) exercise.
The shares underlying the New Warrant are subject to vesting as a function of payments up to an aggregate of $400 million by Amazon and its affiliates over a five-year period for two different categories of product lines and services as follows:
“Existing” Product Lines and Services
Purchased amount $ 250 million
Maximum number of vesting shares 1,943,445
Number of vesting shares per $5 million payment 38,869
“New” Product Lines and Services
Purchased amount $ 150 million
Maximum number of vesting shares 1,457,583
Number of vesting shares per $5 million payment 48,587
“Existing” products refers to any product line that has been purchased by Amazon from Kornit before the date of the issuance of the New Warrant, for example, products from the Kornit Avalanche and the Kornit Atlas printing system family and related ink and spare parts. “New” products refers to any product line that has not been purchased by Amazon before the date of the issuance of the New Warrants and may be purchased by Amazon in the future. “New” products includes any future potential new applications that are printed using existing products. Neither the New Warrant nor the Purchase Agreement, as amended, contain any pricing terms or minimum purchase agreements for “New” products, and no “New” product has been qualified for use by Amazon.
The New Warrant is exercisable through the earlier of (1) January 10, 2027 and (2) the fifth anniversary of the date that all shares underlying under the Original Warrant are vested (i.e., the date on which Amazon and its affiliates have collectively made gross payments totaling $150 million to the Company or its affiliates in connection with invoices in respect of orders placed under the Purchase Agreement).
Upon the consummation of a change of control transaction (as defined in the New Warrant), subject to certain exceptions, the unvested portion of the New Warrant will vest in full and become fully exercisable.
The exercise price and the number of ordinary shares issuable upon exercise of the New Warrant are subject to customary anti-dilution adjustments.
The New Warrant also limits Amazon’s beneficial ownership to 4.999% of our outstanding shares unless Amazon waives this limit upon 61 days’ notice, in which case Amazon’s beneficial ownership is then limited to 9.999% of our outstanding shares.
The New Transaction Agreement includes customary representations, warranties and covenants of our company and Amazon. The New Transaction Agreement restricts any transfer of the New Warrant and ordinary shares thereunder, except under certain circumstances set forth in the New Transaction Agreement.
The New Transaction Agreement also contains certain customary standstill restrictions with respect to an acquisition of our shares (other than an acquisition of the shares underlying the Original Warrant and the New Warrant), solicitation of proxies and other actions that seek to influence the control of our company. These standstill restrictions remain in effect until such time as the shares issued under the New Warrant or that remain unexercised under the New Warrant represent less than 2% of our outstanding shares.
Registration Rights for Shares Underlying Warrants
Under the Original Transaction Agreement, Amazon is entitled to certain registration rights with respect to the shares underlying the Original Warrant. Amazon may request up to two times in any 12-month period that we file a shelf registration statement on Form F-3 or S-3, and we are required to keep the shelf registration effective for four 90-day periods. If we are ineligible to file a registration statement on Form F-3 or Form S-3, Amazon may request up to four times that we file a long form registration statement to facilitate the sale of its shares. In addition, Amazon is entitled to piggyback registration rights on underwritten offerings effected by us. We are subject to customary obligations upon Amazon’s request for registration, including cooperation in case of an underwritten offering. The ordinary shares being offered by Amazon under this prospectus supplement are being offered pursuant to Amazon’s foregoing registration rights. These registration rights also apply to our ordinary shares issuable under the New Warrant.
Kornit Digital, manufactures and markets industrial digital printing technologies for the garment, apparel, and textile industries, Signs an Agreements with Amazon
