תוכן עניינים

עמודים	המסמך
5–2	רישוםמסמך
6-357	Form20-F2004לשנת
358-375	K6-2005מאי
376-400	K6-2005יוני
401-418	K6-2005אוגוסט
419-426	K6-2005אוגוסט
427-494	-2F2004אוקטובר
450-564	-2F2004ספטמבר

תאריך 25.9.2005

מסמך רישום

תפרון בע"מ (להלן: "החברה")

18,958,586 מניות רגילות בנות 1 ₪ ע"נ כ"א רשומות על שם בעלי המניות רישום למסחר של וכן עד 2,608,362 מניות רגילות בנות 1 ₪ ע"נ שתנבענה ממימוש אופציות בלתי סחירות

סימן ניירות הערך בבורסה בתל- אביב - תפרון

ניירות הערך של החברה רשומים למסחר ב- NYSE וסימנם – TFR.

,1968 ולפיכך דיווחי החברה יהיו בשפה האנגלית ותוכנם יהיה בהתאם למתכונת הדיווח שלה בחו"ל. ניירות הערך של תפרון בע"מ ירשמו למסחר לפי הוראות פרק ה' 3 לחוק ניירות ערך, התשכ"ח –

תוכן עניינים

חלק ראשון

1.1 התאגיד

1.2 מידע על התאגיד
- 1.3 תאור המניות
1.4 אישור הבורסה לניירות ערך בתל-אביב

חלק שני – נספחים בשפת המקור (אנגלית)

2.1 F20- לשנה שנסתיימה ביום .31.12.2004
2.2 דיווחים והודעות תקשורת לתקופה שלאחר פרסום ה- F.20-
- 2.3 F2- מיום 21.9.04 ומיום .22.10.04

חלק ראשון

1.1 התאגיד

1.1.1 שם התאגיד : תפרון בע"מ.
1.1.2 מקום ההתאגדות : ישראל.
1.1.3 תאריך ההתאגדות : .5.4.1977
1.1.4 סוגי ניירות הערך שהנפיק התאגיד וכמותם :
א. 18,958,586 מניות רגילות בנות 1 ₪ (מתוכן 997,400 מניות הנן בבעלות חברת בת בבעלותה המלאה של החברה, שנרכשו על ידי חברת הבת לפני 2/2000 ולפיכך אינן מניות רדומות).
ב. 2,468,844 אופציות בלתי סחירות הניתנות למימוש לעד 2,468,844 מניות רגילות בנות 1 רגילות של החברה, אשר החברה מוסמכת להקצותן על פי תכנית האופציות של החברה. ,₪ המוחזקות על ידי בעלי עניין בתאגיד ואחרים, ו – 139,518 אופציות ל- 139,518 מניות
- 1.1.5 הבורסה בה רשומים ניירות הערך למסחר NYSE.
- 1.1.6 תאריך בו נרשמו לראשונה ניירות הערך של החברה למסחר ב- NYSE : ספטמבר .1997
1.1.7 סוג וכמות ניירות הערך הרשומים למסחר ב- NYSE : 18,958,586 מניות רגילות בנות 1 ₪ ע"נ. 2,162,088 אופציות למניות החברה רשומות ב- NYSE באופן שעם מתן הודעה רשמית על מימוש האופציות בפועל הופכות מניות המימוש רשומות למסחר לכל דבר ועניין.

1.2 מידע על התאגיד

1.2.1 מען משרדו הרשום של התאגיד : דרך אם המושבות ,94 פארק אזורים, קריית אריה, פתח תקוה .49527
- 1.2.2 מספר טלפון : .9230215-03
- 1.2.3 מספר פקס : .9229035-03
- 1.2.4 סימון ניירות הערך של החברה בבורסה בחו"ל : TFR.
- 1.2.5 סימון ניירות הערך של החברה בבורסה בישראל : תפרון.
1.2.6 איש קשר עם גופי הפיקוח והאכיפה של הדין הזר : עוה"ד ריצ'רד מן ו/או פרי ווילדס , ממשרד עוה"ד גרוס, קלינהנדלר, חודק, הלוי ושות'. אשר מענו לקבלת כתבי בי-דין : מרכז עזריאלי ,1 המגדל העגול, תל-אביב .67021 טל' ,6074444-03 פקס .6074422-03
1.2.7 איש קשר של החברה עם הרשות לניירות ערך : כתבי בי-דין : מיכל בוימולד אורון, עו"ד ו/או אסף אלפרוביץ', רו"ח, אשר מענם לקבלת דואר ולקבלת טל' : ,9230215-03 פקס : .9229035-03 תפרון בע"מ, דרך אם המושבות ,94 פארק אזורים, קריית אריה, פתח תקוה .49527

1.3 תאור המניות

1.3.1 לחברה הון רשום של 50,000,000 מניות, מתוכן 4,500 מניות נדחות ו- 49,995,500 מניות רגילות בנות 1 ₪ ע"נ (להלן: "המניות הרגילות"). לחברה הון מניות מונפק של 18,958,586 מניות רגילות. החברה מתחייבת כי כל עוד מניותיה רשומות למסחר בבורסה לניירות ערך בתל-אביב ("הבורסה") היא לא תוציא, לא תקצה ולא תנפיק מניות מסוג שונה מזה הרשום למסחר בבורסה. התחייבות זו לא תחול לגבי מניות מדינה מיוחדות ולגבי מניות בכורה (כהגדרתן עיתוי הנפקת מניות בכורה כאמור יתקיים התנאי המצוין בסעיף 46א(1) לחוק ניירות ערך. בסעיף 46ב(ב) לחוק ניירות ערך, התשכ"ח – 1968 ("חוק ניירות ערך") בכפוף לכך שלגבי
1.3.2 מספר המניות הרגילות אשר יירשמו למסחר בבורסה לניירות ערך בת"א 18,958,586 מניות רגילות, 2,468,844 מניות שינבעו ממימוש אופציות בלתי סחירות, וכן עד 139,518 מניות

האופציות הקיימת בחברה. שינבעו ממימוש אופציות בלתי סחירות אשר יוענקו על ידי החברה בהתאם לתכנית

1.3.3 המניות המונפקות רשומות על שם בעלי המניות (חלקם באמצעות חברה לרישומים).
1.3.4 סוג המניות ועיקרי הזכויות הנלוות אליהן : מניות רגילות המקנות זכויות כמפורט בעמודים 56-57 ל- F20- המצ"ב.
1.3.5 המניות יהיו זכאיות להשתתף בחלוקת מלוא דיבידנד או מניות הטבה שיוכרז עליהן, אם יוכרז, לאחר תאריך מסמך הרישום.

1.4 אישור הבורסה לניירות ערך בתל- אביב בע"מ

הבורסה לניירות ערך בתל-אביב בע"מ נתנה את אישורה לרשום בה למסחר את ניירות הערך נשוא מסמך רישום זה.

אין לראות באישור האמור של הבורסה אישור לפרטים המובאים במסמך הרישום או להימנותם או הרישום או על המחיר בו הם מוצעים. לשלמותם ואין בו משום הבעת דעה על החברה או על טיבם של ניירות הערך המוצעים במסמך AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 2005

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 20-F

[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES

EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE

ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________ COMMISSION FILE NUMBER 0-28878

TEFRON LTD.

(Exact name of Registrant as specified in its charter) ISRAEL

(Jurisdiction of incorporation or organization)

PARK AZORIM, DERECH EM HAMOSHAVOT 94, PETACH TIKVA 49527, ISRAEL (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:




Title of each class	Name of each exchange on which registered- ------------------------------------------- -----------------------------------------
ORDINARY SHARES,	NEW YORK STOCK EXCHANGE
NIS 1.0 PAR VALUE PER SHARE

|| NONE | Securities registered or to be registered pursuant to Section 12(g) of the Act: | | (Title of Class) | | | NONE | Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: | Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

(Title of Class)

17,934,558 ORDINARY SHARES, NIS 1.0 PAR VALUE PER SHARE

4,500 DEFERRED SHARES, NIS 1.0 PAR VALUE PER SHARE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES [X] NO [_]

Indicate by check mark which financial statement item the registrant has elected to follow.

ITEM 17 [_] ITEM 18 [X]

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

NOT APPLICABLE

Page


PART I		2

	ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
2
	ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE					2
	ITEM 3.	KEY INFORMATION		2
	A.	Selected Financial Data		3
	B.	Capitalization and Indebtedness		3
	C.	Reasons for the Offer and Use of Proceeds			3
	D.	Risk Factors	3
	ITEM 4.	INFORMATION ON THE COMPANY				13
	A.	History and Development of the Company			13
	B.	Business Overview		15

C.	Organizational Structure	25
D.	Property, Plants and Equipment	25
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS
27
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
37
A.	Directors and Senior Management	37
B.	Compensation	40
C.	Board Practices	42
D.	Employees	45
E.	Share Ownership	46
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
49
A.	Major Shareholders	49
B.	Related Party Transactions	51
C.	Interests of Experts and Counsel	53
ITEM 8.	FINANCIAL INFORMATION	53
ITEM 9.	THE OFFER AND LISTING	54
ITEM 10.	ADDITIONAL INFORMATION	55
A.	Share Capital	55
B.	Memorandum and Articles of Association	55
C.	Material Contracts	58
D.	Exchange Controls	66
E.	Taxation	67
F.	Dividends and Payment Agents	68
G.	Statements by Experts	68
H.	Documents on Display	68
I.	Subsidiary Information	68
ITEM 11.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
69
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
69

iii




PART II		70

ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
70
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF
	PROCEEDS	70
ITEM 15.	CONTROLS AND PROCEDURES		70
ITEM 16.	[RESERVED]	70
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT		70
ITEM 16B.	CODE OF ETHICS	70
ITEM 16C.	ACCOUNTANTS' FEES AND SERVICES		70
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
	COMMITTEES	72
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
	URCHASERS	72

PART III		73

ITEM 17.	FINANCIAL STATEMENTS		73
ITEM 18.	FINANCIAL STATEMENTS		73
ITEM 19.	EXHIBITS	74

| | |iv

INTRODUCTION

As used in this Annual Report on Form 20-F, references to "we", "our", "us", "Tefron" or the "Company" are references to Tefron Ltd., a company organized under the laws of the State of Israel, and its wholly-owned

subsidiaries, unless indicated otherwise.

Our consolidated financial statements have been prepared in United States dollars and in accordance with accounting principles generally accepted in the United States, or US GAAP. See Note 2 of the Notes to our Consolidated Financial Statements. All references in this Annual Report to "US dollars," "dollars" or "$" are to United States dollars and all references in this Annual Report to "NIS" or "shekels" are to New Israeli Shekels. Unless otherwise indicated, and when no date is specified, NIS amounts have been translated into US dollars at NIS 4.308 to $1.00, the representative rate of exchange published by the Bank of Israel, the Israeli central bank, for December 31, 2004. The representative exchange rate between the NIS and the dollar as published by the Bank of Israel for April 6, 2005 was NIS 4.362 to $1.00.

All references in this Annual Report to "Victoria's Secret" are both to the Victoria's Secret stores and Victoria's Secret Catalog owned and operated by Intimate Brands, Inc., a subsidiary of The Limited, Inc., and to Mast Industries Inc., a wholly-owned subsidiary of The Limited, which imports and distributes women's intimate apparel and related products on behalf of Victoria's Secret stores, Victoria's Secret Catalog, Cacique and Abercrombie & Fitch. All references in this Annual Report to "Warnaco/Calvin Klein" are to Warnaco Inc., the owner worldwide of the Calvin Klein trademarks, rights and business for women's intimate apparel and men's underwear. All references in the Annual Report to "Nike" are to Nike, Inc.

FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements within the meaning of the U.S. Securities Act of 1933, as amended, the U.S. Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties and relate to our future plans, objectives, expectations and intentions. The use of words such as "may," "will," "expect," "anticipate," "intend," "plan," "estimate," "believe," "continue" or other similar expressions often identify forward-looking statements but are not the only way we identify these statements. These forward-looking statements reflect our current expectations and assumptions as to future events that may not prove

to be accurate. Our actual results are subject to a number of risks and uncertainties and could differ materially from those discussed in these statements. Factors that could contribute to these differences include, but are not limited to, those discussed under "Item 3. Key Information," "Item 4. Information on the Company" and "Item 5. Operating and Financial Review and Prospects" and elsewhere in this Annual Report.

In light of the many risks and uncertainties surrounding our business and operations, you should keep in mind that we cannot guarantee that the forward-looking statements described in this Annual Report will transpire. In addition, you should note that our past financial and operation performance is not necessarily indicative of future financial and operational performance. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

3A. SELECTED FINANCIAL DATA

The following selected financial data as of December 31, 2003 and 2004 and for each of the three years ended December 31, 2002, 2003 and 2004 have been derived from, and should be read in conjunction with, our consolidated financial statements and notes thereto appearing elsewhere in this Annual Report. The selected financial data as of December 31, 2000, 2001 and 2002 and for each of the years ended December 31, 2000 and December 31, 2001 have been derived from our audited financial statements not included in this Annual Report.

				YEAR ENDED DECEMBER 31,
	2000	2001	2002	2003	2004
	---------	---------	---------	---------(In thousands, except per share data)	---------

STATEMENT OF INCOME DATA:
Sales, net	$ 223,602		$ 188,949	$ 190,305	$ 163,086
$ 182,819
Cost of sales	199,186		169,173	151,385	139,422
159,937
Restructuring costs	--		--	1,550	--	--
	---------	---------	---------	---------	---------
Gross profit	24,416		19,776	37,370	23,664
22,882
Selling, general and administrative
expenses	20,574		20,140	18,358	20,323
22,387
Restructuring costs	--		--	3,793	--	--
Operating income (loss)	---------	---------3,842	---------(364)	---------15,219	---------3,341
495
Financing expenses, net		10,292	9,396	5,457	5,628
5212
Other expenses (income), net		--	843	2,293	(228)
--
	---------	---------	---------	---------	---------

Income (loss) before taxes on income		(6,450)	(10,603)	7,469	(2,059)
(4,717)
Taxes on income (tax benefit)		(2,142)	(837)	4,979	(424)
203
	---------	---------	---------	------------------
Income (loss) after income
Taxes	(4,308)	(9,766)	2,490	(1,635)
(4,920)
Equity in losses of an affiliate
company	--	(240)	(1,172)	(183)	--
Minority interest in earnings of a
subsidiary	--	--	(822)	(2,550)	(1,945)
Pre-acquisition loss of subsidiary
since April 1, 2003	--	--	--	(85)	--
	---------	---------	---------	------------------
Income (loss) before cumulative effect of
change in accounting principles		(4,308)	(10,006)	496	(4,453)
(6,865)
Cumulative effect of change in
accounting principle		----	(17,994)	--	--
	---------	---------	---------	------------------
Net loss	(4,308)	(10,006)	(17,498)	(4,453)
(6,865)
Basic and diluted net earnings (loss)
per share
Earnings (loss) per share before
cumulative effect of change in
accounting principles		(0.35)	(0.81)0.04	(0.36)
(0.44)
	=========	=========		=========	=========
=========
Loss per share from cumulative effect
of change in accounting principle		--	--	(1.45)	----

	=========	=========		=========	=========

=========

Loss per share basic and diluted(0.44)			(0.35)	(0.81)	(1.41)	(0. 36)
	=========		=========		=========	=========
=========Ordinary Shares15,604		12,412		12,412	12,410	12,412
	=========		=========		=========	=========
=========

| | | | | | | | || | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | AT DECEMBER 31, | | | | | | | | 2000 ---- | -------------------------------------------------------------------------- 2001 ---- | ---- | 2002 | ---- | 2003 | ---- | 2004 | | | | | | | | | | (in thousands) | | | | | | | | | | | | | | | Cash and cash equivalents 3,558 | | $ 4,419 | | $ 5,078 | | $ 6,742 | | $ 5,747 | $ | | Working capital (deficit) | | $ 14,404 | | $ (6,958) | $ (6,167) | | | $ (14,524) | $ (8,441) | | Total assets | | $ 258,571 | $ 229,065 | | $ 197,743 | | $ 201,591 | | $ 191,531 | | Total debt(1) | | $ 143,918 | $ 131,609 | | $ 98,890 | | $ 99,124 | | $ 78,507 | | Shareholders' equity 46,744 | | $ 67,697 | | $ 58,588 | | $ 41,108 | | $ 36,655 | $ |

(1) Total debt consists of total bank debt, other loans received and capital lease obligations.

3B. CAPITALIZATION AND INDEBTEDNESS

Not applicable.

3C. REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

3D. RISK FACTORS

WE DEPEND ON A SMALL NUMBER OF PRINCIPAL CUSTOMERS WHO HAVE IN THE PAST

BOUGHT OUR PRODUCTS IN LARGE VOLUMES. WE CANNOT ASSURE THAT THESE CUSTOMERS

OR ANY OTHER CUSTOMER WILL CONTINUE TO BUY OUR PRODUCTS IN THE SAME VOLUMES

OR ON THE SAME TERMS.

Our sales to Victoria's Secret accounted for approximately 49.8% of our total sales in 2002, 38.2% of our total sales in 2003 and 38.5% of our total sales in 2004. Our sales to Target, Nike, Banana Republic and The Gap, and Cardinal Healthcare accounted in the aggregate for approximately 25.1% of our total sales in 2002, 28.8% of our total sales in 2003 and 35.7% of our total sales in 2004. See the table in "Item 4. Information on the Company - 4B. Business Overview - Customers." We do not have long-term purchase contracts with our customers, and our sales arrangements with our customers do not have minimum purchase requirements. We cannot assure that Victoria's Secret, Target, Nike, Banana Republic and The Gap, and Cardinal Healthcare or any other customer will continue to buy our products at all or in the same volumes or on the same terms as they have in the past. Their failure to do so may significantly reduce our sales. In addition, we cannot assure that we will be able to attract new customers. A material decrease in the quantity of sales made to our principal customers, a material adverse change in the terms of such sales or a material adverse change in the financial conditions of our principal customers could

significantly reduce our sales. See "Item 4. Information on the Company - 4B. Business Overview - Customers."

OUR PRINCIPAL CUSTOMERS ARE IN THE CLOTHING RETAIL INDUSTRY, WHICH IS SUBJECT TO SUBSTANTIAL CYCLICAL VARIATIONS. OUR REVENUES WILL DECLINE SIGNIFICANTLY IF OUR PRINCIPAL CUSTOMERS DO NOT CONTINUE TO BUY OUR PRODUCTS IN LARGE VOLUMES DUE TO AN ECONOMIC DOWNTURN.

Our customers are in the clothing retail industry, which is subject to substantial cyclical variations and is affected strongly by any downturn in the general economy. A downturn in the general economy, a change in consumer purchasing habits or any other events or uncertainties that discourage consumers from spending, could have a significant effect on our customers' sales and profitability. Such downturns, changes, events or uncertainties could result in our customers having larger inventories of our products than expected. These events could result in decreased purchase orders from us in the future, which would significantly reduce our sales and profitability. For example, the difficult global economic environment and the continuing soft retail market conditions in the world and specifically in the U.S. both before and especially after the events of September 11, 2001 were reflected in disappointing clothing retail sales in the year 2001 compared to the same period in the year 2000, and consequently decreased our order backlog and production levels. A prolonged economic downturn could harm our financial condition.

OUR EXPANSION INTO NEW PRODUCT LINES WITH MORE COMPLICATED PRODUCTS AND

DIFFERENT RAW MATERIALS REDUCED OUR OPERATING EFFICIENCY DURING 2003 AND

2004 AND OUR OPERATING EFFICIENCY MAY NOT IMPROVE IN THE FUTURE.

During 2003 and 2004, we invested significant efforts to develop and expand new product lines, including active-wear products and swimwear, to diversify our product line and our client base. The manufacturing of new, more complicated products with different raw materials has reduced our operating efficiency, and

may continue to do so. Although we believe that our efficiency will improve as we continue to manufacture our new product lines, we cannot assure that we will be able to return to our previous efficiency levels in the future.

OUR EXPANSION INTO NEW PRODUCT LINES, IN PARTICULAR ACTIVE-WEAR BUSINESS

PRODUCTS, INVOLVES THE MANUFACTURE OF NEW PRODUCTS, WHICH HAS AND MAY

REQUIRE US TO PURCHASE ADDITIONAL MACHINERY ADAPTED TO MANUFACTURE SUCH

PRODUCTS. THE ADDITIONAL CAPITAL EXPENDITURES INCURRED IN CONNECTION WITH

THESE PURCHASES MAY REDUCE OUR FUTURE CASH FLOW.

During 2003 and 2004, we invested significant efforts to develop and expand our new product lines, in particular active-wear products, to diversify our product line and our client base. Active-wear products that we manufacture are made in bigger sizes than intimate apparel, both because our active-wear products are intended for both men and women, and because our active-wear products involve the manufacture of more tops, we have purchased and may need to purchase additional knitting machines and other equipment adapted to manufacture our new products lines. In addition, the manufacture of active-wear products at times requires equipment with new technologies. The additional capital expenditures that may be incurred in connection with these purchases may reduce our future cash flow.

SINCE MOST OF OUR REVENUES ARE GENERATED IN U.S. DOLLARS AND A LARGE PART

OF OUR EXPENSES ARE IN ISRAELI CURRENCY, WE ARE SUBJECT TO FLUCTUATIONS IN

INFLATION AND CURRENCY RATES.

denominated financial reports, even though the expenses denominated in NIS will remain unchanged. A portion of our NIS denominated expenses is linked to changes in the Israeli cost of living index, a portion is linked to increases in NIS payments under collective bargaining agreements and a portion is unlinked.

In addition, an increase in our expenses in NIS will not always be compensated for fully by a devaluation of NIS vis-a-vis the U.S. dollar. In 2002 and 2004, the rate of devaluation of the NIS vis-a-vis the dollar exceeded the inflation rate in Israel. During 2002 and 2004, the rate of inflation was 6.5% and 1.2%, respectively, while NIS devalued against the U.S. dollar by 7.3% and - -1.6% in 2002 and 2004. During 2003, the rate of inflation was (1.9)%, while NIS appreciated against the U.S. dollar by 7.6%. However, to the extent in the future that the rate of inflation in Israel exceeds the rate of devaluation of the NIS in relation to the dollar or if the timing of such devaluation lags behind inflation in Israel, it could reduce our profitability. See "Item 5. Operating and Financial Review and Prospects - Impact of Inflation and Currency Fluctuations."

WE REQUIRE A SIGNIFICANT AMOUNT OF CASH TO PAY OUR DEBT. IF WE FAIL TO GENERATE SUFFICIENT CASH FLOW FROM OPERATIONS, WE MAY NEED TO RENEGOTIATE

OR REFINANCE OUR DEBT, OBTAIN ADDITIONAL FINANCING OR POSTPONE CAPITAL EXPENDITURES.

We depend mainly on our cash generated by operating activities to make payments on our debts. In 2004, the cash generated by operating activities was approximately $6.9 million. We cannot assure that we will generate sufficient cash flow from operations to make the scheduled payments on our debt. We have repayment obligations on our long-term debt of approximately $9.3 million in 2005, $9.4 million in 2006 and $8.9 million in 2007. These amounts do not include any repayment obligations under our short-term debt in the amount of approximately $21.4 million as of December 31, 2004. Our ability to meet our

debt obligations will depend on whether we can successfully implement our strategy, as well as on economic, financial, competitive and technical factors. Some of the factors are beyond our control, such as economic conditions in the markets where we operate or intend to operate, changes in our customers' demand for our products, and pressure from existing and new competitors.

If we cannot generate sufficient cash flow from operations to make scheduled payments on our debt obligations, we may need to renegotiate the terms of our debt, refinance our debt, obtain additional financing, delay planned capital expenditures or sell assets. Our ability to renegotiate the terms of our debt, refinance our debt or obtain additional financing will depend on, among other things:

o our financial condition at the time;
o restrictions in agreements governing our debt; and
o other factors, including market conditions.

If our lenders decline to renegotiate the terms of our debt, the lenders could declare all amounts borrowed and all amounts due to them under the agreements due and payable. If we are unable to repay the debt, the lenders could foreclose on our assets that are subject to liens and sell our assets to satisfy the debt. See "Item 5. Operating and Financial Review and Prospects" and "Item 10. Additional Information -10C. Material Contracts - Credit Agreement."

OUR DEBT OBLIGATIONS MAY HINDER OUR GROWTH AND PUT US AT A COMPETITIVE

DISADVANTAGE.

We have a considerable amount of bank debt mainly as a result of our acquisition of Alba in December 1999 and the investments made in our Hi-Tex Division. As of December 31, 2004, we had approximately $57.2 million of long term loans outstanding (including current maturities of $9.2 million) and approximately $21.4 million in short term bank credit. Our substantial debt obligations could have important consequences. For example, they could:

o require us to use a substantial portion of our operating cash flow to repay the principal and interest on our loans, which would reduce funds available to grow and expand our business, invest in machinery and equipment and for other purposes;
o place us at a competitive disadvantage compared to our competitors that have less debt;

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o make us more vulnerable to economic and industry downturns and reduce our flexibility in responding to changing business and economic conditions;
o limit our ability to pursue business opportunities; and
o limit our ability to borrow money for operations or capital in the future.

Because a significant portion of our loans bear interest at floating rates, an increase in interest rates could reduce our profitability. A ten percent interest rate change on our floating interest rate long-term loans outstanding at December 31, 2004, would have an annual impact of approximately $0.4 million on our interest cost. See "Item 5. Operating and Financial Review and Prospectus - - Liquidity and Capital Resources" and "Item 11. Quantitative and Qualitative Disclosures about Market Risk."

DUE TO RESTRICTIONS IN OUR LOAN AGREEMENTS, WE MAY NOT BE ABLE TO OPERATE

OUR BUSINESS AS WE DESIRE.

Our loan agreements contain a number of conditions and limitations on the way in which we can operate our business, including limitations on our ability to raise debt, sell or acquire assets and pay dividends. Our loan agreements also contain various covenants which require that we maintain certain financial ratios related to shareholder's equity and operating results that are customary for companies comparable in size. These limitations and covenants may force us to pursue less than optimal business strategies or forgo business arrangements which could have been financially advantageous to us or our shareholders. See "Item 5. Operating and Financial Review and Prospects - Liquidity and Capital Resources".

Our failure to comply with the covenants and restrictions contained in our loan agreements could lead to a default under the terms of these agreements. For instance, during 2004, our 48% subsidiary, AlbaHealth LLC, failed to comply with certain financial covenants contained in its credit facility with GE Capital, including a minimum EBITDA requirement. However, GE Capital has agreed to waive certain financial covenant defaults that occurred during 2004 and to amend certain of the financial covenant provisions of the AlbaHealth credit facility.

If a default occurs and we are unable to renegotiate the terms of the debt, the lenders could declare all amounts borrowed and all amounts due to them under the agreements due and payable. If we are unable to repay the debt, the lenders could foreclose on our assets that are subject to liens and sell our assets to satisfy the debt. See "Item 10. Additional Information - 10C. Material Contracts - - Credit Agreement."

OUR ANNUAL AND QUARTERLY OPERATING RESULTS MAY VARY WHICH MAY CAUSE THE

MARKET PRICE OF OUR ORDINARY SHARES TO DECLINE.

We may experience significant fluctuations in our annual and quarterly operating results which may be caused by, among other factors:

o the timing, size and composition of orders from customers;
o varying levels of market acceptance of our products;
o the timing of new product introductions by us, our customers or their competitors;
o economic conditions in the geographical areas in which we operate or

sell products; and

o operating efficiencies.

When we establish a relationship with a new customer, initial sales to such customer are often in larger quantities of goods (to build its initial inventory) than may be required to replenish such inventory from time to time afterwards. As a result, after a customer builds its initial inventory, our sales to such customer may decrease. We cannot assure that our sales to any of our customers will continue at the current rate. See "Item 5. Operating and Financial Review and Prospects."

Our operations are affected by our principal customers' businesses, which businesses are subject to substantial cyclical variations. If demand for our products is significantly reduced, our profits will be reduced, and we may experience slower production, lower plant and equipment utilization and lower fixed operating cost absorption.

Additionally, if, in any year, there is a significant number of Christian, Druse, Jewish or Muslim holidays in a particular quarter, we will have fewer days of operation which will result in lower levels of production and sales during such quarter. In certain years, a significant number of such holidays have occurred during the second quarter, but the dates of many of those holidays are based on the lunar calendar and vary from year to year.

OUR MARKETS ARE HIGHLY COMPETITIVE AND SOME OF OUR COMPETITORS HAVE NUMEROUS ADVANTAGES OVER US; WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.

We compete directly with a number of manufacturers of intimate apparel and active-wear, many of which have a lower cost-base than Tefron, longer operating histories, larger customer bases; greater geographical proximity to customers and significantly greater financial and marketing resources than we do.

Increased competition, direct or indirect, could reduce our revenues and profitability through pricing pressure, loss of market share and other factors. We cannot assure that we will be able to compete successfully against existing or new competitors, as the market for our products evolves and the level of competition increases. Moreover, our competitors, especially those from the Far East, have established relationships with our customers, which has caused an erosion of prices of some of our Cut & Sew products; current or future relationships between our existing and prospective competitors, especially from the Far East, with existing or potential customers, could materially affect our ability to compete. In addition, we cannot assure that our customers will not seek to manufacture our products through alternative sources and thereby eliminate the need to purchase our products. See "Item 4. Information on the Company - 4B. Business Overview - Competition."

Our customers operate in an intensely competitive retail environment. In the event that any of our customers' sales decline for any reason, whether or not related to us or to our products, our sales to such customers could be materially reduced.

In addition, our competitors may be able to purchase seamless knitting machines and other equipment similar to, but less expensive than, the Santoni knitting machines we use to knit garments in our Hi-Tex manufacturing process. By reducing their production cost, our competitors may lower their selling prices. If we are forced to reduce our prices and we cannot reduce our production costs, it will cause a reduction in our profitability. Furthermore, if there is a weak retail market or a downturn in the general economy, competitors may be pressured to sell their inventory at substantially depressed prices. A surplus of intimate apparel at significantly reduced prices in the marketplace would significantly reduce our sales.

WE ARE SUBJECT TO FLUCTUATING COSTS OF RAW MATERIALS.

our cost in securing raw materials is subject to substantial increases and decreases over which we have no control except by seeking to time our purchases of cotton and polymeric yarns, which are our principal raw material, to take advantage of favorable market conditions. For example, in 2004 the cost of synthetic fibers increased due to rising energy costs. We cannot assure that we will be able to pass on to customers the increased costs associated with the procurement of raw materials. Moreover, there has in the past been, and there may in the future be, a time lag between the incurrence of such increased costs and the transfer of such increases to customers. To the extent that increases in the cost of raw materials cannot be passed on to customers or there is a delay in passing on the increased costs to customers, we are likely to experience an increase in the cost of raw materials which may materially reduced our margin of profitability

IF OUR ORDINARY SHARES ARE DELISTED FROM THE NEW YORK STOCK EXCHANGE, THE

LIQUIDITY AND PRICE OF OUR ORDINARY SHARES AND OUR ABILITY TO ISSUE ADDITIONAL SECURITIES MAY BE SIGNIFICANTLY REDUCED.

In order to maintain the listing of our ordinary shares on The New York Stock Exchange, or NYSE, we are required to meet specified maintenance standards. In addition, the NYSE has proposed amending its continued listing criteria requiring a minimum stockholders' equity of $75 million and minimum market capitalization of $75 million.

In the event we fail to meet any current or revised listing criteria of the NYSE, our ordinary shares may be delisted from trading on The New York Stock Exchange. We cannot assure that we will meet all NYSE criteria in the future. Delisting of our ordinary shares would result in limited availability of market price information and limited news coverage. In addition, delisting could diminish investors' interest in our ordinary shares as well as significantly reduce the liquidity and price of our ordinary shares. Delisting may also make it more difficult for us to issue additional securities or secure additional

financing.

WE DEPEND ON OUR SUPPLIERS FOR MACHINERY. WE MAY EXPERIENCE DELAYS OR

ADDITIONAL COSTS SATISFYING OUR PRODUCTION REQUIREMENTS DUE TO OUR RELIANCE

ON THESE SUPPLIERS.

We purchase machinery and equipment, including the machinery used in our Hi-Tex manufacturing process, from sole suppliers. If our suppliers are not able to provide us with additional machinery or equipment as needed, we might not be able to increase our production to meet any growing demand for our products.

WE DEPEND ON SUBCONTRACTORS IN CONNECTION WITH OUR MANUFACTURING PROCESS,

IN PARTICULAR THE DYEING AND FINISHING PROCESS; WE MAY EXPERIENCE DELAYS OR

ADDITIONAL COSTS SATISFYING OUR PRODUCTION REQUIREMENTS AND WE MAY BE PREVENTED

FROM MEETING OUR CUSTOMERS ORDERS DUE TO OUR RELIANCE ON THESE SUBCONTRACTORS.

We depend on subcontractors who render to us services that are an integral part of our manufacturing process, and in particular sewing services. If such subcontractors do not render the required services, we may experience delays or additional costs to satisfy our production requirements.

We depend on a subcontractor who performs a major part of the dyeing and finishing of our Hi-Tex manufacturing process, which is an essential part of our manufacturing process. If that subcontractor breaches its commitments toward us or is not other wise able to supply the required services, we would have difficulty meeting our customer orders until we find an alternative solution.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY.

Our success is substantially dependent upon the adaptations and configurations we make to the machinery and equipment that we purchase and upon the manufacturing technologies and techniques that we have developed for our exclusive use. Only a part of the adaptations, configurations, technologies or techniques used in our manufacturing process is patented. Moreover, we purchase our machinery and equipment from third parties and we cannot assure that a competitor will not adapt, configure or otherwise utilize machinery or equipment in substantially the same manner as we do. In addition, our subcontractors have access to proprietary information, including regarding our manufacturing processes, and from time to time we also lend machinery and equipment to subcontractors, and there is a chance that subcontractors may breach their confidentiality undertakings toward us. Any replication of our manufacturing process by an existing or future competitor would significantly reduce our sales.

WE FACE POTENTIAL COMPETITION BY OUR FORMER EMPLOYEES.

Our trade secrets are well known to some of our employees. In the event one or more of our current or former employees exploit our trade secrets in violation of their non-competition and confidentiality obligations, we may be adversely affected in the competitive market and in our relationships with are customers and suppliers.

WE FACE POTENTIAL CONFLICTS OF INTEREST CAUSED BY INVESTOR INFLUENCE.

Our principal shareholders have a great deal of influence over the constitution of our Board of Directors and over matters submitted to a vote of the shareholders. As of April 6, 2005, Arie Wolfson, the Chairman of our Board of Directors, had direct voting power over approximately 5.41% of the outstanding ordinary shares of Tefron, not including options to acquire 150,000 ordinary shares of Tefron that have already vested. Mr. Wolfson is also the Chairman and a significant shareholder of Macpell Industries Ltd., an Israeli company that owned approximately 21% of the outstanding ordinary shares of Tefron as of April 6, 2005. Mr. Wolfson and our former president, Mr. Sigi Rabinowicz, another Macpell shareholder, collectively own a controlling interest in Macpell, have entered into a shareholders' agreement regarding corporate actions of Macpell, including the process by which Macpell votes its ordinary shares of Tefron to elect our Directors. As a result, the corporate actions of Tefron may be influenced significantly by Mr. Wolfson.

As of April 6, 2005, Norfet, Limited Partnership had voting power over approximately 31.6% of the outstanding ordinary shares of Tefron. In addition, as of April 6, 2005, Meir Shamir, one of our directors, owned approximately 40% in Mitvah-Shamir, which at such date was an approximately 35.5% holder in Norfet. As a result, the cooperate actions of Tefron may be significantly influenced by Mr. Shamir.

In connection with the acquisition of Tefron ordinary shares by Norfet, Limited Partnership from the Company and from Arwol Holdings Ltd., an Israeli company wholly owned by Arie Wolfson, and from Macpell, each of Norfet, Arwol and Macpell agreed to vote all of the Tefron ordinary shares owned or controlled by each of them for the election to the Company's nine-member Board of Directors of: (i) two members plus one independent director and one external director nominated by Norfet, Limited Partnership, (ii) two members plus one independent director and one external director nominated by Arwol and Macpell, and (iii) the Company's chief executive officer.

We are party to a consulting and management services agreement with Mr. Wolfson and a company controlled by him, as well as with Norfet pursuant to which the company controlled by Mr. Wolfson and Norfet have agreed to provide consultancy and management services to Tefron. We also engage in transactions with Macpell and its affiliates. We intend to continue to engage in transactions with Macpell and its affiliates. We may be in direct or indirect competition with Macpell or its affiliates in the future. See "Item 6. Directors, Senior Management and Employees - 6A. Directors and Senior Management," "Item 7. Major Shareholders and Related Party Transactions," and Note 16 of the Notes to the Consolidated Financial Statements.

Israeli companies law imposes procedures, including, for certain material transactions, a requirement of shareholder approval, as a precondition to entering into interested party transactions. These procedures may apply to transactions between Macpell and us and between Norfet and us. However, we cannot assure that we will be able to avoid the possible detrimental effects of any such conflicts of interest by complying with the procedures mandated by Israeli law. See "Item 6. Directors, Senior Management and Employees - 6A. Directors and Senior Management," "- 6C. Board Practices," and "Item 7. Major Shareholders and Related Party Transactions."

WE ARE AFFECTED BY CONDITIONS TO, AND POSSIBLE REDUCTION OF, GOVERNMENT

PROGRAMS AND TAX BENEFITS

We benefit from certain Israeli Government programs and tax benefits, particularly as a result of the "Approved Enterprise" status of substantially all of our existing production facilities in Israel. As a result of our "Approved Enterprise" status, we have been able to receive significant investment grants with respect to our capital expenditures. Following our exhaustion of our net operating loss carry forwards, we have been able to benefit from a reduced tax rate of 25% on earnings derived from these investments for which the benefit period has not expired. To maintain eligibility for these programs and tax benefits, we must continue to meet certain conditions, including making certain specified investments in fixed assets and conducting our operations in specified "Approved Enterprise" zones. If we fail to meet such conditions in the future, we could be required to refund tax benefits and grants already received, in whole or in part, with interest linked to the Consumer Price Index in Israel from the date of receipt. We have granted a security interest over all of our assets to secure our obligations to fulfill these conditions.

The Government of Israel has reduced the available amount of investment grants from up to 38% of eligible capital expenditures in 1996 to up to 24% of eligible capital expenditures (for projects not exceeding investments of 140 million shekels that are submitted in any year) and up to 20% of eligible capital expenditures (for projects exceeding investments of 140 million shekels that are submitted in any year) since 1997. There can be no assurance that the Israeli Government will not further reduce the availability of investment grants. The termination or reduction of certain programs and tax benefits, particularly benefits available to us as a result of the "Approved Enterprise" status of some of our existing facilities in Israel, would increase the costs of acquiring machinery and equipment for our production facilities and increase our effective tax rate which, in the aggregate, could significantly reduce our profitability.

In addition, if the percentage of our foreign investment exceeds 25%, our Approved Enterprises would qualify for reduced tax rates for three years beyond the initial seven-year period. We cannot assure that we will obtain approval for additional Approved Enterprises, or that the provisions of the Law for the Encouragement of Capital Investments, 1959, as amended, will not change or that the 25% foreign investment percentage will be reached for any subsequent year. See "Item 4. Information on the Company - 4B. Business Overview - Israeli Investment Grants and Tax Incentives."

We also benefit from exemptions from customs duties and import quotas due to our locations in Israel and Jordan (Qualified Industrial Zone) and the free trade agreements Israel maintains with the United States, Canada, the European Union and the European Free Trade Association. If there is a change in such benefits or if other countries enter into similar agreements and obtain similar benefits or if any such agreements were terminated, our profitability may be reduced.

WE FACE SEVERAL RISKS, INCLUDING POLITICAL, ECONOMIC, SOCIAL, CLIMATIC RISKS, ASSOCIATED WITH INTERNATIONAL BUSINESS.

Approximately 92% of our sales in 2004 were made to customers in the United States, and we intend to continue to expand our sales to customers in the United States and Europe. In addition, a substantial majority of our raw materials are purchased outside of Israel. Our international sales and purchases are affected by costs associated with shipping goods and risks inherent in doing business in international markets, including:

o changes in regulatory requirements;

o export restrictions, tariffs and other trade barriers;
o currency fluctuations;
o longer payment cycles;

10

o difficulties in collecting accounts receivable;
o political instability and seasonal reductions in business activities; and
o Strikes and general economic problems.

Any of these risks could have a material adverse effect on our ability to deliver or receive goods on a competitive and timely basis and on our results of operations. We cannot assure that we will not encounter significant difficulties in connection with the sale or procurement of goods in international markets in the future or that one or more of these factors will not significantly reduce our sales and profitability. See "Item 4. Information on the Company - 4B. Business Overview - Manufacturing and Production."

In addition, we may enter into joint ventures with third parties or establish operations outside of Israel that will subject us to additional operating risks. These risks may include diversion of management time and resources and the loss of management control over such operations and may subject us to the laws of such jurisdiction.

In addition to our production facilities in Israel, we currently have production facilities in Jordan, we have relationships with manufacturers in China and we are in the process of shifting additional sewing production out of Israel to take advantage of lower labor costs. Due to commercial disputes that

arose between us and the other shareholders of our joint subsidiaries that managed operations in Madagascar, we no longer have production facilities in Madagascar.

Our ability to benefit from the lower labor costs will depend on the political, social and economic stability of these countries and in the Middle East and Africa in general. We cannot assure that the political, economic or social situation in these countries or in the Middle East and Africa in general will not have a material adverse effect on our operations, especially in light of the potential for hostilities in the Middle East. The success of the production facilities also will depend on the quality of the workmanship of laborers and our ability to maintain good relations with such laborers, in these countries. We cannot guarantee that our operations in China or Jordan will be cost-efficient or successful.

WE ARE SUBJECT TO VARIOUS RISKS RELATING TO OPERATIONS IN ISRAEL

We are incorporated under the laws of, and our main offices and manufacturing facilities are located in, the State of Israel. We are directly influenced by the political, economic and security conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. Any major hostilities involving Israel, the interruption or curtailment of trade between Israel and its trading partners or a significant downturn in the economic or financial condition of Israel could have a material adverse effect on our operations. Since October 2000, there has been a substantial deterioration in the relationship between Israel and the Palestinians which has resulted in increased violence. The future effect of this deterioration and violence on the Israeli economy and our operations is unclear. We cannot assure that ongoing or revived hostilities or other factors related to Israel will not have a material adverse effect on us or our business.

Generally, all male adult citizens and permanent residents of Israel under the age of 54, unless exempt, are obligated to perform up to 36 days of annual military reserve duty. Additionally, all such residents are subject to being called to active duty at any time under emergency circumstances. Some of our officers and employees are currently obligated to perform annual reserve duty. No assessment can be made as to the full impact of such requirements on our workforce or business if conditions in Israel should change, and no prediction can be made as to the effect of any expansion or reduction of such military obligations on us. See "Item 4. Information on the Company - 4B. Business Overview - Conditions in Israel."

During 2004, a general strike at Israel's ports caused a shortage of raw materials and resulted in a loss of sales to the Company of approximately $2.5 million. This shortage also resulted in a decrease in production volume and an increase in operating costs, which affected our ability to achieve greater operating efficiencies. Although Israel's Ministry of Finance, the Histadrut (General Federation of Labor in Israel), and the Israel Ports Authority signed an agreement in February 2005 which is intended to ensure five (5) years without labor strikes, a further strike or labor disruption at Israel's ports may occur and have an adverse effect on us or our business.

ITEM 4. INFORMATION ON THE COMPANY

4A. HISTORY AND DEVELOPMENT OF THE COMPANY

Tefron Ltd. was incorporated under the laws of the State of Israel on March 10, 1977. Our principal executive offices are located at Park Azorim, Derech Em Hamoshavot 94, Petach Tikva 49527, Israel and our telephone number is 972-3-923-0215. We are subject to the provisions of the Israeli Companies Law, 1999. Our agent for service of process in the United States is CSC Corporation

Service Company, 2711 Centerville Rd. Suite 400, Wilmington, DE 19808.

Below is a summary of significant events in our development:




1990	First bodysize cotton panty with applicated elastics
1997	Formation of Hi-Tex Founded by Tefron Ltd. and production of first
seamless	panty.

	Initial public offering of our shares on the NYSE.
1998	Acquisition of a dyeing and finishing facility to achieve greatervertical integration of our business.
1999	Acquisition of Alba, a manufacturer of seamless apparel and healthcareproducts. The main purpose of the acquisition of Alba was to acquireadditional production capacity, a presence in the United States, directstore distribution capacity, a broader customer base and incrementalrevenues.
2001	Initial significant shifting of sewing production to Jordan
2001	Launch of a turn around program, including significant cost reduction,downsizing and consolidation of operations.
2002	Reorganization of Alba, including a spin off of the Health ProductDivision and the formation of the AlbaHealth joint venture with astrategic investor, and the initial consolidation of the seamlessproduction activity in Hi-Tex in Israel, was completed in the secondquarter of 2003.
2003	Acquisition of all of the outstanding ordinary shares of Macro ClothingLtd., an entity that manufactures, markets and sells swimsuits and

beachwear.

Implementation of strategic steps to expand our product line, including active-wear products, to diversify our product line and client base.

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FEB.-APRIL 2004	Closing of equity investments with two groups of investors in the
aggregate
	amount of $20 million.
OCTOBER 2004	Launch of a new business division, Sports Innovation Division
("SID"), which is
	devoted to our growing US customers base in the sport active wear market.

ALBAHEALTH LLC

FORMATION OF ENTITY. On September 6, 2002, Alba entered into a contribution agreement with Encompass Group, L.L.C., an experienced manufacturer and marketer of numerous health products, and General Electric Capital Corporation, as a result of which Encompass and GE Capital acquired a portion of Alba'sHealth Products Division which from then became operated through a newly formed Delaware limited liability company, AlbaHealth LLC, referred to in this Annual Report as AlbaHealth.

Under the terms of the contribution agreement, Alba contributed to Alba Health substantially all of the assets related to its Health Products Division, together with the associated liabilities, including bank debt of US$28 million secured by such assets, in exchange for a 48.325% ownership interest in

AlbaHealth. Encompass contributed US$12 million in cash to the capital of AlbaHealth in exchange for a 48.325% ownership interest, and GE Capital contributed US $1 million in cash in exchange for a 3.35% ownership interest. In addition, GE Capital provided AlbaHealth with a US$18.0 million credit facility. For information concerning the AlbaHealth credit agreement, see "Item 10. Additional Information - 10C. Material Contracts - AlbaHealth Credit Agreement."

Under the terms of the Contribution Agreement, the parties agreed that Alba will maintain a majority position on the board of managers of AlbaHealth so long as it holds at least 40% of the interest of AlbaHealth. In addition, the Contribution Agreement provides for certain limitations on the ability of the parties to transfer their interests in AlbaHealth.

We, together with Alba and Encompass, undertook that, until the fifth year following the date on which we shall cease to hold interest in AlbaHealth, we shall not, directly or indirectly, engage in any competitive business in the territory of the US, Canada and Mexico.

PUT OPTION AGREEMENT. The parties to the Contribution Agreement are also parties to a Put Option Agreement under which each of Alba and GE Capital has an option to require AlbaHealth to purchase all, but not less than all, of such party's ownership interest in AlbaHealth. See "Item 10. Additional Information - 10C. Material Contracts - Alba Health Put Option Agreement."

MANAGEMENT FEES. Under the terms of the agreement, Alba provided certain management services to AlbaHealth in return for an annual fee of approximately $832,000 for the first year ending on September 6, 2003, which amount is to be increased at a rate of 4% per annum for each additional year of the term. As of the March 31, 2005, this agreement remains in effect.

CAPITAL EXPENDITURES

Our capital expenditures for fixed assets (net of grants from the Government of the State of Israel) were $7.8 million, $ 2.1 million, and $1.3 million for the years ended December 31, 2004, 2003, and 2002, respectively. The 2004 expenditures were primarily made in Israel to purchase new knitting machines and other equipment. See Consolidated Statements of Cash Flows in the

Consolidated Financial Statements.

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Our current capital expenditures include investments in equipment, machinery and leasehold improvements in our facilities in Israel and Jordan. See Note 6 of the Notes to the Consolidated Financial Statements. We expect to incur capital expenses to acquire new dying and finishing equipment for Hi-Tex and to shift more of the sewing production of our Cut & Sew division and Hi-Tex division out of Israel to Jordan, to the Far East and to other locations to take advantage of lower labor costs.

As of the date of this Annual Report, we estimate that our capital expenditures for 2005 (net of grants from the Government of the State of Israel) will be approximately $5 million. We expect to finance these investments primarily from cash generated from operations. However, the actual amount of our capital expenditures will depend on a variety of factors, including general economic conditions, changes in demand for our products, increase in the sales growth of our new products, the risks and uncertainties involved in doing business in Jordan and our ability to generate sufficient cash from operations. See "Item 3. Key Information - 3D. Risk Factors."

4B. BUSINESS OVERVIEW

OVERVIEW

We manufacture intimate apparel, active-wear and swimwear sold throughout the world by such name-brand marketers as Victoria's Secret, Target, Nike, The Gap, Banana Republic, and other well known American retailers and designer labels. Through the utilization of manufacturing technologies and techniques developed or refined by us, we are able to mass-produce quality garments featuring unique designs tailored to our customers' individual specifications. Our product line includes knitted briefs, bras, tank tops, boxers, leggings, crop, T-shirts, day-wear, nightwear, bodysuits, swim wear, beach wear,

active-wear and accessories. Our Healthcare Division manufactures and sells a range of textile healthcare products. These products include: anti-embolism stockings and compression therapy systems, an intermittent pneumatic compression device; sterile wound dressings; and XX-Span(R) dressing retainers, an extensible net tubing designed to hold dressings in place without the use of adhesive tape.

We seek to apply our manufacturing technologies and techniques to meet the fashion and merchandising needs of our customers. With product innovation made possible by our manufacturing capabilities, we invest our marketing efforts to become a principal supplier to a more select customer base, representing some of the leaders in the intimate apparel and active-wear industries. As a result of this strategy, we successfully entered the United States market for quality, competitively priced intimate apparel and active wear.

We are known for the technological innovation of our Hi-Tex manufacturing process. Our Hi-Tex manufacturing process was implemented as part of our strategy to streamline our manufacturing process and improve the design and quality of our products. The Hi-Tex manufacturing process includes the utilization of a single machine that transforms yarn directly into a nearly complete garment, replacing the knitting, cutting, and significant sewing functions which, in traditional manufacturing, are performed sequentially on separate machines at separate workstations. Following this single-machine operation, all the Hi-Tex manufacturing process requires to complete the garment is dyeing and a reduced amount of sewing and finishing. Our Hi-Tex manufacturing process enables us to produce a substantially wider range of fabrics, styles and product lines, resulting in a consistently high level of comfort, quality and durability. Our fabric engineering, product design and the comfort of our products provide us with an opportunity to expand our sales of active-wear products.

We believe that our collaboration with our customers in the design and development of our products strengthens our relationships with our customers and improves the quality of our products. We began our relationship with Victoria's Secret in 1991, with Banana Republic and The Gap in 1993, with Warnaco/Calvin Klein in 1994 and with Nike in 2000. In 2000, we began our relationship with Target, which was an existing customer of Alba. In 2004, these customers

accounted for approximately 69.8% of our total sales. We enjoy several strategic advantages by reason of our location in Israel and Jordan. Israel is one of the few countries in the world that has free trade agreements with the United States, Canada, the European Union, or EU, and the European Free Trade Association, or EFTA. These agreements permit us to sell our products in the United States, Canada and the member countries of the EU and the EFTA free of customs duties and import quotas. Due to our locations in Jordan we benefit from exemptions from customs duties and import quotas. We also currently benefit from substantial investment grants and tax incentives provided by the Government of Israel and from the availability in Israel of both skilled engineers and relatively inexpensive unskilled workers. See "- Israeli Investment Grants and Tax Incentives" and "- Conditions in Israel -Trade Agreements."

PRODUCTS

In close collaboration with our customers, we design and manufacture intimate apparel, active-wear and swimwear. Through our efficient capability, we produce garments made of cotton and synthetic fibers for large- volume marketers who, in recent years, have increased retail consumer interest for quality intimate apparel and active-wear at affordable prices. We believe that our advanced technology and manufacturing processes enable us to deliver intimate apparel and active-wear that is comfortable to wear, fits well, fashionable, made of high-quality fabric and difficult to imitate. Our product line includes knitted briefs, bras, tank tops, boxers, leggings, crop, T-shirts, daywear, nightwear, bodysuits, swim wear, beach wear, active-wear, and accessories.

AlbaHealth manufactures and sells healthcare products. These products include: anti-embolism stockings and compression therapy systems, an intermittent pneumatic compression device, both of which are designed to improve circulation and reduce the incidence of deep vein thrombosis; sterile wound dressings, such as pre-saturated gauze, petrolatum and xeroform gauze, non-adhering dressings and gauze strips; and XX-Span(R) dressing retainers, an

extensible net tubing designed to hold dressings in place without the use of adhesive tape. All dressing products are used in wound care therapy. Other healthcare products include slip-resistant patient treads, which are knitted soft patient footwear with slip-resistant sole to help prevent patient falls while keeping feet warm even while in bed, oversized socks and knitted cuffs. In 2004, footwear products represented approximately 49.3% of the sales of the AlbaHealth.

The principal market for our products is the United States. For a breakdown of our sales by geographic area and operating segments, see Note 15 of the Notes to the Consolidated Financial Statements.

MANUFACTURING AND PRODUCTION

We have developed manufacturing innovations for various stages of the production process, including improvements in the knitting of fabric as well as the cutting and sewing of individual garments. Our manufacturing technologies and techniques allow us to provide our customers with mass-produced quality merchandise at competitive prices. In May 1997, we introduced our Hi-Tex manufacturing process which consolidates a large portion of the production steps into a single machine, the Santoni knitting machine, and has enabled us to produce a substantially wider range of fabrics, styles and product lines at a consistently higher level of comfort, quality and durability. The Santoni Knitting machines are seamless knitting machines that use state-of-the-art computer controlled circular knitting technology.

We manufacture products only to fill firm orders and therefore maintain limited inventory of finished goods. Customers typically send projected product requirements to us between six and twelve months in advance of the delivery requirements and place firm orders between three and six months prior to the desired delivery date. This lead time allows us to coordinate raw material procurement with its usage and to adjust production levels in order to meet demand.

We currently produce intimate apparel and active-wear products in different style, color and yarn combinations. We manufacture cotton knit products using our advanced proprietary manufacturing techniques and also produce fine products from synthetic fibers, including micro-fibers, using our cut-and-sew manufacturing process and our highly automated Hi-Tex manufacturing process.

MANUFACTURING PROCESS

We utilize vertically integrated production processes and automated production techniques. These processes involve the following steps:

o PRODUCT DESIGN Traditionally, manufacturers produce several samples of a garment from which apparel marketers can select. In contrast, our sophisticated technology enables us to collaborate with our customers earlier in the design process to develop customized garments. In addition, we work independently to develop new products, to increase sales to existing customers and to exploit market opportunities and increase penetration where it can establish a competitive advantage.
o RAW MATERIAL DEVELOPMENT After a design is developed, raw materials for the production of the product are purchased. Our raw materials include cotton yarns, blends of cotton and synthetic yarn (e.g., cotton-spandex, cotton-lycra and cotton-viscose), micro-fiber nylons and blends of micro-fiber nylon with lycra/spandex and elastic. We purchase our raw materials from several international and domestic suppliers and historically have not experienced any difficulty in obtaining raw materials to meet production requirements. Raw materials are generally purchased against actual orders. From time to time, when market conditions are favorable, we have entered into contracts with various suppliers of basic cotton for delivery over a period of three to six months.
o KNITTING (ONLY CUT & SEW) Our Cut & Sew Division knitting facility located adjacent to our principal manufacturing facility in Segev, Israel, currently supplies substantially all of our fabric needs in

Israel. This facility utilizes advanced and automated technology to knit tubular fabric, including bodysize fabrics. Bodysize fabrics, which are required for bodysize garments, enable maximum use of fabric and minimize waste during cutting. We operate 134 automatic knitting machines, which have capacity to produce approximately 350 tons of fabric per month (depending on the type of fabric). During 2004, we produced approximately 110 tons of fabric per month.

o DYEING AND FINISHING Our Cut & Sew Division's dyeing and finishing facility can satisfy a significant portion of its dyeing and finishing needs in-house. The remainder is outsourced to dyeing and finishing subcontractors in Israel. Our Hi-Tex Division subcontracts all of its dyeing and finishing needs. We have established testing procedures which examine all fabric upon return to us to ensure the color consistency, stability and durability of our dyed fabric.
o CUTTING (ONLY CUT & SEW) Traditionally, manufacturers manually cut multiple layers of fabric on a cutting table. To modernize the production process, manufacturers have used computerized, automatic cutting equipment. We use both this equipment and highly advanced machines that automatically and continuously lay and cut tubular knitted fabric to specified sizes, minimizing fabric waste and the amount of sewing required, which results in a more consistent and comfortable garment.
o SEWING (ONLY CUT & SEW) Cut fabrics are sewn to complete the garment, including the addition of accessories such as elastic waist and leg bands as well as labels. Working with computerized equipment and robotics, our employees sew garments with far greater precision than if sewn entirely by hand. To accommodate short-term increased capacity requirements, we have the ability to utilize subcontractors to perform a portion of the sewing process. Our Cut & Sew Division operates a sewing facility in Jordan and also subcontracts sewing in Israel, China and Jordan.
o TESTING AND QUALITY CONTROL We place significant emphasis on quality control and uses quality assurance teams at each stage of the

manufacturing process.

HI-TEX MANUFACTURING PROCESS

In an effort to streamline and automate the manufacturing process further, we developed the Hi-Tex manufacturing process, which utilizes state-of-the-art technology that eliminates most stages of the manufacturing process while increasing efficiency, consistency and quality. We have successfully combined existing hosiery and apparel technologies to create this new manufacturing process. The Hi-Tex process includes the utilization of a single machine, the Santoni knitting machine, that transforms yarn directly into a nearly complete garment, replacing the knitting, cutting, sewing and accessorizing functions which, in traditional manufacturing, are performed sequentially on separate machines at separate workstations. Following this single-machine operation, all the Hi-Tex process requires to complete the garment is dyeing and a limited amount of sewing and finishing, which are conducted using our proprietary techniques. In addition to providing a higher level of manufacturing efficiency, Hi-Tex has enabled us to produce a substantially wider range of fabrics, styles and product lines at a consistently higher level of comfort, quality and durability. This is made possible, in large part, because the Hi-Tex process knits a garment directly, rather than cutting it from fabric, allowing for the production of any size, pattern or design with even greater precision than previously available.

The Hi-Tex manufacturing process is currently being used to produce knit-to-size intimate apparel, active-wear and outerwear. We operate our Hi-Tex knitting process in our principal production facilities in Segev, Israel. We operate our Hi-Tex sewing process in three sewing facilities in Israel and also subcontracts sewing in Israel and in Jordan. See "Item 4. Information on the Company - 4D. Property, Plants and Equipment." At December 31, 2004, we had a total of 735 fully equipped Santoni Knitting machines at the Hi-Tex facilities in Israel. We also have 155 fully equipped Santoni Knitting machines at Alba in

Valdese, North Carolina, which are currently not operated but may be transferred to other manufacturing facilities at our discretion. We completed the shifting of our manufacturing from our Consumer Division of Alba, located in the United States, to Hi-Tex in Israel in the second quarter of 2003.

We believe that the Hi-Tex manufacturing process represents an innovative combination of cutting-edge technology and technical expertise and has further strengthened our reputation within the industry as a leader in automated manufacture and design. In addition, with both the Hi-Tex manufacturing process and the traditional cut-and-sew process, we are able to produce garments made from synthetic fibers in addition to its existing lines of cotton products. We specialize in developing and using performance yarns. The Hi-Tex manufacturing process was developed in-house through the adaptation and configuration of machinery and equipment purchased from third parties. Although developed for its exclusive use, only a part of these adaptations and configurations is patented.

Alba's health products, now produced by AlbaHealth, are manufactured at its Rockwood, Tennessee plant and by subcontractors in the United States, Mexico and Sri Lanka.

SALES AND MARKETING

Our marketing strategy focuses on selling quality knitted products to large U.S. marketers of intimate apparel, active-wear and swimwear. We market our products directly to major retailers, which sell them under their own labels and to several companies that market nationally advertised brands. We have sales offices which are located in Portland, Oregon and in Israel.

We see the active-wear market as an added opportunity to materialize our innovative production and design capabilities. Our office in Portland, Oregon serves to advance our active-wear sales, to strengthen the communication with our active-wear customers, and to improve our services. In addition, we have

dedicated a separate development and sales team in Israel for the active-wear customers.

Products of the AlbaHealth for use in hospitals are marketed to major distributors by AlbaHealth's sales representatives. These products are sold both under private label and AlbaHealth's own label.

INTELLECTUAL PROPERTY

Only a part of the adaptations, configurations, technologies or techniques used in our manufacturing process is patented. See "Item 3. Key Information - 3D. Risk Factors - We may not be able to protect our intellectual property." However, we have obtained patents for certain aspects of our manufacturing process and for certain of our products, such as the "millennium bra", the "bonded bra" and the "ultrasonic bra", whose fabric is joined without sewing.

Alba holds several patents relating to our products and AlbaHealth holds several patents relating to healthcare products, including patents for processes which make it possible to knit bras and various functional features in bras and panties on seamless knitting equipment. AlbaHealth also holds a patent for a device used to warm wet dressings as well as a patent for a process covering the manufacture of dressings.

We emphasize the development of new technologies that will enable the manufacture of products that have an advantage over the products currently existing in the market.

SEASONALITY

Although our operations are affected by the substantial cyclical variations of our principal customers' businesses, downturns in the general economy, a change in consumer purchasing habits and other events, we have not identified a clear seasonal pattern to our general business, other than with respect to our swimwear products. In the swimwear segment, most of our sales are consummated between December and May.

CUSTOMERS

Our customers represent some of the leading marketers of intimate apparel and active-wear in the world. More than 65% of our sales in 2004 were derived from the worldwide sale of our products to our four largest apparel customers, Victoria's Secret, Target, Nike, and Gap/Banana Republic. In 2004, we strengthened our business relationship with our active-wear customers, such as Nike, Patagonia, Puma , Adidas and others.

The following table outlines the dollar amount and percentage of total sales to our customers:



CUSTOMER		2002		2003		2004
		--------------------	---------------------		---------------------
			(Dollars in millions)

Victoria's Secret (1)		$94.7	49.8%	$62.2	38.2%	$70.4	38.5%
Target	$10.0	5.3%	$14.8		9.1%$24.4	13.40%
Cardinal Healthcare (2)		$16.7	8.8%	$17.8	10.9%	$16.9	9.2%

| | | | | | || | | | | | | | | | | 19 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CUSTOMER | -------------------- | 2002 | --------------------- | 2003 | --------------------- | 2004 | | | | | | (Dollars in millions) | | | | | | | | | | | | | | | Nike | $ 5.2 | 2.7% | $ 5.3 | | 3.2% $ 12.4 | 6.8% | | | Gap/Banana Republic | | $ 15.8 | 8.3% | $ 9.2 | 5.6% | $ 11.5 | 6.3% |

Others	$ 47.9	25.2%	$ 53.9	33.0%	$ 47.3	25.8%
Total	$190.3	100.0%	$163.1	100.0%	$182.8	100.0%

| | | | | |(1) Includes sales to Mast on behalf of Victoria's Secret, Victoria's Secret Catalog, Cacique and Abercrombie & Fitch.

(2) Customer of AlbaHealth, our 48% subsidiary.

We established our relationship with our largest customer, Victoria's Secret, in 1991. Currently, we manufacture underwear, nightwear, loungewear, bodysuits and bras for Victoria's Secret. We continue to seek to expand and strengthen our relationship with Victoria's Secret by providing the retailer with a continuing line of new products. However, we cannot assure that Victoria's Secret will continue to buy our products in the same volumes or on the same terms as they did in the past. For instance, we have been asked by Victoria's Secret to reduce the prices of Victoria's Secret's Logo program. See "Item 3. Key Information - 3D. Risk Factors - We depend on a small number of principal customers who have in the past bought our products in large volumes. We cannot assure that these customers or any other customer will continue to buy our products in the same volumes or on the same terms."

We began our relationship with Target in 2000, which was an existing customer of Alba. Currently, we supply them with underwear for men and women, and active-wear products.

We began our working relationship with Nike in 2000. Currently, we supply them with active wear for men and women.

We began our working relationship with Banana Republic and The Gap in 1993. Currently, we supply Banana Republic and The Gap with underwear and sleepwear.

We also gained as a customer Allegiance Healthcare Corporation, subsequently acquired by Cardinal Healthcare, through our acquisition of Alba at the end of the year 1999. Cardinal acquires a range of medical products from

AlbaHealth.

When we establish a relationship with a new customer in the normal course of business, our initial sales to that customer are typically in larger quantities of goods (to build the customer's initial inventory) than may be required to replenish such inventory from time to time thereafter. After a customer builds its initial inventory, the rate of growth of our sales to the customer may decrease. The volume of products ordered by customers are subject to the cyclical variations in their business. See "Item 3. Key Information - 3D. Risk Factors."

We depend on a small number of principal customers. Our principal customers are in the retail industry, which is subject to substantial cyclical variations. Our annual and quarterly results may vary which may cause our profits and/or the market price of our Ordinary Shares to decline. Consequently, there can be no assurance that sales to current customers will continue at the current rate.

BACKLOG

Our backlog of orders during 2004 ranged from $48.6 million to $85.8 million, as compared to a range of $24.4 million to $68.4 million during 2003. This backlog is comprised of firm orders that represent the average production volume mainly for the subsequent three to six months. Backlog data and any comparison thereof as of different dates may not necessarily indicate future sales.

ISRAELI INVESTMENT GRANTS AND TAX INCENTIVES

The Israeli government has established investment and tax incentive programs for enterprises that invest and do business in Israel. Israeli government support is provided primarily to industrial and tourism companies that help fulfill certain economic objectives of the Israeli government, such as

creating employment in selected locations in Israel, competing in international markets, utilizing innovative technologies, producing value-added products and generating income in foreign currency. To date, we have enjoyed Israeli government grants with respect to such programs for significant amounts of our capital expenditures. Such grants were available from 1997 to 2001 for an amount equal to 24% of the eligible annual capital expenditures (for projects not exceeding investments of NIS140 million in any year), and for an amount equal to 20% of the eligible annual capital expenditures (for projects exceeding investments of NIS140 million). Following the exhaustion of our net operating loss carry forwards in 1997, we began to benefit from certain tax incentives as a result of the Approved Enterprise status of certain of its facilities. Approved Enterprises related to investment programs from January 1997 onwards in designated areas which include the location of our primary plants are exempt from tax for the first two years of the Benefit Period commencing in the first year in which the taxable income is generated.

LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959

The Law for Encouragement of Capital Investments, 1959, or the Investment Law, provides that a capital investment in eligible facilities may, upon application to the Investment Center, be designated as an "Approved Enterprise." Each certificate of approval for an Approved Enterprise relates to a specific investment program delineated both by its financial scope, including its capital sources, and by its physical characteristics, e.g., the equipment to be purchased and utilized pursuant to the program. The tax benefits derived from any such certificate of approval relate only to taxable income attributable to the specific Approved Enterprise.

Each application to the Investment Center is reviewed separately, and a decision as to whether or not to approve such application is based, among other things, on the then prevailing criteria set forth in the Investment Law, on the specific objectives of the applicant company set forth in such application and on certain financial criteria of the applicant company. Accordingly, there can be no assurance that any such application will be approved.

Taxable income of a company derived from an Approved Enterprise designated as such after July 30, 1978 is subject to corporate tax at the maximum rate of

25% (rather than the generally applicable regular corporate tax rate of 35%) for the "Benefit Period," a period of seven years commencing with the year in which the Approved Enterprise first generated taxable income (limited to 12 years from commencement of production or 14 years from the date of approval, whichever is earlier) and, under certain circumstances (as further detailed below), extending to a maximum of ten years from the commencement of the Benefit Period. In the event that a company is operating under more than one approval or that its capital investments are only partly approved, referred to as a "Mixed Enterprise", its effective corporate tax rate is the result of a weighted combination of the various applicable rates.

We currently have plants which have been granted Approved Enterprise status in conformity with the Investment Law. In accordance with this law, the income from the Approved Enterprises during the Benefit Period will be subject to a reduced tax rate of 25%. A company with foreign investment in excess of 25% at the time an approval is granted is entitled to a Benefit Period of ten years from such approval and, if the proportion of foreign investment is between 49% and 74%, to a tax rate of 20%. The proportion of foreign investment is measured annually based on the lowest level of foreign investment during the year. Our effective tax rate for accounting purposes for income derived from Approved Enterprises during 2004, based on its percentage of foreign investment in 2004, was 25%. Due to accumulated losses and other factors, we did not pay tax on this income during 2004.

21

The Benefit Period for our first Approved Enterprises has ended and as such, income attributable to these enterprises are taxed at a rate of 35%, the regular Israeli corporate tax rate. (expected to be progressively reduced to 34% in 2005, 32% in 2006 and 30% in 2007 and thereafter). Shareholders are subject to a 15% Israeli tax (withheld at source) on dividends distributed out of income of Approved Enterprises and a 25% Israeli tax (unless treaties for the prevention of double taxation state otherwise) on dividends distributed from other sources of income. The Benefit Period for our remaining Approved

Enterprises began in 1997, when our taxable income first exceeded our net operating loss carry forwards.

The Investment Law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and equipment that are included in an approved investment program. We have not utilized this benefit as we have received preferable depreciation rights pursuant to other taxation laws.

Grants and certain other incentives received by a company in accordance with the Investment Law remain subject to final ratification by the Investment Center, such ratification being conditional upon fulfillment of all terms of the approved program.

The benefits available to an Approved Enterprise are conditional upon the fulfillment of certain conditions stipulated in the Investment Law and its regulations and the criteria set forth in the specific certificate approval, as described above. In the event that these conditions are violated, in whole or in part, we would be required to refund the amount of tax benefits, with the addition of the Israeli consumer price index, or CPI, linkage adjustment and interest. We have granted a security interest over all of our assets to secure our obligation to fulfill these conditions. We believe that our Approved Enterprises operate in substantial compliance with all such conditions and criteria. However, the shifting of the sewing operations from Israel to Jordan may require an adjustment to the terms of the certificate approval; otherwise, our operations may not be in compliance with the approval's terms.

LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969

We currently qualify as an "Industrial Company" within the definition of the Law for the Encouragement of Industry (Taxes), 1969, or the Industry Encouragement Law. According to the Industry Encouragement Law, an Industrial Company is a company resident in Israel, at least 90% of the income of which, in any tax year, determined in Israeli currency (exclusive of income from defense loans, capital gains, interest and dividends), is derived from an "Industrial Enterprise" owned by it. An Industrial Enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity.

The following tax benefits are available to Industrial Companies:

(a) deduction of purchases of know-how and patents over an eight-year period for tax purposes;

(b) an election under certain conditions to file a consolidated tax return with certain Israeli industrial subsidiaries; and

Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval from a governmental authority. No assurance can be given that we will continue to qualify as an Industrial Company or that the benefits described above will be available in the future.

COMPETITION

The intimate apparel and active-wear markets are highly competitive. Our products compete with products of other manufacturers in Israel, Europe, the United States, South and Central America and Asia. Competition in our markets is generally based on price, quality and customer service.

Although we have invested in Santoni knitting machines to manufacture our seamless products, a competitor of the Santoni brand could manufacture similar machines at lower prices, thereby increasing the competition we would face in the intimate apparel and active-wear markets. See "Item 3. Key Information - 3D. Risk Factors - Our markets are highly competitive and some of our competitors have numerous advantages over us; we may not be able to compete successfully."

In addition, we benefit from Israel's status as one of the few countries in the world that currently has free trade agreements with the United States, Canada, the EU and the EFTA which permit us to sell its products in the United States, Canada and the member countries of the EU and the EFTA free of customs duties and imports quotas. Finally, government incentives that reduce the cost to us of our equipment may not be available in other countries. We are also able to sell our products manufactured at our facilities in Jordan free from customs duties and import quotas to the United States and Europe under certain conditions. We may also elect to manufacture products in Egypt and sell them free from customs duties and import quotas to the United States under certain conditions.

CONDITIONS IN ISRAEL

We are incorporated under the laws of, and many of our offices and manufacturing facilities are located in, the State of Israel. Accordingly, we are directly affected by political, security and economic conditions in Israel. Our operations would be materially adversely affected if major hostilities involving Israel should occur or if trade between Israel and its present trading partners should be curtailed.

POLITICAL CONDITIONS IN ISRAEL

Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility, varying from time to time in intensity and degree, has led to security and economic problems for Israel. However, a peace agreement between Israel and Egypt was signed in 1979, and a peace agreement between Israel and Jordan was signed in 1994. However, as of the date hereof, Israel has not entered into any peace agreement with Syria or Lebanon. No prediction can be made as to whether any other written agreements will be entered into between Israel and its neighboring countries, whether a final resolution of the area's problems will be achieved, the nature of any such resolution or whether civil unrest will resume and to what extent such unrest would have an adverse impact on Israel's economic development or on our operations in the future.

There is substantial uncertainty about how or whether any peace process will develop or what effect it may have upon us. Since October 2000, there has been a substantial deterioration in the relationship between Israel and the Palestinians which has resulted in increased violence. The future effect of this

deterioration and violence on the Israeli economy and our operations is unclear. Ongoing violence between Israel and its Arab neighbors and Palestinians may have a material adverse effect on our business, financial condition or results of operations.

Despite the limited progress towards peace between Israel, its Arab neighbors and the Palestinians, certain countries, companies and organizations continue to participate in a boycott of Israeli firms. We do not believe that the boycott has had a material adverse effect on us, but there can be no assurance that restrictive laws, policies or practices directed towards Israel or Israeli businesses will not have an adverse impact on the expansion of our business.

Generally, all male adult citizens and permanent residents of Israel under the age of 54, unless exempt, are obligated to perform up to 36 days of annual military reserve duty. Additionally, all such residents are subject to being called to active duty at any time under emergency circumstances. Some of our officers and employees are currently obligated to perform annual reserve duty. While we have operated effectively under these requirements since we began operations, no assessment can be made as to the full impact of such requirements on our workforce or business if conditions should change, and no prediction can be made as to the effect on us of any expansion or reduction of such obligations.

ECONOMIC CONDITIONS IN ISRAEL

Israel's economy has been subject to numerous destabilizing factors, including a period of rampant inflation in the early to mid-1980s, low foreign exchange reserves, fluctuations in world commodity prices, military conflicts and civil unrest. The Israeli government has, for these and other reasons, intervened in various sectors of the economy employing, among other means, fiscal and monetary policies, import duties, foreign currency restrictions and

control of wages, prices and foreign currency exchange rates. The Israeli government has periodically changed its policies in all these areas.

TRADE AGREEMENTS

Israel is a member of the United Nations, the International Monetary Fund, the International Bank for Reconstruction and Development, and the International Finance Corporation. Israel is a signatory to the General Agreement on Tariffs and Trade, which provides for the reciprocal lowering of trade barriers among its members. In addition, Israel has been granted preferences under the Generalized System of Preferences from the United States, Australia, Canada and Japan. These preferences allow Israel to export the products covered by such program either duty-free or at reduced tariffs. Israel became associated with the European Economic Community (now known as the European Union) in a Free Trade Agreement concluded in 1975, which confers certain advantages with respect to Israeli exports to most European countries and obligates Israel to lower its tariffs with respect to imports from those countries over a number of years.

In 1985, Israel and the United States entered into an agreement to establish a Free Trade Area that has eliminated all tariff and certain non-tariff barriers on most trade between the two countries. On January 1, 1993, an agreement between Israel and the EFTA established a free trade zone between Israel and the EFTA nations. In recent years, Israel has established commercial and trade relations with a number of other nations (including the People's Republic of China, Russia, India and other nations in Asia and Eastern Europe) with which Israel had not previously had such relations.

In January 1995, the GATT members entered into an agreement with respect to Textile and Clothing (ATC). According to this agreement, all non-tariff barriers were gradually decreased since the date of the agreement until their full omission on January 1, 2005. In 2004, in expectation of this change, the United States decided to extend the period of barriers relating to products exported from China.

Israel is a party to Qualified Industrial Zones agreements - since 1998 with Jordan and the United States, and since December 2004, with Egypt and the United States. These agreements enable us to execute part of our manufacturing

process in defined zones in Jordan or in Egypt, under the terms of these agreements, and enjoy exemption from U.S. custom duties and quotas once exported to the United States.

U.S. GOVERNMENT REGULATION

Alba is subject to various United States regulations relating to the maintenance of safe working conditions and manufacturing practices. In addition, certain of the products manufactured by AlbaHealth are subject to the requirements of the Food and Drug Administration with respect to environmentally controlled facilities. Management believes that it is currently in compliance with all such regulations.

4C. ORGANIZATIONAL STRUCTURE

Our significant subsidiaries consist of the following wholly-owned subsidiaries: (i) Hi-Tex Founded by Tefron Ltd., a company incorporated under the laws of the State of Israel, (ii) Alba Waldensian, Inc., which name was changed to Tefron USA, Inc and which holds 48.325% interest in AlbaHealth, a Delaware limited liability company, (v) El-Masira Textile Company Ltd. a company incorporated under the laws of Jordan, and (vi) Macro Clothing Ltd, a company formed under the laws of Israel.

4D. PROPERTY, PLANTS AND EQUIPMENT

ISRAEL

As of December 31, 2004, we maintained manufacturing and administrative facilities at the following sites in Israel and Jordan:

	APPROX.
	SQUARE	NUMBER OF		LEASE
FACILITY IN ISRAEL		FOOTAGE	EMPLOYEES	EXPIRATION (1)
FUNCTION
- ------------------	-------	---------	-------------- --------
Petach Tikva	7700	13	2008	Management offices
Segev: Central Factory -
Tefron (2) (3)	83,000	232	2006	Knitting cutting, sewing,
				packaging, storage and
				administrative functions
Inoah	13,000	263	2006	Sewing and packaging
Segev: Central Factory -
Hi-Tex 1 (2) (3)	143,000	550	2011	Knitting, sewing, packaging,
				storage and administrative
			functions
Segev: Central Factory -
Hi-Tex 2 (2) (3)	180,000	525	2012	Knitting, sewing, packaging
			and storage
Holon - Macro Center	12000		662009	Sewing and administrative
			functions
Yarka	23,000	340	2012	Sewing and packaging
Segev: Central Factory - New -Net		37,000	43	2005Knitting
Dyeing Factory	39,000	40	2009	Dyeing and finishing
Segev: Delivery Warehouse (2) (3)		65,000	10	2012Warehouse for
finished
			products
FACILITY IN JORDAN
Irbid	30000	440	2006(4)	Sewing and packaging factory

| | | |(1) Including any renewal options.

(2) We lease this property from a subsidiary of Macpell.

(3) Not including an additional option for 15 years lease exercisable every three years on a 90 days' prior advance notice.
(4) The agreement is renewable, at our option, every year.

Our Hi-Tex 1, Hi-Tex 2, Central Factory and Delivery Warehouse facilities in Segev are leased from a subsidiary of Macpell. See "Item 7. Major Shareholders and Related Party Transactions - 7B. Related Party Transactions - Relationships and Transactions with Macpell - Lease Arrangement."

For a description of our plans regarding our facilities, see Note 6 of the Notes to the Consolidated Financial Statements.

We believe that our existing facilities in Israel and Jordan are well-maintained, in good operating condition and provide adequate space for our current level of operations as well as for a significant increase in sales volume. We further believe that our facilities and operations are in substantial compliance with current Israeli governmental regulations regarding safety, health and environmental pollution. We have not generally experienced difficulty in complying with these regulations and such compliance has not had a material adverse effect on our capital expenditures, earnings or competitive position.

UNITED STATES

As of December 31, 2004, Alba maintained manufacturing and administrative facilities at the following sites in the United States:

	APPROX.		NUMBER OF
FACILITY IN UNITED STATES			SQUARE FOOTAGE	EMPLOYEES	FUNCTION
- -------------------------	--------------	---------	--------

Valdese, NC - Alba		157,000	14	Warehouse (Consumer Products)
Rockwood, TN (AlbaHealth)		245,940	260	Knitting, Yarn Processing &
			Finishing (Health Products)

Valdese, NC - Offices	52,000	23	Corporate headquarters
New York City - Offices	3,200	1	Sales Offices and Showroom
Portland, OR- Offices	2,029	3	Sales Offices and Showroom

| | | We also own two facilities in Valdese, NC (of approximately 178,300 and 81,000 square footage), which are currently unused. We are exploring opportunities to sell or lease these facilities. See Note 6(3) of the Notes to the Consolidated Financial Statements.

All plants are of brick and steel construction, and most areas have been air-conditioned. Alba leases its New York City office under a lease that expires in April 2005. From April 2005, we are leasing for seven years 2000 square feet at 150 West 30th Street New York, NY. Alba also leases its office in Portland, Oregon that expires in February 2006. The remainder of Alba's physical properties are held in fee simple. Alba's physical properties are subject to a lien pursuant to a credit agreement entered into in connection with the acquisition of Alba. See "Item 10. Additional Information - 10C. Material Contracts - Credit Agreement." We believe our existing facilities in the United States are well-maintained, in good operating condition and provide adequate space for Alba's current level of operations as well as for a significant increase in sales volume.

We further believe that Alba is in substantial compliance with present United States federal, state and local regulations regarding the discharge of materials into the environment. Capital expenditures required to be made in order to achieve such compliance have had no material effect upon Alba's earnings or the competitive position of Alba. We believe that continued compliance will not require material expenditures.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

GENERAL

OUR BUSINESS; DEVELOPMENTS

We manufacture intimate apparel, active-wear and swim-wear sold throughout the world by name-brand marketers as well as well known American retailers and designer labels. Our product line includes knitted briefs, bras, tank tops, boxers, leggings, crop, T-shirts, daywear, nightwear, bodysuits, swim-wear, beach wear, active-wear, and accessories.

We have three divisions: Seamless (also called Hi-Tex), Cut & Sew and Healthcare. Our Seamless Division, which manufactures intimate apparel and active-wear products, generated approximately 46% of our revenues during 2004. Our Cut & Sew Division, which manufactures intimate apparel, active-wear and swim-wear products, generated approximately 36% of our revenues during 2004. Our Healthcare Division generated approximately 18% of our revenues during 2004.

Our Hi-Tex manufacturing process involves a vertically integrated production process, from the design of the product to the knitting, dyeing and sewing of the product. However, our Hi-Tex manufacturing process utilizes state-of-the-art technology that eliminates a significant number of stages of the manufacturing process while enabling our Hi-Tex Division to produce a substantially wider range of fabrics, styles and product lines at a consistently high level of comfort, quality and durability. The Hi-Tex manufacturing process was developed in-house through the adaptation and configuration of machinery and equipment purchased from third parties. Although developed for our exclusive use, most of these adaptations and configurations are not patented. The manufacturing for our Hi-Tex Division takes mainly in Israel, where we operated approximately 735 fully equipped Santoni knitting machines as of December 31, 2004.

Our Cut & Sew manufacturing process also involves a vertically integrated production process. We are involved in all steps in the process, from the design of the product to the knitting, dyeing, cutting and sewing of the product. The knitting, dyeing and cutting processes for our Cut & Sew Division takes place in Israel and most of the sewing in Jordan.

Our Healthcare Division manufactures a range of textile healthcare products, which are manufactured in the United States, Mexico and Sri Lanka.

2004 DEVELOPMENTS

In 2004, we continued our strategy, begun at the end of 2002, to transform from an intimate apparel company with one anchor customer to a diversified active wear, swim wear and intimate apparel company with a more diversified customer base. This process has taken longer than we initially anticipated and has reduced operating efficiency in our Seamless division due to our manufacture of new, more complicated products with different raw materials. These operating inefficiencies had a significant negative effect on our operating results in 2003 and 2004. Although we have seen an improvement in our operating efficiency beginning towards the end of 2004, we cannot assure that we will be able to return to our previous efficiency levels in the future.

Our expansion into active-wear and swim-wear has provided us with an opportunity to increase our sales to a more diverse customer base, including Nike, Puma, Adidas and others, and we are working to capitalize on this opportunity in both our Seamless and our Cut & Sew Divisions through our offering of a more diverse selection of products.

The cost structure of our Cut & Sew manufacturing process, which takes place principally in Israel and in Jordan, is higher than the cost structure of our competitors in the Far East. The competition from the Far East, mainly for the sale of intimate apparel products, has caused an erosion of our prices. We have established a branch office in Hong Kong in an effort to locate manufacture sources in the Far East, and we are exploring options for transfer of manufacture operations also to other locations where labor cost are relatively low.

In addition, the strengthening of the NIS compared to the USD in 2003 and 2004 also adversely affected our operating income in 2003 and 2004.

CURRENCY; REVENUES; RAW MATERIALS

The currency of the primary economic environment in which our business is conducted is the United States dollar. Consequently, we use the dollar as our functional currency. Transactions and balances denominated in dollars are presented at their dollar amounts. Transactions and balances in other currencies are converted into dollars in accordance with the principles set forth in Statement No. 52 of the Financial Accounting Standards Board and resulting gains and losses are included in the statement of income. The financial information below reflects our operations on a consolidated basis.

Substantially all of our revenues are derived from the sale of our products, primarily in the United States. We recognize revenues from the sale of our products upon shipment. Our payment terms vary based on customer and length of relationship. We do not have any long-term supply obligations.

We purchase our raw materials from several international and domestic suppliers and historically have not experienced any difficulty in obtaining raw materials to meet production requirements. Raw materials are generally purchased against actual orders, although we have a policy of maintaining a minimum level of those raw materials that are in repeated demand. From time to time, when market conditions are favorable, we have entered into contracts with various suppliers of basic cotton for delivery over a period of three to six months.

OPERATING RESULTS

The following table sets forth our results of operations expressed as a percentage of total sales for the periods indicated:

YEAR ENDED DECEMBER 31, 2002 2003 2004 ----- ----- -----


Sales	100.0%	100.0%		100.0%
Cost of sales	80.4	85.5	87.5
	-----	-----	-----
Gross profit	19.6	14.5	12.5
Selling, general and administrative
expenses	11.6	12.5	12.2
	-----	-----	-----
Operating income before financing
expenses	8.0	2.0	0.3
Financing income, net		(2.9)	(3.5)	(2.9)
Other income (expenses)		(1.2)	0.2	--
	-----	-----	-----
Income (loss) before income taxes		3.9	(1.3)	(2.6)
Income tax expense (benefit)		2.6	(0.3)	0.1
	-----	-----	-----
Income (loss) after income taxes		1.3	(1.0)	(2.7)
Equity in losses of affiliated company		(0.6)	(0.1)	--
Minority interests	(0.4)	(1.6)	(1.1)
		-----
Net income (loss) from ordinary activities		0.3	(2.7)	(3.8)
	=====	=====	=====
Cumulative effect of change in accounting
principle	(9.5)	--	--
Net Loss	(9.2)%	(2.7%)		(3.8%)
	-----	-----	-----

| | | |28

SALES

CONSOLIDATED. Sales for the year ended December 31, 2004 were $182.8 million, 12.1% increase compared to sales of $163.1 million for the year ended

December 31, 2003. Our sales of intimate apparel increased 8.5% from $109.0 million in 2003 to $118.2 million in 2004, our sales of active-wear products increased 66.6% from $12.1 million in 2003 to $20.1 million in 2004 and our sales of Swim-wear increased 175.4% from $3.7 million in 2003 to $10.3 million in 2004. Below is a table that describes our 2003 and 2004 sales of intimate apparel, active-wear and swimwear products:

			SALES
		----------------------------------------------------------------------------------2003		2004
		------------------------------------	(Dollars in thousands)	------------------------------------
	CUT &		CUT &
	SEW	SEAMLESS	TOTAL	SEW	SEAMLESS	TOTAL

Intimate Apparel	48,044	60,954	108,998	47,351	70,889	118,240
Active-wear	1,638	10,433	12,071	7,646	12,459	20,105
Swimwear	3,731	--	3,731	10,275	--	10,275
Total	53,413	71,387	124,800	65,272	83,348	148,620
Alba Health	--	--	38,286	--	--34,199
	--	--163,086	--	--	182,819

SEAMLESS. Sales for the year ended December 31, 2004 for this segment were $83.8 million, 15% increase compared to sales of $72.9 million for the year ended December 31, 2003. This increase in sales was due to a greater demand for intimate apparel products and the increase of sales of our more diverse selection of active wear products to a more diverse customer base.

CUT & SEW. Sales for the year ended December 31, 2004 for this segment were $65.3 million, 22.2% increase compared to sales of $53.4 million for the year ended December 31, 2003. This increase in sales was due primarily to an increase in sales of our more diverse selection of swimwear and

active-wear products to a more diverse customer base.

HEALTHCARE. Sales for the year ended December 31, 2004 for this segment were $34.2 million, a 10.7% decrease compared to the sales of $38.3 million for the year ended December 31, 2003. This decrease was mainly due price erosion caused by competition from producers in the Far East.

COST OF SALES

Cost of sales consists primarily of materials, various salaries and related expenses, subcontracting expenses and other overhead expenses related to our manufacturing operations. Cost of sales increased by 14.7% to $159.9 million in 2004 as compared to $139.4 million in 2003 primarily due to the increase in sales. As a percentage of sales, cost of sales increased to 87.5% in 2004 as compared to 85.5% in 2003 primarily due to the operating inefficiencies referred to above and the reevaluation of the NIS compared to the USD. Although we believe that our efficiency will improve as we continue to manufacture our new product lines, we cannot assure that we will be able to return to our previous efficiency levels in the future.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses consist primarily of costs relating to salaries to employees engaged in sales, marketing, distribution, administration and management activities, freight and other administrative costs. Selling, general and administrative expenses increased by 10.2% to $22.4 million in 2004 as compared to $20.3 million in 2003. This increase is primarily due to an increase in sales, an increase in air freight charges of due to delays in supplying orders to customers resulting from the operating inefficiencies referred to above, an expense resulting from the grant of options to the company's CEO and an impairment of property and equipment held for sale in North Carolina. As a percentage of sales, selling, general and administrative expenses

decreased from 12.5% in 2003 to 12.2% in 2004.

OPERATING INCOME

CONSOLIDATED. Operating income for the year ended December 31, 2004 was $495,000 (0.3% of sales), compared to operating income of $3.3 million (2.0% of sales) for the year ended December 31, 2003. This decrease in operating income was due to the increase in cost of sales and selling, general and administrative expenses discussed above.

SEAMLESS. Operating loss for the year ended December 31, 2004 for this segment was $8.2 million (9.8% of sales), compared to operating loss of $4.1 million (5.6% of sales) for the year ended December 31, 2003. This increase in operating loss was due primarily to operating inefficiencies and increase in freight charges due to delays in supplying orders to customers.

CUT & SEW. Operating income for the year ended December 31, 2004 for this segment was $3.5 million (5.4% of sales), compared to operating income of $0.7 million (as restated) (1.4% of sales) for the year ended December 31, 2003. The increase in operating income resulted primarily from a significant increase in sales and gross profit of our swimwear products and increase in sales of active wear products. This increase was offset by price erosion of an intimate apparel project to a major customer due to competition.

HEALTHCARE. Operating income for the year ended December 31, 2004 for this segment was $5.2 million, 22.1% decrease from the operating income of $6.7 million for the year ended December 31, 2003. This decrease was mainly due price erosion caused by competition from producers in the Far East.

FINANCING EXPENSES, NET

Financing expenses decreased slightly to $5.2 million in 2004 as compared to $5.6 million in 2003. This decrease was mainly due to decrease in interest expenses caused by reduction of $20 million in the amount of bank debt, capital lease and other loans from proceeds of issuance of shares in April 2004. This

decrease was partly offset by an increase in bank charges due to our increased use of letters of credit, mainly with new customers.

INCOME TAXES

Tax expense for 2004 was $0.2 million as compared to tax benefit of $0.4 million for 2003. In 2004, we reduced our deferred taxes in Alba by $0.6 million as a result of an adjustment of our expected utilization of deferred taxes in light of expected future earnings and recorded additional expenses of $0.4 million due to tax assessment by the Israeli tax authorities regarding tax returns for the years 1997-2000. Although we currently estimate that we will be able to utilize the remaining balance of the deferred taxes in Alba, we cannot assure that we will be able to do so.

LIQUIDITY AND CAPITAL RESOURCES

2004 SOURCES AND USES OF CASH

During 2004, we generated approximately $6.9 million in cash from operating activities. This cash flow, together with the net proceeds to the Company of $19.7 million derived from the investment in the Company by Norfet and Leber, enabled us to repay a net amount of $9.3 million of short term bank loans and $11.3 million of long term bank loans and finance our $9.1 million investment in fixed assets. During 2004, we received government grants in the approximate amount of $1.2 million and received proceeds from the sale of fixed assets of $0.4 million. At December 31, 2004, we had cash and cash equivalents of $3.6 million, as compared to $5.7 million in a previous year. We currently anticipate lower capital expenditures for 2005 than the actual capital expenditures of 2004. The main capital investment in fix assets are expected to be made in favor of increasing the dyeing capacity of our Hi-Tex Division.

Cash provided by operating activities is net income (loss) adjusted for

certain non-cash items and changes in assets and liabilities. For 2004, cash provided by operating activities was $6.9 million, compared to $2.9 million in 2003, while our net loss increased in 2004 to $6.9 million from $4.5 million in 2003. During 2004, the majority of our increase in cash flow as compared to 2003 was mainly due to a decrease in our trade receivables as compared to increase in 2003, an increase in our inventories which was lower than the increase in 2003 and higher depreciation and amortization expenses than in 2003. Our increase in inventories was lower in 2004 mainly due to decrease in the average credit period granted to customers. Our depreciation and amortization expenses were higher in 2004 due to increase in depreciation expenses due to purchase of fixed assets during 2003-2004, amortization of options compensation related to options granted to CEO and write-off of investment in JBA.

CONTRACTUAL AND OTHER COMMITMENTS

We have various commitments primarily related to long-term debt, capital lease obligations and short-term debt. The following tables provides details regarding our contractual cash obligations and other commercial commitments subsequent to December 31, 2004:

CONTRACTUAL OBLIGATIONS(1)(2) TOTAL 2005 2006 - 2007 2008 - 2009 2010 +

-------------------------- -----	----	-----------		-----------	------

Long-Term Bank Debt	$56.9	$8.9	$18.3		$11.9	$17.8
Capital Lease Obligations	$ 0.2	$0.2	--		--	--
Other Long-Term Obligations $ 0.1		$0.1		--	--	--
TOTAL CONTRACTUAL CASHOBLIGATIONS		$57.2	$9.2	$18.3		$11.9	$17.8

OTHER COMMERCIAL COMMITMENTS		TOTAL AMOUNTS AVAILABLE
----------------------------	-----------------------	-------

Lines of Credit	$19	$18.8
Short Term Bank Debt	$ 3.5	$ 0
Guarantees/Letters of Credit	$ 2.5	$ 2.5
TOTAL COMMERCIAL COMMITMENTS

| $25.0 | $21.3 | |These credit line facilities are not limited in time.

31

(1) Contractual obligations are defined as agreements for finance purposes that are enforceable and legally binding on Tefron and that specify all significant terms, including fixed or minimum quantities to be purchased, and the approximate timing of the transaction. Because our purchase orders are based on our current manufacturing needs, our agreements for the purchase of raw materials and other goods and services are not included in the table above.

(2) This table does not include payments of interest on our long-term debt, due to its variable nature. Interest on our long-term bank debt ranges from three-month LIBOR plus 1.5% to three-month LIBOR plus 2%. As of April 6, 2005, three-month LIBOR was 3.125%.

(3) These credit lines facilities are revolving every year.

LOAN FACILITIES

At December 31, 2004, outstanding borrowings from banks and other financial institutions totaled approximately $78.3 million, comprised of approximately $56.9 million of long term-debt, including current maturities of $9 million, and approximately $21.4 million of short-term debt. The bank loans bear interest at LIBOR plus 1.25% to 4.5%, and are scheduled to mature during the next eight years.

Long-term loans include a term loan facility of our wholly owned subsidiary, Alba (now called Tefron USA Inc.) with Bank Hapoalim B.M. and Israel Discount Bank of New York entered into in connection with the acquisition of Alba, in the outstanding amount of $25.6 million payable in 32 quarterly installments commencing March 15, 2005. The term loan facility and a related revolving credit facility are secured by a floating lien on all the personal property of Alba and its subsidiaries, pledges of all non-margin stock of Alba owned by our U.S. subsidiary, Tefron U.S. Holdings Corp., and all subsidiary stock then owned by Alba, and guaranties made by us, Hi-Tex Founded by Tefron Ltd. and by Tefron U.S. Holdings Corp.

Long-term loans also include a long-term loan facility between us and Hi-Tex Founded by Tefron Ltd., with Bank Hapoalim B.M. and Israel Discount Bank Ltd. in the outstanding amount of $22 million also payable in 32 quarterly installments commencing March 15, 2005. The term loan facility and a related revolving credit facility are secured by a floating lien on all the personal property of Tefron and Hi-Tex.

The bank loan agreements contain various covenants which require, among others, that we maintain certain financial ratios related to shareholders' equity and operating results. In addition, the terms prohibit us and Alba from incurring certain additional indebtedness, limit certain investments, advances or loans and restrict substantial asset sales, cash dividends and other payments to shareholders of us and of Alba. These covenants and restrictions could hinder us in its operations and growth.

On September 9, 2002, we formed a new entity, AlbaHealth, with Encompass Group, LLC, a Delaware limited liability company and General Electric Capital Corporation, a Delaware corporation, to operate Alba's health products business. In connection with the transaction, Alba contributed substantially all of the assets of its Health Products Division (together with associated liabilities, including certain existing bank indebtedness) to the capital of AlbaHealth in exchange for a 48.325% ownership interest in AlbaHealth. Encompass and GE Capital contributed cash to the capital of AlbaHealth in the amount of $12 million and $1 million, respectively, in exchange for a 48.325% and 3.35% ownership interest in AlbaHealth. Following the transaction, we repaid $28 million of the long term loan facility with Bank Hapoalim B.M. and Israel Discount Bank of New York.

In connection with the formation of AlbaHealth, AlbaHealth entered into a credit agreement, with GE Capital, which contains a term loan facility in the outstanding principal amount of $9 million and is payable in quarterly installments, ending on September 6, 2007. In addition, the AlbaHealth Credit Agreement provides for a revolving loan facility of up to $3.0 million. The proceeds from the term loan facility and the revolving loan facility were and are to be used, among other purposes, to repay amounts due to the Bank Hapoalim B.M. and Israel Discount Bank of New York and for working capital purposes. The credit agreement contains various restrictive covenants as well as covenants which require that we maintain certain financial ratios. See "Item 10. Additional Information - 10C. Material Contracts - AlbaHealth Credit Agreement" for more information regarding this credit facility. During 2004, AlbaHealth failed to comply with certain financial covenants contained in the credit agreement, including a minimum EBITDA requirement, and GE Capital has agreed to waive certain financial covenant defaults that occurred during 2004 and to amend certain of the financial covenants.

32

Our short-term debt in the amount of approximately $21.4 million consists of one-year revolving credit facilities with various expiration dates during 2005. We expect that the one-year revolving credit facilities will be renewed beyond their respective expiration dates. However, the lenders under such revolving credit facilities are under no obligation to renew such facilities. In

the event that these facilities are not renewed, we may be unable to repay outstanding amounts, and the lenders may, as a result, declare all amounts borrowed to be due and payable. A default under the revolving credit facilities may also trigger a default under the long-term loan facilities described above.

EQUITY FINANCINGS

On April 22, 2004, we issued to Norfet, Limited Partnership ("Norfet"), controlled by FIMI Opportunity Fund and certain other co-investors, approximately 3.53 million ordinary shares at a base price of $4.25 per share and to a group of investors represented by Mr. Zvi Limon ("Leber") approximately 1.07 million ordinary shares at a base price of $4.65 per share. See "Item 10. Additional Information - C. Material Agreements - FIMI Agreements". We applied most of the aggregate amount of $19.7 million from these investments to repay short-term debt. On April 5, 2005 we issued, with no further consideration, additional shares to Norfet and Leber according to a share purchase price adjustment mechanisms included in the investments agreements with these investors. Also, on March 9, 2004, we announced that we had entered into an equity line credit facility with Brittany Capital Management Ltd. ("Brittany"), an entity advised by Southridge Capital Management LLC. Under the agreement, we have an option to call funds of up to the lesser of $15 million or 19.9% of our outstanding share capital over the next three years. Under the financing facility, we will be entitled to issue shares to Brittany from time to time, at our own election, subject to certain minimum and maximum limitations, but in no event will Brittany be obligated to own more than 4.99% of our ordinary shares at any one time. The price to be paid by Brittany will be at a discount of 6% to the market price of our ordinary shares (as calculated under the agreement) during a period prior to the issuance of the shares. Before drawing on the equity line, we must satisfy certain closing conditions, including the effectiveness of a registration statement that we must file relating to the shares to be issued to Brittany. See "Item 10. Additional Information - C. Material Agreements - Equity Line Credit Facility ".

OUTLOOK

We currently believe that our cash flow from ongoing operations, our

available bank credit and proceeds from equity financings will be sufficient to finance all of our ongoing costs and our planed investment in our business through 2005. However, we may not generate sufficient cash from operations to finance our ongoing costs and service our high level of debt. See "Item 3. Key Information - 3D. Risk Factors," in particular "- We depend on a small number of principal customers who have in the past bought our products in large volumes," "Our principal customers are in the retail industry, which is subject to substantial cyclical variations," "Our expansion into new product lines with more complicated products and new raw materials reduced our operating efficiency during 2003 and 2004 and our future operating efficiency may continue at the same level as 2004 without improvement" and "- Our markets are highly competitive and some of our competitors have numerous advantages over us; we may not be able to compete successfully." In the event sufficient cash from operations is not generated, we may need to renegotiate the terms of the debt, refinance the debt, obtain additional financing, postpone capital expenditures or sell assets. If the lenders decline to renegotiate the terms of the debt, the lenders could declare all amounts borrowed to be due and payable. If we are unable to repay the debt, the lenders could foreclose on our assets that are subject to liens and sell the assets to satisfy the debt. See "Item 3. Key Information - 3D. Risk Factors - Our debt obligations may hinder our growth and put us at a competitive disadvantage," "We require a significant amount of cash to pay our debt " and "Due to restrictions in our loan agreements, we may not be able to operate our business as we desire." See "Item 10. Additional Information - - 10C. Material Contracts - Credit Agreement

DESIGN AND DEVELOPMENT OF PRODUCTS

Our design and development of products department continually strives to improve technologies and products and develop new lines of products. We estimate that we invested approximately $3.5 million to $4.0 million in 2002, $4 million to $4.5 million in 2003 and $4.4 million to $4.9 million in 2004 on design and development of products, including Alba.

IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS

Because most of our revenues in the foreseeable future are expected to continue to be generated in U.S. dollars and a significant portion of our expenses are expected to continue to be incurred in NIS, we are exposed to the risk of appreciation of the NIS vis-a-vis the U.S. dollar. Part of our expenses are executed in Euro, and therefore we are also exposed to the risk of appreciation of the Euro vis-a-vis the U.S dollar. This appreciation would cause an increase in our NIS or Euro expenses as recorded in our U.S. dollar denominated financial reports even though the expenses denominated in NIS or Euro will remain unchanged. A portion of our NIS denominated expenses is linked to changes in the Israeli cost of living index, a portion is linked to increases in NIS payments under collective bargaining agreements and a portion is unlinked.

The dollar cost of our operations in Israel is influenced by the extent to which any increase in the rate of inflation in Israel is (or is not) offset, or is offset on a lagging basis, by the devaluation of the NIS in relation to the dollar. Unless inflation in Israel is offset by a devaluation of the NIS, such inflation will have a negative effect on our profitability because we receive most of our payments in dollars or dollar-linked NIS, but incur a portion of our expenses in NIS and NIS linked to the CPI. See "Item 11. Quantitative and Qualitative Disclosures about Market Risk - Foreign Currency Risk" and "-Interest Rate Risk."

In 2002 and 2004, the rate of devaluation of the NIS vis-a-vis the dollar exceeded the inflation rate in Israel. During 2002 and 2004, the rate of inflation was 6.5% and 1.2%, respectively, while NIS devalued against the U.S. dollar by 7.3% and -1.6% in 2002 and 2004. During 2003, the rate of inflation was (1.9)%, while NIS appreciated against the U.S. dollar by 7.6%. However, to the extent in the future that the rate of inflation in Israel exceeds the rate of devaluation of the NIS in relation to the dollar or if the timing of such devaluation lags behind inflation in Israel, we may be adversely affected.

A devaluation of the NIS in relation to the dollar would have the effect of decreasing the dollar value of any assets or receivables denominated in NIS (unless such receivables are linked to the dollar). Such a devaluation would also have the effect of reducing the dollar amount of any of our expenses or liabilities which are denominated in NIS (unless such expenses or payables are linked to the dollar). Conversely, any increase in the value of the NIS in relation to the dollar will have the effect of increasing the dollar value of any of our unlinked NIS assets and the dollar amounts of any of our unlinked NIS liabilities and expenses. During 2004, we incurred expenses of approximately $0.3 million due to the appreciation of the NIS in relation to the dollar and approximately $0.2 million due to the appreciation of the Euro in relation to the dollar. This appreciation may continue in 2005.

Because exchange rates between the NIS and the dollar fluctuate continuously (albeit with a historically declining trend in the value of the NIS), exchange rate fluctuations and especially larger periodic devaluations will have an impact on our profitability and on period-to-period comparisons of our results. This impact is recorded in our consolidated financial statements in accordance with applicable accounting principles. We may from time to time utilize derivative financial instruments to manage risk exposure to movements in foreign exchange rates. We do not engage in any speculative or profit motivated hedging activities. See "Item 3. Key Information - 3D. Risk Factors. Since most of our revenues are generated in US dollars and a large part of our expenses are in Israeli currency, we are subject to fluctuations in inflation and currency rates."

EFFECTIVE CORPORATE TAX RATE

The taxable income of Israeli corporations was generally subject to corporate tax at the statutory rate of 35% in 2004 (compared to a rate of 36% until 2003). The rate in 2005 is 34% and it is scheduled to be reduced to 32% in 2006 and 30% for 2007 and thereafter. However, most of our manufacturing facilities in Israel have been granted Approved Enterprise status under the Investment Law, and consequently income derived from such facilities is

eligible, subject to compliance with certain requirements, for certain tax benefits beginning when such facilities first generate taxable income. We have derived most of our income from our Approved Enterprise facilities. Subject to compliance with applicable requirements, income derived from our Approved Enterprise facilities will be subject to corporate tax at a rate of 25% for the earlier between: (i) ten years beginning in the year that we had taxable income, (ii) twelve years from commencement of production, or (iii) fourteen years from the date of approval.

In addition, should the percentage of foreign investment exceed 25%, Approved Enterprises would qualify for reduced tax rates for an additional three years beyond the initial seven-year period. The benefit period under each of our Approved Enterprises will in any event expire 14 years following the date of the approval of such Approved Enterprise by the Investment Center or 12 years after production commences, whichever is earlier. In the event that the percentage of foreign investment is between 49% and 74%, we would be subject to a corporate tax rate of 20% on income derived from our Approved Enterprises. The proportion of foreign investment is measured annually based on the lowest level of foreign investment during the year. In addition, pursuant to the Investment Law, Approved Enterprises related to investment programs from January 1997 onwards in designated areas which include the location of our primary plants are exempt from tax for the first two years of the Benefit Period commencing in the first year in which taxable income is generated.

There can be no assurance that we will obtain approval for additional Approved Enterprises, or that the provisions of the Investment Law will not change, or that the above-mentioned foreign investment in our shares will be reached for any subsequent year. See "Item 3. Key Information - 3D. Risk Factors - - We are affected by conditions to and possible reduction of government programs and tax benefits."

GOVERNMENT PROGRAMS

We benefit from certain Israeli government programs, particularly as a result of the Approved Enterprise status of substantially all of our existing production facilities in Israel. This status has enabled us to receive investment grants with respect to certain of our capital expenditures. The

Government of Israel has reduced the investment grants available to us from 38% of eligible annual capital expenditures in 1996 to 24% of eligible annual capital expenditures (for projects not exceeding investments of 140 million NIS in any year) since 1997. Commencing in 2001, such investment grants were reduced by the Government of Israel to 20% of eligible annual capital expenditures. There can be no assurance that the Israeli government will not further reduce such investment grants. The termination or reduction of certain programs (particularly benefits available to us as a result of the Approved Enterprise status of certain of our facilities) would increase the costs of acquiring machinery and equipment for its production facilities which could have a material adverse effect on us. See "Item 3. Key Information - 3D. Risk Factors - We are affected by conditions to and possible reduction of government programs and tax benefits."

EXCHANGE RATES

The following table sets forth the representative rates of exchange published by the Bank of Israel based on US dollar- NIS transactions for the periods and dates indicated.

YEAR ENDED DECEMBER 31, AVERAGE RATEEND				HIGH
- ----------------------- ------------		----	---	----------
		(NIS PER $1.00)

1997	3.45	3.59	3.24	3.54
1998	3.80	4.37	3.54	4.16
1999	4.14	4.29	4.01	4.15
2000	4.08	4.20	3.97	4.04

2001	4.21	4.42	4.04	4.42
2002	4.74	4.99	4.42	4.74
2003	4.54	4.92	4.28	4.38
2004	4.48	4.63	4.30	4.30

| | | | TREND INFORMATION. We have seen an improvement in the operating efficiency in our Seamless Division in the beginning of 2005, although we cannot assure that we will be able to return to our previous efficiency levels in the future. In addition, our first quarter of 2005 has seen an increase in sales of active-wear and swim-wear products and we expect that the active-wear sales in 2005 will comprise a significantly bigger part of our total sales than in 2004. For more information, see " - General - 2004 Developments."

We have also seen a reduction of the price of our Cut & Sew products, as well as our sales of these products, that may continue in the future.

OFF-BALANCE SHEET ARRANGEMENTS. As of December 31, 2004, we did not have any significant off-balance sheet arrangements.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6A. Directors and Senior Management

The following table sets forth certain information concerning our current directors, senior management and key employees as of April 6, 2005:


Arie Wolfson	43	Chairman of the Board
Yosef Shiran	43	Chief Executive Officer and Director
Micha Korman	50	Director
Meir Shamir	53	Director
Yarom Oren	35	Director
Shirith Kasher	37	Director
Arie Arieli	53	External Director
Yacov Elinav	60	External Director
Gil Rozen	44	Chief Financial Officer (until May 31, 2005)
Asaf Alperovitz	34	Chief Financial Officer (from June 1, 2005)
Osnat Kaplan	39	Vice President of Sales and Marketing
Talya Hanan	44	Vice President - Global Innovation
Itamar Harchol	46	Chief Technology Officer
Margalit Shahar	38	Manager of Human Resources
Amit Eshet	43	H-Ttex Division Manager and Purchasing Manager
David Gerbi	55	Hi-Tex Division Manager
Ilan Gilboa	38	Cut & Sew Division Manager
Zvi Avigad	45	Logistics Manager
Ronny Grundland	51	Swimwear Marketing Manager
Michal Baumwald Oron		32Company Secretary and Legal Counsel

| | ARIE WOLFSON joined Tefron in 1987 and has served as Chairman of the Board of Directors since August 2002. He also served as Chairman of the Board of Directors from 1997 to 2000, and as President from 1993 to 2000. Mr. Wolfson served as Chief Financial Officer from 1988 to 1990 and Assistant to the Chief Executive Officer from 1990 to 1993. Mr. Wolfson has also served as Chairman of Macpell Industries Ltd., a principal shareholder in Tefron, since 1998 and served as Chief Executive Officer of Macpell from 1998 until March 2003. Mr. Wolfson is a graduate of High Talmudical Colleges in the United States and in Israel.

YOSEF SHIRAN has served as Chief Executive Officer and a Director of Tefron since January 2001. Prior to joining Tefron, Mr. Shiran was the general manager of Technoplast Industries, an injection molding and extrusion company, from 1995 to 2000. Mr. Shiran has over 14 years of management experience. Mr. Shiran holds a B.Sc. degree in Industrial Engineering from Ben-Gurion University and a masters degree in Business Administration from Bar Ilan University.

MICHA KORMAN has served as a director of the Company since October 2002. Mr. Korman leads the recovery and rehabilitation process for companies. Mr. Korman held various senior management positions in the Company from 1991 until 2003. From October 2000, he served as the Executive Vice President of the Company. Prior to that, Mr. Korman was Chief Financial Officer of the Company from 1991 to September 2000. Prior to joining the Company, Mr. Korman held various senior financial and management positions with companies in the hi-tech, beverage and food and communication industries. Mr. Korman holds a Bachelor's degree in Economics and Business Administration from Bar-Ilan University.

MEIR SHAMIR was elected as a director of the Company on March 31, 2004 and has been the Chairman of Mivtach Shamir Holdings Ltd., an investment company traded on the Tel-Aviv Stock Exchange, since 1992. Mr. Shamir also serves as a director of each of the following companies, as well as of other private companies: Lipman Electronic Engineering Ltd, a manufacturer of electronic clearance systems; Wizcom Technologies Ltd. which is engaged in the field of electronics and is traded on the Deutsche Borse A.G.; Digal Investments and Holdings Ltd, a real estate holding company traded on the Tel-Aviv Stock Exchange;.

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YAROM OREN was elected as a director of the Company on March 31, 2004 and is Senior Partner at First Israel Mezzanine Investors Ltd. and FIMI 2001 Ltd. Mr. Oren also serves as a director of Caesarea Creation Ltd., a textile manufacturer, Formula Systems (1985) Ltd. a global information technology (IT) solutions and services company traded on Nasdaq and TASE, Ginegar Plastic Products Ltd., a plastic cover films manufacturer, and Mez Op Holdings Ltd. a holding company controlled by FIMI. Yarom Oren holds a B.SC in Industrial Engineering from Tel Aviv University and an MBA from WBS England.

SHIRITH KASHER was elected as a director of the Company on March 31, 2004

and is the CEO of Shefa Yamim Finance Ltd. From 2001 to March 31,2005, Ms. Kasher was the General Counsel and Secretary of The Israel Phoenix Assurance Company Ltd. and the General Counsel of Atara Investment Company Ltd. and Atara Technology Ventures Limited (both from the Phoenix Group) . From 1997 to 2000, Ms. Kasher worked at S. Horowitz & Co., first as an Articled Clerk and then as an Advocate. Ms. Kasher holds a B.Sc., from the Human Genetics department of the Sackler Medical School, and an LLB, all from Tel Aviv University and is admitted to practice law in Israel.

ARIE ARIELI has served as an External Director of Tefron since July 2000. Since 1988, Mr. Arieli has been the legal counsel for the Israel Phoenix Insurance Company. Mr. Arieli has served as Director of the Public for Offer Commercial Centers Ltd. between 1993 and 1998 and is currently serving as an External Director for Amit Profitable Company for the Management of Pensions and Compensation Ltd. and for Master-Bit, the Israeli Students Insurance Agency Ltd.

YACOV ELINAV has served as an External Director of Tefron since 2004. Between 1991 and July 2003, Mr. Elinav was a member of the Board of Management of Bank Hapoalim B.M. Mr. Elinav also serves as Chairman of the Board of Diur B.P. Ltd. and is a director of Amot Investment Ltd., Mivnei Ta'asia Ltd., Middle East Tube Ltd. and other entities and is an external director of Office Textile Ltd. Mr. Elinav formerly served as a director of other prominent Israeli companies.

GIL ROZEN joined Tefron in December 2001 as Chief Financial Officer. Gil Rozen will resign his position on May 31, 2005 following his decision to conduct private business. Prior to joining Tefron, Mr. Rozen held several management positions including that of chief financial officer (from 1996 to November 2001) of Technoplast Industries Ltd., (TNP.L), an Israeli industrial company traded on the Tel Aviv and the London Stock Exchanges. Prior to that he served as chief financial officer of a private industrial company. He was also an economic consultant to various industrial companies. Mr. Rozen holds a B.A. in Economics and Accountancy from Bar Ilan University.

ASAF ALPEROVITZ will join Tefron in June 2005 as Chief Financial Officer. Mr. Alperovitz has held several management positions, including that of Chief Financial Officer of Corigin Ltd., a software development company of

approximately 40 employees, from 2003 until 2005. Prior to that, Mr. Alperovitz worked as the Head of Israeli Desk and as High-Technology Senior Manager for Ernst & Young in both Israel and California. Mr. Alperovitz holds a Bachelor's degree in Accounting and Economics and a Master in Business Administration from Tel-Aviv University and is a Certified Public Accountant.

OSNAT KAPLAN joined Tefron in the end of 1999 and has served as Vice President of Sales and Marketing since October 2004. Prior to that, she served as a Customer Manager and afterwards - as a Business Development Director Mass Market. Prior to joining the company Ms. Kaplan held various senior marketing positions in The Geographic Company- Neot Hakikar and in Straus Nestle. Ms. Kaplan holds a Bachelor's degree in International Business and Languages form the Hebrew University and Master of Communication and Business Administration from Bar-Ilan University.

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TALYA HANAN joined Tefron in 1989 and has served as Vice President of Global Innovation and Far-East Sourcing since February 2005 . Prior to that, she served as Vice President of Global Innovation & Active Wear Marketing from 2001 to 2004. A s Marketing and Development Director from 1999 to 2000, and as General Manager of Hi-Tex from 1997 to 1999. Prior to 1997, Ms. Hanan served in various operational positions in Tefron, including Manager - Quality Assurance, Manager - Research & Development, Manager - Pre-production and New York Sales Correspondent. Ms. Hanan serves as a lecturer of Shenkar School of Textile in a course for sports-wear collection design in the Textile course of study. Ms. Hanan holds a degree of Industrial and Management Engineering from the Shenkar School of Textile and a Bachelor's degree from the Open University.

ITAMAR HARCHOL joined Tefron in March, 2003 as Chief Technology Officer. Prior to joining Tefron, from the beginning of 2001 to February 2003, Mr. Harchol served as the Engineering Manager of Tamuz, a manufacturer of electronic packaging, between 1998 and 2001 he was Products Manager for the automotive industry in Ortal Dye Casting and prior to that, between 1994 and 1997, he

served as the Engineering Manager of Inbar Polyester which is a plastic manufacturer of composite materials products. Mr. Harchol holds a degree of mechanical engineering from the Nazareth College.

MARGALIT SHAHAR joined Tefron in May 2002 as Manager of Human Resources. Between 1998 and 2001 Ms. Shahar served Spandex Elastic Fibers Ltd, a start up that developed elastic fibers, as manager of human resources, and before that, held the same position for PCB Electronics Ltd. for a period of three years. Ms. Shahar holds a Bachelor's and a masters degree in Social Work from the Haifa University.

AMIT ESHET joined Tefron in February 2001 and has served as Hi-Tex division manager since July 2004 and as Purchasing manager since March 2005. Prior to that, he served as manager quality assurance of Hi-Tex division. Mr. Eshet served as manager in several industrial corporations. Mr. Eshet holds a B.Sc degree in Industrial Engineering from the Technion in Haifa.

DAVID GERBI joined Tefron as Hi-Tex Managing director in February 2005. David has a vast experience in management positions in the textile industry. Mr., Gerby served from 1977 to 1985 as the textile division production manager in Nilit Ltd, from 1985 to 1997 as the manager of the socks factory of Delta and as the manager of the fabric division of Delta, managed a private textile factory of him between 1997 to 1999 and established plants and outsourcing for Sara Lee in Turkey between 2003-2005. Mr. Gerby holds a degree in practical engineer from Ort and a Bachelor's degree in sociology and state studies form Haifa University.

ILAN GILBOA joined Tefron as manager of Tefron's cut & sew division in March 2003. Prior to joining Tefron Mr. Gilboa served from 1996 to February 2003 in Kulicke & Soffa Israel, a leading supplier of semiconductor assembly and test inerconnect equipment, materials and technologies, first as a manager of industrial engineering and last as vice president of operations and as such, was responsible for the construction of K&S's new industrial facility in China. Mr. Gilboa holds a B.Sc and M.Sc degree in industrial engineering from the Technion in Haifa.

ZVI AVIGAD joined Tefron at the beginning of 2001 and has served as

logistics manager since October 2004. Prior to that Mr. Avigad held various positions in the company, including operational manager and manager of the Hi-Tex division. Mr. Avigad held various senior management positions in several industrial corporations since 1991. Mr. Avigad holds a B.Sc degree in industrial Engineering and masters degree in business administration (MBA) from the Technion in Haifa.

RONNY GRUNDLAND joined Tefron in May 2003, following the acquisition of Macro Clothing Ltd, and has serve since then as a Swimwear Marketing Manager. Prior to that Mr. Grundland served since 1995 until 2003 as the general manager of Macro, since 1993 until 1995 he served as general manger of Macpell Industries, Ltd. jointly with another and as its marketing manager, since 1990 until 1992 Mr. Grundland served as an organizational advisor to textile companies in Israel and Europe, and since 1980 until 1989 he served as a production and operational manager in Gotex, Ltd. Mr. Grundland holds a B.Sc degree in industrial Engineering form the Technion- the technologic institution to Israel.

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MICHAL BAUMWALD ORON joined Tefron in 2003 and has served as the company secretary and legal counsel since August 2004. Prior to joining Tefron, Ms. Oron served as a lawyer and as legal counsel in a law firm, in private practice and in the IDF. Ms. Oron holds an LLB from Tel-Aviv University and an LLM from Bar-Ilan University and was admitted to practice law in Israel in 1996.

MACPELL SHAREHOLDERS' AGREEMENT

The Macpell Shareholders Agreement relates, among other things, to the election of Directors of Tefron. The agreement provides, among other things, that subject to the agreement of the shareholders in Tefron, the distribution of the directors on Tefron's Board of Directors will reflect the direct and indirect holdings in Tefron (including through Macpell) of the parties to the agreement. The current designees of Macpell and its major shareholders (Arwol, Ruimi and Riza) is Mr. Wolfson. Since the resignation of Mr. Sigi Rabinowicz, Macpell has not appointed an additional director. "Item 7 - Major Shareholders and Related Party Transactions - 7B. - Related Party Transaction - Macpell Shareholders' Agreement." See "Item 10. Additional Information - C. Material Agreements - FIMI Agreements - Macpell Agreement" for a description of the agreement between Arwol, Macpell and Norfet, Limited Partnership regarding the election of members to Tefron's Board of Directors.

6B. COMPENSATION

The aggregate direct remuneration paid to all Directors and senior management as a group for services in all capacities for the year ended December 31, 2004 was approximately $2.2 million, of which $100,000 was paid to Directors in their capacities as Directors. This amount includes $150,000 which was set aside or accrued to provide pension, retirement or similar benefits. The amount does not include any amounts expended by us for automobiles made available to its officers, expenses (including business travel and professional and business association dues and expenses) reimbursed to officers and other fringe benefits commonly reimbursed or paid by companies in Israel and a $118,000 in management fees paid to Norfet as described in "Item 4. Information on the Company - 4A. History and Development of the Company".

In 2004, we granted options for 730,000 Ordinary Shares under the Share Option Plan, of which 720,000 were granted to Directors and senior managers. Such options have an average exercise price of $4.264 per share and expire in 2014. Options for 115,768 Ordinary Shares under the Share Option Plan expired or were cancelled during 2004.

EMPLOYMENT AGREEMENTS

CHAIRMAN OF THE BOARD

Under the terms of our consulting and management services agreement with Mr. Arie Wolfson, our Chairman of the Board of Directors, and with a company controlled by him, (the "Consulting Agreement") we pay to the company controlled by Mr. Wolfson: (1) compensation for consulting services in the amount of $15,000 per month, plus 41% cost (equivalent to the cost we would have paid for

a similar senior management wage), (2) reimbursement of vehicle expenses, (3) reimbursement of out-of-pocket expenses, and (4) reimbursement of other standard expenses customarily provided to persons serving in such capacity in Israel. These payments replace payments made until 2002 to Macpell in the amount of $20,000 per month. In addition, the consulting and management services agreement includes non competition clauses.

In addition, we have granted to Mr. Wolfson options to purchase 225,000 Ordinary Shares at an exercise price per share of $3.50. Such options will be issued in accordance with our 1997 Share Option Plan and, subject to relevant tax laws, 150,000 are already exercisable and 75,000 options will be exercisable on August 6, 2005.

In the event the agreement is terminated, Mr. Wolfson will be entitled to exercise the options he would otherwise be entitled to exercise as of such date for a period ending 36 months after such termination.

Pursuant to the terms of the agreement between Norfet, Limited Partnership and the Company, on March 31, 2004, the general meeting of shareholders of the Company approved an amendment to the Consulting Agreement which provides that as of the date on which Mr. Wolfson ceases to act as chairman of the board of directors of the Company, and for so long as Mr. Wolfson continues to provide consulting services to the Company, the annual amounts payable pursuant to the Consulting Agreement will be reduced from $253,800 to $120,000 per annum, each plus VAT. See "Item 10. Additional Information - 10C. Material Contracts - FIMI Agreements".

FORMER PRESIDENT

Under the terms of our employment agreement with Mr. Sigi Rabinowicz, our former president, we paid or provided to Mr. Rabinowicz: (1) monthly compensation in the amount of US $20,000, (2) reimbursement of other standard expenses, (3) benefits such as the provision of an vehicle, vacation, educational fund, sick leave, and management and disability insurance contributions, and (4) a bonus to be determined by our audit committee once a year, that is to be not less than 1.5% and no higher than 2.5% of our net profits, as calculated in the employment agreement. Effective January 10, 2005, Mr. Rabinowicz resigned as President and as a member of the Board of Directors. According to the retirement agreement we executed with Mr. Rabinowicz, he will be entitled to the monthly compensation, employee benefits and a vehicle until Sept. 30, 2005. The options granted to Mr. Rabinowicz will be effective and exercisable until January 2, 2007. The agreement also includes non-competition and confidentiality clauses.

CHIEF EXECUTIVE OFFICER

Under the terms of our management services agreement with Mr. Yosef Shiran, our Chief Executive Officer, and with an entity controlled by him (the "Management Agreement"), we pay to the entity controlled by Mr. Shiran: (1) compensation for management services in the amount of $26,663 plus NIS 2,065 per month, plus VAT as applicable by law, (2) reimbursement of any and all reasonable direct expenses including telephone, cellular phone and vehicle expenses and (3) annual grant that will not be higher than 2.5% of Tefron's Net Profit, as defined in the Management Agreement, and not lower than 1.5% of such Net Profit. In any case that the Audit Committee shall determine that the annual grant should be higher than 1.5% of the Net Profit, its decision will be subject to approvals of both the Board of Directors and the General Meeting of the Shareholders of Tefron, unless such approvals will no longer be required under applicable law. In March 2004, the Tefron shareholders approved that, upon the closing of the transactions with Norfet, Limited Partnership described in "Item 10. Additional Information - C. Material Agreements - FIMI Agreements", the Management Agreement will be amended and accordingly, from that date onwards the annual grant will be 2% of the Company's Net Profits, as defined under the Management Agreement.

In addition, in 2001, we granted to Mr. Shiran options to purchase 300,000 Ordinary Shares at an exercise price per share of $3.56. Mr. Shiran was entitled to exercise 1/6 of the options (for 50,000 ordinary shares) at the end of the first three months of employment. At the end of each three months, starting at

the end of the first half-year of his employment and ending at the end of the first 27 months of his employment, he is entitled to exercise 1/12 of the options (for 25,000 ordinary shares, and a total of 200,000 ordinary shares during such time period). At the end of the first thirty months of employment, he is entitled to exercise an additional 1/6 of the options (for 50,000 ordinary shares). These options are subject to the terms and conditions of our 1997 Share Option Plan. In 2002 we granted to Mr. Shiran options to purchase 15,000 Ordinary Shares with an exercise price per share of $3.59. These options are subject to the terms and conditions of our 1997 Share Option Plan. One-third of the options vested on August 5, 2003, and one-third of the options will vest on each of August 5, 2004 and 2005, subject to any relevant tax laws. In March 2004, the Tefron shareholders approved the grant to Mr. Shiran of options to purchase 650,000 Ordinary Shares at an exercise price of $ 4.25 per share. These options were issued upon the closing of the transactions with Norfet, Limited Partnership described in "Item 10. Additional Information - C. Material Agreements - FIMI Agreements". These options were issued in accordance with our 1997 Share Option Plan and are exercisable, subject to relevant tax laws, as follows:

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a. 162,500 Options vested as of January 1, 2005 and thereafter
b. at the end of each month, starting as of the end of January 2005 and ending at the end of December 2007, 1/48 (rounded up to the closest whole number which is approximately 13,542) of the Options granted would vest.

In the event the Management Agreement is terminated by us without "cause" or by Mr. Shiran, Mr. Shiran will be entitled to exercise the options he would otherwise be entitled to exercise as of such date for a period ending 36 months after such termination. Notwithstanding the foregoing, in the event we terminate the Management Agreement because of "Change in Control", Mr. Shiran will be entitled to exercise all of the 650,000 options not exercisable at the time of

termination. In such a case, Mr. Shiran will be entitled to exercise these options within 30 days of the termination date. For the purpose of this grant, "Change of Control" means: if none of (i) FIMI Opportunity Fund, L.P. (and its affiliates and investors, including FIMI Israel Opportunity Fund, Limited Partnership) ("FIMI"); (ii) Arwol Holdings Ltd. ("Arwol"); and (iii) Macpell Industries Ltd., will be party to the shareholder agreement dated March 17, 2004 between such parties (described in "Item 10. Additional Information - C. Material Contracts - FIMI Agreements - Macpell Agreement"), or will otherwise effectively have Control of the Company. For that purpose, the term "Control" shall have the meaning given to that term (in Hebrew: "Shlita") on Section 1 of the Securities Law, 1968.

DEFERRED SHARES

In 1996, we issued 2,250 Ordinary B Shares each to Sigi Rabinowicz and Arie Wolfson in consideration for NIS 2,250 and services rendered to us in their capacities as executive officers. Pursuant to our Articles of Association, the Ordinary B Shares automatically converted into Deferred Shares upon consummation of the initial public offering. The Deferred Shares are non-transferable and entitle their holders, upon the liquidation of the company, to the par value of the shares but to no voting, dividend or any other rights.

6C. BOARD PRACTICES

Each Director, other than the External Directors, is generally elected by a vote at the Annual General Meeting of shareholders and serves for a term of one year or until the following Annual General Meeting. Each External Director is elected to serve for a period of three years from the date of the Annual General Meeting. Each office holder will serve until his or her removal by the Board of Directors or resignation from office.

INDEPENDENT/EXTERNAL DIRECTORS

ISRAELI COMPANIES LAW REQUIREMENTS

We are subject to the provisions of the Israeli Companies Law, 1999 which requires that we have at least two External Directors. Under a recent amendment to the Companies Law, at least one of the external directors is required to have Financial Expertise and the other External Directors are required to have Professional Expertise. These requirements are subject to regulations to be promulgated in which the terms Financial Expertise and Professional Expertise would be defined. This recent amendment does not apply to External Directors who were appointed before March 17, 2005 (such as our External Directors).

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Under the Companies Law, a person may not be appointed as an External Director if he or his relative, partner, employer or any entity under his control has or had during the two years preceding the date of appointment any affiliation with the company, any entity controlling the company or any entity controlled by the company or by this controlling entity. The term affiliation includes: an employment relationship, a business or professional relationship maintained on a regular basis, control, and service as an office holder. No person can serve as an External Director if the person's position or other business creates, or may create, conflicts of interest with the person's responsibilities as an External Director. Until the lapse of two years from termination of office, a company may not engage an External Director to serve as an office holder and cannot employ or receive services from that person, either directly or indirectly, including through a corporation controlled by that person.

Under the Companies Law, External Directors must be elected by a majority vote at a shareholders' meeting, provided that either: (1) the majority of shares voted at the meeting, including at least one-third of the shares of non-controlling shareholders voted at the meeting, vote in favor of the election; or (2) the total number of shares voted against the election of the external director does not exceed one percent of the aggregate voting rights in the company. The initial term of an External Director is three years, which term may be extended for an additional three years. Each committee of a company's board of directors must include at least one External Director, and all External Directors must serve on the audit committee. The Company's External Directors are currently Arie Arieli and Yacov Elinav.

NEW YORK STOCK EXCHANGE REQUIREMENTS

Our Ordinary Shares are listed on the New York Stock Exchange, and we are subject to the rules of the NYSE applicable to listed companies. Under the current NYSE rules, we are required to have an audit committee consisting of at least three directors, all of who must be independent. Our independent directors, who are all members of the audit committee, are Shirith Kasher, Micha Korman, Arie Arieli and Yacov Elinav. The independence standard under the NYSE rules generally excludes (1) any person who is an employee of a company or its affiliates or any person who is an immediate family member of an executive officer of a company or its affiliates, until the lapse of three years from the termination of such employment, (2) any person who is a partner, controlling shareholder or executive officer of an organization that has a business relationship with the company or who has a direct business relationship with a company, unless the board of directors of the company determines that the business relationship does not interfere with such person's independent judgment, or unless three years have lapsed from the termination of such relationship or his status as a partner, controlling shareholder or executive officer, and (3) any person who is employed as an executive of another corporation where any of the company's executives serves on that corporation's compensation committee.

AUDIT COMMITTEE

NYSE REQUIREMENTS. Under NYSE rules, we are required to have an audit committee consisting of at least three directors, all of whom are financially literate and independent and one of whom has accounting or related financial management expertise. The responsibilities of the audit committee under NYSE rules include evaluating the independence of a company's outside auditors. Pursuant to the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission (the "SEC") has issued new rules that, among other things, require the New York Stock Exchange to impose independence requirements on each member of the audit committee. The New York Stock Exchange has adopted rules that comply with the SEC's requirements and which are applicable to us by July 31, 2005.

The adopted requirements implement two basic criteria for determining independence: (i) audit committee members would be barred from accepting any consulting, advisory or other compensatory fee from the issuer or an affiliate of the issuer, other than in the member's capacity as a member of the board of directors and any board committee, and (ii) audit committee members of an issuer that is not an investment company may not be an "affiliated person" of the issuer or any subsidiary of the issuer apart from his or her capacity as a member of the board and any board committee.

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The SEC has defined "affiliate" for non-investment companies as "a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. "The term "control" is intended to be consistent with the other definitions of this term under the Securities Exchange Act of 1934, as "the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise."

COMPANIES LAW REQUIREMENTS. Under the Companies Law, the board of directors of any company that is required to nominate external directors must also appoint an audit committee, comprised of at least three directors including all of the external directors, but excluding the chairman of the board of directors, a controlling shareholder and any director employed by the company or who provides services to the company on a regular basis.

Among the roles of the audit committee is to examine flaws in the business management of the company, in consultation with the internal auditor and the company's independent accountants, and suggest appropriate course of action. The audit committee also determines whether to approve certain actions and transactions with related parties. Arrangements regarding compensation of directors require the approval of the audit committee, the board of directors

and the shareholders.

QUALIFICATIONS OF OTHER DIRECTORS

Under a recent amendment to the Companies Law, the Board is required to determine the minimal number of board member that would be required to have Financial Expertise. This requirement is subject to regulations to be promulgated in which the term Financial Expertise would be defined.

DUTIES OF DIRECTORS

The Companies Law codifies the duty of care and fiduciary duties that an "Office Holder" (as defined below) owes to a company. An Office Holder's duty of care and fiduciary duty include avoiding any conflict of interest between the Office Holder's position in the company and his personal affairs, any competition with the company, avoiding exploiting any business opportunity of the company in order to receive personal advantage for himself or others, and revealing to the company any information or documents relating to the company's affairs which the Office Holder has received due to his position as an Office Holder.

An "Office Holder" is defined as a director, managing director, chief business manager or chief executive officer, executive vice president, vice president, other manager directly subordinate to the CEO or any other person assuming the responsibilities of any of the foregoing positions without regard to such person's title. Under the Companies Law, all arrangements as to compensation of Office Holders who are not directors and who are not controlling shareholders require approval of the board of directors, unless the articles of association provide otherwise. Our articles require that such a transaction which is not irregular shall be approved by the Board of Directors or by the Audit Committee or by any other entity authorized by the Board of Directors. Arrangements regarding the compensation of directors or controlling shareholders also require the approval of the shareholders.

COMMITTEES

Our Board of Directors has established an Audit Committee, Compensation

Committee and Contributions Committee. The Companies Law restricts the delegation of powers from the Board of Directors to its committees in certain manners. The Audit Committee exercises the powers of the Board of Directors with respect to our accounting, reporting and financial control practices, including exercising the responsibility, where appropriate, for reviewing potential conflicts of interest situations. The members of the Audit Committee are Ms. Kasher and Messrs. Arieli, Elinav and Korman. The Compensation Committee administers our share option plans. The members of the Compensation Committee are Mr. Wolfson (Chairman of the Board), one of the external directors (Messrs. Arieli or Elinav) and Mr. Shiran (CEO). The Articles of Association provide that we may contribute reasonable sums for worthy causes, even if the contribution is not in the frame of our business considerations. The Board of Directors has delegated this power to the Contributions Committee. The members of the Contributions Committee are Messrs. Shiran and Arieli (external director). See "Item 10. Additional Information -10B. Memorandum and Articles of Association - Board of Directors."

6D. EMPLOYEES

At December 31, 2004, we employed 2,082 employees in Israel of whom 469 were salaried employees and 1,613 were hourly wage employees. At December 31, 2004, we employed 301 employees in the United States through our subsidiary, Alba, of whom 259 were salaried employees and 42 were hourly wage employees. At December 31, 2004, El-masira employed 440 employees in Jordan all of them were salaried employees

At December 31, 2003, we employed 2,126 employees in Israel of whom 692 were salaried employees and 1,434 were hourly wage employees. At December 31, 2003, we employed 363 employees in the United States through our subsidiary, Alba, of whom 48 were salaried employees and 315 were hourly wage employees. At December 31, 2003, El-masira employed 341 employees in Jordan, all of whom were salaried employees.

At December 31, 2002, we employed 2,011 employees in Israel of whom 582 were salaried employees and 1,429 were hourly wage employees. At December 31, 2002, we employed 644 employees in the United States through our subsidiary, Alba, of whom 79 were salaried employees and 565 were hourly wage employees. At December 31, 2002, El-masira employed 349 employees in Jordan, all of whom were salaried employees.

To increase the motivation of the workforce, many factory employees are eligible for bonuses based upon the number of units such employees produce in any given day. We believe that relations with our employees are good.

Certain collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists' Association of Israel, or the Association) are applicable to our employees in Israel. In addition, a collective bargaining agreement relating to members of the Association, which governs employee relations in the textile and clothing industry, applies to most of our employees in Israel. These agreements concern, among other things, the maximum length of the work day and the work week, minimum wages, contributions to a pension fund, insurance for work-related accidents, procedures for dismissing employees, determination of severance pay and other conditions of employment. Furthermore, pursuant to certain provisions of such agreements, the wages of most of our employees are automatically adjusted in accordance with cost-of-living adjustments, as determined on a nationwide basis and pursuant to agreements with the Histadrut based on changes in the CPI. The amounts and frequency of such adjustments are modified from time to time.

Israeli law generally requires the payment by employers of severance pay upon the retirement or death of an employee or upon termination of employment by the employer or, in certain circumstances, by the employee. We currently fund our ongoing severance obligations by making monthly payments to pension funds, employee accounts in a provident fund and insurance policies. In addition, according to the National Insurance Law, Israeli employees and employers are required to pay specified amounts to the National Insurance Institute, which is similar to the U.S. Social Security Administration. Since January 1, 1995, such amounts also include payments for national health insurance payable by

employees. The payments to the National Insurance Institute are determined progressively in accordance with the wages and range from 10.4% to 16.3% of wages, of which the employer contributes 5.9% of wages, and the employee contributes the rest. A majority of our permanent employees in Israel are covered by general and/or individual life and pension insurance policies providing customary benefits to employees, including retirement and severance benefits. The employers generally contribute up to 15.8% (depending on the employee) of base wages to such plans and the permanent employees contribute up to 5.5% of their base wages.

None of Alba's employees are covered by a collective bargaining agreement.

6E. SHARE OWNERSHIP

As of April 6, 2005, the following directors and senior managers beneficially held the number of Ordinary Shares set forth in the table below. The information in this table is based on 17,932,558 Ordinary Shares outstanding as of, April 6, 2005. The number of Ordinary Shares beneficially owned by a person includes Ordinary Shares subject to options held by that person that were currently exercisable at, or exercisable within 60 days of, April 6, 2005. The Ordinary Shares issuable under these options are treated as if they were outstanding for purposes of computing the percentage ownership of the person holding these options but are not treated as if they were outstanding for the purposes of computing the percentage ownership outstanding for any other person. Except as disclosed below, to our knowledge, none of the directors, officers or key executives listed in the Directors and Senior Management table appearing in Item 6 above beneficially owns any Ordinary Shares.

NUMBER OF % OF ORDINARY SHARES

NAME	ORDINARY SHARES
- ------------------------------------------------------	---------------	-------------

Arie Wolfson	4,898,492(1)	27.3%
Yos Shiran	540,208(2)	3%
Talya Hanan	*	*
Micha Korman	*	*
Gil Rozen	*	*
Meir Shamir	5,663,085(3)	31.6%
Yacov Elinav	*	*
Arie Arieli	*	*
Itamar Harchol	*	*
Ilan Gilboa	*
Zvi Avigad	*
Margalit Shahar	*	*
Amit Eshet	*

Directors and senior managers as a group (13 persons) 11,415,682(4) 63.7%

* Less than 1% of the outstanding Ordinary Shares.

** Does not take into account 997,400 Ordinary Shares held by a wholly owned subsidiary of the Company.

(1) Includes (a) 3,777,110 Ordinary Shares held by Macpell, (b) 971,282 Ordinary Shares held by Arwol Holdings Ltd., (c) 150,000 Ordinary Shares subject to options exercisable at $3.50 per share (which expire in 2012), and (d) 100 Ordinary Shares held by Mr. Wolfson. Pursuant to Rule 13d-5 of the U.S. Securities Exchange Act of 1934, as amended, Mr. Wolfson may be deemed to beneficially own the 3,777,110 Ordinary Shares held by Macpell and the 971,282 Ordinary Shares held by Arwol. See "-6A. Directors and Senior Management - Macpell Shareholders' Agreement" and "Item 7. Major Shareholders and Related Party Transactions - 7B. Related Party Transactions - Relationships and Transactions with Macpell - Macpell Shareholders' Agreement." The table above does not include 2,250 Deferred Shares (representing 50% of the outstanding Deferred Shares) held by Mr. Wolfson. The Deferred Shares are non-transferable

and entitle their holders, upon our liquidation, to the par value of the shares but to no voting, dividend or any other rights.

(2) Consists of 540,208 Ordinary Shares subject to options exercisable at prices that are between $3.50 and at $3.56 per share (which expire between 2011 and 2012).

(3) Consists of 5,663,085 Ordinary Shares held by Norfet, which Mr. Shamir may be deemed to beneficially own due to his 40% interest in Mivtah-Shamir, which held an approximately 35.5% interest in Norfet as of April 6, 2005.

(4) Consists of 5,663,085 Ordinary Shares held by Norfet, which Meir Shamir may be deemed to beneficially own under U.S securities laws due to his 40% interest in Mivtah-Shamir, which held an approximately 35.5% interest in Norfet as of April 6, 2005. Also include 3,777,110 Ordinary Shares held by Macpell of which Arie Wolfson may be deemed to be beneficial owner under U.S. securities laws due to his beneficial interests in Macpell and the Macpell Shareholders' Agreement. See "Item 7. Majority Shareholders and Related Party Transactions - 7B. Related Party Transactions - Relationships and Transactions with Macpell - Macpell Shareholders' Agreement." Also includes 971,282 Ordinary Shares held by Arwol of which Arie Wolfson may be deemed beneficial owner under U.S. securities laws. Further includes options (exercisable within 60 days) to purchase 1,004,205 Ordinary Shares. The exercise price of these options ranges from $3.50 to $9.50 per share. The expiration of these options ranges from 2007 to 2013.

SHARE OPTION PLAN

In September 1997, we adopted the Tefron Ltd. 1997 Share Option Plan to enable us to attract and retain qualified persons as employees, consultants and directors and to motivate such persons with an equity participation in us.

GENERAL

The Share Option Plan authorizes the issuance of options to purchase 2,266,049 Ordinary Shares. At a shareholders meeting held on March 31, 2004, the shareholders voted to increase the number of shares reserved for issuance under the Share Option Plan by 446,274 Ordinary Shares to 2,712,323 Ordinary Shares. As of April 6, 2005 options to purchase 2,369,555 of such Ordinary Shares had been granted to our senior managers, directors and employees, of which 1,532,156 options had been granted to our senior managers and directors as a group. Upon the occurrence of any Ordinary Share split, reverse Ordinary Share split, recapitalization or rights offerings or other substantially similar corporate transaction or event, we shall make such equitable changes or adjustments necessary to the number of shares subject to each outstanding option in order to prevent dilution or enlargement of the optionees' rights. Options granted to our employees shall be issued to a trustee nominated by the Board of Directors, which trustee shall hold the options, and any Ordinary Shares issued upon exercise thereof, for the benefit of the optionees for two years from the date of the grant.

ADMINISTRATION

The Share Option Plan is administered directly by our Board of Directors or by a committee appointed by the Board of Directors which is authorized, among other things and, subject to the provisions of the Companies Law, to: (i) designate participants in the Share Option Plan; (ii) determine the terms and provisions of the options, including the number of Ordinary Shares to which an option may relate and the terms, conditions and restrictions thereof; (iii) accelerate the right of an optionee to exercise any previously granted options; (iv) construe and interpret the provisions and supervise the administration of the Share Option Plan; and (v) make all other determinations deemed necessary or advisable for the administration of the Share Option Plan.

VESTING PERIODS

Unless otherwise determined by our Board of Directors and, in the case of option grants to Directors or an interested party, approved by our shareholders, one-third of the options granted under the Share Option Plan are exercisable on each of the first three anniversaries from the date of grant. Unless otherwise determined by our Board of Directors and, in the case of option grants to Directors or an interested party, approved by our shareholders, the options expire on the tenth anniversary from the date of grant, and any additional options granted in the future shall vest in the same manner over a three-year period commencing on the date of their grant.

47 AMENDMENT AND TERMINATION OF THE SHARE OPTION PLAN

We may, at any time and from time to time, amend, alter or discontinue the Share Option Plan; PROVIDED, HOWEVER, that no amendment or alteration of the Share Option Plan shall adversely affect an optionee's rights under any outstanding option without the consent of such optionee.

ACCOUNTING TREATMENT

For a discussion of the accounting treatment of the Share Option Plan, see Note 12 of the Notes to the Consolidated Financial Statements.

AMENDMENT TO THE SHARE OPTION PLAN EFFECTIVE AS OF JANUARY 1, 2003

In December 2002, in order to comply with the new tax rules under the amended Israeli Income Tax Ordinance [New Version], 1961, our Board approved an amendment to our Share Option Plan.

The new tax rules enable a company to issue options under three alternative tracks, which may generally be described as follows: (i) without a trustee, under which the income will be considered employment income, the income will continue to be taxed at regular marginal rates of up to the maximal tax rate plus payments to the National Insurance Institute and payment of health tax, and no expense is deductible by the employer; (ii) with a trustee under the employment income track, under which the options are held by a trustee for a

period of twelve months from the end of the tax year in which the grant took place, the income is considered regular employment income taxed at marginal rates of up to 50% plus payments to the National Insurance Institute and payment of health tax, and the employer is entitled to a deductible expense equivalent to the income attributed to the employee; or (iii) with a trustee under the capital gains track, under which the options are held by a trustee for a period of two years from the end of the tax year in which the grant took place, the income is considered to be a capital gain and is taxable at a reduced rate of 25%, and no expense is deductible by the employer.

On February 27, 2003, in order to enable us to grant options after January 1, 2003, we filed an amendment to the Share Option Plan with the tax authorities and informed them of our election of the capital gains track (the third alternative above). In addition, under the amendment to the Share Option Plan, we may also issue options under the provisions of the tax track without a trustee under the first alternative. The capital gains track will apply to all trustee-track options to be granted by us until December 31, 2004. After this period has ended, we may change our election.

The new rules and the amendment to the Share Option Plan described above apply only to issuances of options beginning on January 1, 2003 and thereafter. Options issued before such date will continue to be governed by the law in effect prior to the amendment.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7A. MAJOR SHAREHOLDERS

Except as noted herein, to our knowledge, we are not directly or indirectly owned or controlled by another corporation or by any foreign government and no arrangements exist the operation of which may at a subsequent date result in a change in control of the company.

The following table sets forth the number of our Ordinary Shares owned by any person known to us to be the beneficial owner of 5% or more of our Ordinary Shares as of March 30, 2005. The information in this table is based on 17,932,558 Ordinary Shares outstanding as of such date. The number of Ordinary Shares beneficially owned by a person includes Ordinary Shares subject to options held by that person that were currently exercisable at, or exercisable within 60 days of, April 6, 2005. The Ordinary Shares issuable under these options are treated as if they were outstanding for purposes of computing the percentage ownership of the person holding these options but are not treated as if they were outstanding for the purposes of computing the percentage ownership outstanding for any other person. None of the holders of the Ordinary Shares listed in this table have voting rights different from other holders of the Ordinary Shares.



NAME	NUMBER OF SHARES OWNED	PERCENT OF
ORDINARY SHARES *
- ------------------------------------	----------------------	----------------------------
Norfet, Limited Partnership	5,663,085 (1)	31.6%
c/o Fimi 2001 Ltd.
"Rubinstein House"
37 Begin Rd.
Tel Aviv, Israel
Macpell Industries Ltd.	3,777,110 (2)	21.1%
28 Chida Street
Bnei Brak, Israel 51371
Discount Investment Corporation Ltd	1,916,866 (3)	7.1%
Azrieli Center 3, Triangular Building
Tel Aviv, Israel 67023

Arie Wolfson	4,898,492 (4)	27.3%
Sigi Rabinowicz	4,071,451 (5)	22.7%
Leber Partners, L.P.Zvi Limon	1,276,882	7.1%
95 Avenue Kleber Paris, France 75116

| |

* Does not take into account 997,400 Ordinary Shares held by a wholly owned subsidiary of the Company.
(1) Norfet L.P is an Israeli partnership. As of April 6, 2005, 51.963% of Norfet was held by FIMI Israel, Opportunity Fund, Limited Partnership, and 34.449% was held by Mivtach Shamir Holdings Ltd.. Pursuant to Rule 13d-5 of the U.S Exchange Act, Norfet may also be deemed to beneficially own the shares held by Macpell and Arwol due to the shareholders agreement between Arwol, Macpell and Norfet. See "Item 10. Additional Information - 10C. Material Contracts - FIMI Agreements." In addition, pursuant to Rule 13d-5, Mr. Meir Shamir, a director in our company, may be deemed to beneficially own the shares held by Norfet due to his 40% interest in Mivtah-Shamir.

49

(2) Macpell is an Israeli corporation. As of April 6, 2005, Arwol Holdings Ltd., an Israeli company wholly-owned by Arie Wolfson, our Chairman of the Board, held 27.8% of Macpell; Riza Holdings Ltd., an Israeli company wholly-owned by Sigi Rabinowicz, held 25.0% of Macpell; and Condo Overseas Inc., a Panamanian company wholly-owned by Avi Ruimi, held 25.8% of Macpell, representing 78.7% of Macpell's shares in the aggregate. See "- 7B. Related Party Transactions - Relationships and Transactions with Macpell." The aggregate number of Macpell's shares outstanding as of April 6, 2005 was 15,561,284 (included 398,651 shares held by New Net Holdings Ltd, a wholly owned subsidiary of Macpell) .Pursuant to Rule 13d-5 of the

U.S Exchange Act, Macpell may also be deemed to beneficially own the shares held by Norfet due to the shareholders agreement between Arwol, Macpell and Norfet. See "Item 10. Additional Information - 10C. Material Contracts - FIMI Agreements."

(3) Consists of 958,433 shares held by Discount Investment Corporation Ltd. ("DIC") and 958,433 shares held by PEC Israel Economic Corporation ("PEC"), a wholly owned subsidiary of DIC. DIC is controlled by IDB Development Corporation Ltd. ("IDB Development"). IDB Development is controlled by IDB Holding Corporation Ltd. ("IDBH"). DIC, IDB Development and IDBH are public companies traded on the Tel Aviv Stock Exchange.

IDBH is controlled by a group comprised of: (i) Ganden Investments I.D.B. Ltd. ("Ganden Investments"), a wholly owned Israeli subsidiary of Ganden Holdings Ltd. ("Ganden Holdings"), a private Israeli company controlled by Nochi Dankner and his sister, Shelly Bergman, which holds 31.02% of the equity of and voting power in IDBH; (ii) Manor Investments-IDB Ltd. ("Manor Investments"), a majority owned Israeli subsidiary of Manor Holdings B.A. Ltd. ("Manor Holdings"), a private Israeli company controlled by Ruth Manor, which holds 10.34% of the equity of and voting power in IDBH; and (iii) Avraham Livnat Investments (2002) Ltd. ("Livnat Investments"), a wholly owned Israeli subsidiary of Avraham Livnat Ltd. ("Livnat Ltd."), a private Israeli company controlled by Avraham Livnat, which holds 10.34% of the equity of and voting power in IDBH. Ganden Investments, Manor Investments and Livnat Investments, owning in the aggregate approximately 51.7% of the equity of and voting power in IDBH, entered into a Shareholders Agreement relating, among other things, to their joint control of IDBH, the term of which is until May 19, 2023.

In addition to the shares of IDBH owned by Ganden Investments, Manor Holdings and Livnat Holdings, as at April 6, 2005: (i) Ganden Holdings itself owned directly approximately 3.16% 6.44% of the outstanding shares of IDBH, (ii) Shelly Bergman owned, through a private Israeli corporation which is wholly owned by her, approximately 6.54% 7.23% of the outstanding shares of IDBH, (iii) Manor Holdings itself owned directly approximately 0.04% 0.03% of the outstanding shares of IDBH and (iv) Livnat Ltd. itself owned directly approximately 0.04% of the outstanding shares of IDBH. These additional holdings of shares of IDBH are not subject to the Shareholders Agreement referred to above.

Nochi Dankner is Chairman of IDBH, IDB Development and DIC. Shelly Bergman, Isaac Manor (the husband of Ruth Manor), Dori Manor (a son of Isaac and Ruth Manor) and Zvi Livnat (a son of Avraham Livnat) are directors of each of IDBH, IDB Development and DIC. Shai Livnat (a son of Avraham Livnat) is a director of IDB Development.

(4) Includes (a) 3,777,110 Ordinary Shares held by Macpell, (b) 971,282 Ordinary Shares held by Arwol, (c) 150,000 Ordinary Shares subject to options exercisable at $3.50 per share (which expire in 2012) and (d) 100 Ordinary Shares held by Mr. Wolfson. Pursuant to Rule 13d-5 of the Securities Exchange Act of 1934, as amended, Mr. Wolfson may be deemed to beneficially own the 3,777,110 Ordinary Shares held by Macpell due to his beneficial interest in Macpell and the Macpell Shareholders' Agreement. Does not include 2,250 Deferred Shares held by Mr. Wolfson. The Deferred Shares are non-transferable and entitle their holders, upon the liquidation of the Company, to the par value of the shares but to no voting, dividend or any other rights.
(5) Consists of (i) 3,777,110 Ordinary Shares held by Macpell, and (ii) exercisable options to purchase 294,341 Ordinary Shares at prices that are between $3.50 and $9.50 per share (which expire between 2009 and 2012). Pursuant to Rule 13d-5 of the U.S. Securities Exchange Act of 1934, as amended, Mr. Rabinowicz may be deemed to beneficially own the 3,777,110 Ordinary Shares held by Macpell due to his beneficial interest in Macpell and the Macpell Shareholders' Agreement. Does not include 2,250 Deferred Shares held by Mr. Rabinowicz. The Deferred Shares are non-transferable and entitle their holders, upon the liquidation of the Company, to the par value of the shares but to no voting, dividend or any other rights.

At April 6, 2005, there were 18 holders of Ordinary Shares of record registered with a United States mailing address, including banks, brokers and nominees. These holders of record represented approximately 39% of the total outstanding Ordinary Shares. Because these holders of record include banks, brokers and nominees, the beneficial owners of these Ordinary Shares may include persons who reside outside the United States. See "Item 7. Major Shareholders and Related Party Transactions - 7A. Major Shareholders." There are no holders of Deferred Shares in the United States.

7B. RELATED PARTY TRANSACTIONS

RELATIONSHIPS AND TRANSACTIONS WITH MACPELL

The following discussion includes summaries of the significant terms of various agreements and transactions. Because these are summaries, they are qualified by reference to the actual agreements, which are attached as exhibits to this Annual Report.

The Companies Law requires that certain related party transactions be approved as provided for in a company's articles of association and, in certain circumstances, by a company's audit committee or its shareholders. Our Audit Committee is responsible for reviewing potential conflicts of interest situations where appropriate.

Macpell owns 3,777,110 Ordinary Shares, approximately 21% of Tefron's outstanding Ordinary Shares. Macpell is mainly a holding company that owns various companies, including Tefron and a partnership that mainly trades in various clothing and apparel products. Macpell was also engaged in the construction of industrial buildings mainly intended for the use of the Macpell group.

As of April 6, 2005, Arwol Holdings Ltd., an Israeli company wholly-owned by Arie Wolfson, Chairman of the Board of Directors of Tefron, held 27.8% of Macpell; Riza Holdings Ltd., an Israeli company wholly-owned by Sigi Rabinowicz, held 25.0% of Macpell; and Condo Overseas Inc., a Panamanian company wholly-owned by Avi Ruimi, a former Director of Tefron, held 25.8% of Macpell, representing 78.6% of Macpell's shares in the aggregate. The ordinary shares of

Macpell are listed and traded on the Tel Aviv Stock Exchange.

MACPELL SHAREHOLDERS' AGREEMENT

Arwol Holdings Ltd., Riza Holdings Ltd. and Condo Overseas Inc. are parties to the Macpell Shareholders' Agreement. The agreement provides, among other things, that subject to the agreement of the shareholders in Tefron, the distribution of the directors on Tefron's Board will reflect the direct and indirect holdings in Tefron (including through Macpell) of the parties to the agreement. Pursuant to the Macpell Shareholders' Agreement, the Tefron Ordinary Shares of Macpell held by the parties thereto will be voted at each meeting of Macpell's shareholders by the trustee in accordance with the resolution of the shareholders party to the agreement, each shareholder having one vote for each Macpell share held by such shareholder.

The Macpell Shareholders' Agreement contains a right of first refusal in the event that either party wishes to sell its shares in Macpell, and a tag-along right if either party finds a buyer outside of the Macpell Shareholders' Agreement who is willing to purchase the Macpell shares. It also provides that the parties to the Macpell Shareholders' Agreement shall retain their ownership of at least 50% of the Macpell shares they own as of the date the agreement was executed. The Macpell Shareholders' Agreement provides that the vote of the holders of 75% of the Macpell shares is required for Macpell to (i) enter another line of business, (ii) merge, consolidate or dispose of any of its substantial assets, (iii) purchase, lease or acquire another substantial company, (iv) wind-up Macpell, (v) make decisions regarding the allotment of Macpell shares and (vi) declare dividends. The Macpell Shareholders' Agreement specifically permits the sale of Macpell shares by Arwol Holdings Ltd. to Sigi Rabinowicz or a company controlled by Sigi Rabinowicz, provided that the transferee agrees to be bound by the terms and conditions of the Macpell Shareholders' Agreement.

AGREEMENT WITH ARIE WOLFSON

We are party to a consulting and management services agreement with Mr. Arie Wolfson, our Chairman of the Board of Directors and an indirect holder of 27.8% of Macpell, and with a company controlled by him. See "Item 6. Directors, Senior Management and Employees - 6B. Compensation".

AGREEMENTS WITH FIMI/NORFET

Pursuant to a Share Purchase Agreement, dated February 17, 2004, Tefron issued to Norfet, Limited Partnership ("Norfet") 3,529,412 Tefron ordinary shares for a base price of $4.25 per share and a base aggregate consideration of $15 million. Norfet also acquired an additional 1,365,000 Tefron ordinary shares in the aggregate from Arwol and Macpell pursuant to a separate agreement. Following the closing of these agreements, Norfet held 4,894,412, or approximately 30.7% of the outstanding share capital of Tefron, without taking into account Tefron ordinary shares currently held by a wholly owned subsidiary of Tefron.

Due to purchase price adjustment provisions in the Purchase Agreements, Tefron issued to Norfet an additional 661,765 ordinary shares, and Arwol transferred 106,908 additional ordinary shares to Norfet.

Under the Share Purchase Agreement, we also agreed to pay Norfet a management fee of approximately $172,000 plus VAT per annum until our first annual meeting in 2005, and $120,000 plus VAT thereafter.

AGREEMENTS AMONG NORFET, MACPELL AND ARWOL

Under an agreement among Norfet, Macpell and Arwol, the parties agreed to vote all of Tefron ordinary shares owned or controlled by each of them for the election to Tefron's Board of Directors of: (i) three members (of whom at least one will qualify as an "independent director" under the NYSE rules) and, subject to applicable law - one external director, that shall be nominated by Norfet (one of whom shall be a woman), (ii) three members (of whom at least one will qualify as an independent director and a financial expert under the NYSE rules)and, subject to applicable law, one external director, that shall be

nominated by Arwol and Macpell, and (iii) Tefron's chief executive officer.

The Company, Norfet, Arwol and Macpell are also party to a Registration Rights Agreement, which replaced the previous Registration Rights Agreement among the Company, Arwol and Macpell .

Please see "Item 10. Additional Information- 10C. Material Contracts - FIMI Agreements" for a more complete description of these agreements.

LEASE ARRANGEMENT

On August 12, 1997, we entered into an agreement to lease until 2011 approximately 143,000 square feet of industrial space in a facility (the Hi-Tex 1 facility) adjacent to its current facilities in Segev from a wholly-owned subsidiary of Macpell for a current monthly rent of approximately $65,000. The first rental payment was made upon entrance into the facility on October 1, 1999. On December 21, 1998, we entered into an agreement to lease until 2012 approximately 180,000 square feet of industrial space in a second facility (the Hi-Tex 2 facility) adjacent to our existing facilities in Segev from a wholly-owned subsidiary of Macpell for a monthly rent of approximately $87,000. The first rental payment was made upon entrance into the facility on March 1, 2000. We conduct our Hi-Tex manufacturing operations in these facilities. In Segev, we also lease from Macpell's subsidiary an 83,000 square foot facility under a lease that expires in 2006 for a monthly rent of approximately $43,000 and a 65,000 square foot warehouse under a lease that expires in 2012 for a monthly rent of approximately $26,000. The rent payable under these leases is 50% linked to the Israeli and U.S. consumer product index and 50% to the exchange rate between the NIS and the dollar. These agreements provide for a 5% increase in monthly rent every 3-5 years. According to the terms of the lease agreements, we pay the property insurance premiums on these facilities. We have initiated discussions with Macpell in an effort to reduce our annual payments under these lease agreements. We cannot assure that we will be successful in this effort to reduce our annual payments.

All of these facilities are subject to a long-term lease agreement between Macpell's subsidiary and the Israel Land Authority. Under the terms of such lease agreement, Macpell's affiliate was granted a 49-year lease over such property.

PRODUCTS PURCHASES FROM TEFRON

An affiliate of Macpell purchases from us various products and sells them in the local Israeli market and abroad. In 2002, our sales to this affiliate were approximately $1 million, in 2003 approximately $1.2 million and in 2004 approximately $ 0.8 million. We believe these prices to be no less favorable than those were available to us from unaffiliated third parties. See Note 16 of the Notes to the Consolidated Financial Statements.

MACRO SHARE PURCHASE AGREEMENT

On March 2, 2003, we entered into a share purchase agreement with Macpell, and with Mr. Ron Grundland, pursuant to which we agreed to acquire 100% of the outstanding ordinary shares of Macro Clothing Ltd., upon the satisfaction of certain conditions, in consideration for the assumption by Tefron of certain guarantees granted by the sellers in favor of Macro in the aggregate amount of approximately $530,000, subject to adjustments. Pursuant to the terms of the agreement, Macpell agreed to pay to us the amount of $300,000 to assume Macpell's guarantees to the bank. In addition, Macpell agreed to assign to us its rights to a loan to Macro in the amount of approximately NIS 2.4 million. Macro manufactures, markets and sells of swimsuits and beachwear.

7C. INTERESTS OF EXPERTS AND COUNSEL.

Not Applicable.

ITEM 8. FINANCIAL INFORMATION

CONSOLIDATED FINANCIAL STATEMENTS

See Item 18.

LEGAL PROCEEDINGS

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we or any of our subsidiaries or which any of its properties are subject.

DIVIDEND POLICY

Although we have no established dividend policy, in the past we have distributed dividends to our shareholders from our accumulated earnings. We have not declared or paid any dividends for the last three fiscal years.

ITEM 9 THE OFFER AND LISTING

9A. OFFER AND LISTING DETAILS

Since the initial public offering of our Ordinary Shares on September 24, 1997, our Ordinary Shares have been traded on the New York Stock Exchange, or NYSE, under the symbol "TFR." Prior to the offering, there was no market for our Ordinary Shares. There is no non-United States trading market for our Ordinary Shares.

As reported on the NYSE, the annual high and low sales prices for our Ordinary Shares were as follows:

1999	$13.87	$ 6.50
2000	$20.25	$ 3.31
2001	$ 5.44	$ 1.21
2002	$ 4.70	$ 1.15
2003	$ 4.80	$ 3.10
2004	$ 6.30	$ 3.50

| | As reported on the NYSE, the quarterly high and low sales prices for our Ordinary Shares for the last two years were as follows:

2003

----

First quarter	$ 3.69	$ 3.26
Second quarter	$ 4.80	$ 3.42
Third quarter	$ 4.14	$ 3.10
Fourth quarter	$ 4.42	$ 3.32

| |

2004


First quarter	$ 6.30	$ 4.31
Second quarter	$ 6.00	$ 4.74
Third quarter	$ 4.70	$ 3.92
Fourth quarter	$ 4.45	$ 3.92

| |

	2005
	----

First quarter		$ 5.35	$ 3.84

| | | As reported on the NYSE, the monthly high and low sales prices for our Ordinary Shares for the last six months were as follows:



	2004
	----

October		$ 4.45$ 3.90
November		$ 4.10$ 3.50
December		$ 3.86$ 3.68

| || | | | | | | | | | 2005 | | | | ---- | | | | | | | January | | $ 5.05 $ 3.84 | | February | | $ 5.35 $ 4.59 | | March | | $ 5.25 $ 4.88 | | | | | On September 8, 1998, we announced our intention to repurchase through a stock repurchase program up to one million of our outstanding Ordinary Shares. As of April 6, 2005, we had repurchased and hold in our treasury 997,400 Ordinary Shares.

In March 2004, we were informed by the NYSE that it intends to publish for public comments amended continued listing criteria requiring a minimum stockholders' equity of $75 million and minimum market capitalization of $75

million. See "Item 3D. Risk Factors- If our ordinary shares are delisted from The New York Stock Exchange, the liquidity and price of our ordinary shares and our ability to issue additional securities may be negatively affected."

9B. PLAN OF DISTRIBUTION

Not Applicable.

9C. MARKETS

Our Ordinary Shares are traded on the New York Stock Exchange.

9D. SELLING SHAREHOLDERS

Not Applicable.

9E. DILUTION

Not Applicable.

9F. EXPENSES OF THE ISSUE

Not Applicable.

ITEM 10. ADDITIONAL INFORMATION

10A. SHARE CAPITAL

Not applicable.

10B. MEMORANDUM AND ARTICLES OF ASSOCIATION

SECURITIES REGISTERS

Our transfer agent and register is American Stock Transfer & Trust Company and its address is 59 Maiden Lane, New York, New York 10038. Section 2 of our Memorandum of Association provides that our principal objects, among other things, are to engage in any business connected with manufacturing, processing, supplying and marketing undergarments, textiles and ready-made clothes. Article 2A of our Articles of Association provides that we may, at any time, carry on business in any field or type of business permitted to us, whether explicit or implied, according to our Memorandum of Association.

BOARD OF DIRECTORS

The Companies Law requires that certain transactions, actions and arrangements be approved as provided for in a company's articles of association and in certain circumstances by the audit committee by the board of directors itself and by the shareholders. The vote required by the audit committee and the board of directors for approval of such matters, in each case, is a majority of the disinterested directors participating in a duly convened meeting.

The Companies Law requires that a member of the board of directors or senior management of the company promptly disclose any personal interest that he or she may have (either directly or by way of any corporation in which he or she is, directly or indirectly, a 5% or greater shareholder, director or general manager or in which he or she has the right to appoint at least one director or the general manager) and all related material information known to him or her, in connection with any existing or proposed transaction by the company. In addition, if the transaction is an extraordinary transaction (that is, a transaction other than in the ordinary course of business, otherwise than on market terms, or is likely to have a material impact on the company's profitability, assets or liabilities), the member of the board of directors or senior management also must disclose any personal interest held by his or her spouse, siblings, parents, grandparents, descendants, spouse's descendants and the spouses of any of the foregoing.

Once the member of the board of directors or senior management complies with the above disclosure requirement, a company may approve the transaction in accordance with the provisions of its articles of association. If the transaction is with a third party in which the member of the board of directors or senior management has a personal interest, the approval must confirm that the transaction is not adverse to the company's interest. Furthermore, if the transaction is an extraordinary transaction, then, in addition to any approval stipulated by the articles of association, it also must be approved by the company's audit committee and then by the board of directors, and, under certain circumstances, by a meeting of the shareholders of the company.

Our Articles of Association provide that, subject to the Companies Law, all actions executed by the Board of Directors or by a committee thereof or by any person acting as a Director or a member of a committee of the Board of Directors or by the General Manager will be deemed to be valid even if, after their execution, it is discovered that there was a certain flaw in the appointment of such persons or that any one of such persons was disqualified from serving at his or her office.

Our Articles of Association provide that, subject to the Companies Law, an officer is entitled to participate and vote in meetings concerning the approval of actions or transaction in which he or she has a personal interest. Subject to the Companies Law, a transaction between an officer of Tefron or an entity controlling Tefron, and us, or a transaction between any other person in which an officer or an entity controlling the company has a personal interest and us, and which is not an extraordinary transaction, shall be approved by the Board of Directors or by the Audit Committee or by any other entity authorized by the Board of Directors.

Our Articles of Association provide that the Board of Directors may delegate all of its powers to such committees of the Board of Directors as it deems appropriate, subject to the provisions of the Companies Law. The Audit Committee is responsible for reviewing, among other things, potential conflicts of interest situations where appropriate. See "Item 6. Directors, Senior

Management and Employees - 6C. Board Practices - Committees."

Arrangements regarding compensation of Directors require the approval of the Audit Committee and the shareholders. The Board of Directors may from time to time, at its discretion, cause us to borrow or secure the payment of any money for our purposes, and may secure or provide for the repayment of such money in the manner as it deems fit.

DESCRIPTION OF SECURITIES

We are authorized to issue 49,995,500 Ordinary Shares, par value NIS 1.0 per share, and 4,500 Ordinary B Shares, par value NIS 1.0 per share. Upon consummation of the initial public offering of the Ordinary Shares, the Ordinary B Shares were converted into Deferred Shares, all of which are issued and outstanding and held of record by two holders.

Our Ordinary Shares do not have preemptive rights. The ownership or voting of Ordinary Shares by nonresidents of Israel or foreign owners is not restricted or limited in any way by our Memorandum of Association or Articles of Association, or by the laws of the State of Israel.

TRANSFER OF SHARES AND NOTICES. Fully paid Ordinary Shares are issued in registered form and may be freely transferred pursuant to our Articles of Association unless such transfer is restricted or prohibited by another instrument. Each shareholder of record is entitled to receive at least seven calendar days' prior notice of an ordinary shareholders' meeting and at least 21 calendar days' prior notice of any shareholders' meeting in which a special or extraordinary resolution is to be adopted. For purposes of determining the shareholders entitled to notice and to vote at such meeting, the Board of Directors may fix the record date not more than 40 nor less than four calendar days prior to the date of such meeting, nor more than 40 days prior to any other action.

ELECTION OF DIRECTORS. The Ordinary Shares do not have cumulative voting rights in the election of Directors. As a result, the holders of Ordinary Shares that represents more than 50% of the voting power have the power to elect all the Directors.

DIVIDEND AND LIQUIDATION RIGHTS. Our Ordinary Shares are entitled to the full amount of any cash or share dividend, if declared. We may declare a dividend to be paid to the holders of Ordinary Shares according to their rights and interests in our profits. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of Ordinary Shares in proportion to the nominal value of their respective holdings. Such right 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 by a special resolution of our shareholders. Our Board of Directors may declare interim dividends and propose the final dividend with respect to any fiscal year only out of profits. Declaration of a final dividend requires approval by an ordinary shareholders' resolution, which may decrease but not increase the amount proposed by the Board of Directors. Failure to obtain such shareholder approval does not affect previously paid interim dividends.

VOTING, SHAREHOLDERS' MEETINGS AND RESOLUTIONS. Holders of Ordinary Shares have one vote for each Ordinary Share held on all matters submitted to a vote of shareholders. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent, in the aggregate, at least one-fourth of the voting rights of the issued share capital. A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or any time and place as the Directors designate in a notice to the shareholders. At such reconvened meeting the required quorum consists of two members present in person or by proxy who hold or represent, in the aggregate, at least one-fourth of our voting power.

Annual general meetings of shareholders are held once every year at such

time (within a period of not more than 15 months after the last preceding annual general meeting) and such place as determined by the board of directors. The board of directors may call extraordinary general meetings of shareholders and are obligated to do so upon a written request in accordance with the Companies Law. The Companies Law provides that an extraordinary general meeting of shareholder may be called by the board of directors or by a request of two directors or 25% of the directors in office, or by shareholders holding at least 5% of the issued share capital of the company and at least 1% of the voting rights, or of shareholders holding at least 5% of the voting rights of the company.

An ordinary resolution (such as a resolution for the election of directors, the declaration of dividends or the appointment of auditors) requires approval by the holders of a majority of the voting rights represented at the meeting, in person or by proxy, and voting thereon. A special or extraordinary resolution (such as a resolution amending our Memorandum of Association or Articles of Association or approving any change in capitalization, merger, consolidation, winding-up, or other changes as specified in the Companies Law) requires approval of the holders of 75% of the voting rights represented at the meeting, in person or by proxy, and voting thereon. In addition, if our share capital is divided into different classes of shares, the approval of the holders of 75% of the issued shares of a particular class or a special resolution passed at a separate general meeting of the holders of the shares of such class is required to modify or abrogate the rights attached to such shares.

DEFERRED SHARES. Pursuant to our Articles of Association, our Ordinary B Shares automatically converted into Deferred Shares upon consummation of our initial public offering. Subsequent to the conversion, there were 4,500 Deferred Shares outstanding. The Deferred Shares are non-transferable and entitle their holders, upon our liquidation, to the par value of the shares but to no voting, dividend or any other rights.

10C. MATERIAL CONTRACTS

Set forth below are summaries of our material contracts. Because these are summaries, they are qualified by reference to the actual agreements, which are attached as exhibits to this Annual Report.

ALBAHEALTH OPTION AGREEMENT

In connection with the formation of AlbaHealth LLC (described in "Item 4. Information on the Company - 4A. History and Development of the Company"), our subsidiary, Alba, became party to a Put Option Agreement. Pursuant to the provisions of the Put Option Agreement, for a period of three years commencing on September 2004 (or, with respect to GE Capital, commencing on such earlier date as the credit agreement terminates), each of Alba and GE Capital has an option to require AlbaHealth to purchase all, but not less than all, of such party's ownership interest in AlbaHealth. The consideration to be paid to Alba for its interests in AlbaHealth is calculated in accordance with a formula which taking into account certain factors, such as AlbaHealth's fair value and its net sales and the date of exercise of the put option. The consideration to be paid to GE Capital for its interests in AlbaHealth shall be equal to its pro-rata share of the fair value of AlbaHealth.

Pursuant to the Put Option Agreement, the fair value of AlbaHealth shall be determined based on a formula which takes into account the difference between the sum of cash and cash equivalents of AlbaHealth and six times the EBITDA of AlbaHealth for the preceding year, and the total debt of AlbaHealth at such time. AlbaHealth's obligation to pay the exercising party its put consideration is subject to the compliance by AlbaHealth of certain conditions as set forth in the Put Option Agreement. Pursuant to an amendment to the Put Option Agreement, dated December 13, 2004, in the event the Alba Party delivers a "Put Notice" between July 1, 2005 and December 31, 2005, then for purposes of determining the fair value of AlbaHealth, AlbaHealth's EBITDA will be deemed to be not less than US$6,434,000 ("Minimum EBITDA") and not more than the Minimum EBITDA plus 50% of the amount by which the actual EBITDA (as defined in the Put Option Agreement) exceeds the Minimum EBITDA.

Under the terms of a Share Purchase Agreement with Norfet, Limited

Partnership, we agreed to provide Norfet, Limited Partnership with a letter of undertaking from Alba to exercise its put option in respect of AlbaHealth immediately following September 2004 as soon as AlbaHealth's EBITDA for four consecutive quarters equals or exceeds $8 million, subject to certain conditions. See " - FIMI Agreements - Tefron Agreement" below.

FIMI AGREEMENTS

We entered into a Share Purchase Agreement (the "Tefron Agreement"), dated February 17, 2004, with Norfet, Limited Partnership (the "Investor"), which is wholly owned by (i) N.D.M.S. Ltd., a company wholly owned by FIMI Opportunity Fund, L.P., (ii) FIMI Israel Opportunity Fund, Limited Partnership and (iii) Migdal Insurance Company and Shamir Insurers Investment Company, among others, pursuant to which we issued to the Investor 3,529,412 Tefron ordinary shares for a base price of $4.25 per share and a base aggregate consideration of $15 million. Due to purchase price adjustment provisions in the Tefron Agreement, Tefron issued to Norfet an additional 661,765 ordinary shares in April 2005.

In connection with the Tefron Agreement, the Investor also acquired an additional 1,365,000 Tefron ordinary shares in the aggregate from Arwol and Macpell pursuant to an Agreement (the "Macpell Agreement") by and among Macpell, Arwol and the Investor. Following the closing of the Tefron Agreement and the Macpell Agreement, the Investor held 4,894,412, or approximately 30.7% of the outstanding share capital of Tefron, without taking into account the Equity Shares. Due to purchase price adjustment provisions in the Macpell Agreement, Arwol transferred 106,908 additional ordinary shares to Norfet in April 2005.

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Tefron, the Investor, Arwol and Macpell executed at the closing of the Tefron Agreement and the Macpell Agreement a Registration Rights Agreement which replaced the existing Registration Rights Agreement among the Company, Arwol and Macpell.

Below is a description of the principal terms of these transactions. The

Tefron Agreement, the Registration Rights Agreement, and all transactions contemplated by such agreements to which Tefron is a party are collectively referred to as the "FIMI Transactions".

TEFRON AGREEMENT

ISSUE PRICE ADJUSTMENT. Under the terms of the Tefron Agreement, in the event Tefron's earnings before income tax, depreciation and amortization ("EBITDA") for 2004 (excluding (i) the EBITDA of Alba Health LLC ("AlbaHealth") to the extent that it exceeds zero and (ii) any increase in EBITDA of Alba Waldensian, Inc. as a result of the exercise of the put option by AlbaHealth described below) as set forth in Tefron's audited consolidated financial statements for the year ending on December 31, 2004 is less than $23 million, then the price per share of $4.25 will be adjusted as follows: (i) if Tefron's EBITDA for 2004 was equal to or less than $16 million, then the share price per share was to be reduced retroactively by $0.75 (to $3.50), and if the Company's EBITDA for 2004 is higher than $16 million but lower than $23 million, then the share price reduction was to be calculated in accordance with the following formula:

Price Per Share = 4.25 - 0.75*[x]

Where x = [(23,000,000 -2004 EBITDA)/1,000,000]/7]

Tefron had the discretion to decide, in such instances, whether to issue additional shares or to refund a proportionate part of the consideration paid by the Investor.

Tefron's EBDITA for 2004 was $11.809 million. and pursuant to an amendment to the Tefron Agreement signed on March 31, 2005 Tefron issued to Norfet an additional 661,765 ordinary shares, instead of the adjustment mechanism provided for in the Tefron Agreement.

Under the terms of the Tefron Agreement, the issue price per share will be increased in the event that, during the three-year period following the closing of the Tefron Agreement and the Macpell Agreement, the Investor sells at least 20% of the total number of shares purchased from Tefron and Macpell and Arwol for cash or publicly traded securities (excluding publicly traded securities in connection with a merger or reorganization of Tefron), at an average price of at least $9.22 per share (after adjustments for dividends, share combinations and splits). The amount of the increase will be equal to the difference between the average sale price and the threshold of $9.22, provided that in any event, an upwards adjustment will be no more than $0.75 per such sold share. The amount of any increase is to be paid by the Investor to Tefron on the third anniversary of the closing of the Tefron Agreement and the Macpell Agreement.

The adjustment mechanism described in the immediately preceding paragraph will also apply in respect of the four-year period following the closing of the Tefron Agreement and the Macpell Agreement, but in such event, the investor average sale price must exceed $11.60 per shares (rather than $9.22 per share) for adjustment to apply.

ALBA PUT OPTION. The Tefron Agreement provides that Tefron is required to provide the Investor with a letter of undertaking from Alba, a wholly owned subsidiary of Tefron, to exercise its put option in respect of AlbaHealth, granted pursuant to a Put Option Agreement dated September 6, 2003, as amended on December 13, 2004 immediately following September 2004 as soon as AlbaHealth's EBITDA for four consecutive quarters equals or exceeds $8 million. However, Alba will not be required to exercise the put option for so long as (i) Tefron's total consolidated debt is equal to or is lower than $50 million (of which no more than $30 million may be long term debt) and (ii) neither Alba nor Tefron or its subsidiaries is in default under any financial covenant in loan agreement(s) to which it is a party.

LIMITS ON EQUITY LINE OF CREDIT. Tefron undertook not to exercise any right to issue shares to a third party investor (or its affiliates) under an equity line of credit without the consent of the Investor, unless such issuance is at a price of no less than $4.6 per share or if the issuance is required in order for Tefron to satisfy covenants relating to shareholders equity under company loan

agreements or if the issuance is required for Tefron to satisfy certain NYSE listing requirements. Notwithstanding the foregoing, Tefron may not issue to such third party investor (or its affiliates) an aggregate sum of more than 12% of Tefron's issued capital without the consent of the Investor.

APPROVAL OF RELATED AMENDMENTS. For so long as the provisions of the Macpell Agreement described below under "- Macpell Agreement - Agreements of the Parties" are in effect, any change in any agreement or arrangement between Tefron and Arwol, Macpell or Wolfson in effect at the time of closing or the adoption of any new agreement or arrangement between Tefron and such parties will require investor's prior approval. Similarly, any amendment to the management fee arrangement with investor or the adoption of any new agreement or arrangement between Tefron and the investor will require approval of Macpell and Arwol.

INCREASE IN SHARES AVAILABLE FOR ISSUANCE UNDER TEFRON LTD. 1997 SHARE OPTION PLAN. As a result of the transactions contemplated by the Tefron Agreement, the shareholders of Tefron were asked to increase the plan by 446,274 ordinary shares, which was approved by the shareholders of Tefron on March 31, 2004.

REGISTRATION RIGHTS AGREEMENT

The Investor entered into a Registration Rights Agreement with Tefron, Arwol and Macpell on the date of closing with respect to the ordinary shares that the Investor acquired pursuant to the Tefron Agreement and the Macpell Agreement replacing the existing Registration Rights Agreement.

The Registration Rights Agreement is substantially the same as the Registration Rights Agreement approved by the shareholders of Tefron and entered into by Company, Arwol and Macpell in November 2003, other than (i) the insertion of a new provision granting to the Investor, Arwol and Macpell the right, once every 18 months, to request a registration on Form F-3 (short form registration statement) when the aggregate net proceeds from the sale of such holders' securities is at least $3,000,000, in which event Tefron would be obligated keep such registration statement effective so as to permit sale of ordinary shares pursuant to the Registration Statement for a period of two

years, subject to certain limitations, and (ii) the amendment of an existing provision granting to the Investor, Arwol and Macpell the right to request a registration even though Tefron is not eligible to use Form F-3 (short form registration statement), in which event Tefron would be obligated keep such registration statement effective so as to permit sale of ordinary shares pursuant to the Registration Statement for a period of 120 days, subject to certain limitations.

In connection with the execution of the Share Purchase Agreement with Leber Partners, L.P., we entered into a Registration Rights Agreement with Leber Partners, the Investor, Arwol and Macpell which replaced, and is on substantially the same terms as, the Registration Rights Agreement that we agreed to execute in connection with the Tefron Agreement. See "- Leber Partners, L.P. - Registration Rights Agreement."

MACPELL AGREEMENT

At the same time as the Investor proposed to Tefron to enter into the Tefron Agreement, the Investor proposed to Arwol to purchase from it an additional amount of approximately 1.365 million Ordinary Shares at the base price of $5.538 per share, and concomitantly, and as a condition to the said purchase, to enter into a shareholders agreement. Arwol offered Macpell to join it and take part in the sale transaction. Under the terms of the Macpell Agreement among the Investor, Arwol and Macpell, it was agreed that the base price for purchase of the shares, would be $5.538 per share and the aggregate purchase price would be $7,559,370.

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PURCHASE PRICE ADJUSTMENT. The purchase price of $5.538 per share under the Macpell Agreement was subject to adjustment downwards or upwards on substantially the same terms as the adjustment of the issue price under the Tefron Agreement, as described above; provided that if Tefron's EBITDA for 2004 is between $16 million and $23 million, then the share price reduction was to be

calculated in accordance with the following formula:

Price per share = 5.538 - 0.75*[x]

Where x = [(23,000,000 -2004 EBITDA)/1,000,000]/7]

Tefron's EBITDA for 2004 was $11.809 million, and due to purchase price adjustment, Arwol transferred 106,908 additional ordinary shares to Norfet in April 2005, and Macpell elected to pay Norfet cash in lieu of transferring additional shares to Norfet.

AGREEMENTS OF THE PARTIES.

COMPOSITION OF THE BOARD OF DIRECTORS. Arwol, Macpell and the Investor agreed to vote all of Tefron ordinary shares owned or controlled by each of them for the election to Tefron's Board of Directors of: (i) three members (of whom at least one will qualify as an "independent director" under the NYSE rules) and, subject to applicable law - one external director, that shall be nominated by the Investor (one of whom shall be a woman), (ii) three members (of whom at least one will qualify as an independent director and a financial expert under the NYSE rules)and, subject to applicable law, one external director, that shall be nominated by Arwol and Macpell, and (iii) Tefron's chief executive officer.

CHAIRMAN OF THE BOARD OF TEFRON. Arwol, Macpell and the Investor confirm in the Macpell Agreement that Arie Wolfson has agreed to remain as Chairman of the Board until Tefron's first Annual General Meeting of Shareholders in calendar year 2005 (to be convened by no later than July 31, 2005). Subject to the provisions of applicable law, on or before such shareholders meeting, Arwol, Macpell and the Investor will endeavor to agree on the identity of the Chairman as of and following such shareholders meeting; PROVIDED, HOWEVER, that in the event they are unable to agree on the identity of the Chairman, each of the Investor, on the one hand, and Macpell and Arwol, on the other hand, will be entitled to designate the Chairman for an 18 month period, provided that the Investor will be the first to exercise such right commencing from Tefron's first Annual General Meeting of Shareholders in the year 2005.

EXECUTIVE COMMITTEE. Arwol, Macpell and the Investor agreed to appoint an

Executive Committee for advisory purposes, comprising of Messrs. Arie Wolfson and Ishay Davidi (or, an alternate member appointed by Arwol and Macpell (if Arie Wolfson cannot fulfill his duties) or an alternative member appointed by the Investor (if Ishay Davidi cannot fulfill his duties). Decisions of the Executive Committee do not bind Tefron in any way.

RIGHTS OF FIRST OFFER; TAG-ALONG. The Macpell Agreement contains provisions which require that if Arwol, Macpell or the Investor wishes to transfer ordinary shares of Tefron to a third party, it must first make an offer to transfer the shares the other parties, subject to certain exceptions. The agreement also gives the right to the offerees to sell certain of their Company ordinary shares to the proposed purchaser of the ordinary shares rather than accepting the offer from the transferor.

DRAG ALONG RIGHTS. The Macpell Agreement contains provisions which provide that if any of Arwol, Macpell or the Investor secures a bona fide offer from any third party offeror to purchase all of the Ordinary Shares then held by such party, in cash or publicly traded securities, at a price per share (adjusted for allocation of dividend, bonus shares, splits etc.) of not less than $10 (provided that such price per share shall not be lower than 80% of the average of the closing prices of Tefron's shares on the NYSE over the consecutive 60 trading days immediately preceding such sale), and the offeror conditions its offer on the acquisition of all the shares held by the other two parties to the Macpell Agreement at such time, such other two parties will be required under certain conditions to sell all of the shares of Tefron then held by them to such offeror, at the same price and upon the same terms and conditions as those to which the sale by the initiator is subject.

DISCUSSIONS PRIOR TO MEETINGS. Arwol, Macpell and the Investor agreed in the Macpell Agreement to meet regularly and in any event prior to each General Meeting of shareholders of Tefron and to review, discuss and attempt to reach a unified position with respect to principal issues on the agenda of each such meeting. The parties clarified that this should not be interpreted as forcing

any party to act or vote according to any position stated at such prior meeting.

DIVIDEND DISTRIBUTION. The parties agreed to formulate a mutually agreeable dividend distribution policy for Tefron, which policy shall provide for the distribution of an annual amount, net after taxes (including withholding tax), of at least $2 million with respect to calendar year 2004, and at least $4.5 million, effective as of calendar year 2005, and they will utilize their best efforts to cause Tefron to adopt such policy, subject to: (a) the provisions of applicable law (including NYSE requirements); (b) any undertaking and commitment made or to be made towards banks and other creditors; (c) the decision of Tefron's Board of Directors, taking into account Tefron's financial needs, investments and all other relevant aspects.

MANAGEMENT FEE. Arwol, Macpell and the Investor agreed in the Macpell Agreement to vote all of Tefron ordinary shares owned or controlled by them in order to cause Tefron (i) to pay the Investor (or any of its affiliates) the Management Fees (described above under "the Tefron Agreement"), and (ii) as of the date on which Arie Wolfson no longer serves as the Chairman of Tefron's Board of Directors, to pay Arie Wolfson or his designees for their services to Tefron, an aggregate annual amount of $120,000.

PURCHASE OF SHARES FROM DISCOUNT INVESTMENT COMPANY ("DIC"). Any party to the agreement wishing to purchase Company ordinary shares from DIC will be required to offer to the other parties the right to participate in such purchase, at the same price per share and upon the same terms and conditions.

TERM OF AGREEMENTS OF THE PARTIES. All agreements of Arwol, Macpell and the Investor described above under "Agreements of the Parties" above will remain in effect until the fifth anniversary of the closing of the transactions under the Macpell Agreement. The Investor will cease to have any rights under these agreements as of the first date on which it holds less than 10% of Tefron's issued share capital (on a non-diluted basis), and will cease to have any obligation under these agreements as of the first date on which the Investor holds less than 5% of Tefron's issued share capital (on a non-diluted basis). Each of Arwol and Macpell will cease to have any rights under "Agreements of the Parties" above as of the first date in which they hold (in the aggregate) less than 10% of Tefron's issued share capital (on a non-diluted basis), and each of

Arwol and Macpell will cease to have any obligation under these agreements as of the first date on which such party holds less than 5% of Tefron's issued share capital (on a non-diluted basis).

LEBER PARTNERS L.P.

SHARE PURCHASE AGREEMENT

We also entered into a Share Purchase Agreement, dated March 3, 2004 with Leber Partners, L.P., which is a group of investors represented by Mr. Zvi Limon. The investors invested $5 million in cash in Tefron for approximately 1.07 million ordinary shares of Tefron at a base price of $4.65 per share. According to the agreement, the base price per share will be subject to adjustments and may be increased or reduced by up to $0.75 per share.

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ISSUE PRICE ADJUSTMENT. The purchase price of $4.65 per share was subject to adjustment downwards or upwards on substantially the same terms as the adjustment of the issue price under the Tefron Agreement and the Macpell Agreement, as described above; provided that if Tefron's EBITDA for 2004 is between $16 million and $23 million, then the share price reduction was to be calculated in accordance with the following formula:

Price per share = 4.65 - 0.75*[x]

Where x = [(23,000,000 -2004 EBITDA)/1,000,000]/7]

Tefron EBDITA for 2004 was $11.809 million. Pursuant to an amendment to the Purchase Agreement signed on March 3, 2004, Tefron issued to Leber an additional 201,613 ordinary shares, instead of the adjustment mechanism provided for in the Purchase Agreement.

Under the terms of the share purchase agreement, the issue price per share will be increased in the event that, during the three-year period following the closing of the agreement, the investors sell for cash or publicly traded

securities (excluding publicly traded securities in connection with a merger or reorganization of Tefron) at least 20% of the total number of shares they purchased from Tefron at an average price of at least $9.22 per share (after adjustments for dividends, share combinations and splits). The amount of the increase will be equal to the difference between the average sale price and the threshold of $9.22, provided that in any event, an upwards adjustment will be no more than $0.75 per such sold share. The amount of any increase is to be paid to Tefron on the third anniversary of the closing.

The adjustment mechanism described in the immediately preceding paragraph will also apply in respect of the four-year period following the closing, but in such event, the average sale price must exceed $11.60 per shares (rather than $9.22 per share) for adjustment to apply.

REGISTRATION RIGHTS AGREEMENT

In connection with the execution of the Share Purchase Agreement with Leber Partners, we agreed to enter into a Registration Rights Agreement with Leber Partners, the Investor under the Tefron Agreement, Arwol and Macpell. This Registration Rights Agreement replaced, and is on substantially the same terms as, the Registration Rights Agreement that we agreed to execute in connection with the Tefron Agreement, other than as provided below. In addition to the rights to be granted to all of the shareholders that are to be party to the Registration Rights Agreement, Leber Partners would have the right to request a registration (even though we would not be eligible to use a short form registration) of all, but not less than all, of the ordinary shares then held by Leber Partners, but in any event not less than 500,000 ordinary shares. This would be below the threshold required for the other shareholders (which would be a request from holders of at least 25% of the aggregate number of ordinary shares subject to the agreement at such time to register a minimum of five percent (5%) of the share capital of Tefron then outstanding but not less than 500,000 Ordinary Shares).

EQUITY LINE CREDIT FACILITY

On March 9, 2004, we entered into an equity line credit facility with Brittany Capital Management Ltd. ("Brittany"), an entity advised by Southridge Capital Management LLC . Under the agreement, we have an option to call funds of up to the lesser of $15 million or 19.9% of our outstanding share capital over the next three years. Under the financing facility, we will be entitled to issue shares to Brittany from time to time, at our own election, subject to certain minimum and maximum limitations, but in no event will Brittany be obligated to own more than 4.99% of our ordinary shares at any one time. The price to be paid by Brittany will be at a discount of 6% to the market price of our ordinary shares (as calculated under the agreement) during a period prior to the issuance of the shares. The "market price" under the agreement is calculated to be the average of the lowest closing prices for any four trading days (not necessarily consecutive) during the ten trading day period immediately following the date on which we deliver a written notice to Brittany setting forth the dollar amount with respect to which we will require Brittany to purchase our Ordinary Shares.

Before drawing on the equity line, we must satisfy certain closing conditions, including the effectiveness of a registration statement that we must file relating to the shares to be issued to Brittany. In addition, under our agreement with Norfet, Limited Partnership described above under "- FIMI Agreements - Tefron Agreement", we require the consent of Norfet for the issuance of shares under an equity line of credit if such issuance is at a price of less than $4.6 per share unless the issuance is required in order for us to satisfy covenants relating to shareholders equity under company loan agreements or to satisfy certain NYSE listing requirements. Notwithstanding the foregoing, the issuance under the equity line of an aggregate sum of more than 12% of our issued capital will also require the consent of Norfet.

OUR CREDIT AGREEMENTS

To finance the acquisition of Alba, AWS, our wholly-owned subsidiary which merged with and into Alba following our tender offer for Alba, entered into a credit agreement, dated as of December 13, 1999, with Bank Hapoalim B.M. and the Israel Discount Bank of New York, as subsequently amended. The Credit Agreement provided for a tender offer credit facility of up to $70.5 million.

The Credit Agreement also provides for a seven-year term loan facility of up to $65.5 million, which was drawn down as a single borrowing at the time of the merger and amortizes in 11 consecutive semi-annual installments commencing on January 15, 2002. In addition, the Credit Agreement further provides a one-year revolving loan facility of up to $5.0 million. The proceeds from the term loan facility and the revolving loan facility were used to repay the tender offer credit facility, which was used initially to finance the acquisition of Alba and to refinance certain indebtedness of Alba.

SECURITY. The term loan facility and the revolving loan facility are secured by the following:

o a floating lien on all the personal property of Alba and its subsidiaries,
o pledges of all non-margin stock of Alba owned by Tefron U.S. Holdings Corp., the parent company of AWS and a wholly-owned subsidiary of Tefron, and all subsidiary stock then owned by Alba, and
o guarantees made by Tefron U.S. Holdings Corp. and any subsidiaries of Alba, and the continuing guaranty of Tefron.

COVENANTS. Under the terms of the Credit Agreement, Alba and its subsidiaries are restricted from, among other things, the following:

o incurring additional indebtedness, other than certain permitted indebtedness;
o creating liens other than certain permitted encumbrances;
o creating or assuming any guarantee obligations other than certain permitted guarantee obligations;
o merging, consolidating, amalgamating or entering into any other form of business combination with a third party, or liquidating or dissolving;
o selling assets, subject to certain exceptions which include sale of assets in the ordinary course of business or in amounts not exceeding $250,000 in any twelve-month period;
o declaring or setting aside funds for payment of dividends;

o making capital expenditures, subject to certain exceptions such as capital expenditures in the ordinary course of business;
o making investments, loans or advances other than as specified;
o entering into transactions with affiliates unless certain requirements are satisfied.

The Credit Agreement requires that we maintain certain financial ratios related to shareholders' equity and operating results. The Credit Agreement also contains customary events of defaults, including the failure to pay interest or principal, material breach of any representation or warranty or breach of any covenant, cross-defaults, bankruptcy, a judgment in excess of $100,000 or a change in control event relating to Tefron or Alba or its subsidiaries.

Pursuant to the amendment of our Credit Agreement, the repayment schedule of the loans will be spread over the period from 2005-2012, such that during each such year from 2005 until 2012 we will be obligated to pay approximately $6 million.

ALBAHEALTH CREDIT AGREEMENT

In connection with the formation of AlbaHealth, AlbaHealth entered into a credit agreement, dated September 6, 2002, with GE Capital, pursuant to which GE Capital provided AlbaHealth credit facility of up to $18 million. The AlbaHealth Credit Agreement provides for a term loan facility of up to $15 million, which was drawn down as a single borrowing upon the consummation of such agreement. The term loan facility amortizes in 20 consecutive quarterly installments, commencing on January 1, 2003 and ending on September 6, 2007, each in the amount of $750,000. In addition, the AlbaHealth Credit Agreement provides for a five-year revolving loan facility of up to $3.0 million. The proceeds from the term loan facility and the revolving loan facility were and are to be used, among other purposes, to repay amounts due to the bank lenders under the portion of the Alba Credit Agreement that was assigned by Alba to AlbaHealth and for working capital purposes.

SECURITY. The term loan facility and the revolving loan facility are secured by the following:

o a lien on all of its existing and after-acquired personal and real property of AlbaHealth, and
o a first priority security interest over all of the interests in AlbaHealth held by its members, including Alba, and any additional indebtedness arising in the future by AlbaHealth or any of its subsidiaries in favor of such members.

INTEREST RATE. Interest on the revolving credit facility and the term loan facility shall be paid, at the election of AlbaHealth, at one of the following rates:

o a floating rate equal to the higher of (i) a base rate quoted by 75% of the largest banks in the U.S. and (ii) the federal funds rate plus 50 basis points, in each case plus a margin per annum initially equal to 3.00%, subject to reduction up to 2.50% depending on a leverage ratio measured by the ratio of funded debt to annualized EBITDA; or
o the LIBOR rate plus a margin per annum initially equal to 4.50%,

subject to reduction up to 4.00% depending on the leverage ratio.

PREPAYMENT/REPAYMENT. The amounts outstanding under the revolving credit facility and the term loan facility may be voluntary prepaid by AlbaHealth at any time, subject to certain limitations and payments of fees. In addition, the amounts outstanding under the credit facility must be repaid in amounts equal to:

65

o 50% of the excess cash flow (as defined in the agreement) for the preceding year, after the delivery of the annual reports of AlbaHealth with respect to each year, or, if the leverage ratio for such preceding year is less then 100%, 25% of the excess cash flow for such preceding year;
o 75% of the net cash proceeds from issuance of interests in of AlbaHealth;
o net cash proceeds from the sale of any interests AlbaHealth holds in any of its subsidiaries; and
o net cash proceeds from certain asset disposals by AlbaHealth.

COVENANTS. Under the terms of the AlbaHealth Credit Agreement, AlbaHealth and its subsidiaries are restricted from, among other things:

o incurring additional indebtedness, other than certain permitted indebtedness;
o creating any lien on or with respect to its accounts, properties or assets except for permitted encumbrances;
o creating or assuming any guarantee obligations other than certain

permitted guarantee obligations;

o merging, consolidating, amalgamating or entering into any other form of business combination with a third party, or liquidating or dissolving;
o selling assets, subject to certain exceptions;
o declaring or setting aside funds for payment of dividends or other similar restricted payments except for permitted payments and distribution;
o making investments, loans or advances other than as specified;
o entering into transactions with affiliates which are not are not in the ordinary course of business unless certain requirements are satisfied; and
o changing its business or altering its capital structure other than as specified.

FINANCIAL COVENANTS. The AlbaHealth credit agreement requires AlbaHealth to comply with certain financial covenants, including with respect to (i) maximum permitted capital expenditures for each; (ii) minimum annual fixed charge coverage ratio; (iii) minimum annual EBITDA; and (iv) maximum leverage ratio. During 2004, AlbaHealth failed to comply with certain financial covenants contained in the credit agreement, including a minimum EBITDA requirement, and pursuant to the First Amendment and Waiver to Credit Agreement, GE Capital agreed to waive certain financial covenant defaults that occurred during 2004 and to amend certain of the financial covenants.

EVENTS OF DEFAULT. The AlbaHealth Credit Agreement contains customary events of default, including the failure to pay amounts thereunder, breach of other obligations, any representation and warranty being incorrect or misleading in any respect, cross-defaults, certain insolvency events or ceasing to carry on business, change of control of AlbaHealth or any of its subsidiaries, breach of the contribution agreement and other related agreements, and any default in the

observance or breach of any covenants.

10D. EXCHANGE CONTROLS

Nonresidents of Israel who purchase our Ordinary Shares with US dollars or other foreign currency will be able to convert dividends (if any) thereon, and any amounts payable upon the dissolution, liquidation or winding-up of the affairs of the company, as well as the proceeds of any sale in Israel of the Ordinary Shares to an Israeli resident, into freely repatriatable dollars, at a rate of exchange prevailing at the time of conversion, pursuant to regulations, provided that the Israeli income tax has been withheld with respect to such amounts, to the extent applicable, or an exemption has been obtained.

10E. TAXATION

The following is a discussion of the material United States federal and Israeli income tax consequences to Qualified Holders holding Ordinary Shares. This discussion is based upon existing United States federal and Israeli income tax law, including legislation, regulations, administrative rulings and court decisions, as in effect on the date of this Annual Report, all of which are subject to change, possibly with retroactive effect. For purposes of this discussion, in general, a "Qualified Holder" means a beneficial owner of Ordinary Shares that is a resident of the United States for purposes of the United States-Israel income tax treaty, or the Income Tax Treaty, whose holding of Ordinary Shares is not related in any way to properties or activities located in Israel and who is not subject to any limitation on benefits restrictions under the Income Tax Treaty. This discussion assumes that the Qualified Holder holds Ordinary Shares as a capital asset. This discussion does not address all aspects of United States federal and Israeli income taxation that may be relevant to all Qualified Holders in light of their particular circumstances, including for example Qualified Holders who hold or at any time have held 10 percent or more of our voting power, Qualified Holders whose stock was acquired pursuant to the exercise of an employee stock option or otherwise as compensation or Qualified Holders who are subject to special treatment under United States federal income tax laws (for example, financial institutions, insurance companies, tax-exempt organizations and broker-dealers). This discussion also does not address any aspects of state, local or non-United States (other than certain Israeli) tax law.

EACH QUALIFIED HOLDER IS STRONGLY URGED TO CONSULT HIS OR HER TAX ADVISOR AS TO THE UNITED STATES FEDERAL AND ISRAELI INCOME TAX CONSEQUENCES OF HOLDING ORDINARY SHARES, INCLUDING THE PARTICULAR FACTS AND CIRCUMSTANCES THAT MAY BE UNIQUE TO SUCH QUALIFIED HOLDER, AND AS TO ANY OTHER TAX CONSEQUENCES OF HOLDING ORDINARY SHARES.

CAPITAL GAINS

Israeli law imposes a capital gains tax on the sale of capital assets. Under current Israeli law, capital gains resulting from sales of our Ordinary Shares are generally taxed at a rate of 15%. However, while final clarifying regulations have not yet been issued, a Qualified Holder will be exempted from Israeli capital gains tax on the sale of our Ordinary Shares, as long as those Ordinary Shares are traded in a recognize exchange. In addition, under the Income Tax Treaty, a Qualified Holder who hold in the aggregate less then 10% of our Ordinary Shares (subject to certain conditions), will be exempt from Israeli capital gains tax.

Upon a sale or other disposition of Ordinary Shares, a Qualified Holder will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the amount realized and the Qualified Holder's adjusted tax basis in the Ordinary Shares. In the case of an individual Qualified Holder of Ordinary Shares, any such capital gain will be subject to a maximum United States federal income tax rate of 20%, if the individual Qualified Holder's holding period in the Ordinary Shares is more than 12 months.

DIVIDENDS

On distributions of dividends other than bonus shares (stock dividends), for individuals, Israeli income tax at the rate of 25% (15% for dividends generated directly or indirectly by an Approved Enterprise) is withheld at source, unless a different rate is provided in a treaty between Israel and the shareholder's country of residence. The Income Tax Treaty provides no relief in this regard. There is no tax on distribution of dividends to an Israeli corporate shareholder.

67

Qualified Holders are generally subject to United States federal income tax on dividends paid by Israeli corporations. Subject to applicable limitations of United States federal income tax law, Qualified Holders may be able to claim a foreign tax credit for certain Israeli income taxes paid.

UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING

Dividends on Ordinary Shares, and payments of the proceeds of a sale of Ordinary Shares paid within the United States or through certain U.S.-related financial intermediaries, are subject to information reporting and may be subject to backup withholding at a 31% rate unless the Qualified Holder (1) is a corporation or other exempt recipient or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred.

10F. DIVIDENDS AND PAYMENT AGENTS

Not applicable.

10G. STATEMENTS BY EXPERTS.

Not applicable.

10H. DOCUMENTS ON DISPLAY

We are currently subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended. Our SEC filings are available for inspection and copying at the public reference facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W. Washington, D.C. 20549, and the Commission's regional offices located in New York, New York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms.

As a foreign private issuer, we are exempt from the rules under the Securities Exchange Act of 1934, as amended, prescribing the furnishing and content of proxy statements to shareholders. Because we are a foreign private issuer, we, our directors and our officers are also exempt from the shortswing profit recovery and disclosure regime of section 16 of the Exchange Act.

10I. SUBSIDIARY INFORMATION

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY RISK

Our operating expenses are influenced by changes in the exchange rates between the dollar and foreign currencies, especially the NIS. Our operational expenses increase when the dollar is devalued against such currencies. At December 31, 2004, our liabilities denominated in foreign currencies in the amount of $20.7 million represented 14.3% of our total liabilities of $144.8 million. At December 31, 2004, our assets denominated in foreign currencies in the amount of $8.5million represented 4.4% of our total assets of $191.5 million. We may from time to time utilize derivative financial instruments to

manage risk exposure to movements in foreign exchange rates. Accordingly, in 2002, a forward exchange contract was designated as hedging instrument. We do not engage in any speculative or profit motivated forward or derivatives activities. See "Item 3. Key Information - 3D. Risk Factors" and "Item 5. Operating and Financial Review and Prospects - Impact of Inflation and Currency Fluctuations.

INTEREST RATE RISK

Of our dollar-denominated financial liabilities at December 31, 2004, $78.5 million were loans denominated in or linked to the dollar bearing interest at LIBOR. As a result, our interest expenses are sensitive to changes in LIBOR.

Our dollar-denominated or dollar-linked financial liabilities bear interest at 1.25% to 4.5% over LIBOR. A hypothetical ten percent shift in interest rates would result in a decrease (or increase) in net income of approximately $0.4 million.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF

PROCEEDS

14A. TO E. Not applicable

ITEM 15. CONTROLS AND PROCEDURES

(a) DISCLOSURE CONTROLS AND PROCEDURES. Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in US Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Form 20-F, have concluded that, as of such date, our disclosure controls and procedures were effective.

(b) INTERNAL CONTROL OVER FINANCIAL REPORTING. There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16. [RESERVED]

16A. AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors has determined that Yacov Einav is an "audit committee financial expert" as defined in Item 16A of Form 20-F.

16B. CODE OF ETHICS

We have adopted a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, Corporate Controller and employees. This code of ethics is posted on our website, www.tefron.com, and may be found as follows:

1. From our main web page, first click on the "meet tefron" bar on the left.
1. Next, click on "code of business ethics" on the bottom.

16C. ACCOUNTANTS' FEES AND SERVICES

Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, and McGladrey & Pullen, LLP, have served as our independent registered public accounting firms for each of the fiscal years in the two-year period ended

December 31, 2004, for which audited financial statements appear in this Annual Report on Form 20-F.

The following table presents the aggregate fees for professional services and other services rendered by Kost, Forer Gabbay & Kasierer in Israel and by Ernst & Young and by McGladrey & Pullen, LLP in the United States to Tefron in 2004 and 2003.

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	US$ 2004		US$ 2003
	--------	--------

Audit Fees (1)	$126,677		$106,577

Audit-related Fees (2)	$ 92,000	$101,168

Tax Fees (3)	$ 63,971	$123,528
All Other Fees (4)	$ 24,426	$ 1,275
TOTAL	$307,074	$332,548

Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor can reasonably provide, and include the group audit; statutory audits; comfort letters and consents; attest services; and assistance with and review of documents filed with the SEC.

Audit-related Fees consist of fees billed for assurance and related

services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the external auditor, and include consultations concerning financial accounting and reporting standards; internal control reviews of new systems, programs and projects; review of security controls and operational effectiveness of systems; review of plans and control for shared service centers, due diligence related to acquisitions; accounting assistance and audits in connection with proposed or completed acquisitions; and employee benefit plan audits.

Tax Fees include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, tax advice related to mergers and acquisitions, transfer pricing, and requests for rulings or technical advice from taxing authority; tax planning services; and expatriate tax planning and services.

All Other Fees include fees billed for training; forensic accounting; data security reviews; treasury control reviews and process improvement and advice; and environmental, sustainability and corporate social responsibility advisory services.

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

Below is a summary of the current Policies and Procedures.

Tefron's audit committee's main role is to assist the Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and reporting practices of the Company. The Audit Committee oversees the appointment, compensation, and oversight of the public accounting firm engaged to prepare or issue an audit report on the financial statements of the Company. The audit committee's specific responsibilities in carrying out its oversight role include the approval of all audit and non-audit services to be provided by the external auditor and quarterly review the firm's non-audit services and related fees. These services may include audit services, audit-related services, tax services and other services, as described above. The audit committee approves in advance the particular services or categories of services to be provided to the Company during the following yearly period and

also sets forth a specific budget for such audit and non-audit services. Additional services may be pre-approved by the audit committee on an individual basis during the year.

During 2004, none of Audit-related Fees, Tax Fees or Other Fees provided to us by Kost, Forer Gabbay & Kasierer in Israel or by Ernst & Young or McGladrey & Pullen, LLP in the United States were approved by the Audit Committee pursuant to the de minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

None.

16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

None.

PART III

ITEM 17. FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of this Item.

ITEM 18. FINANCIAL STATEMENTS

Our Consolidated Financial Statements beginning on pages F-1 through F-35, as set forth in the following index, are hereby incorporated herein by reference. These Consolidated Financial Statements are filed as part of this Annual Report.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	PAGE
	----

Index to Consolidated Financial Statements	F-1
Report of Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3 - F-4
Consolidated Statement of Operations	F-5
Consolidated Statement of Changes in Shareholders' Equity		F-6
Consolidated Statement of Cash Flows		F-7 - F-8
Notes to the Consolidated Financial Statements		F-9 - F-33
Report of Independent Auditors for subsidiary of Tefron,
Alba Health LLC, for 2004 Financial Statements		F-34

ITEM 19. EXHIBITS

1.1. Memorandum of Association of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form F-1 (No. 333-7538) filed on August 29, 1997).
1.2. Restated Articles of Association of the Company (incorporated by reference to Exhibit 1.2 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
2.1. Form of Credit Agreement, dated as of December 13, 1999, among AWS Acquisition Corp., Israel Discount Bank of New York and Bank Hapoalim B.M., New York Branch as Administrative Agent (incorporated by reference to Exhibit 99(b)(2) to Amendment No. 2 to Schedule 14D-1 in respect of Alba-Waldensian, Inc. filed by the Company on December 13, 1999).
2.2 Letter, dated March 2, 2004, from Israel Discount Bank Ltd. to the Company regarding shareholders' equity requirements under the Credit Agreement (incorporated by reference to Exhibit 2.8 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
2.3 Letter, dated March 2, 2004, from Bank Hapoalim to the Company regarding shareholders' equity requirements under the Credit Agreement (incorporated by reference to Exhibit 2.9 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
2.4 Letter, dated February 16, 2004, from Israel Discount Bank to the Company regarding revised repayment schedule and revised shareholders' equity requirements under the Credit Agreement (incorporated by reference to Exhibit 2.10 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
2.5 Letter, dated February 15, 2004, from Bank Hapoalim to the Company regarding revised repayment schedule under the Credit Agreement (incorporated by reference to Exhibit 2.11 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
2.6 Letter, dated March 31, 2004, from Bank Hapoalim to the Company regarding revised shareholders' equity requirements under the Credit Agreement (incorporated by reference to Exhibit 2.12 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
2.7 Sixth Amendment to Credit Agreement, dated December 15, 2004, among Alba-Waldensian, Inc. and Bank Hapoalim, as Agent and Lender, together with Term B Notes.
2.8 Credit Agreement, dated September 6, 2002, among AlbaHealth LLC, as borrower, the other borrower signatory thereto, the lenders signatory, thereto from time to time, and General Electric Capital Corporation, as Agent and a Lender. (incorporated by reference to Exhibit 2.8 to the Company's Annual Report form 20-F for the fiscal year ended December 31, 2002).
2.9 First Amendment and Waiver to Credit Agreement, dated March 31, 2005, among AlbaHealth LLC and General Electric Capital Corporation, as Agent and Lender.

2.10 Security Agreement, dated as of September 6, 2002, among the Grantor signatory thereto, from time to time, and General Electric Capital Corporation, as Agent for the benefit of itself and the lenders from time to time party to the Credit Agreement (referred to in Exhibit 2.13).
2.11 Borrower Stockholders Pledge Agreement, dated as of September 6, 2002, by and among the pledgors signatory thereto, from time to time, and General Electric Capital Corporation, as Agent for the benefit of itself and the lenders from time to time party to the Credit Agreement (referred to in Exhibit 2.13).
2.12 Loan Agreement, dated as of December 21, 2004, between Israel Discount Bank and Hi-Tex Founded by Tefron Ltd.
2.13 Loan Agreement, dated as of December 31, 2004, between Bank Hapoalim and Hi-Tex Founded by Tefron Ltd.
2.14 Loan Agreement, dated as of December 25, 2004, between Israel Discount Bank and the Company.
2.15 Loan Agreement, dated as of December 31, 2004, between Bank Hapoalim and

the Company.

2.16 The total amount of long-term debt securities of the Company authorized under any instrument, other than as exhibited hereto, does not exceed 10% of the total assets of the Company on a consolidated basis. The Company hereby agrees to furnish to the SEC, upon request, a copy of any instrument defining the rights of holders of long-term debt of the Company or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed.
3.1 Shareholders Agreement, dated as of December 28, 1999, between Arwol Holdings Ltd. and Avi Ruimi (incorporated by reference to Exhibit D to the General Statement of Beneficial Ownership of the Company on Schedule 13D filed by Arwol Holdings Ltd., Arie Wolfson, Sigi Rabinowicz, Riza Holdings Ltd. and Macpell Industries Ltd. on February 17, 2000).
3.2 Agreement, dated February 17, 2004, by and among Arwol Holdings Ltd., Macpell Industries Ltd. and Norfet, Limited Partnership (incorporated by reference to Exhibit 3.4 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
4.1. Agreement and Plan of Merger, dated as of November 8, 1999, by and among Tefron U.S. Holdings Corp., AWS Acquisition Corp. and Alba-Waldensian, Inc. (incorporated by reference to Exhibit (c)(1) to Schedule 14D-1 in respect of Alba-Waldensian, Inc. filed by the Company on November 12, 1999)

4.2. Employment Agreement, dated as of August 5, 2002, between the Company and Sigi Rabinowicz (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
4.3. Consulting and Management Services Agreement, dated as of August 5, 2002, between the Company, New York Delights Ltd., and Arie Wolfson (incorporated

by reference to Exhibit 4.3 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2002).

4.4. Management and Services Agreement, effective as of July 30, 2003, between the Company, Yosef Shiran and Shiran & Partners - Consulting, Entrepreneurship, and Financing (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
4.5. Lease Agreement dated as of August 12, 1997, between the Company and New Net Assets (1994) Ltd. and an Assignment Agreement dated as of December 25, 1998 between the Company and Hi-Tex Founded by Tefron Ltd. The Company and/or its subsidiary, Hi-Tex Founded by Tefron Ltd., have entered in to similar lease agreements with New Net Assets (1994) Ltd. (incorporated by reference to Exhibit 4.5 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2001).
4.6 Contribution Agreement, dated as of September 6, 2002, between AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
4.7 The Limited Liability Company Agreement of AlbaHealth LLC, dated as of September 6, 2002, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit - to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
4.8 Put Option Agreement, dated as of September 6, 2002, as amended as of December 13, 2004, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.8 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
4.9 Amendment No. 1 to Put Option Agreement, dated as of December 13, 2004, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C.

and General Electric Capital Corporation.

4.10 Share Purchase Agreement dated February 17, 2004, by and between the Company and Norfet Limited Partnership, including related Registration Rights Agreement attached as a schedule (incorporated by reference to Exhibit 4.9 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
4.11 Amendment to Purchase Agreement, dated March 31, 2005, by and between the Company and Norfet Limited Partnership.
4.12 Share Purchase Agreement, made as of March 3, 2004, by and between Tefron and Leber Partners, L.P, including related Registration Rights Agreement attached as a schedule (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
4.13 Amendment to Agreement, dated March 31, 2005, by and between the Company and Leber Partners, L.P.

4.14 Private Equity Credit Agreement, dated as of March 9, 2004, by and between the Company and Brittany Capital Management Limited (incorporated by reference to Exhibit 4.11 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
4.15 Registration Rights Agreement, dated as of March 9, 2004, by and between the Company and Brittany Capital Management Limited (incorporated by reference to Exhibit 4.12 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
8.1 List of subsidiaries of the Company.
12.(a).1 Certification by CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
12.(a).2 Certification by CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
13.(a).1 Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
14.(a).1 Consent of Kost, Forer Gabbay & Kasierer, a member of Ernst &Young Global.
14.(a).2 Consent of McGladrey & Pullen, LLP.

TEFRON LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004

U.S. DOLLARS IN THOUSANDS

INDEX

	PAGE
	--------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			F - 2
CONSOLIDATED BALANCE SHEETS		F - 3 - F - 4
CONSOLIDATED STATEMENTS OF OPERATIONS		F - 5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY			F - 6
CONSOLIDATED STATEMENTS OF CASH FLOWS		F - 7 - F - 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F - 9 - F - 33
REPORT OF INDEPENDENT AUDITORS FOR SUBSIDIARY OF TEFRON,ALBA HEALTH LLC, FOR 2004 FINANCIALS STATEMENTS

| | F - 34 | || | | | | | | [ERNST & TOUNG LOGO] [X] KOST FORER GABBAY & KASIERER 3 Aminadav St. Tel-Aviv 67067, Israel | | Fax: 972-3-5622555 | [X] Phone: 972-3-6232525 | | | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | | | | | | TO THE SHAREHOLDERS OF | | | | | | TEFRON LTD. | | | | | We have audited the accompanying consolidated balance sheets of Tefron Ltd. ("the Company") and its subsidiaries as of December 31, 2003 and 2004, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We did not audit the financial statements of Alba Health LLC ("Alba Health") a subsidiary, whose statements constitute 23.4% and 23.9% of total consolidated assets as of December 31, 2003 and 2004, respectively and whose revenues constitute 6.5%, 23.5% and 18.7% of total consolidated revenues for the period from September 6, 2002 to December 31, 2002 and for the two years ended December 31, 2003 and 2004, respectively. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for Alba Health, is based solely on the reports of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2003 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S generally accepted accounting principles.

Tel-Aviv, Israel	KOST FORER GABBAY & KASIERER
March 16, 2005	A Member of Ernst & Young Global

F - 2

TEFRON LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

-------------------------------------------------------------------------------- U.S. DOLLARS IN THOUSANDS

	DECEMBER 31,---------------------
	NOTE-----------	2003--------	2004

ASSETS
CURRENT ASSETS:
Cash and cash equivalents			$ 5,747	$ 3,558
Trade receivables (net of allowances for doubtful accounts and
product returns of $ 779 and $ 252 as of December 31, 2003 and
2004, respectively)		24,917	21,402
Other accounts receivable and prepaid expenses			4	6,1665,696
Inventories	5	31,676	33,137

	----------------
TOTAL current assets	68,50663,793----------------
LONG-TERM ASSETS:
Deferred taxes	14g3,4282,486
Investment in affiliated company	7296-
Severance pay fund	21795
Other	806483
TOTAL long-term assetsPROPERTY, PLANT AND EQUIPMENT, NET	----------------4,7473,064----------------697,47393,931
	----------------
GOODWILL	330,86530,743----------------
TOTAL assets	$201,591$191,531

======== ======== |The accompanying notes are an integral part of the consolidated financial statements.

F - 3

TEFRON LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

	DECEMBER 31,------------------
	NOTE		2003	2004
LIABILITIES AND SHAREHOLDERS' EQUITY	---	---------	---------
CURRENT LIABILITIES:
Short-term bank credit		8	$ 30,631		$ 21,355
Current maturities of long-term debt:
Loans from banks and others			10	10,328		9,039
Capital leases	10		1,367		206
Trade payables			29,558		28,991
Conditional obligation with respect to issuance of shares				12	-		3,454
Other accounts payable and accrued expenses				9	11,146		9,189
		---------	---------
TOTAL current liabilities			83,030		72,234
		---------	---------
LONG-TERM LIABILITIES:
Loans from banks and others (net of current maturities)				10	56,471		47,907
Capital leases (net of current maturities)			10		327	-
Deferred taxes	14g		7,570		5,611
Accrued severance pay		---------	---------	2,486	2,744
TOTAL long-term liabilities				66,854	56,262
		---------	---------

LIENS, CONTINGENCIES AND COMMITMENTS 11

MINORITY INTEREST 15,052 16,291 --------- --------- SHAREHOLDERS' EQUITY: 12 Share capital - Ordinary shares of NIS 1 par value - Authorized: 50,000,000 shares; Issued: 13,409,566 and 18,014,247 shares as of December 31, 2003 and 2004, respectively; Outstanding:, 12,412,166 and 17,016,847 shares as of December 31, 2003 and 2004, respectively 5,575 6,582 Deferred shares of NIS 1 par value - Authorized, issued and outstanding: 4,500 shares as of December 31, 2003 and 2004 1 1 Additional paid-in capital 62,810 79,243 Deferred stock-based compensation --- (486) Treasury shares at cost (997,400 Ordinary shares as of December 31, 2003 and 2004) (7,408) (7,408) Accumulated Deficit (24,323) (31,188) --------- --------- TOTAL shareholders' equity 36,655 46,744 --------- --------- TOTAL liabilities and shareholders' equity $ 201,591 $ 191,531 ========= =========

The accompanying notes are an integral part of the consolidated financial statements.

F - 4

TEFRON LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

						YEAR ENDED DECEMBER 31,
	NOTE		2002			------------------------------------------------2003	2004
	---	------------		------------		------------
Sales, net		$	190,305		$	163,086	$	182,819
Cost of sales	13a			151,385		139,422		159,937
Restructuring costs		1d------------		1,550------------		-------------		-
Gross profit			37,370			23,664		22,882
Selling, general and administrative expenses						18,358		20,323
22,387
Restructuring costs		1d------------		3,793------------		-------------		-
Operating income				15,219		3,341		495
Financial expenses, net		13b			5,457		5,628	5,212
Other income (expenses), net		------------	13c	------------	(2,293)	------------	228	-
Income (loss) before taxes on income					7,469		(2,059)		(4,717)
Taxes on income		14d		4,979			(424)	203
Equity in losses of affiliated companies			7		(1,172)		(183)		-
Minority interest in earnings of a subsidiary					(822)		(2,550)		(1,945)
Pre-acquisition earnings of subsidiary since April 1,
2003 through May 5, 2003		------------	1b	------------	-	------------	(85)	-

Income (loss) before cumulative effect of change in

accounting principles		496	(4,453)	(6,865)
Cumulative effect of change in accounting principles		3	(17,994)	--
	------------	------------	------------

Net loss	$	(17,498)$	(4,453)$	(6,865)
	============		============	============
Basic and diluted net loss per share:
Earnings (loss) per share before cumulative effect of
change in accounting principles		$	0.04$(0.36)	$(0.44)

Loss per share from cumulative effect of change in
accounting principles	$	(1.45)	$-$	-
	------------	------------	------------

Basic and diluted net loss per share		$	(1.41)$(0.36)	$(0.44)
	============		============	============
Weighted average number of shares used for computing
basic and diluted net loss per share			12,409,929	12,412,166
15,603,904
	============		============	============

| | | || | | | | | | The accompanying notes are an integral part of the consolidated financial | | | | | | statements. | | | | | | | | | | | F - 5

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

TEFRON LTD. AND ITS SUBSIDIARIES

U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA



		ORDINARY SHARES		DEFERRED SHARES		ADDITIONAL
		----------------------- -----------------------		PAID-IN
	NUMBER	AMOUNT	NUMBER	AMOUNT		CAPITAL
		---------- ---------- ---------- ---------- ----------
Balance as of January 1, 2002		12,412,166 $	5,575	4,500 $		1 $ 62,810
Foreign currency translation
adjustments	-	-	--	-
Amortization of deferred stock
compensation		--	--	-
Net loss	-	--	-	-
		---------- ---------- ---------- ---------- ----------
Balance as of December 31, 2002		12,412,166	5,575	4,500	1	62,810
Net loss	-	--	-	-
		---------- ---------- ---------- ---------- ----------
Balance as of December 31, 2003		12,412,166	5,575	4,500	1	62,810
Issuance of shares (net of
issuance expenses in the amount
of $ 296)	4,604,681	1,007	-	-15,393
Deferred stock based compensation		-	--	-	1,040
Amortization of deferred stock
based compensation		--	-	--
Net loss	-	--	-	-
		---------- ---------- ---------- ---------- ----------

Balance as of December 31, 2004 17,016,847 $ 6,582 4,500 $ 1 $ 79,243 ========== ========== ========== ========== ==========

	DEFERRED		OTHER
	STOCK							COMPREHENSIVE ACCUMULATED		TREASURY
	COMPENSATION			INCOME			DEFICIT	SHARES		TOTAL
	----------	----------		----------		----------		----------
Balance as of January 1, 2002		$	(68) $		50			$ (2,372) $ (7,408) $ 58,588
Foreign currency translation
adjustments		-	(50)		-		-	(50)
Amortization of deferred stock
compensation		68		-	-		-	68
Net loss	-		-		(17,498)		-	(17,498)
	----------	----------		----------		----------		----------
Balance as of December 31, 2002			-		-		(19,870)	(7,408)		41,108
Net loss	-		-		(4,453)		-	(4,453)
	----------	----------		----------		----------		----------
Balance as of December 31, 2003			-		-		(24,323)	(7,408)		36,655
Issuance of shares (net ofissuance expenses in the amount
of $ 296)	-		-		-		-	16,400
Deferred stock based compensation			(1,040)			-	-	-	-
Amortization of deferred stock
based compensation			554	-		-		-554
Net loss	-----------	----------	-	----------	(6,865)	----------	-	(6,865)----------

Balance as of December 31, 2004 $ (486) $ - $ (31,188) $ (7,408) $ 46,744 ========== ========== ========== ========== ==========

The accompanying notes are an integral part of the consolidated financial statements.

F - 6

TEFRON LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. DOLLARS IN THOUSANDS

	YEAR ENDED DECEMBER 31,--------------------------------
	2002	2003	2004
	--------	--------	--------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss				$(17,498) $ (4,453) $ (6,865)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation, amortization and impairment of property, plant and
equipment		9,722	9,005	10,760
Restructuring charges		4,172	-	-
Amortization of deferred stock compensation			-	-	554

Loss related to conditional obligation	--150
Cumulative effect of change in accounting principles	17,994--
Accrued severance pay, net	1,285(692)380
Deferred income taxes, net	4,571(621)(853)
Realization of pre-acquisition acquired operating losses	--489
Equity in losses of affiliated companies	1,172183-
Loss (gain) on disposal of property, plant and equipment, net	8(199)28
Minority interest in earnings of a subsidiary	8222,5501,945
Loss from issuance of shares in subsidiary to third party	2,082--
Pre-acquisition earnings of a subsidiary	-85-
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables, net	2,019(3,006)3,515
Decrease (increase) in other accounts receivable and prepaid
expenses(343)	(469)65
Increase in inventories	(2,634)(4,482)(1,461)
Increase (decrease) in trade payables	4,2273,911(567)
Increase (decrease) in other accounts payable and accrued
expenses(1,753)	1,064(1,231)
Net cash provided by operating activities--------	25,8462,8766,909----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment	(2,977)(3,948)(8,950)
Investment grants received	1,6591,8681,156
Investment in affiliated companies	(279)(125)-
Proceeds from sale of property, plant and equipment	218499422
Acquisition of Macro Clothing (b)	-300(106)
--------	----------------
Net cash used in investing activities--------	(1,379)(1,406)(7,478)----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipt of long-term bank loans	25,7728,500-
Repayment of long-term bank loans and other loans	(53,980)(22,614)(9,854)

Payments under capital lease	(1,831)	(1,691)	(1,488)
Short-term bank credit, net	(3,908)	14,506	(9,276)
Payment under issuance of shares to minority shareholders		(1,214)	-	-
Proceeds from issuance of shares to minority shareholders		12,358	-	-
Dividend paid to minority interest in subsidiary		-(1,166)	(706)
Proceeds from issuance of shares and conditional obligation, net		-	-	19,704
--------	----------------
Net cash used in financing activities--------	(22,803)----------------	(2,465)	(1,620)
Increase (decrease) in cash and cash equivalents		1,664	(995)	(2,189)
Cash and cash equivalents at the beginning of the year		5,078	6,742	5,747
--------	----------------
Cash and cash equivalents at the end of the year========	========	$ 6,742	$ 5,747========	$ 3,558

| | | |The accompanying notes are an integral part of the consolidated financial statements.

F - 7

TEFRON LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. DOLLARS IN THOUSANDS

YEAR ENDED DECEMBER 31,

	-----------------------------
	200220032004---------------------

(a) CASH PAID DURING THE YEAR FOR:
Interest	$ 5,962$ 3,538$ 2,809=====================
Income taxes, net of refunds received	$ (37) $60$ 272=====================
(b) ACQUISITION OF MACRO CLOTHING:
Working capital deficiency, netProperty and equipment, netGoodwillAccrued severance pay, net	$-$ 692$--(369)--(122)(367)-99----------------------
Accrued payments	-300(367)-----------------------261---------------------
ACTIVITY:	$-$ 300$ (106)=====================(c) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
Purchase of property, plant and equipment by credit, netof investment grants receivables

$ (740) $(2,346) $ (490) ======= ======= ======= || | | The accompanying notes are an integral part of the consolidated financial

statements.

F - 8

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS

NOTE 1:- GENERAL

a. Tefron Ltd, a company organized under the laws of the State of Israel ("the Company") and its subsidiaries are engaged in the design, manufacture and sale of knitted intimate apparel, swimwear and active wear, which are manufactured using two different techniques (seamless and cut and sew) and products for the health care industry (see also Note 15). The Company's principal market is the United States.

The Company's significant subsidiaries are Hi-Tex, founded by the Company ("Hi-Tex"), which commenced operations in 1997, Alba-Waldensian, Inc. ("Alba"), which was purchased in December 1999, and Macro Clothing Ltd. ("Macro") which was purchased in April 2003.

b. Acquisition of Macro Clothing Ltd. ("Macro"):

In April 2003, the Company agreed to acquire 100% of the outstanding Ordinary shares of Macro from Macpell Industries Ltd. ("Macpell"). The closing date of the agreement was May 5, 2003. Macro manufactures, markets and sells swimsuits and beachwear. The purchase has diversified the Company's line of products. Pursuant to the terms of the agreement, the Company assumed certain guarantees to the bank granted by Macpell in favor of Macro in the aggregate amount of approximately $ 530 and Macpell paid the Company $ 300 to assume the aforementioned guarantees. As a result, the Company recorded goodwill in the amount of $ 122. In addition, Macpell assigned to the Company its rights to a loan granted to Macro in the amount of approximately $ 522. Under the terms of the acquisition agreement, contingent cash payments of $ 367 were accrued or paid in 2004 since certain financial performance criteria were met. As a result, the Company recorded an additional consideration which increased the purchase price. Since the realized pre-acquisition tax carryforward losses exceeded the total purchase price, including the total contingent consideration, the additional consideration and the initial goodwill allocated in 2003 were recorded as income tax expenses.

The acquisition has been treated using the purchase method of accounting in accordance with SFAS No. 141 "Business Combination". The purchase price has been allocated to the assets acquired and to the assumed liabilities based on their estimated fair value at the date of acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired has been recorded as goodwill.

The operating results of Macro were consolidated for reasons of convenience effective April 1, 2003. The operating results for the period prior to the acquisition (from April 1, 2003 through May 5, 2003), amounting to an income of $ 85, were deducted from the Company's consolidated results of operations. Pro forma information was not provided due to immateriality.

F - 9

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS

NOTE 1:- GENERAL (CONT.)

c. On September 6, 2002, the Health Products Division of Alba Waldensian, Inc. ("Alba"), a wholly-owned subsidiary of Tefron U.S. Holdings Corp. which is a wholly-owned subsidiary of the Company, formed a new entity with Encompass Group, LLC, a Delaware limited liability company ("Encompass") and General Electric Capital Corporation, a Delaware corporation ("GE Capital"), to operate Alba's health products business through AlbaHealth, LLC, a newly formed Delaware limited liability company ("AlbaHealth"). In connection with the formation of AlbaHealth, Alba contributed substantially all of the assets of its health products division (together with associated liabilities, including certain existing bank indebtedness collateralized by such assets) to AlbaHealth in exchange for a 48.325% ownership interest in AlbaHealth. Both Encompass and GE Capital contributed cash to AlbaHealth in the amount of $ 12,000 and $ 1,000, in exchange for a 48.325% and 3.35% ownership interest in AlbaHealth, respectively. For a period of three years commencing September 6, 2004, Alba and GE Capital each have an option to sell all, but not less than all, of their interest in AlbaHealth to Alba Health, in exchange for its fair value, which will be determined based on a formula set forth in the agreement.

The Company has control over the financial and operating policies of AlbaHealth through its rights to appoint the majority of AlbaHealth's directors. Therefore, the Company consolidates AlbaHealth's financial statements.

d. On December 4, 2002, the Company announced that in the first quarter of 2003 the manufacturing of products from Alba located in Valdese, North Carolina ("Alba Consumer") to its facility in Israel. Marketing and distribution will remain in the U.S. The Company completed the restructuring plan during 2003.

In connection with the aforementioned and in accordance with EITF Issue 94-3, "Liability Recognition of Certain Employee Termination

Benefits and Other Costs to Exit an Activity" and SAB-100, "Restructuring and Impairment Charges", the Company recorded in the fourth quarter of 2002 restructuring charges of $ 5,343.

The major components of the fiscal 2002 restructuring charges were as follows:

	YEAR ENDED
	DECEMBER 31,
	2002
	------

Write-down of long-lived assets		$2,621
Inventory mark-down		1,550
Employee termination and severance costs			1,172

$5,343 ======

The cash and the non-cash elements of the expenses of the restructuring plan amounted to approximately $ 1,200 and $ 4,100, respectively. As a result of the restructuring, 250 positions were eliminated in Alba. The liability in respect of the employee termination and severance costs as of December 31, 2002, 2003 and 2004 amounted to $ 1,172, $ 214 and none, respectively. The change in the aforementioned liability during 2003 resulted from payment of severance pay to the terminated employees.

F - 10

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------

U.S. DOLLARS IN THOUSANDS

NOTE 1:- GENERAL (CONT.)

e. During 2002, 2003 and 2004, 63.9%, 58.2% and 60.7% respectively, were derived from the three largest customers all located in the United States. The Company's arrangements with its customers do not contain minimum purchase requirements and there can be no assurance that the principal customers will continue to purchase the Company's products in the same volumes or on the same terms as they have done in the past. A material decrease of purchases made by the major customers or a material adverse change in the terms of such purchases could have a material adverse effect on the Company's results of operations.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The significant accounting policies followed in the preparation of the financial statements, applied on a consistent basis, are:

a. Use of estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

b. Financial statements in U.S. dollars:

The accompanying consolidated financial statements have been prepared in U.S. dollars, as the currency of the primary economic environment in which the operations of the Company and its subsidiaries are conducted is the U.S. dollar. The majority of sales is made in U.S. dollars, and a significant portion of purchases of materials and property, plant and equipment is in denominated U.S. dollars. Thus, the functional and the reporting currency of the Company is the U.S. dollar.

Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into U.S. dollars in accordance with Statement No. 52 of the Financial Accounting Standards Board ("FASB") "Foreign Currency Translation". All transactions gains and losses from the remeasurement of monetary balance sheet items are reflected in the statements of operations as financial income or expenses as appropriate.

c. Principles of consolidation:

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and those of AlbaHealth (see Note 1c). Intercompany balances and transactions have been eliminated in consolidation.

d. Cash equivalents:

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with maturities of three months or less at the date acquired.

F - 11

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------

U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

e. Inventories:

Inventories are stated at the lower of cost or market value. Inventory write-offs are provided to cover risks arising from slow-moving items, discontinued products, and items with a market price that is lower than cost. Cost is determined as follows:

Raw materials, accessories and packaging materials - using the "moving average cost" method.

Work-in-progress and finished products - using standard costs which are adjusted to actual costs.

f. Property, plant and equipment, net:

Property, plant and equipment are stated at cost, net of accumulated depreciation and investment grants. Investment grants are recorded at the time the Company is entitled to such grants. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets at the following annual rates:

	%
	-------

Buildings	2.5
Machinery and equipment		7
Installations and leasehold improvements			5 - 10

Motor vehicles	15
Furniture and office equipment		6 - 25

Leasehold improvements are amortized over the term of the lease, including reasonably assured renewal options, or the useful lives of the assets, whichever is shorter. The Company's long-lived assets and certain identifiable intangibles are reviewed for impairment in accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company recorded impairment losses of $ 771 for the year ended December 31, 2004.

g. Goodwill:

Goodwill is measured as the excess of the cost of an acquired company over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed. Goodwill is not amortized, but rather reviewed for impairment at least annually in accordance with the provisions of SFAS No. 142.

F - 12

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

SFAS No.142 requires goodwill to be tested for impairment on adoption and at least annually thereafter or between annual tests in certain circumstances, and written down when impaired, rather than being amortized as previous accounting standards required. Goodwill attributable o each of the reporting units is tested for impairment by comparing the fair value of each reporting unit with its carrying value. The Company performed annual impairment test during 2003 and 2004 and no impairment losses have been identified.

h. Investments in affiliated companies:

Affiliated companies are companies in which the Company is able to exercise significant influence over their operating and financial policies. The investments in affiliated companies are accounted for by the equity method. The excess of the purchase price over the fair value of net assets acquired has been attributed to goodwill. Income from intercompany sales, not realized outside the Group, is eliminated.

The Company's investments in these companies is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investments may not be recoverable, in accordance with Accounting Principle Board Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock" ("APB No. 18"). During 2004, based on management's most recent analyses, impairment losses have been recorded in the amount of $ 296 which reduced the investments to zero.

i. Severance pay:

The Company's liability for severance pay in Israel is calculated

pursuant to Israel's Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date. Employees are entitled to one month's salary for each year of employment or a portion thereof. The Company's liability for all of its Israeli employees, is fully provided by monthly deposits with insurance policies, pension and severance pay funds and by an accrual. The value of the severance pay funds is recorded as an asset in the Company's balance sheet. The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israel's Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these funds. Severance pay expenses amounted to $ 1,285, $ 357 and $ 1,035 for the years ended December 31, 2002, 2003 and 2004, respectively (in 2002, includes $ 1,172, which was recorded as restructuring charges).

j. Revenue recognition:

Revenues from sales are recognized in accordance with Staff Accounting Bulletin No. 104 "Revenue Recognition in Financial Statements", ("SAB No. 104"), when delivery has occurred, persuasive evidence of an agreement exists, the vendor's fee is fixed or determinable, no further obligation exists and collectibility is probable.

The Company's subsidiary maintains a provision for product returns, in accordance with Statement of Financial Accounting Standard No. 48, "Revenue Recognition When A Right Of Return Exists". The provision for products returns amounted to $ 634, $ 550 and $ 122 for the years ended December 31, 2002, 2003 and 2004, respectively.

F - 13

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------

U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

k. Income taxes:

The Company and its subsidiaries account for income taxes in accordance with Statement of Financial Accounting Standards No.109, "Accounting for Income Taxes". This Statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

l. Stock-based compensation:

The Company has elected to follow Accounting Principles Board Opinion No.25 "Accounting for Stock Issued to Employees" ("APB 25") and FASB Interpretation No.44 "Accounting for Certain Transactions Involving Stock Compensation" ("FIN 44") in accounting for its employee stock option plans. Under APB 25, when the exercise price of the Company's share options is higher than or equal to the market price of the underlying shares on the date of grant, no compensation expense is recognized.

In 2002, the FASB issued FAS 148 "Accounting for Stock-Based Compensation - Transition and Disclosure, an Amendment of FASB Statement No. 123" ("SFAS 148"). SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company

continues to apply the provisions of APB 25 in accounting for share based compensation. Had compensation cost been determined under the alternative fair value accounting method provided for under SFAS No. 123, the Company's loss and loss per share would have been increased to the following pro forma amounts:

F - 14

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

YEAR ENDED DECEMBER 31,

		----------------------------------
	2002		2003	2004
	---------	--------	---------

Net loss as reported					$ (17,498) $ (4,453) $ (6,865)
Add: Stock-based compensation expense
included in the determination of net loss
as reported		68	-	554
Deduct: Stock-based compensation expense
determined under fair value method for all
awards		(923)	(911)	(1,359)
	---------	--------	---------

Pro forma net loss $ (18,353) $ (5,364) $ (7,670)

========= ======== =========

Basic and diluted net loss per share: Income (loss) before cumulative effect of change in accounting principles pro forma $ 0.04 $ (0.43) $ (0.49) ========= ======== ========= Income (loss) before cumulative effect of change in accounting principles pro forma $ (0.02) $ (0.43) $ (0.49) ========= ======== ========= Net loss as reported $ (1.41) $ (0.36) $ (0.44) ========= ======== ========= Net loss pro forma $ (1.47) $ (0.43) $ (0.49) ========= ======== =========

The fair value for these options was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions:

	2002		2003	2004
	----	----	----

Risk-free interest rate			2%	1.5%	2%
Expected dividend yield			0%	0%	0%
Expected volatility				94.5% 94.2% 36%
Expected lives		2	2	3

The carrying amount reported in the balance sheet for cash and cash equivalents, trade receivables, short-term credit and trade payables approximates their fair values due to the short-term maturities of such instruments. Values of long-term loans approximate their fair values due to the variable interest rates on these loans.

The fair values of capital lease obligations are estimated by discounting the future cash flows using current interest rates for leases of similar terms and maturities. The carrying amount of the capital lease obligations approximates their fair value since such obligations bear interest at a rate which approximates market rate.

F - 15

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

n. Loss per share:

Basic net loss per share is computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net loss per share is computed based on the weighted average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year, in accordance with Statement of Financial Standard No.128, "Earnings Per Share".

In all reported periods, no diluted loss per share was presented because the effect of all outstanding options was anti-dilutive (1,755,874, 1,817,323 and 2,422,805 outstanding options as of December 31, 2002, 2003 and 2004, respectively).

o. Concentrations of credit risk:

Financial instruments that potentially subject the Company and its

subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. Cash and cash equivalents are invested mainly in U.S. dollars with major banks in Israel. Accordingly, the Company's management believes that minimal credit risk exists with respect to cash and cash equivalents. Trade receivables are derived from sales to major customers located primarily in the U.S. The allowance for doubtful accounts comprises specific accounts the collectibility of which, based upon management's estimate, is doubtful. The doubtful account expenses for the years ended December 31, 2002, 2003 and 2004, were $ 274, $ 27 and $ 16, respectively.

As of the balance sheet date there are no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

p. Impact of recently issued accounting standards:

In November 2004, the FASB issued Statement of Financial Accounting Standard No. 151, "Inventory Costs, an Amendment of ARB No. 43, Chapter 4." ("SAFS 151"). SFAS 151 amends Accounting Research Bulletin ("ARB") No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight handling costs and wasted materials (spoilage) should be recognized as current-period charges. In addition, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SAFS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect that the adoption of SFAS 151 will have a material effect on its financial position or results of operations.

F - 16

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------

U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

In December 2004, the FASB issued Statement of Financial Accounting Standard No. 153, "Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29" ("SFAS 153"). The guidance in APB Opinion No. 29, "Accounting for Nonmonetary Transactions" ("APB 29"), is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. APB 29 includes certain exceptions to that principle. SFAS 153 amends APB 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has a commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for nonmonetary assets exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect that the adoption of SFAS 153 will have a material effect on its financial position or results of operations.

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123 (revised 2004), "Share-Based Payment" ("Statement 123(R)"), which is a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"). Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statements 123 permitted, but not required, share-based payments to employees to be recognized based on their fair values while Statement 123(R) requires all share-based payments to employees to be recognized based on their fair values. Statement 123(R) also revises, clarifies and expands guidance in several areas, including measuring fair value, classifying an award as equity or as a liability and attributing compensation cost to reporting periods. The new standard will be effective for the Company

in the first interim period beginning after June 15, 2005. The Company expects that the adoption of Statement 123(R) will have a significant effect on its results of operations.

q. Reclassification:

Certain prior year amounts were reclassified to conform to current year financial statement presentation.

NOTE 3:- GOODWILL

Goodwill attributed to operating segments for the years ended December 31, 2003 and 2004 is as follows:

	MACRO			HEALTHCARE-
	CLOTHING		USA		TOTAL
	--------	--------		--------

Balance as of January 1, 2003		$	-	$ 30,743		$ 30,743
Acquisition of Macro Clothing		122		-		122
	--------	--------		--------
Balance as of December 31, 2003			122		30,743	30,865
Realization of pre-acquired operating loss			(122)		-	(122)
	--------	--------		--------
Balance as of December 31, 2004		$	-		$ 30,743	$ 30,743
	========		========			========

| | | | | |183

F - 17

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

NOTE 3:- GOODWILL (CONT.)

On December 13, 1999, AWS Acquisition Corp. ("AWS"), a wholly-owned subsidiary of Tefron U.S. Holdings Corp. ("Holdings"), a wholly-owned subsidiary of the Company, completed its tender offer for 100% of the outstanding Common stock of a U.S. company, Alba-Waldensian Inc. ("Alba") which manufactures seamless apparel and specialty knitted health care products. AWS and Holdings were formed in connection with the purchase of Alba's stock and, immediately following the purchase, AWS was merged into Alba, as the surviving corporation. The acquisition, which was accounted for as a purchase, included the purchase of outstanding shares of Common stock of Alba at $ 18.50 per share that, in addition to acquisition costs of $ 3,273, resulted in a total purchase price of $ 63,418. The goodwill deriving from the acquisition amounted to $ 51,302.

On January 1, 2002, the Company adopted SFAS 142. Accordingly, the Company, based on a valuation by an independent expert, compared the fair value of each reporting unit to its carrying amount. Based on the aforementioned valuation, the healthcare reporting unit's carrying amount exceeded its fair value and, as a result, the goodwill identified with that reporting unit, which had a carrying amount of $ 17,994, was written off under the provisions of SFAS No. 142. The transitional impairment loss was recognized as a cumulative effect of a change in accounting principle as of January 1, 2002, in the Company's statement of operations. See Note 15 for a description of the Company's segments.

NOTE 4:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

		DECEMBER 31,
	---------------------2003	2004
	-------	-------
Government authorities:
VAT, customs and other levies recoverable			$ 2,071	$ 1,509
Investment grant receivable		1,897		1,400
Income tax advances, net of accruals		92		175
Deferred income taxes (see Note 14)		589		425
Advances to suppliers		303	491
Prepaid expenses		703	738
Other	511	958
	-------	-------
	$ 6,166	$ 5,696

======= =======

NOTE 5:- INVENTORIES

Raw materials, accessories and packaging materials		$11,128
Work-in progress	11,214	11,807
Finished products	9,334	9,861
	--------------

	$31,676$33,137
	=======	=======

In the years ended December 31, 2002, 2003 and 2004, the Company recorded inventory write-downs in the amount of $ 1,756 (out of which $ 1,550 was recorded as restructuring costs), $ 582 and $ 969, respectively. These

write-downs were recorded as cost of sales.

F - 18

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS

NOTE 6:- PROPERTY, PLANT AND EQUIPMENT, NET

Composition of assets grouped by major classifications, are as follows:

		DECEMBER 31,
	2003	--------------------------	2004
	---------		---------
Cost:
Buildings		$ 7,767		$ 6,933
Machinery and equipment (2)			172,865		178,546
Installation and leasehold improvements				5,138	5,175
Motor vehicles		557		611
Furniture and office equipment			3,562		3,786
Investment grants			(32,155)		(32,957)
	---------		---------
	157,734		162,094
	---------		---------
Accumulated depreciation:
Buildings		725		767

Machinery and equipment	71,097		79,694
Installation and leasehold improvements		1,830	1,942
Motor vehicles	402	488
Furniture and office equipment	1,853		2,504
Investment grants	(15,646)		(17,232)
---------	---------

60,261		68,163
---------	---------

	=========	=========
Depreciated cost	$ 97,473	$ 93,931

(1) Depreciation expenses for the years ended December 31, 2002, 2003 and 2004 were $ 9,722, $ 8,592 and $ 9,348, respectively.
(2) December 31, 2003 represents an advance payment to a machinery and equipment supplier in the amount of $ 1,166, which was exercised at the beginning of 2004.
(3) During 2004, the Company had decided to dispose of five idle buildings of the seamless segment. The buildings were classified as held for sale and are presented in other accounts receivables, in accordance with Statement of Financial Accounting Standard No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). Accordingly, these buildings were measured at the lower of their carrying amount or fair value less costs to sell. In respect of the above, the Company recorded a loss in the amount of $ 771, resulting from the adjustment of the carrying amount of the buildings to their fair value less costs to sell. In November 2004, three of the buildings was sold for consideration of $ 160. The impaired building was classified as held for sale and is presented in other accounts receivable in the amount of $ 255.

As for liens, see Note 11.

F - 19

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS

NOTE 7:- INVESTMENT IN AFFILIATED COMPANY

In June 2001, the Company acquired, through a wholly-owned subsidiary, 49.9% of JBA Production S.A. ("JBA"), a company operating in Madagascar and engaged in the manufacture of bras, in consideration of approximately $ 1,300. As part of the JBA acquisition, the Company invested approximately $ 200 for 50.1% ownership interest of a new marketing company, Tefrani SA, which was designated to be engaged in the marketing of most of JBA's products. The investment in Tefrani was accounted for by the equity method because its operations are immaterial.

During 2002, the Company recorded an impairment loss amounting to $ 780 in respect of its investment in JBA.

In 2004, due to disputes that arose between the Company and the other shareholders in Tefrani SA and JBA, the operations have been ceased and the Company decided to record impairment loss in the amount of $ 296 which reduced the investment in JBA to zero.

NOTE 8:- SHORT-TERM BANK CREDIT

WEIGHTED AVERAGE INTEREST RATE

DECEMBER 31, DECEMBER 31, ------------------ ------------------ 2003 2004 2003 2004 ------- ------- ------- ------- % ------------------ Loans and bank credit in NIS 9.0 6.7 $29,161 994 ------- ------- $30,631 $21,355 ======= ======= As for collateral - see Note 11. NOTE 9:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES Employees and payroll accruals $ 5,298 $ 4,820 Accrued expenses 2,984 2,492 Equipment suppliers 2,864 1,877 ------- ------- $11,146 $ 9,189 ======= ======= F - 20

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS

NOTE 10:- LONG-TERM LOANS

a. Composition:

			WEIGHTED AVERAGEINTEREST RATE
		---------------------------	DECEMBER 31,				DECEMBER 31,
		---------------------------2003		2004		2003	------------------------------------	2004
		------------ ------------	%		----------------		----------------
		---------------------------
	Loans in U.S. dollars:
	Banks (variable interest
	LIBOR plus 1.5%-4.5%)		2.375-6.4			3.7-6.78		$65,763
$56,830
	Capital lease obligation		7-9		7-9		1,694		206
	Other	7-9		7-9	-------	1,036	-------	116
					68,493-------		57,152-------
	Less - current maturities:
	Loans from banks and others						10,328		9,039
	Capital lease obligation				-------		1,367-------	206
					11,695		9,245

--------------$56,798$47,907	=======	=======

b. The loans as of December 31, 2004 mature as follows:




	December 31,

	2005 (current maturities)	$ 9,245
	2006	9,369
	2007	8,923
	2008	5,923
	2009 and thereafter	23,692
		-------

$57,152

c. Upon the closing of the Share Purchase Agreement with the investor controlled by FIMI (see Note 12), the Company entered into new financing arrangements with its bank creditors. The new financing arrangements contain different financial covenants and ratios from those in the Company's previous bank loan agreements. As of December 31, 2004, the Company met those covenant criteria.

=======

d. As for collateral, see Note 11.

F - 21

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------

U.S. DOLLARS IN THOUSANDS

NOTE 11:- LIENS, CONTINGENCIES AND COMMITMENTS

a. All bank debt is collateralized by a floating charge (a continuing charge on the Company's present and future assets but permitting the Company to dispose of such assets in the ordinary course of business) on all of the assets of the Company and its subsidiaries.
b. In accordance with the provisions of the Law for the Encouragement of Capital Investments, 1959, the Company and its subsidiaries in Israel received grants from the State of Israel in respect of investments in their plants (see Note 14). The conditions in the letters of approval extending the grants from the State of Israel primarily include the requirements that the investments be made according to the approved plan and that at least 30% of the investments be financed by outstanding share capital. Non-fulfillment of these conditions would require the refund of the grants linked to the Consumer Price Index in Israel from the date of receipt plus interest. To guarantee fulfillment of the conditions for receipt of the grants, the Company and its subsidiaries have recorded floating charges on all of their assets in favor of the State of Israel.
c. The facilities of the Company and most of its Israeli subsidiaries are located in buildings leased for various periods ending between 2005 and 2012. The Company has renewal options for additional periods.

The significant leases are with a related party, a company controlled by the principal shareholders, ending between 2008 and 2024 (including renewal options) at an annual rental of $ 2,823. 50% of the basic rental payments is linked to Israel's CPI and 50% is linked to the U.S. cost of living index. The remaining lease payments are in, or

linked to, the U.S. dollar.

The aggregate minimum rental, commitments under non-cancelable leases, based on the above agreements as of December 31, 2004, is as follows:

Rental expenses for 2002, 2003 and 2004, amounted to $ 3,348, $ 3,121 and $ 3,163, respectively.

d. Legal proceedings:

There are no material pending legal proceedings, other than litigations in the ordinary course incidental to the business to which the Company or any of its subsidiaries are subject.

F - 22

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 12:- SHAREHOLDERS' EQUITY

a. On April 22, 2004, the transactions pursuant to the Share Purchase Agreement with a partnership controlled by FIMI Opportunity Fund ("Fimi") and pursuant to the Share Purchase Agreement with Leber Partners, L.P., a limited partnership ("the Investor") were closed. Under the agreements, the Company issued 3.53 million and 1.07 million Ordinary shares of the Company to Fimi and the Investor, respectively, at a price per share of $ 4.25 and $ 4.65 ("the PPS"), respectively, for a total cash consideration of $ 15 million and $ 5 million, respectively. The proceeds received may be adjusted, as described below.

According to the agreements, in the event that the Company's earnings before income tax, depreciation and amortization ("EBITDA"), excluding (i) the EBITDA of Alba Health LLC to the extent it exceeds zero, and (ii) any increase in the EBITDA of Alba Waldensian, Inc., as a result of the exercise of the Put Option for fiscal year 2004 ("the 2004 EBITDA"), is less than $ 23 million, then the PPS shall be adjusted as follows: (i) if the Company's 2004 EBITDA is equal to or lower than $ 16 million, then the PPS will be retroactively reduced by $ 0.75, and (ii) if the Company's 2004 EBITDA is higher than $ 16 million but lower than $ 23 million, the PPS will be retroactively reduced at an amount of less than $ 0.75, which will be calculated according to the formula set forth in the agreement (Adjusted PPS). If the Company's 2004 EBITDA is higher than $ 23 million, no adjustment will be made.

In the event that the adjusted PPS is not equal to the PPS, the Company, at its sole discretion, shall either (i) deliver Fimi and the Investor, within fourteen business days following the release of the 2004 financial statements, a number of additional ordinary shares that is equal to the difference between the number of purchased shares issued to Fimi and the Investor at the Closing date and the number of ordinary shares that would have been issued to Fimi and the Investor at the Closing date had the original PPS been equal to the adjusted PPS, or (ii) pay Fimi and the Investor, within ten business days following the release of the 2004 financial statements, a cash amount equal to the difference between the price per share and the adjusted

PPS per each share purchased by Fimi and the Investor.

The agreements include two instruments: shares and a conditional obligation that is freestanding of the shares and can be settled in shares at the Company's discretion. Therefore the conditional obligation is a liability and not equity since the value of the payout is based on the performance condition and not based on the shares. As a result, the conditional obligation should be measured at fair value on transaction date and on each balance sheet date. The difference between the initial values assigned to the liability component and the final payout was charged to statements of operations.

The conditional obligation was recorded at the inception of the agreement and as of December 31, 2004 in an amount of $ 3,304 and 3,454, respectively. The difference of $ 150 was recorded as financial expenses.

F - 23

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------

U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 12:- SHAREHOLDERS' EQUITY (CONT.)

b. Equity credit line:

On March 9, 2004, the Company entered into a Private Equity Credit Agreement with funds advised by Southridge Capital Management LLC ("Southridge"). Under the agreement, the Company has an option to call funds from an equity credit line facility provided by Southridge of up to the lesser of $ 15,000 or 19.9% of the Company's outstanding share capital over the next three years. Under the financing facility, the Company will be entitled to issue shares to Southridge from time to

time, at its own election, subject to certain minimum and maximum limitations, but in no event will Southridge be obligated to own more than 4.99% of the Company's Ordinary shares at any time. The price to be paid by Southridge will be at a discount of 6% on the market price of the Company's Ordinary shares (as calculated under the agreement) during a period prior to the issuance of the shares. Before drawing on the equity line, the Company must satisfy certain closing conditions, including the effectiveness of a registration statement to be filed by the Company, relating to the shares to be issued to Southridge. As of December 31, 2004, no funds were called.

c. Stock options:

In September 1997, the Company's Board of Directors adopted a Share Option Plan in which 1,166,049 Ordinary shares were reserved for issuance to directors, officers and employees of the Company. At general meetings of shareholders in August 1999 ,July 2001 and March 2004, it was resolved to increase the number of shares reserved for issuance under the Share Option Plan by 600,000, 500,000 and 446,274 Ordinary shares, respectively. The options vest over a period of three years and expire after 10 years from the grant date or upon termination of employment.

On April 22, 2004, upon the completion of the Purchase Agreement described in a. above, the Company granted, the Company's CEO, 650,000 options ("the Options"), which may be exercised to purchase up to 650,000 Ordinary shares of the Company, at an exercise price of $ 4.25 per share. The Options vest over four years commencing January 1, 2004 and expire 10 years from the date of the grant. The market price of the Company's shares on the date of grant was $ 5.85. Accordingly, The Company recorded a compensation expense of $ 554. This expense was included as part of general and administrative expenses.

Except for these options, all other options are granted with an exercise price equal to the market value at the date of grant. The weighted average fair values of the options granted during 2002, 2003 and 2004 were $ 1.65, $ 1.67 and $ 2, respectively.

As of December 31, 2004, 289,518 options were available for future grants under the aforementioned plan.

F - 24

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 12:- SHAREHOLDERS' EQUITY (CONT.)

A summary of the Company's share option activity under the plan is as follows:

YEAR ENDED DECEMBER 31,

	------------------------------------------------------------------------------------------------------
	2002		2003		2004
	-----------------------------	WEIGHTED	----------------------------	WEIGHTED	----------------------------
WEIGHTED
		AVERAGE		AVERAGE
AVERAGE
	NUMBER	EXERCISE		NUMBER	EXERCISE
NUMBER	EXERCISE
	OF OPTIONS	PRICE		OF OPTIONS	PRICE	OF
OPTIONS	PRICE
	----------	--------------------		----------	----------	---------

Options outstanding
at beginning of
year	1,138,474	$ 7.04	1,755,874	$ 3.14	1,817,323
$4.54
Changes during the
year:
Granted	838,553	$ 3.52	160,284	$ 3.5	730,000
$4.26
Forfeited or
canceled	(221,153)	$10.31	(98,835)	$10.11	(124,518)
$4.23
	----------	----------		----------

Options outstanding
at end of year	1,755,874	$ 3.14	1,817,323	$ 4.54	2,422,805
$4.48
	==========	======	==========	======
==========	=====

Options exercisable
at the end of the
year	641,804	$ 7.65	1,031,679	$ 5.53	1,422,551
$4.83
	==========	======	==========	======
==========	=====

| | | | | The following table summarizes information about options outstanding and exercisable at December 31, 2004:

WEIGHTED OPTIONS WEIGHTED OPTIONS

AVERAGE

		OUTSTANDING	WEIGHTED		AVERAGE	EXERCISABLE
EXERCISE
	RANGE OF	AS OF	AVERAGE		REMAINING	AS OF
PRICE OF
	EXERCISE	DECEMBER 31,		EXERCISE	CONTRACTUAL
DECEMBER 31,	OPTIONS
	PRICE	2004	PRICE	LIFE (YEARS)	2004
EXERCISABLE
	--------------------- ----------------- -------------- -------------- ----------------- --------------

	$ 15.00	59,000	$ 15.00	5.46	59,000	$ 15.00
	$8.13 - $ 9.5	223,500	$ 8.74	4.34	223,500	$ 8.74
	$ 3.5 - $ 4.31	2,140,305	$ 3.74	7.85	1,140,051	$ 3.53
		----------		---------

		2,422,805	$ 4.48	7.47	1,422,551	$ 4.83
		==========			=========

| | | | | || | | | | | | | | | | | | | | | | | F - 25 | | | | | | | | | | | | | | | | | | | | | | | | | TEFRON LTD. AND ITS SUBSIDIARIES | | | | | | | | | | | | | | | | | | | | | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------

U.S. DOLLARS IN THOUSANDS

NOTE 13:- SUPPLEMENTARY INFORMATION TO STATEMENTS OF OPERATIONS

a. Cost of sales:

YEAR ENDED DECEMBER 31,

	2002---------	2003---------	---------	2004

Materials	$ 70,274		$ 64,322	$ 80,650
Salaries and related expenses		42,327	39,878	39,536
Subcontracting	13,750		10,673	12,027
Other production costs		18,855	19,141	20,140
Depreciation	9,060		8,048	8,704
Increase in work-in progress and finished
products	(2,881)---------	---------	(2,640)---------	(1,120)
	$ 151,385=========		$ 139,422=========	$ 159,937=========
b. Financial expenses (income):
Finance expenses:
Interest on long-term loans		$ 3,942	$ 3,319	$ 2,657
Interest on short-term loans		727	1,042	977
Exchange rate differences, net		480	682	450
Bank expenses and other, net		335	585	978
Loss related to conditional obligation		-	-	150
	---------	---------	---------
	5,484	5,628		5,212
Interest income on bank deposits	---------	(27)---------	----------
	$ 5,457	$ 5,628		$ 5,212
	=========		=========	=========
c. Other income (expenses):
Loss on issuance of subsidiary's shares to
third parties	$ (2,082)	$	-$	-

---------	---------		---------

$ (2,293)	$	228	$	-
=========		=========		=========

F - 26

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS

NOTE 14:- TAXES ON INCOME

a. Reduction in corporate tax rate:

On June 2004, the Israeli Parliament approved an amendment to the Income Tax Ordinance (No. 140 and Temporary Provision), which progressively reduces the regular corporate tax rate from 36% to 35% in 2004, to 34% in 2005 to 32% in 2006 and to a rate of 30% in 2007.

b. Applicable tax laws:

The Company and its subsidiaries in Israel are "industrial companies" in conformity with the Law for the Encouragement of Industry (Taxes) 1969. The principal benefits to which the companies are entitled under this Law are accelerated rates of depreciation, consolidated tax returns and a deduction for tax purposes, over a three year period, of costs incurred in issuance of shares.

c. Tax benefits under the Law for the Encouragement of Capital Investments, 1959 ("the Law"):

Certain production facilities in Israel have been granted the status

of "Approved Enterprise" under the Law, for several investment programs ("the Programs").

In accordance with the Law, the Company and certain subsidiaries in Israel received grants from the State of Israel in respect of investments in their plants. The conditions in the letters of approval extending the grants from the State of Israel primarily include the requirements that the investments be made according to the approved plan and that at least 30% of the investments be financed by outstanding share capital. In addition, income attributed to certain Programs is tax exempt for a period of two years and is subject to a reduced corporate tax rate of 10% - 25% for an additional period of five to eight years, based on the percentage of foreign investment in the Company.

The duration of tax benefits for each of the Programs is subject to limitations of the earlier of 12 years from commencement of investment, or 14 years from receipt of approval, as an "Approved Enterprise" under the Law.

Tax-exempt income attributable to the "Approved Enterprise" cannot be distributed to shareholders without subjecting the Company to taxes except upon complete liquidation of the Company. If such retained tax-exempt income is distributed in a manner other than upon the complete liquidation of the Company, it would be taxed at the reduced corporate tax rate applicable to such profits (between 10%-25%).

The entitlement to the above benefits is conditional upon the Company's fulfilling the conditions stipulated by the Law, regulations published there under and the certificates of approval for the specific investments in approved enterprises.

Should the Company and its subsidiaries in Israel fail to meet such requirements in the future, income attributable to its "Approved Enterprise" programs could be subject to the statutory Israeli regular corporate tax rate and the Company could be required to refund a portion of the tax benefits already received, with respect to such

programs. Income from sources other than the "Approved Enterprise" is subject to tax at regular Israeli corporate tax rate.

F - 27

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS

NOTE 14:- TAXES ON INCOME (CONT.)

d. Taxes on income included in the statements of operations:

		YEAR ENDED DECEMBER 31,-------------------------------------------
	2002	2003	2004
	-------	--------------
Current taxes	$-	$ 197	692
Deferred taxes	4,571	(621)	(853)
Taxes in respect of prior years		408	-364
	-------	--------------
	$ 4,979	$ (424)	$ 203
	=======	=======	=======
Domestic	$ 4,571	$(1,582)	$ (476)
Foreign	408	1,158	679
	-------	-------	-------

$ 4,979	$ (424)	$ 203

e. Effective tax:

Reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company and the actual tax expense as reported in the statement of operations is as follows:

======= ======= =======

	---------------------------------------------2002	2003	2004
	-------	-------	-------
Income (loss) before taxes, as reported in the
consolidated statements of operations		$ 7,469		$(2,059)	$(4,717)
	=======	=======		=======
Statutory tax rate		36%	36%	35%
	=======	=======		=======
Provision at the Israeli statutory tax rate		$ 2,689	$ (741)		$(1,651)
Increase (decrease) in taxes resulting from
"Approved Enterprise" benefits		(1,303)	198		676
Deferred taxes on losses and temporary
differences for which valuation allowance was
provided	2,633		533	742
Nondeductible expenses		45	40	88
Change in tax rate used for computation of
deferred taxes	-		(469)	(83)
Taxes in respect of prior years		408	-	366
Other	507	15		65
	-------	-------	-------

YEAR ENDED DECEMBER 31,

	=======	=======		=======
Actual tax expenses (benefit)		$ 4,979	$ (424)		$ 203

f. Income (loss) before taxes on income is comprised as follows:




	$17,038	$(2,049)	$(5,681)
Foreign	(9,569)--------	(10)----------------	964
Total	$ 7,469	$(2,059)	$(4,717)
	========	========	========

| | |F - 28

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS

NOTE 14:- TAXES ON INCOME (CONT.)

g. Deferred taxes:

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax

purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:

		DECEMBER 31,
	2003	---------------------------2004
	--------	--------
Asset (liability) in respect of:
Property, plant and equipment		$(17,569)	$(15,613)
Allowances and provisions		4,427	1,658
Net operating loss carryforward		19,011	18,728
	--------	--------
Net deferred tax assets before valuation allowance			5,869	4,773
Valuation allowance (1)		(9,422)	(7,473)
	--------	--------
Net deferred tax liability		$ (3,553)	$ (2,700)
	========	========
Presented in balance sheet:

	----------------
Other receivables	589	425
Long-term assets	3,428	2,486
Long-term liability	$ (7,570)	$ (5,611)

Net deferred tax liability	$ (3,553)	$ (2,700)
	========	========

Domestic	$ (6,553)	$ (5,141)
Foreign	3,000	2,441
	----------------

Net deferred tax $ (3,553) $ (2,700)

======== ========

(1) The net change in the total valuation allowance for the years ended December 31, 2002, 2003 and 2004 is $ 2,693, $ 533 and $ 1,949, respectively.
(2) The deferred taxes are computed based on enacted tax rates expected to apply at the time of reversal (average rate of 22% for Israeli companies and 37% for a subsidiary located in the U.S.).
h. As of December 31, 2004, the Company's subsidiary in the U.S. had estimated aggregate available carryforward tax losses of approximately $ 35,000 to offset against future taxable profits, which expire between 2020 and 2023. A valuation allowance for an amount of $ 8,000 was recorded due to the uncertainty of the tax asset's future realization.

As of December 31, 2004 the Company and its Israeli subsidiaries had tax loss carryforward of approximately $ 17,000. Carryforward tax losses in Israel may be carryforward indefinitely and may be offset against future taxable income.

F - 29

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS

NOTE 14:- TAXES ON INCOME (CONT.)

i. Final tax assessments:

The Company is currently in the process of tax assessments with Israel's Tax Authorities for the tax years 1997 to 1999.

NOTE 15:- SEGMENT REPORTING

a. General information:

The Company has three production lines: Knitted apparel ("Cut and Sew") Seamless apparel ("Seamless") and health care products. Unlike the Cut and Sew process, the Seamless process includes the utilization of a single machine that transforms yarn directly into a nearly complete garment.

The Company has three reportable segments:

Intimate apparel and active wear manufactured using the Seamless process.
Intimate apparel and active wear manufactured using the Cut and Sew process located in Israel.
Health production, located in the, U.S. (Healthcare).

The accounting policies of the reportable segments are the same as those described in Note 2. Selling, general and administrative expenses are allocated according to management's assessment. Management evaluates performance based upon operating income (loss) before interest and income taxes.

b. Reportable segments:

YEAR ENDED DECEMBER 31, 2004

CUT & SEW HEALTHCARE

	- ISRAEL	SEAMLESS		USA		ADJUSTMENTS
CONSOLIDATED
	----------	----------	----------	----------		---------
Sales to unaffiliatedcustomers	$ 64,867		$ 83,753	$ 34,199	$	-	$
182,819
Inter-segmental sales	----------	405----------	-----------	-----------	(405)	---------	-
Total sales182,819	$ 65,272		$ 83,753	$ 34,199	$	(405)	$
	==========		==========	==========			==========
=========
Operating income (loss)495	$	3,497	$ (8,217)	$	5,215	$-	$
	==========		==========	==========			==========
Financial expenses, net					---------		5,212
Loss before income taxes					=========		$ (4,717)
Depreciation and amortization10,760		$2,824	$6,393	$	1,543	$	-$
=========	==========		==========	==========			==========
Identifiable and total assets
at December 31, 2004179,468		$ 36,990	$ 98,235		$ 44,243	$	-$
	==========		==========	==========			==========
Corporate assets					---------	12,063

Total assets $ 191,531

=========

F - 30

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS

NOTE 15:- SEGMENT REPORTING (CONT.)

YEAR ENDED DECEMBER 31, 2003

	CUT & SEW- ISRAEL	SEAMLESS	HEALTHCAREUSA		ADJUSTMENTS
CONSOLIDATED
	--------	---------	---------	----------	---------
Sales to unaffiliatedcustomers163,086	$ 51,944	$ 72,856	$ 38,286	$	-$
Inter-segmental sales	1,469--------	----------	----------	(1,469)----------	----------
Total sales163,086	$ 53,413	$ 72,856	$ 38,286		$ (1,469)$
=========	========	=========	=========		==========
Operating income (loss)3,341	$	704	$ (4,056)	$ 6,693$	-$

	========	=========		=========			==========
Financial expenses, net							5,628
Other income, net					---------		228
Loss before income taxes					=========		$ (2,059)
Depreciation and amortization9,005		$ 2,131	$ 6,452	$	422	$	-	$
=========	========	=========		=========			==========
Identifiable and total assetsat December 31, 2003185,222		$ 39,628	$ 101,202		$ 44,392	$	-	$
Corporate assets	========	=========		=========	---------		==========16,369
Total assets						$ 201,591

| | | | ========= | | | || | | | | | | | | | | | -------------------------------------------------------------------------------- | | YEAR ENDED DECEMBER 31, 2002 | | | | | | | | CUT & SEW - ISRAEL | SEAMLESS | | HEALTHCARE USA | | ADJUSTMENTS | | | | CONSOLIDATED | -------- | -------- | -------- | -------- | -------- | | | | | Sales to unaffiliated customers | $ 66,199 | $ 86,524 | | $ 37,582 | $ | - | $190,305 | |

Inter-segmental sales	-----------------	1,308--------	---------	(1,308)--------	-
Total sales$190,305	$ 66,199========	$ 87,832========	$ 37,582========	$ (1,308)========
========
Operating income (loss)15,219	$ 10,611========	$ (2,760)========	$ 7,368========	$-========	$
Financial expenses, netOther expenses, net				5,4572,293--------
Income before income taxes				$ 7,469========
Depreciation and amortization9,722	$ 2,989	$ 6,321	$	412$-	$
========	========	========	========	========
Identifiable and total assetsat December 31, 2002$178,510	$ 35,297========	$ 98,309========	========	$ 44,904$-========
Corporate assets				19,233--------
Total assets				$197,743

| | | ======== | |

F - 31

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

U.S. DOLLARS IN THOUSANDS

NOTE 15:- SEGMENT REPORTING (CONT.)

c. The Company's sales by geographic area are as follows:

YEAR ENDED DECEMBER 31,

	--------------------------------------------
	2002	2003	2004
	--------	--------	--------

North America	$186,348	$154,696		$168,914
Europe	1,809	4,350	8,044
Israel	1,709	2,782	2,892
Other	439	1,258	2,969
	--------	--------	--------

========	========	========
$190,305	$163,086	$182,819

d. Sales to major customers:

YEAR ENDED DECEMBER 31,

2002 2003 2004

	----	----	----
		%
		---------------------------------

A	49.8	38.2	38.5
B	8.8	10.9	9.2
C	5.3	9.1	13.0
	----	----	----

	63.9	58.2	60.7
	====	====	====

As of December 31, 2003 and 2004, major customer's balances were $ 15,592 and $ 11,939, respectively.

e. The Company's long-lived assets by geographic area are as follows:

		DECEMBER 31,
		---------------------------
	2003		2004
	--------		--------

Israel	$ 76,882		$ 79,785
Foreign countries		51,096		45,378
	--------		--------

	$127,978		$125,163
	========			========

f. Revenues are generated by the following products:

YEAR ENDED DECEMBER 31,

				---------------------------------------------
	2002		2003		2004
	--------		--------		--------

Intimate apparel		$146,260		$108,998		$118,240
Active wear		6,463		12,071		20,105
Swimwear		-		3,731	10,275
Healthcare products		37,582			38,286	34,199
	--------		--------		--------

	$190,305			$163,086		$182,819
	========			========		========

| | | | | |F - 32

TEFRON LTD. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------

U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

NOTE 16:- RELATED PARTIES

a. Transactions with related parties (shareholders and companies controlled by shareholders):

		YEAR ENDED DECEMBER 31,
	-------------------------------------------
2002	2003	2004
-------	-------	-------


Sales to related parties (1)	$ 1,019	$ 1,155	$ 796
	=======	=======	=======

Cost of sales (2)	$(2,475)	$(2,667)	$(2,602)
	=======	=======	=======

Selling, general and administrative
expenses (2)	$ (362)	$ (703)	$ (684)
	=======	=======	=======

(1) Related parties trade receivables in 2003 and 2004 were $ 718 and $ 372, respectively.
(2) Related parties trade payables in 2003 and 2004 were $ 196 and $ 52, respectively.
(3) Including primarily rental payments to a company controlled by shareholders.
b. During 2003, the Company acquired Macpell's interest in RMD, in consideration of $ 200.

NOTE 17:- SUBSEQUENT EVENTS

a. In February 2005, a fire damaged the Company's sewing plant in Jordan. The fire resulted in loss of inventories and raw materials of $ 1,400, and damage to plant and machinery of $ 630. The Company expects that its insurance policies will cover substantially all of the losses resulted from the fire less the deductible in the amount of $ 250. The Company is transferring production to other facilities. However, damage from the fire may delay shipment of some goods. The Company does not expect damage or loss from the fire to materially affect its

overall sales or profitability.

b. As of December 31 2004, the Company's 2004 EBITDA is expected to be less then $ 16 million. As a result, the PPS will be retroactively reduced by $ 0.75 per share. The Company has not yet decided whether to issue anon additional 963,085 shares or to pay an amount of $ 3,454 in cash.

F - 33

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors AlbaHealth, LLC Valdese, North Carolina

We have audited the accompanying balance sheets of AlbaHealth, LLC (the "Company") as of December 31, 2004 and 2003, and the related statements of income, members' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AlbaHealth, LLC as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended, in conformity with United States generally accepted accounting principles.

/s/ McGladrey & Pullen, LLP

Charlotte, North Carolina

February 3, 2005, except as to the first paragraph, last three sentences of Note 4 and first paragraph, last three sentences of Note 5 as to which the date is March 31, 2005

F - 34

SIGNATURES

The Company hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

TEFRON LTD.

By: /S/ Yosef Shiran

Yosef Shiran Chief Executive Officer By: /S/ Gil Rozen ----------------- Gil Rozen Chief Financial Officer

April 21, 2005

EXHIBIT INDEX

1.1. Memorandum of Association of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form F-1 (No. 333-7538) filed on August 29, 1997).
1.2. Restated Articles of Association of the Company (incorporated by reference to Exhibit 1.2 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
2.1. Form of Credit Agreement, dated as of December 13, 1999, among AWS Acquisition Corp., Israel Discount Bank of New York and Bank Hapoalim B.M., New York Branch as Administrative Agent (incorporated by reference to Exhibit 99(b)(2) to Amendment No. 2 to Schedule 14D-1 in respect of Alba-Waldensian, Inc. filed by the Company on December 13, 1999).
2.2 Letter, dated March 2, 2004, from Israel Discount Bank Ltd. to the Company regarding shareholders' equity requirements under the Credit Agreement (incorporated by reference to Exhibit 2.8 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
2.3 Letter, dated March 2, 2004, from Bank Hapoalim to the Company regarding shareholders' equity requirements under the Credit Agreement (incorporated by reference to Exhibit 2.9 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
2.4 Letter, dated February 16, 2004, from Israel Discount Bank to the Company

regarding revised repayment schedule and revised shareholders' equity requirements under the Credit Agreement (incorporated by reference to Exhibit 2.10 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).

2.5 Letter, dated February 15, 2004, from Bank Hapoalim to the Company regarding revised repayment schedule under the Credit Agreement (incorporated by reference to Exhibit 2.11 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
2.6 Letter, dated March 31, 2004, from Bank Hapoalim to the Company regarding revised shareholders' equity requirements under the Credit Agreement (incorporated by reference to Exhibit 2.12 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
2.7 Sixth Amendment to Credit Agreement, dated December 15, 2004, among Alba-Waldensian, Inc. and Bank Hapoalim, as Agent and Lender, together with Term B Notes.
2.8 Credit Agreement, dated September 6, 2002, among AlbaHealth LLC, as borrower, the other borrower signatory thereto, the lenders signatory, thereto from time to time, and General Electric Capital Corporation, as Agent and a Lender. (incorporated by reference to Exhibit 2.8 to the Company's Annual Report form 20-F for the fiscal year ended December 31, 2002).

2.9 First Amendment and Waiver to Credit Agreement, dated March 31, 2005, among AlbaHealth LLC and General Electric Capital Corporation, as Agent and Lender.
2.10 Security Agreement, dated as of September 6, 2002, among the Grantor signatory thereto, from time to time, and General Electric Capital Corporation, as Agent for the benefit of itself and the lenders from time to time party to the Credit Agreement (referred to in Exhibit 2.13).
2.11 Borrower Stockholders Pledge Agreement, dated as of September 6, 2002, by and among the pledgors signatory thereto, from time to time, and General Electric Capital Corporation, as Agent for the benefit of itself and the lenders from time to time party to the Credit Agreement (referred to in Exhibit 2.13).
2.12 Loan Agreement, dated as of December 21, 2004, between Israel Discount Bank and Hi-Tex Founded by Tefron Ltd.
2.13 Loan Agreement, dated as of December 31, 2004, between Bank Hapoalim and Hi-Tex Founded by Tefron Ltd.
2.14 Loan Agreement, dated as of December 25, 2004, between Israel Discount Bank and the Company.
2.15 Loan Agreement, dated as of December 31, 2004, between Bank Hapoalim and the Company.
2.16 The total amount of long-term debt securities of the Company authorized under any instrument, other than as exhibited hereto, does not exceed 10% of the total assets of the Company on a consolidated basis. The Company hereby agrees to furnish to the SEC, upon request, a copy of any instrument defining the rights of holders of long-term debt of the Company or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed.
3.1. Shareholders Agreement, dated as of December 28, 1999, between Arwol Holdings Ltd. and Avi Ruimi (incorporated by reference to Exhibit D to the General Statement of Beneficial Ownership of the Company on Schedule 13D filed by Arwol Holdings Ltd., Arie Wolfson, Sigi Rabinowicz, Riza Holdings Ltd. and Macpell Industries Ltd. on February 17, 2000).

3.2 Agreement, dated February 17, 2004, by and among Arwol Holdings Ltd., Macpell Industries Ltd. and Norfet, Limited Partnership (incorporated by reference to Exhibit 3.4 to the Company's Annual Report on Form 20-F for

the fiscal year ended December 31, 2003).

4.1. Agreement and Plan of Merger, dated as of November 8, 1999, by and among Tefron U.S. Holdings Corp., AWS Acquisition Corp. and Alba-Waldensian, Inc. (incorporated by reference to Exhibit (c)(1) to Schedule 14D-1 in respect of Alba-Waldensian, Inc. filed by the Company on November 12, 1999)
4.2. Employment Agreement, dated as of August 5, 2002, between the Company and Sigi Rabinowicz (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
4.3. Consulting and Management Services Agreement, dated as of August 5, 2002, between the Company, New York Delights Ltd., and Arie Wolfson (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2002).
4.6. Management and Services Agreement, effective as of July 30, 2003, between the Company, Yosef Shiran and Shiran & Partners - Consulting, Entrepreneurship, and Financing (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
4.7. Lease Agreement dated as of August 12, 1997, between the Company and New Net Assets (1994) Ltd. and an Assignment Agreement dated as of December 25, 1998 between the Company and Hi-Tex Founded by Tefron Ltd. The Company and/or its subsidiary, Hi-Tex Founded by Tefron Ltd., have entered in to similar lease agreements with New Net Assets (1994) Ltd. (incorporated by reference to Exhibit 4.5 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2001).
4.6 Contribution Agreement, dated as of September 6, 2002, between AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
4.7 The Limited Liability Company Agreement of AlbaHealth LLC, dated as of

September 6, 2002, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit - to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).

4.8 Put Option Agreement, dated as of September 6, 2002, as amended as of December 13, 2004, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.8 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
4.9 Amendment No. 1 to Put Option Agreement, dated as of December 13, 2004, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation.
4.10 Share Purchase Agreement dated February 17, 2004, by and between the Company and Norfet Limited Partnership, including related Registration Rights Agreement attached as a schedule (incorporated by reference to Exhibit 4.9 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).

4.11 Amendment to Purchase Agreement, dated March 31, 2005, by and between the Company and Norfet Limited Partnership.
4.12 Share Purchase Agreement, made as of March 3, 2004, by and between Tefron and Leber Partners, L.P, including related Registration Rights Agreement attached as a schedule (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
4.13 Amendment to Agreement, dated March 31, 2005, by and between the Company and Leber Partners, L.P.
4.14 Private Equity Credit Agreement, dated as of March 9, 2004, by and between

the Company and Brittany Capital Management Limited (incorporated by reference to Exhibit 4.11 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).

4.15 Registration Rights Agreement, dated as of March 9, 2004, by and between the Company and Brittany Capital Management Limited (incorporated by reference to Exhibit 4.12 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
8.1 List of subsidiaries of the Company.
12.(a).1 Certification by CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
12.(a).2 Certification by CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
13.(a).1 Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
14.(a).1 Consent of Kost, Forer Gabbay & Kasierer, a member of Ernst &Young Global.
14.(a).2 Consent of McGladrey & Pullen, LLP.

EX-2.7 2 exhibit_2-7.txt

EXHIBIT 2.7

SIXTH AMENDMENT TO CREDIT AGREEMENT

THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated as of December 15, 2004, and entered into by and among ALBA-WALDENSIAN, INC., a Delaware corporation (successor-in-interest to AWS Acquisition Corp. by merger, the "BORROWER"), the banks signatory hereto (each a "LENDER" and collectively, the "LENDERS"), and BANK HAPOALIM B.M. as administrative agent (the "ADMINISTRATIVE AGENT") for the Lenders. Unless otherwise defined herein, capitalized terms used herein shall have the meanings given to such terms in the Credit Agreement referred to below.

WITNESSETH:

WHEREAS, the Borrower is a party to the Credit Agreement dated as of December 13, 1999, by and among AWS Acquisition Corp. (predecessor-in-interest to the Borrower prior to merger), the Lenders and the Administrative Agent, as amended by a First Amendment to Credit Agreement effective as of December 15, 2000, and a Second Amendment to Credit Agreement effective as of December 15, 2001, by and among the Borrower, the Lenders and the Administrative Agent, a Third Amendment to Credit Agreement dated as of September 6, 2002, by and among the Borrower AlbaHealth, LLC, a Delaware limited liability company, the Lenders and the Administrative Agent, a Fourth Amendment to Credit Agreement dated as of December 15, 2002, and a Fifth Amendment to Credit Agreement dated as of December 15, 2003, by and among the Borrower, the Lenders and the Administrative Agent (as so amended, and as may be further amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"); and

WHEREAS, the Borrower has requested that the Administrative Agent and the Lenders agree to waive compliance with, and to amend, certain provisions of the Credit Agreement as hereinafter provided; and

WHEREAS, the Lenders and the Administrative Agent are willing to grant such waivers and to make such amendments upon the terms and conditions of this Amendment;

NOW THEREFORE, in consideration of the premises and the agreements, provisions and covenants contained herein, the parties hereto agree as follows:

SECTION 1. WAIVER. Subject to the terms and conditions set forth herein, the Lenders hereby waive any Default or Event of Default that may have arisen as a result of the Borrower's failure to comply with subsections 7.2 and 7.3 of the Credit Agreement for fiscal year 2002 and 2003, or any fiscal quarter thereof.

SECTION 2. AMENDMENT TO CREDIT AGREEMENT. The Credit Agreement is hereby amended as follows:

2.1 DEFINITIONS. The following definitions in subsection 1.1 of the Credit Agreement are hereby amended as follows:

(a) The definition of "ABR" set forth in subsection 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

" `ABR': for any day, a rate PER ANNUM (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the Prime Rate in effect on such day. Any change in the ABR due to a change in the Prime Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate."

(b) The definition of "Applicable Margin" set forth in subsection 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

" `APPLICABLE MARGIN': for each Term Loan that is outstanding hereunder as either a LIBOR Loan or an ABR Loan, 2.00%, and for each Revolving Credit Loan that is outstanding hereunder as either a LIBOR Loan or an ABR Loan, 1.50%."

(c) The definition of "Revolving Credit Loan Maturity Date" set forth in subsection 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

" `REVOLVING CREDIT LOAN MATURITY DATE': May 30, 2005."

(d) The definition of "Term B Loan Maturity Date" set forth in subsection 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

" `TERM B LOAN MATURITY DATE': December 15, 2012."

2.2 REPAYMENT OF TERM B LOANS. The parties hereto agree that (i) the semi-annual principal installment originally due on January 15, 2005 in connection with the Term B Loans shall not be made; (ii) the amortization schedule of the Term B Loans is revised as set forth below; and (iii) the current Interest Payment Date of January 15, 2005 for the Term B Loans shall continue in effect, PROVIDED THAT thereafter, the Interest Periods and Interest Payment Dates with respect to the Term B Loans will coincide (to the extent possible) with the dates for the quarterly repayment of principal of the Term B Loans. Subsection 3.1(b) of the Credit Agreement is hereby amended in its entirety to read as follows:

"(b) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each applicable Lender the principal amount of the Term B Loans in thirty-two (32) equal and consecutive quarterly installments, each such installment to be in an amount equal to 3.125% of the aggregate principal amount of Term B Loan of such Lender outstanding immediately prior to March 15, 2005, with the first such installment commencing on March 15, 2005, and the last such installment ending on the Term B Loan Maturity Date (or such earlier date on which the Term B Loans become due and payable pursuant to Section 9). In no event shall the principal balance of the Term B Loan remain unpaid after

the Term B Loan Maturity Date."

2.3 FINANCIAL STATEMENTS. Subsection 7.2(a) of the Credit Agreement is hereby amended in its entirety to read as follows:

"(a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, a copy of the (i) unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of operations, statements of shareholder's equity and statements of cash flows for such year; and (ii) unaudited consolidating balance sheets of the Borrower and its consolidated Subsidiaries as at the end of such fiscal year together with consolidating statements of income and retained earnings and of cash flows of the Borrower and its consolidated Subsidiaries for such fiscal year as customarily prepared by the management of the Borrower for internal use, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects and without qualification or exception."

2.4 CERTIFICATES; OTHER INFORMATION. Subsection 7.3(a) of the Credit Agreement is hereby amended in its entirety to read as follows:

"(a) [RESERVED]"

2.5 FINANCIAL REPORTS OF TEFRON LTD. Subsection 7.3(c) of the Credit Agreement is hereby amended in its entirety to read as follows:

"(c) promptly after the sending or filing thereof by Tefron, copies of

all proxy statements, financial statements, and reports that Tefron sends to its stockholders, and copies of all regular, periodic and special reports (including, without limitation, copies of all Forms 20-K and Forms 6-K), and all registration statements that Tefron files with the SEC Authority (or any Governmental that may be substituted therefor) and/or NASDAQ, and all amendments to any of the foregoing, PROVIDED THAT, (i) if not included in the copies of the Form 20-K delivered to the each Lender within 120 days after the end of each fiscal year of Tefron (commencing with fiscal year ending for 2004), then as soon as available, but in any event within 90 days after the end of each fiscal year of Tefron, a copy of (A) the audited consolidated balance sheet of Tefron and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of operations, statements of shareholder's equity and statements of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by an independent certified public accountants of nationally recognized standing; and (B) a copy of the unaudited consolidating balance sheets of Tefron and its consolidated Subsidiaries as at the end of such fiscal year together with consolidating statements of income and retained earnings and of cash flows of Tefron and its consolidated Subsidiaries for such fiscal year as customarily prepared by the management of Tefron for internal use; and (ii) if not included in the copies of the Form 6-K delivered to the each Lender within 90 days after the end of each fiscal quarter of Tefron (commencing with the first fiscal quarter ending for 2005), as soon as available, but in any event not later than 90 days after the end of each fiscal quarter of Tefron, the audited consolidated and consolidating balance sheets of Tefron and its consolidated Subsidiaries as at the end of such quarter and the related audited consolidated and consolidating statements of operations, statements of shareholder's equity and statements of cash flows of Tefron and its consolidated Subsidiaries for such quarter and the portion of Tefron's fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by an independent certified public accountants of nationally recognized standing and certified as being fairly

stated in all material respects (subject to normal year-end audit adjustments and the absence of footnote disclosure); and"

2.6 TERM B LOAN NOTES. Contemporaneously with its execution and delivery of this Amendment, the Borrower shall issue to each Lender (via delivery to the Administrative Agent) an amended Term B Note in replacement but not repayment of, and in exchange and substitution for, the Term B Note of such Borrower with such Lender in existence immediately prior to the effectiveness of this Amendment, such amended Term B Note to be substantially in the form of SCHEDULE 1 or SCHEDULE 2, as the case may be, attached hereto, signed and delivered by a duly authorized officer of the Borrower. Thereafter, all references in the Credit Agreement to any Term B Note shall be deemed to refer to such amended Term B Note, as the case may be.

SECTION 3. BORROWERS REPRESENTATIONS AND WARRANTIES.

To induce the Administrative Agent and the Lenders to enter into this Amendment, the Borrower represents and warrants to the Administrative Agent and the Lenders that:

3.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and is in compliance with all Requirements of Law, except to the extent that all failures to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

3.2 CORPORATE/POWER; AUTHORIZATION. The execution, delivery and performance by the Borrower of this Amendment, and the consummation of the transactions contemplated hereby, are within the Borrower's corporate powers, and have been duly authorized by all necessary corporate action on the part of the Borrower.

3.3 NO CONSENT. No consent or authorization of, or filing with, notice to or other act by, or in respect of, any Governmental Authority or any other Person is required in connection with the execution, delivery and performance by the Borrower of this Amendment.

3.4 ENFORCEABILITY. This Amendment constitutes, and the amended Term B Loan Notes when executed and delivered to the Lenders pursuant to subsection 2.3 of this Amendment, will constitute, a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.

3.5 NO LEGAL BAR. The execution, delivery and performance by the Borrower of this Amendment will not violate any Requirement of Law or Contractual Obligation of the Borrower and will not result in, or require the creation or imposition of any Lien on any of its properties or revenues pursuant to any Requirement of Law or Contractual Obligation.

3.6 INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT.

The representations and warranties contained in Section 4 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the date this Amendment shall become effective and to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date.

SECTION 4. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT.

This Amendment shall become effective as of the date first written upon the determination by the Administrative Agent that the following conditions have been satisfied:

4.1 EXECUTION; AUTHORIZATION. The Administrative Agent shall have received counterparts of this Amendment duly executed by the Borrower and the Lenders and the attached Acknowledgement and Consent duly executed by Tefron and Parent.

4.2 TERM B NOTES. The Administrative Agent shall have received an original Term B Note for each Lender, substantially in the form of SCHEDULE 1 OR 2, as the case may be, attached hereto, signed and delivered by a duly authorized officer of Alba. Upon the Administrative Agent's receipt of all such duly executed and delivered Notes, the Administrative Agent shall return the existing Term B Notes to Alba.

4.3 AMENDMENT FEE. The Administrative Agent shall have received, for the account of each Lender, an amendment fee equal to a flat one-eighth of one percent (1/8%) of the unpaid principal amount of the Revolving Credit Loan and Term B Loan of such Lender.

4.4 LEGAL FEES. Shaw Pittman LLP, counsel to the Administrative Agent, shall have received full payment of its legal fees and expenses incurred in connection with the preparation, execution and delivery of this Amendment within twenty (20) days after submission of its written invoice to the Borrower.

4.5 NO DEFAULT. No Default or Event of Default shall exist after giving effect to the transactions contemplated by this Amendment.

SECTION 5. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.

5.1 REFERENCE. On and after the effective date of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof", or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by this Amendment.

5.2 FULL FORCE AND EFFECT. The Credit Agreement and each of the other Loan Documents, except as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.

5.3 NO WAIVER. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power, or remedy of the Lenders under any of the Loan Documents, nor constitute a waiver of any provision of the Loan Documents.

SECTION 6. GENERAL TERMS.

6.1 RECITALS. The recitals provided for at the commencement of this Amendment are hereby incorporated herein as if set forth in this Section 5.

6.2 HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect.

6.3 SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon the successors and assigns of the Borrower and shall inure to the benefit of the Administrative Agent and its successors and assigns.

6.4 COSTS; EXPENSES. The Borrower agrees to pay or reimburse the Administrative Agent and each Lender for all of their reasonable out-of-pocket costs and expenses incurred in connection with the preparation, execution of, and any amendment, supplement or modification to this Amendment or any other documents prepared in connection herewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent in accordance with the terms of subsection 11.6 of the

Credit Agreement.

6.5 GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

6.6 COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original and all of which when taken together shall constitute but one and the same agreement.

[SIGNATURE PAGE TO FOLLOW]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

ALBA-WALDENSIAN, INC.

By: /S/ James Douglas Dickson

Name: James Douglas Dickson Title: CFO

By: /S/ Jon Donne

Name: Jon Donne Title: Vice President

BANK HAPOALIM B.M., as Administrative Agent and as a Lender

By: /S/ Boaz Dan

---------------- Name: Boaz Dan

Title: Senior Vice President

By: /S/ Maxine Levy

Name: Maxine Levy Title: Vice President

ISRAEL DISCOUNT BANK OF NEW YORK, as a Lender

By: /S/ Amir Barash

Name: Amir Barash Title: First Vice President

By: /S/ Kevin Lord

Name: Kevin Lord Title: Vice President

ACKNOWLEDGEMENT AND CONSENT

Each of the undersigned hereby acknowledges and consents to the foregoing Sixth Amendment to Credit Agreement, and after giving effect thereto, does hereby confirm and reaffirm all of its obligations under the Tefron Guarantee or the Parent Guarantee, as the case may be.

Each of the undersigned hereby represents and warrants that:

(i) Its execution and delivery of this acknowledgement and consent and the consummation of the transactions contemplated hereby, are within its company powers and have been duly authorized by all necessary corporate action;

(ii) No material consent or authorization of, or filing with, notice to or other act by, or in respect of, any Governmental Authority or any other Person is required in connection with its execution and delivery of this acknowledgement and consent and its performance under the Tefron Guarantee or the Parent Guarantee, as the case may be, as amended by the foregoing Sixth Amendment, other than any which have been obtained or made as of the date hereof;

(iii) This acknowledgement and consent, and, after giving effect to the foregoing Sixth Amendment, the Tefron Guarantee or Parent Guarantee, as the case may be, constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing; and

(iv) The execution, delivery and performance by it of this acknowledgement and consent will not violate any material Requirement of Law or Contractual Obligation binding on it or any of its Subsidiaries, and will not result in, or require the creation or imposition of any Lien on any of its properties or revenues pursuant to any Requirement of Law or Contractual Obligation, except Liens in favor of the Administrative Agent and the Lenders.

Dated as of February 2, 2005

TEFRON LTD.	TEFRON U.S. HOLDINGS CORP.
By: /S/ Yosef Shiran	By: /S/ Yosef Shiran
- --------------------	-------------------
Name: Yosef Shiran	Name: Yosef Shiran
Title: CEO	Title: Director
By: /S/ Arie Wolfson	By: /S/ G. Rozen
- --------------------	----------------
Name: Arie Wolfson	Name: Gil Rozen
Title: Chairman of the board of directors	Title: Director

SCHEDULE 1

TERM B NOTE

New York, New York

$15,354,545.46 December 15, 2004

FOR VALUE RECEIVED, the undersigned, ALBA-WALDENSIAN, INC. (the "BORROWER"), hereby unconditionally promises to pay to the order of BANK HAPOALIM B.M. (the "LENDER") at the office of the Administrative Agent located at 1177 Avenue of the Americas, New York, New York 10036 in lawful money of the United States of America and in immediately available funds, the principal amount of FIFTEEN MILLION THREE HUNDRED FIFTY-FOUR THOUSAND FIVE HUNDRED AND

FORTY-FIVE AND 46/100 DOLLARS ($15,354,545.46), in the amounts and on the dates specified in the Credit Agreement referred to below; PROVIDED that, the entire unpaid principal balance of this Term B Note, together with all accrued and unpaid interest thereon, shall be repaid no later than the Term B Loan Maturity Date (as defined in the Credit Agreement referred to below).

The Borrower further agrees to pay interest in like money at such office on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times specified or determined in accordance with the provisions of that certain Credit Agreement dated as of December 13, 1999, by and among AWS Acquisition Corp. (predecessor-in-interest to the Borrower prior to merger), the banks signatory thereto (the "LENDERS"), and Bank Hapoalim B.M. as administrative agent ( the "ADMINISTRATIVE AGENT") for the Lenders, as amended by the First Amendment to Credit Agreement dated as of December 15, 2000 and the Second Amendment to Credit Agreement dated as of December 15, 2001, by and among the Borrower, the Lenders and the Administrative Agent, the Third Amendment to Credit Agreement dated as of September 6, 2002, by and among the Borrower, AlbaHealth, LLC, a Delaware limited liability company, the Lenders and the Administrative Agent, the Fourth Amendment to Credit Agreement dated as of December 15, 2002, the Fifth Amendment to Credit Agreement dated as of December 15, 2003, and the Sixth Amendment to Credit Agreement dated as of December 15,

2004 (the "SIXTH AMENDMENT"), by and among the Borrower, the Lenders and the Administrative Agent (as so amended, and as may be further amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT").

This Term B Note is issued in exchange and substitution for, and not in satisfaction of, and to amend and restate without interruption all indebtedness evidenced by, the Term B Note dated September 6, 2002 issued by the Borrower to the Lender. This Term B Note (a) is issued pursuant to the Sixth Amendment and is entitled to the provisions and benefits of the Credit Agreement, to which reference is hereby made for a more complete statement of the terms and conditions under which the Term B Loans evidenced hereby were made and are to be repaid, and (b) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. This Term B Note is secured and guaranteed as provided in the Loan Documents, including, without limitation, the Tefron Guarantee and the Parent Guarantee. Reference is hereby made to the Loan Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted, and the rights of the holder of this Term B Note in respect thereof.

Upon the occurrence of any one or more of the Events of Default, all amounts then remaining unpaid on this Term B Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement.

All parties now and hereafter liable with respect to this Term B Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind.

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

THIS TERM B NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN

ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

ALBA-WALDENSIAN, INC.

By: /S/ James Douglas Dickson

Name: James Douglas Dickson Title: CFO

By::/S/ Jon Donne

Name: Jon Donne Title: Vice-President

SCHEDULE 2

TERM B NOTE

New York, New York

$10,236,363.66 December 15, 2004

FOR VALUE RECEIVED, the undersigned, ALBA-WALDENSIAN, INC. (the "BORROWER"), hereby unconditionally promises to pay to the order of ISRAEL DISCOUNT BANK OF NEW YORK (the "LENDER") at the office of the Administrative Agent located at 1177 Avenue of the Americas, New York, New York 10036 in lawful money of the United States of America and in immediately available funds, the principal amount of TEN MILLION TWO HUNDRED THIRTY-SIX THOUSAND THREE HUNDRED

AND SIXTY-THREE AND 66/100 DOLLARS ($10,236,363.66), in the amounts and on the dates specified in the Credit Agreement referred to below; PROVIDED that, the entire unpaid principal balance of this Term B Note, together with all accrued and unpaid interest thereon, shall be repaid no later than the Term B Loan Maturity Date (as defined in the Credit Agreement referred to below).

15, 2003, and the Sixth Amendment to Credit Agreement dated as of December 15, 2004 (the "SIXTH AMENDMENT"), by and among the Borrower, the Lenders and the Administrative Agent (as so amended, and as may be further amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT").

Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

THIS TERM B NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

ALBA-WALDENSIAN, INC.

By: /S/ James Douglas Dickson

Name: James Douglas Dickson Title: CFO

By:: /S/ Jon Donne

Name: Jon Donne Title: Vice-Presidents

EX-2.9 3 exhibit_2-9.txt

EXHIBIT 2.9

FIRST AMENDMENT AND WAIVER TO CREDIT AGREEMENT

FIRST AMENDMENT AND WAIVER TO CREDIT AGREEMENT, dated as of March 31,2005 (this "AMENDMENT"), to the Credit Agreement referred to below between ALBAHEALTH, LLC, a Delaware limited liability company ("BORROWER"), and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (in its individual capacity, "GE Capital"), for itself, as Lender, and as Agent for Lenders.

W I T N E S S E T H

WHEREAS, Borrower and GE Capital, as Agent and as Lender, are parties to that certain Credit Agreement, dated as of September 6, 2002, (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement");

WHEREAS, Borrower has notified Agent that Borrower has failed to comply with certain Financial Covenants set forth in SECTION 6.10 of the Credit Agreement for the periods ended September 30,2004 and December 31,2004 and has requested a waiver thereof; and

WHEREAS, Borrower has requested that certain provisions of the Credit Agreement be amended in the manner, and on the terms and conditions provided for herein.

NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, Borrower, Agent, Requisite Lenders and Requisite Revolving Lenders hereby agree as follows:

DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement or Annex A thereto.
WAIVERS UNDER CREDIT AGREEMENT. Agent, Requisite Lenders and Requisite Revolving Lenders hereby waive, as of the First Amendment Effective Date (as hereinafter defined), any Default or Event of Default resulting solely from Borrower's failure to comply with the minimum EBITDA requirements of paragraph (e) of ANNEX G of the Credit Agreement for the 12-month periods ended September, 30,2004 and December 31, 2004; PROVIDED, that Borrower and its Subsidiaries on a consolidated basis shall have at the end of the Fiscal Quarter ended December 3 1,2004 EBITDA for the 12-month period then ended of not less than $5,650,000.
AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended as of the First Amendment Effective Date as follows:

(a) AMENDMENT TO PARAGRAPH (B) OF ANNEX G OF THE CREDIT AGREEMENT. Paragraph (b) of ANNEX G of the Credit Agreement is hereby amended as of the First - Amendment Effective Date by deleting paragraph (b) of ANNEX G in its entirety and inserting the following in lieu thereof:

"(b) Minimum Fixed Charge Coverage Ratio. Borrower and its Subsidiaries shall have on a consolidated basis (i) at the end of each Fiscal Quarter (other than the Fiscal Quarter ending March 31, 2005), a Fixed Charge Coverage Ratio for the 12-month period then ended (or, with respect to the Fiscal Quarters ending on or before June 30,2003, for the period commencing on September 6, 2002, and ending on the last day of such Fiscal Quarter) of not less than 1.15x, and (ii) at the end of the Fiscal Quarter ending March 31.2005, a Fixed Charge Coverage Ratio for the 12-month period then ended of not less than 1.10x."

(b) AMENDMENT TO PARAGRAPH (B) ANNEX G OF THE CREDIT AGREEMENT. Paragraph (e) of Annex G of the Credit Agreement is hereby amended as of the First Amendment Effective Date by deleting the following in paragraph (e) of ANNEX G:

"March 3 1,2005 $7,500,000 June 30,2005 $7,500,000

September 30,2005 $7,750,000 December 31,2005 $7,750,000"

and inserting the following in lieu thereof:

"March 31,2005 $5,229,000 June 30,2005 $53 1 1,000 September 30, 2005 $5,535,000 December 31,2005 $6,000,000"

(c) AMENDMENT TO PARAGRAPH (D) ANNEX G OF THE CREDIT AGREEMENT. Paragraph (d) of Annex G of the Credit Agreement is hereby amended as of the First Amendment Effective Date by deleting "1.75x for the Fiscal Quarter ending June 30, 2005", and inserting in lieu thereof "2.0x for the Fiscal Quarter ending June 30,2005".

REMEDIES This Amendment shall constitute a Loan Document. The breach by any Credit Party of any representation, warranty, covenant or agreement in this Amendment (including without limitation in SECTION 2 hereof) shall constitute an immediate Event of Default hereunder and under the other Loan Documents.
REPRESENTATIONS AND WARRANTIES. To induce Agent, Requisite Lenders and Requisite Revolving Lenders to enter into this Amendment, Borrower makes the following representations and warranties to Agent, Requisite Lenders and Requisite Revolving Lenders:

(a) The execution: delivery and performance of this Amendment and the performance of the Credit Agreement as amended by this Amendment (the "Amended Credit Agreement") by Borrower: (a) are within Borrower's organizational power; (b) have been duly authorized by all necessary or proper organizational and shareholder or membership action; (c) do not contravene any provision of Borrower's charter or bylaws or equivalent organizational or charter or other constituent documents;

(d) do not violate any law or regulation, or any order or decree of any court or Governmental Authority; (e) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Borrower is a party or by which Borrower or any of its property is hound; (F) do not result in the creation or imposition of any Lien upon any of the property of Borrower other than those in favor of Agent, on behalf of itself and the Lenders, pursuant to the Loan Documents; and (g) do not require the consent or approval of any Governmental Authority or any other Person.

(b) This Amendment has been duly executed and delivered by or on behalf of Borrower.
(c) Each of this Amendment, the Amended Credit Agreement and each of the other Loan Documents constitutes a legal, valid and binding obligation of Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability &ay be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).
(d) After giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.
(e) No action, claim or proceeding is now pending or, to the knowledge of Borrower, threatened against Borrower or any other Credit Party, at law, in equity or otherwise, before any court, hoard, commission, agency or instrumentality of any federal, state, or local government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators, (i) which challenges Borrower or, to the extent applicable, any other Credit Party's right, power, or competence to enter into this Amendment or perform any of their respective obligations under this Amendment, the Credit Agreement or any other Loan Document, or the validity or enforceability of this Amendment,

the Credit Agreement or any other Loan Document or any action taken under this Amendment, the Credit Agreement or any other Loan Document or (ii) which, if determined adversely, is reasonably likely to have or result in a Material Adverse Effect. To the knowledge of Borrower, there does not exist a state of facts which is reasonably likely to give rise to such proceedings.

(f) The representations and warranties of Borrower and the other Credit Parties contained in the Amended Credit Agreement and the other Loan Documents are true and correct on and as of the First Amendment Effective Date with the same effect as if such representations and warranties had been made on and as of such date, except that any such representation or warranty which is expressly made only as of a specified date need he true only as of such date.

NO OTHER AMENDMENTS OR WAIVERS. Except as expressly provided herein, the Credit Agreement and the other Loan Documents shall he unmodified and shall continue to be in full force and effect in accordance with their terms. In addition, except as specifically provided herein, this Amendment shall not be deemed an amendment or waiver with respect to any term or condition of any Loan Document and shall not be deemed to prejudice any right or rights which Agent, for itself and Lenders, may now have or may have in the future under or in connection with any Loan Document or any of the instruments or agreements referred to therein, as the same may be amended from time to time.
CONTINUATION OF OBLIGATIONS AND LIENS. Borrower hereby acknowledges, agrees and affirms (a) its obligations under the Credit Agreement and the other Loan documents, including, without limitation, its guaranty obligations thereunder, (b) that such guaranty shall apply to all Obligations, (c) the grant of the security interest in all of its assets pursuant to the Loan Documents and (d) that such liens and security interests created and granted are valid and

continuing and secures all the Obligations.

OUTSTANDING INDEBTEDNESS; WAIVER OF CLAIMS. Borrower hereby acknowledges and agrees that as of March 3 1,2005 the aggregate outstanding principal amount of the Revolving Credit Advances are $2,811,899.66 and the aggregate outstanding principal amount of the Term Loan is $8,249,484.74, and that such principal amounts are payable pursuant to the Credit Agreement without defense, offset, withholding, counterclaim or deduction of any kind. Borrower hereby waives, releases, remises and forever discharges Agent, Lenders and each other Indemnified Person from any and all claims, suits, actions, investigations, proceedings or demands, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law of any kind or character, known or &own, which Borrower ever had, now has or might hereafter have against Agent or any Lender which relates, directly or indirectly, to any acts or omissions of Agent, Lenders or any other Indemnified Person on or prior to the First Amendment Effective Date.

9. FEES AND EXPENSES. Borrower hereby:

(a) reconfirms its obligations pursuant to Section 11.3 of the Credit Agreement pay and reimburse Agent for all reasonable costs and expenses (including, without limitation, reasonable fees of counsel) incurred in connection with the negotiation, preparation, execution and delivery of this Amendment and all other documents and instruments delivered in connection herewith; and
(b) agrees to pay to Agent, for the ratable benefit of the Lenders, an amendment fee of 530,000 (the "Amendment Fee"), which fee shall be due and payable on April 1,2005.

EFFECTIVENESS. This Amendment shall become effective as of March 31, 2005 (the "FIRST AMENDMENT EFFECTIVE DATE") only upon satisfaction in full in the judgment of Agent of each of the following conditions on or prior to April 1,2005:

(A) AMENDMENT. Agent shall have received four (4) original copies of this Amendment duly executed and delivered by Agent, Requisite Lenders, Requisite Revolving Lenders and Borrower and acknowledged and agreed to by each of the pledgors to the Pledge Agreements.
(b) Payment of Fees and Expenses. Borrower shall have paid to Agent (i) all costs, fees and expenses owing in connection with this Amendment and the other Loan Documents and due to Agent, and (ii) the Amendment Fee.
(c) Representations and Warranties. The representations and warranties of or on behalf of the Credit Parties in this Amendment shall be true and correct on and as of the First Amendment Effective Date.

GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
COUNTERPARTS. This Amendment may be executed by the parties hereto on any number of separate counterparts and all of said counterparts taken together shall he deemed to constitute one and the same instrument.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above.

BORROWER: ALBAHEALTW, LLC By: /s/ Doug Dickson

Name: Doug Dickson Title: CFO

GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender /s/ Eric Schaefer --------------------

By: Eric Schaefer Duly Authorized Signatory

The undersigned pledgors hereby (i) acknowledge this Amendment and (ii) confirm and agree that their obligations under their respective pledges shall continue without any diminution thereof and shall remain in full force and effect on and after the effectiveness of this Amendment.

PLEDGORS:

ALBA-WALDENSIAN, INC.

By: /s/ James Douglas Dickins, Jr.

Name: Jason Douglas Dickins, Jr. Title: Secretary

ENCOMPASS GROUP, L.L.C. By: /S/

Name: S. William Title: CFO

GENERAL ELECTRIC CAPITAL CORPORATION, as a pledgor

/s/ Eric Schaefer

By: Eric Schaefer Duly Authorized Signatory

EX-2.12 4 exhibit_2-12.txt

EXHIBIT 2.12



ISRAEL DISCOUNT BANK LTD.		Loan account no. _841-01-202243
MAIN BRANCH - FOREIGN CURRENCY		Isr./For. currency proceeds current account no.
968-130915
(hereinafter: "the Bank")		[_] Proceeds account no. (principal+interest) 940-01-202243
		[_] Proceeds account no. (principal) 940-01-202243
Date: 21.12.04		[] Proceeds account no. (interest) /________

| |Code + target product /___/____/____/

804 APPLICATION TO RECEIVE A FOREIGN CURRENCY LOAN

I/we the undersigned:

1. Name HI-TEX (FOUNDED BY TEFRON LTD.) I.D./Passport no. 5512489816 Address BRANCH POB 028
1. Name ____________________________________ I.D./Passport no. ______________ Address ______________________________________

Name ____________________________________ I.D./Passport no. ______________ Address ______________________________________

Hereby apply to the Bank to grant us a loan in the sum of 8,500,000 (IN WORDS EIGHT MILLION, FIVE HUNDRED THOUSAND) currency U.S. DOLLARS (hereinafter: "the Loan") on the following conditions:

1. PURPOSE OF THE LOAN (complete as appropriate).
[_] The requested Loan has been designated for -

The requested Loan has not been designated nor will it be used by us and/or by any person on our behalf for the purpose of purchasing any rights in an apartment in which we /and/or our adult children and/or our parents intend to live.

_____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________

OR -

[_] The Loan is designated for the purchase of rights / in leasing an apartment in which we and/or our adult children and/or our parents intend to live, or for the construction, extension or refurbishing of such an apartment (see the schedule attached hereto).

2. GRANT OF THE LOAN

a. Please open a special loan account in our name (the number of which will appear at the beginning of this form and be hereinafter called: "THE LOAN ACCOUNT") which will be operated according to the conditions contained herein.
b. Please credit the current account specified at the beginning of this form (hereinafter: "THE CURRENT ACCOUNT") with the proceeds of the Loan and debit the Loan Account with the proceeds of the Loan against such crediting of the Current Account. The crediting of the Current Account with the proceeds of the Loan will be deemed to constitute the receipt of the Loan by us on such dates of crediting, and will be hereinafter called: "THE DATE OF RECEIPT OF THE LOAN".

c. The conditions of operating the Current Account signed by us constitute an integral part hereof.

In respect of crediting the Account with the loan proceeds, a "transaction entry" commission will be charged, as fixed from time to time in the Bank's list of charges displayed in the Bank's branches.

The commission for entering the transaction in the Account at the Bank's current rates is NIS _______

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

3. INSTRUCTIONS REGARDING CONVERSION

customary in the Bank on the conversion date, plus such commissions and levies as will be customary for the time being.

1. CONDITIONS OF THE LOAN
a. TERM AND REPAYMENT OF THE LOAN

The Loan will be for a term of 96 months commencing the 31ST day of DECEMBER, 2004 and expiring on the 31 day of DECEMBER, 2012 and be repaid by us in installments in the amounts and on the dates set out below as marked with an X save that it is hereby expressly stated that in the event the date of payment falls on a day which is not a business day in the Bank (as determined by the Bank in this regard) such payment date will be deferred until the banking business day next following.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

b. REPAYMENT OF THE LOAN
1. [_] PAYMENT BY SEPARATING THE PRINCIPAL FROM THE INTEREST ON THE LOAN*:
a) THE PRINCIPAL OF THE LOAN WILL BE REPAID by us as detailed below and marked with an X:

[_] by a single payment on the ____ day of ___________

OR -

[X] in a total of 32 consecutive installments which will be paid every 3 months on the 31 day of each Gregorian calendar month in which the payment of the principal of the Loan mentioned will occur commencing the 31 day of DECEMBER, 2005 and terminating on the 31 day of DECEMBER 2012.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

b) INTEREST* WILL BE PAID by us on the date set out below as marked with an X:

[_] in a single payment on the ____ day of

OR -

_________________

[_] on the repayment dates of the principal of the Loan as detailed in sub-paragraph (a) above and marked with an X.

OR -

* The interest rate will be specified in paragraph (c) below.

[X] in a total of 32 consecutive installments which will be paid every 3 months on the 31 day of each Gregorian calendar month in which the payment of the interest of the Loan mentioned will occur commencing the 31 day of MARCH, 2005 and terminating on the 31 day of DECEMBER, 2012.

OR -

______ months on the ___ of each Gregorian calendar month in which payment of such interest on the Loan will be paid - commencing the ____ day of __________________ and terminating on the ____ day of __________________. During the period which will commence on the date of receipt of the Loan and terminate on the first date prescribed for the payment thereof (hereinafter: "the Grace Period"), no payment is required to be paid on account of the outstanding balance of the Loan and/or on account of the interest that has accrued on the Loan except where any of the events enumerated in clause 14 hereof has occurred.

For the avoidance of any doubt it is hereby expressly emphasized and declared that during the Grace Period, the interest on the Loan will be posted once every ____ months to the Proceeds Account, and similarly bear interest according to the terms of the Loan. On the first date prescribed for the payment thereof, the balance of the interest posted and which has accrued in the Proceeds Account as stated (according to the calculation and records of the Bank) will be compounded with the principal of the Loan and similarly be called in all respects "the Loan Principal". As from such date onwards the interest will be calculated, repaid and paid by us on the dates prescribed for the payment thereof as set out above.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

1. [_] Repayment of the principal and interest* using the "Spitzer method" tables:
[_] the Loan Principal and the interest will be repaid in _________________ equal consecutive installments in the sum of ______________ in the currency of the Loan each which include payment of both the principal of the Loan and the interest in respect thereof.

The above payments will fall every _________________ months on the ____ of each Gregorian calendar month commencing the ____ day of _________________ and terminating the ____ day of _________________.

or -

[_] payment of the Loan Principal and the interest in respect thereof will commence on the ____ day of __________________ (namely ____ months after the date of receiving the Loan). During the period which will commence on the date of receipt of the Loan and terminate on the first date prescribed for the payment thereof (hereinafter: "the Grace Period"), no payment is required to be paid on account of the outstanding balance of the Loan and/or on account of the interest that has accrued on the Loan except where any of the events enumerated in clause 14 hereof has occurred.

For the avoidance of any doubt it is hereby expressly emphasized and declared that during the Grace Period, the interest on the Loan will be posted once every ____ months to the Proceeds Account, and similarly bear interest according to the terms of the Loan. On the first date prescribed for the payment thereof, the balance of the interest posted and which has accrued in the Proceeds Account as stated (according to the calculation and records of the Bank) will be compounded with the principal of the Loan and similarly be called in all respects "the Loan Principal". As from such date onwards, the Principal of the Loan and the interest (which will be calculated as stated in sub-paragraph (c) hereof) will be repaid in ____ equal,

consecutive installments in the sum of ___________ (________________________) in the currency of the Loan each - comprising payment of Principal of the Loan and the interest in respect thereof. The above installments will be paid every ____ months on the ____ of each Gregorian calendar month in which payment of the Principal of the Loan and such interest will fall - commencing the ____ day of _________________ and terminating on the ____ day of _________________.

SIGNATURE OF THE CUSTOMER (INITIALS) ___________

or -

[_] The repayment of the Loan will be as follows:

a) The interest will be paid by us over _________________ months in _________________ consecutive installments. These installments will be payable monthly on the _________________ of each Gregorian calendar month commencing the ____ day of _________________ and terminating the ____ day of _________________.

b) The Principal of the Loan and the interest, using the Spitzer method tables, will be repaid in _________________ equal consecutive installments in the sum of NIS. _____________ each. These payments will fall monthly on the _________________ of each Gregorian calendar month.

SIGNATURE OF THE CUSTOMER (INITIALS) ___________

c. INTEREST
1. The interest rate on the Loan will be as stated below and marked with an X (hereinbefore and hereinafter: "the

interest")

[_] Fixed interest at the rate of ____ % per annum (the nominal interest rate) which is equal, using the annual adjusted interest computation to ____% per annum.

or -

[_] Variable interest at 2%, above the LIBOR rate (as hereinafter defined) calculated and adjusted annually as set out below:-

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

1. COMPUTATION AND PAYMENT OF THE INTEREST:
a) CALCULATION OF THE INTEREST

The interest will be computed on a daily basis in respect of the period commencing from the date of receipt of the Loan until the full and actual payment thereof based on a 360 day year.

b) MANNER OF DETERMINING THE LIBOR RATE

The Bank will determine the LIBOR interest rate in respect of each interest period 2 banking business days prior to the commencement of each respective interest period and each LIBOR interest rate determined by the Bank will apply in respect of the period commencing at the beginning of the respective interest period and continue until the expiration thereof. In this

connection, it is emphasized and stated that any change in the LIBOR rate will lead to a corresponding change in the interest rate on the Loan, according to the rate of the change of the LIBOR interest as compared with the rate thereof prior to the change, as calculated by the Bank.

2) DEFINITIONS

In this sub-paragraph (b) the following expressions shall bear the meanings set out opposite them:-

(a) "THE LONDON INTERBANK OFFERED RATE (LIBOR) means the

interest rate determined by the Bank, having regard to the highest interest rate at which Interbank deposits and/or loans in foreign currency are offered in the London Euromarket in a tenor comparable to the interest period as quoted on or about 11.00 a.m. (London time) and published by Reuters Information Service, and, in the absence of such publication by Reuters, the LIBOR rate will be that determined by the Bank having regard to the LIBOR rate, quoted and published by such other information service or entity as will, in the opinion of the Bank, be an appropriate substitute for the Reuters publication. In the absence of such quotation and publication with respect to the LIBOR interest rate, the Bank's own determinations shall be in substitution therefor with respect to all the foregoing matters and will be absolute and final in all respects.

With respect to a Loan linked to a basket of currencies the LIBOR rate shall mean such rate as expresses the weighted average of the LIBOR interest rates (that will be fixed by the Bank as mentioned above) of each of the foreign currencies comprising the basket of currencies based on the number of units of each of the currencies therein according to the Bank's own conclusive calculation and

determinations.

(b) "INTEREST PERIOD" means a period of _________________ months commencing the date of the receipt of the Loan with each interest period commencing upon the expiration of the preceding interest period.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

(c) "MONTH" means a period commencing on a particular day in any Gregorian calendar month and terminating on the corresponding day of the next succeeding Gregorian calendar month.

"MONTHS" mean a period commencing on a particular day in any Gregorian calendar month and expiring on the corresponding day of the Gregorian calendar month in which the respective interest period expires.

In this connection it is expressly stated and emphasized that if the corresponding day falls on a day which is not a banking business day, the interest period will expire on the first succeeding banking business day thereafter.

If there is no corresponding day in the Gregorian month in which the interest period expires, the interest period will expire on the last banking business day in such Gregorian calendar month.

(d) "BANKING BUSINESS DAY" means a day on which banks in London effect transactions between them in deposits and/or loans in foreign currency in the Interbank

Euromarket in London.

Without derogating from the generality of that stated in sub-paragraph (1) above, we are aware and agree that the current rate of the variable interest is _____% per annum (being the nominal interest rate) which is equal, when using the annual adjusted interest calculation, to _____% per annum.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

d. ARREARS INTEREST

1. Any amount due or becoming due to the Bank hereunder which is not paid by us on the date prescribed for the payment thereof hereunder or which remains unpaid to the Bank following the Bank's first demand, will bear interest on arrears at such variable rate (hereinafter: "ARREARS INTEREST") in respect of the period commencing on the date on which we were due to pay the same until the date of the actual payment thereof, the arrears interest to be calculated on a daily basis in a manner corresponding to the provisions of sub-paragraph (c)(2)(a) above, in accordance with the procedures of the Bank, and be subject to the provisions of any law, the arrears interest to be at the highest rate charged by the Bank from time to time on unauthorized overdrafts in current overdraft accounts in the currency of the Loan, or at the highest rate prevailing in the Bank from time to time on unauthorized overdrafts in current overdraft accounts, according to the currency in which the Proceeds Account is maintained, if it is maintained in a currency other than that of the currency of the Loan.
1. For the avoidance of doubt it is hereby stated that neither the Bank's right to arrears interest nor the actual recovery thereof will derogate, suspend or prejudice any remedy

and/or relief available to the Bank hereunder or by law or the Bank's right to take any measures at any time whatsoever in order to collect any sum unpaid by us on due date or from continuing to take such steps.

5. COMMISSIONS AND OTHER PAYMENTS

a. We hereby undertake to bear the expense of and pay the Bank all costs, charges, commissions (including, but without derogating from the generality of the foregoing, the stamp duty hereof and all penalties in respect of late payment and non-payment of stamp duty on due date) and the commissions relating to the signature and issuance of this instrument and the implementation of the Loan hereunder, pursuant to the procedures customary in the Bank and in accordance with any variation applicable therein from time to time (hereinafter: "COSTS AND COMMISSIONS") including (but without diminishing) we shall pay you also a handling fee and collection charge on the dates and in the amounts set out below:
1. On the date of the receipt of the Loan we will pay you a handling fee
a) [_] equal to ___% (_______________ per centum) of the Loan, save that the amount of the handling fee will in no case be less than the minimum amount of the handling fee prescribed from time to time in the Bank's list of charges as appearing in the branches of the Bank. The current rate of the minimum handling fee in the Bank amounts to __________
OR -

b) [_] in the sum of NIS. (EXEMPT) (________________________)

On any date prescribed in this instrument for making any repayment of the Loan, we will pay you in respect of such payment a collection charge in the sum of NIS. 4.60

And also a commission for "RECORDING A TRANSACTION IN THE ACCOUNT", as prescribed from time to time in the Bank's list of charges, which is available in the branches of the Bank. The rate of the commission for recording a transaction in the account as currently existing in the Bank is the amount of NIS 1.21.

We instruct the Bank to debit the Current Account with the amount of the costs and commissions on the date prescribed for the installments according to the conditions hereof, and undertake to ensure that there will be at such time a sufficient credit balance in the Current Account for effecting such debits. The Bank will be entitled to debit any account now or hereafter maintained in our name and/or in the name of any of us, with the amounts that will be required to discharge such costs and commissions, and, to the extent necessary, convert the payment into the currency of the Loan, according to the procedures of the Bank in this regard, according to the selling rate of the currency of the Loan customary in the Bank and prevailing at such time. The Bank will be entitled to debit the Current Account whether it is in credit or overdrawn, or becomes overdrawn as a result of such debit. Where the Account is overdrawn, the amount of the debit will bear interest in accordance with the conditions of the Current Account.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

b. Without prejudice to the generality of sub-paragraph (a) above, we are aware and agree that the Bank may vary the rate of the collection charge mentioned in sub-paragraph (a)(2) above provided notice to that effect will be sent to us by the Bank two weeks prior to the date of the variation.

c. In the event of any payments of any kind that we owe or will owe to the Bank under the terms hereof will be paid to or collected by the Bank (whether it is collected from us, from any third party or as a result of the realization of collateral or any of them) on a date which is not the respective date of the payment prescribed for that payment hereunder (whatever the reason, including by way of accelerating all or any part of the Loan), we will then pay to the Bank, immediately upon its first demand, such sum or sums as will compensate and indemnify the Bank for any loss or damage that will be incurred by the Bank as a result of making such payment (in respect of interest differentials until the expiration of the relevant interest period) on the date being other than that prescribed herein, as determined by the Bank.

6. EFFECTIVE COST

(TO BE COMPLETED WHERE THE AMOUNT OF THE LOAN TO AN INDIVIDUAL DOES NOT

EXCEED NIS. 500,000 AND THE AMOUNT OF THE LOAN THAT IS GRANTED TO PURCHASE

OR PLEDGE A RESIDENTIAL APARTMENT, DOES NOT EXCEED NIS 1,000,000).

We are aware and agree that THE EFFECTIVE COST RATE of the Loan is ____% per annum.

SIGNATURE OF THE CUSTOMER (INITIALS)

7. MANNER OF REPAYING THE LOAN

The Loan will be repaid by way of debiting the Proceeds Account, as set out below: Mark x where appropriate:.

a) [_] We request that payment of the Principal of the Loan, and payment of the interest thereon be separated as below, and for such purpose please open in our name:
1. A special proceeds account for repaying the Principal of the Loan ("THE PROCEEDS ACCOUNT (PRINCIPAL)").

and

A special proceeds account for paying the interest on the Loan ("THE PROCEEDS ACCOUNT (INTEREST)").

The Proceeds Account (Principal) and the Proceeds Account (Interest), will be jointly and severally called in this document "(the) Proceeds Account".

or -
b) [_] For the purpose of repaying the Loan please open in our name a special proceeds account (in this document called "the Proceeds Account") that will be operated in accordance with the terms hereof, in Israeli currency / foreign currency*.
1. We hereby instruct the Bank to debit THE PROCEEDS ACCOUNT (as appropriate and as marked above) on the payment date of each installment or of any sum becoming due from us to the Bank under this instrument (hereinafter: "(THE) PAYMENT/S") except for the payment of the costs and commissions set out in sub-paragraph 5(a) above, with the amount required to discharge such installment and convert the payment into the currency of the Loan, and hereby undertake to ensure that there will be a sufficient balance standing to our credit in the Proceeds Account at that time in order to effect the foregoing debits - save that nothing in the foregoing shall derogate from our obligation to discharge any debit balance resulting, if and to the extent it results, in the Proceeds Account, together with arrears interest and all charges incidental to the foregoing.

* Delete as appropriate.

Any amount received in the Bank to the credit of the Proceeds Account will be applied in repayment of the payments according to the following order: in payment of the interest and only thereafter, in discharging the principal of the Loan - or according to such other order as will be determined by the Bank.

1. With respect to repayment by way of debiting the Proceeds Account, it is hereby expressly stated and declared that:
a) Where the alternative has been chosen of debiting a Proceeds Account in the currency of the Loan, we are aware that the debit balance that will accrue in such Proceeds Account (together with arrears interest as mentioned in paragraph 4(d) above and any charges incidental to all of the foregoing), will at all times be in the currency of the Loan.
b) Where the alternative has been chosen of debiting a Proceeds Account in Israeli currency, we are aware and hereby instruct the Bank to convert the payment into Israeli currency on the date of debiting such Proceeds Account with any payment, according to the procedures of the Bank in this regard, at the selling rate of the currency of the Loan that will be customary in the Bank on the date the conversion is made, plus such commissions and/or levies as will be customary at that time. Any credit balance that will accrue in the Proceeds Account (together with arrears interest as

stated in paragraph 4(d) above and/or charges incidental to all the foregoing) will at all times be in Israeli currency.

c) The Bank will be entitled, at any time, to debit any account that is and/or will be maintained in our name and/or in the name of any us with the amounts required to discharge any debit balance created in the Proceeds Account, or any part thereof and convert to the extent necessary the payment into Israeli currency according to the procedures of the Bank in this regard, according to the selling rate of the currency of the Loan that will be customary in the Bank on the date of making the conversion, plus commissions and levies as will be customary at that time.
d) The debiting of any account/s with the debit balance amounts mentioned in sub-paragraph (1) above will not be deemed to be payment unless such account/s hold credit balances sufficient to fully cover such payment/s.
e) The Bank will be entitled to cancel any debit or any part thereof without sufficient cover as mentioned and redebit the Proceeds Account therewith and/or treat the same as an amount which was not paid on the date prescribed for the payment thereof according to the conditions hereof. Where the Bank has elected to leave the debit in the Current Account, such debit will bear interest on the conditions and at the rate that apply to the Account.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

8. ADDITIONAL COSTS AS A RESULT OF CHANGES IN THE LAW

any such law or directives, procedures or instructions or in the event of new procedures or requirements of any kind being directed to the Bank, directly or indirectly, or to any bodies in the control of the Bank, by the State of Israel or the Ministry of Finance or the Bank of Israel or any competent authority in Israel or abroad, as a result of which:

9

The Bank's costs (whether direct or indirect) will increase, in connection with the grant of the Loan or continuing to maintain or grant the Loan will increase, as determined by the Bank, including, without derogating from the generality of the foregoing, in connection with the financing thereof or the collateral that have been or will be given to secure the same;

and/or

In the opinion of the Bank, and at its determination, there will be restrictions or more severe requirements for making financial provisions or there will be imposed upon the Bank taxes, levies, penalties and payments of interest or any other payments in connection with the grant of the Loan or continuing to maintain or grant the Loan, including, but without derogating from the generality of the foregoing, payments in connection with the financing of the Loan or the collateral that have been or will be given to secure the same ("COMPULSORY PAYMENTS") including new or additional obligatory payments;

and/or

Restrictions or liquidity requirements will be imposed on the Bank or become more severe or stricter requirements made in connection with liquid assets, including, without derogating from the generality of the foregoing, with respect to assets and/or deposits that the Bank is required to hold in connection with the grant of the Loan or continuing to maintain or grant the same;

and/or

The Bank will become liable to deduct tax at source on the interest in respect of the Loan or on the Bank's financial sources or, inter alia, for financing the Loan;

and/or

1. An adverse change occurs in the rate of return on the Bank's equity capital compared with the rate it was expected to obtain on the date of the signature hereof;
b. Then, and upon the occurrence of any of the cases set out in sub-paragraph (a) above, we undertake to pay the Bank, from time to time, and upon the Bank's first demand, such additional sums at such rate as will, in the opinion of the Bank, indemnify or compensate the Bank, including, but without derogating from the generality of the foregoing, in respect of any additional or new costs, liabilities and expenses or losses and damages, as stated in sub-paragraph (a) above, this being in addition to and without prejudice to our right to prepay the Loan, in accordance with its terms. For the avoidance of any doubt it is clarified that we will bear the payments mentioned above even if we elect to exercise our right to prepay the Loan as aforesaid.
c. For the avoidance of any doubt it is clarified that all payments will be paid by us to the Bank free and clear of any tax, deduction, levy or compulsory payment, and without set off. In the event of our being required to deduct or pay tax in respect of any payment that is due to the Bank in accordance with the present Application, the amount of the payment to the Bank will be increased so as to ensure that even after making such deduction, the Bank will be left with the net amount required to discharge such payment.

9. CHANGES IN MARKET CONDITIONS

a. If, at the discretion of the Bank, and in accordance with its determination, there will be no reasonable possibility of determining the interest rate, for any reason, or any adverse change occurs in the conditions of the Interbank Market with respect to trading in the currency of the Loan, or the Bank will have no reasonable possibility to raise sources of finance in the currency of the Loan in the ordinary course of its business, or it will have no possibility of raising sufficient sources of financing and/or the sources of the financing or the Bank's cost of raising the money will increase, the Bank will be entitled to vary the terms of the Loan in connection with continuing to grant the Loan, including, without derogating from the generality of the foregoing, in regard to determining the interest rate, the interest payment dates, the basis for calculating the interest or substituting the currency of the Loan by another, and like terms, all as will be customary in and acceptable to the Bank at such time, or to call for the early repayment of the entire outstanding balance of the Loan, all as determined by the Bank and subject as provided in sub-paragraph (b) below.
b. If the Bank decides to exercise its right under sub-paragraph (a) above to vary the terms of the Loan, the Bank will send us 14 days prior notice regarding the change of the terms and the date of their entering into effect.
c. 1) If the Bank decides to call for repayment of the Loan as mentioned in paragraphs 8, 9 and 10 hereof, 14 days' prior notice in writing to that effect will be sent to us by the Bank.
1. Such acceleration (early repayment) will be subject to the conditions set out in paragraph 12 hereof.

10. ILLEGALITY

a. If, at any time, and according to the determination of the Bank, a change occurs in any law or the directives or procedures or instructions mentioned in paragraph 8 above, in a manner whereby the granting of the Loan to us or continuing to maintain or grant the same will become illegal or impracticable for the Bank, the Bank will be entitled to refuse to grant us the Loan, in whole or in part, and in the event of the Loan or any part thereof having already been granted, the Bank will be entitled to demand the early repayment of the outstanding balance of the Loan.
b. In the event of any requirement for such early repayment, we undertake to pay the Bank, within 30 days of the date of its first written demand given in accordance with the terms of this paragraph, the full amount of the outstanding balance of the Loan. For the avoidance of any doubt it is clarified that such early repayment will be subject to the conditions set out in paragraph 12 hereof.

11. COLLATERAL TO REPAY THE LOAN

All the collateral and securities of whatsoever kind and type which have been or will be given, from time to time, to the Bank by us or by any third party on our behalf will serve as security for the full and punctual repayment of all the sums due and becoming due from us to the Bank in connection with the Loan and under this instrument. We will furnish the Bank, upon demand, additional collateral and securities to the satisfaction of the Bank if, at the discretion of the Bank, and at any time, and from time to time, the collateral and security given to it as above will be insufficient to secure our undertakings hereunder. Such collateral and securities will be continuing securities, independent of one another.

12. PREPAYMENT

We will be entitled to prepay, at any time, the full undischarged balance of the Loan (or part thereof), on the conditions set out in the explanatory sheet received by us from the Bank in connection with prepayment, and subject to the satisfactory fulfilment of all the following conditions:

a) No event will have occurred that constitutes a ground for accelerating the Loan according to the documentation that has been or will be signed by us in favour of the Bank;
b) The Bank will have received prior notice in writing from us regarding our intention to prepay, such notice to specify the amount we wish to prepay, the notice to be given to the Bank in a manner and upon the conditions set out in the aforementioned explanatory sheet;
c) We will furnish to the Bank prior to prepayment in the event of prior approval from the Bank of Israel or any other competent authority being required as a condition for effecting prepayment in accordance with our request as set out above.
1. If, in the opinion of the Bank, as a result of such prepayment, the preparation of a new or other repayment schedule for the Loan will be necessary, then and in those circumstances you will furnish us with such new or other repayment schedule, and we will repay the Loan in accordance therewith.

14. ACCELERATION OF THE LOAN

The Bank will be entitled, upon the occurrence of any one of the events set out below, and in addition to but without derogating from anything stated in any agreement and/or document which has been or will be signed by us to the Bank in the future, to demand the immediate repayment of the full outstanding balance of the Loan or any part thereof together with the interest and costs and commission that have accrued until such time and which have not been discharged and we will be liable to pay the Bank the

amounts specified in the Bank's demand on the date therein specified, the following being the events in question:

a. If a receivership order is granted against the customers or if the customers have passed a winding-up resolution or have requested a receivership order against them or a winding-up order has been made against them or if they have reached a compromise or settlement with all or any of their creditors or a petition is presented for the granting of such orders or if a stay of proceedings order is granted in relation to the customers or a petition presented for the grant of such an order.
b. If we fail to pay the Bank any payment on the date prescribed for the payment thereof or in accordance with the Bank's first demand, or if such non-payment is anticipated in the opinion of the Bank.
c. If we commit a breach of any of our undertakings towards the Bank or such a breach is anticipated in the opinion of the Bank.
d. If any event or situation occurs which gives cause for accelerated repayment according to the conditions of any undertaking or agreement or document made or signed by us under which we are or may be committed towards the Bank or any third party.

12

e. If, in the opinion of the Bank, the collateral and securities that have been granted to you as set out in paragraph 11 above are insufficient to secure all the monies which are or will become due to you from us hereunder and/or by reason of any cause, document, agreement or other commitment or if any event or situation has occurred which could affect the Bank's prospects of being repaid out of the foregoing securities and collateral - all at the discretion of and as determined exclusively by, the Bank.

/If a receiving order is granted against the Customers or if the Customers adopt a winding-up resolution or seek a receiving order against them or a winding-up order is issued against them or if they reach a compromise or arrangement with their creditors or any of them, or if a petition is presented to grant any of the foregoing orders or if a stay of proceedings order is granted in relation to them or petition filed for granting such an order.

15. BUSINESS DAYS

We are aware that if the Loan Principal or any of the installments or prepayment of the Loan occurs on the Sabbath or on Sunday, or on a day on which the Bank does not transact business in foreign currency, such payment will be made on the first succeeding business day as determined by the Bank.

16. JURISDICTION AND PROPER LAW

a. This document will be construed in accordance with and pursuant to the laws of the State of Israel.
b. (1) The exclusive jurisdiction so far as territorial jurisdiction is concerned is hereby agreed between the parties as being vested solely in accordance with the following, in accordance with the election of the plaintiff:-
a. Actions which, according to their subject matter and substance must be dealt with by a District Court - will be dealt with by one of the following courts, as elected by the plaintiff:
1. the District Court in whose jurisdiction the branch in which the Account (of the customer) to which such action relates is maintained;
OR -

2) The Tel Aviv District Court.

b. Actions which, according to their subject matter and substance must be dealt with by a Magistrates Court - will be dealt with by one of the following courts, as elected by the plaintiff:
1. The Magistrates Court situated in the jurisdiction of the District Court in whose jurisdiction the branch in which the Account (of the customer) to which such action relates is maintained, or the Magistrates Court nearest to such branch;
OR -
1. The Tel Aviv Magistrates Court.
(2) In instances where the action concerned relates to a number of accounts maintained in different branches for the customer - the jurisdiction will be as elected by the plaintiff in accordance with the possibilities set out in sub-paragraphs (1) (a) or (b) above (including all the options thereof).

c. Nothing in the foregoing shall derogate from the right of the winning party to conduct execution proceedings in any area which is consistent with the provisions of the Execution Law.
1. GENERAL
a. For the avoidance of any doubt the Bank will be entitled to make any technical or operational change in the manner of operating the Account

or the Proceeds Account or the Loan Account or in the numbers thereof, provided that this will not serve to detract from the terms of the Loan.

b. A waiver by the Bank in our favour of any prior breach or non-performance of one or more of the conditions hereof will not be deemed to be as any justification or pretext for a further breach or non-performance of any of the conditions hereof, and the forbearance by the Bank of the exercise of any such right granted to it hereunder or under any of the collateral or security documents or by law will not be construed as a waiver of such right, and any other waiver, compromise or arrangement with the Bank will only be binding on the Bank if it is made in writing.
c. The Bank may transfer and assign its rights hereunder. We shall not be entitled to transfer and assign our rights and/or obligations hereunder.
d. The headings to the paragraphs herein are for purposes of reference and do not form part hereof nor do they have any meaning with regard to the interpretation of this instrument and any of the provisions thereof.
e. If this document has been signed by two or more persons, the provisions contained therein shall be binding upon them jointly and severally.
f. References herein to the plural shall include the singular and vice-versa; and everything stated herein in the masculine gender, shall also apply to the feminine gender and vice-versa.
g. Our signature hereto constitutes an acknowledge by us of the receipt thereof.

IN WITNESS WHEREOF THE PARTIES HAVE SET THEIR HANDS:

principal	principal repayment:
Manner of paying	: interest	Interest payment	: 3
interest	frequency	frequency :
Interest rate	: 4.5600%	LIBOR interest	: 2.5600 Margin %	0000

Next interest variation : 31/03/2005		Interest variation	: 3
	frequency
Adjusted interest	:4.6386%	Loan term:	: 96 months

| | | |

Date	Principal	Interest	Installment amount	New balance
- ----	---------	--------	-----------------------------

31/12/2004			8,500,000.00
31/03/2005	265,625.00	96,900.00	362,525.00	8,234,375.00
30/06/2005	265,625.00	94,914.90	360,539.90	7,968,780.00
30/09/2005	265,625.00	92,862.50	358,487.50	7,703,125.00
31/12/2005	265,625.00	89,767.08	355,392.08	7,437,500.00
31/03/2006	265,625.00	84,787.50	350,412.50	7,171,875.00
30/06/2006	265,625.00	82,667.81	348,292.81	6,906,250.00
30/09/2006	265,625.00	80,480.83	346,105.83	6,640,625.00
31/12/2006	265,625.00	77,385.42	343,010.42	6,375,000.00
31/03/2007	265,625.00	72,675.00	338,300.00	6,109,375.00
30/06/2007	265,625.00	70,420.73	336,048.73	5,843,750.00
30/09/2007	265,625.00	68,099.17	333,724.17	5,578,125.00
31/12/2007	265,625.00	65,003.76	330,628.75	5,312,500.00
31/03/2008	265,625.00	61,235.42	326,860.42	5,046,875.00
30/06/2008	265,625.00	58,173.65	323,798.65	4,781,250.00
30/09/2008	265,625.00	55,717.50	321,342.50	4,515,625.00
31/12/2008	265,625.00	52,622.08	318,247.08	4,250,000.00
31/03/2009	265,625.00	48,450.00	314,075.00	3,984,375.00
30/06/2009	265,625.00	45,926.56	311,551.56	3,718,750,00
30/09/2009	265,625.00	43,335.83	308,960.83	3,453,125.00

31/12/2009	265,625.00	40,240.42	305,865.42	3,187,500,00
31/03/2010	265,625.00	36,337.50	301,962.60	2,921,875.00
30/06/2010	265,625.00	33,679.48	299,304.48	2,656,250.00
30/09/2010	265,625.00	30,954.17	296,579.17	2,390,625.00
31/12/2010	265,625.00	27,858.75	293,483.75	2,128,000.00
31/03/2011	265,625.00	24,225.00	289,850.00	1,859,375.00
30/06/2011	265,625.00	21,432.40	287,057.40	1,593,750.00
30/09/2011	265,625.00	18,572.50	284,197.50	1,328,125.00
31/12/2011	265,625.00	15,477.08	281,102.08	1,062,500.00
31/03/2012	265,625.00	12,247.08	277,872.08	796,875.00
30/06/2012	265,625.00	9,185.31	274,810.31	531,250,00
30/09/2012	265,625.00	6,190.83	271,815.83	265,625.00
31/12/2012	265,625.00	3,095.42	268,720.42	0.00
Total	8,500,000.00	1,620,921.67	10,120,921.67

</TABLE>

On each principal payment date, a collection charge will be made of NIS. 4.60 Collection fees according to the representative rate of exchange of 4.308000 US$ 1.07

This commission will vary from time to time as publicized by the Bank. Exempt from documentation commission

EX-2.13 5 exhibit_2-13.txt

EXHIBIT 2.13

[UNOFFICIAL TRANSLATION FROM ORIGINAL HEBREW]

Account No./Nos. 70666

			I.D. Card no.
Customer's Name		Address & Area code	Telephone no.	/Corp.Reg.no
- ---------------	-------------------	-------------	------------
Hi-Tex (founded by Tefron) Ltd.

| | 517489816 | || BANK HAPOALIM B.M. | | | | | | Bnei Brak Branch. | | | Date: 31.12.04 | | | Dear Sirs, | | | | | | Re: REQUEST TO ALLOCATE A CREDIT - FURTHER TO MY LETTER OF UNDERTAKING FOR | | | | | | CREDIT IN FOREIGN CURRENCY / APPLICATION TO OPEN AN ACCOUNT AND GENERAL | | | | | | CONDITIONS FOR OPERATING AN ACCOUNT INCLUDING THE AMENDMENT(S) THERETO, | | | | | | SIGNED BY ME ON THE __________________ DAY OF _____________ ______ (HEREINAFTER: "THE ABOVE CONDITIONS") - -------------------------------------------------------------------------------- | | | | | I hereby request that you provide me in my foreign currency account with you No. 70666, (hereinafter: "the Account") with Credit in U.S. DOLLARS currency (hereinafter: "the Currency of the Credit") in the amount of 5,300,000 (FIVE MILLION, THREE HUNDRED THOUSAND U.S. DOLLARS) (hereinafter - "the Credit").

THE PROVISION OF THE CREDIT TO THE ACCOUNT SHALL BE TREATED BY ME AS YOUR AGREEMENT FOR THE GRANTING OF THE CREDIT IN ACCORDANCE WITH THE ABOVE CONDITIONS

AND THE SPECIAL CONDITIONS SET FORTH BELOW.

	1. DATE OF PROVISION OF THE CREDIT __________________
--	-------------------------------------------------------	--

2. PURPOSE OF THE CREDIT AND INSTRUCTIONS FOR DISPOSAL THEREOF

2.1 The Credit is being granted:
[_] for valid and lawful corporate purposes (mark x as applicable to corporate customers only).
[_] the financing of the cost of goods imported to Israel by me.

[_] ____________________________________ and I hereby undertake to use the Credit for that purpose only.

2.2 I HEREBY IRREVOCABLY INSTRUCT AND AUTHORIZE YOU TO DEBIT THE ACCOUNT

WITH THE AMOUNT OF THE CREDIT.

[_] and to pay the countervalue to

____________________________________

[_] by __________________________________________________________

[_] to convert the countervalue of the Credit to Israeli currency according to the exchange rate to be fixed by yourselves on the date of conversion and credit the countervalue in Israeli currency to my account no. __________________ in the ______________ branch of Bank Hapoalim

[_] ______________________________________________________

3. TERMS FOR REPAYMENT OF THE CREDIT

I undertake to repay the Credit in the Currency of the Credit as follows:

[_] in one lump sum due and payable on __________________

in 32 monthly/QUARTERLY/semi-annual/___________ */ installments, commencing on 31.3.05 and ending on 31.12.12.
[_] each installment to be in the sum of _________________ /_________________, first installments in the sum of _________________ and the last installment in the sum of _________________ /the frequency of the installments and the amount thereof to be in accordance with that stated in Appendix "A" attached/in the payment schedule. *

4. INTEREST

4.1 [_] FIXED INTEREST RATE

4.1.1 INTEREST RATE

I shall pay interest to the Bank as calculated by the Bank from the date of provision of the Credit at the rate of ______% (__________________ per cent) per annum being adjusted annual interest at the rate of ___% per annum (hereinafter: "the Interest") on the dates specified in paragraph 4.1.2 below.

4.1.2 INTEREST PAYMENT DATES

The Interest (excluding Default Interest) shall be paid by me to the Bank in the Currency of the Credit as follows:

a.[_] in one lump sum on __________________________________.

b.[_] in advance by deducting the Interest from the Credit.

c.[_] at the end of each monthly/quarterly/semi-annual ______* period (hereinafter: "Interest Period") with the Interest being calculated on the balance of the Credit outstanding

from time to time from the commencement of the current Interest Period up to the end of the respective Interest Period.

d.[_]

1. On the date prescribed for payment of any sum on account of the Credit, Interest will be paid on such sum at the interest rate as from the beginning of the respective Interest Period (as hereinafter defined) until the repayment date prescribed for such payment of Credit;
1. at the end of each monthly/quarterly/semi-annual ______* period (hereinafter: "Interest Period") with the Interest being calculated on the balance of the Credit outstanding from time to time from the commencement of the current Interest Period up to the end of the respective Interest Period.

2

The Interest payable on the balance of the Credit outstanding will not include the Interest paid as above in respect of the installments which have fallen due during the current Interest Period.

**e.[_] From the date of the provision of the Credit until _____________, the Interest amount, calculated from time to time as provided in sub-paragraph (c) above, will be compounded with the Credit on each payment date mentioned. The Credit, after each amount of Interest has been so compounded, will bear Interest at the Interest rate and be payable commencing the ____ day of _________________ in accordance with sub-paragraph (a)/ (c) / (d)* above

respectively.

4.2 VARIABLE INTEREST

4.2.1 INTEREST RATES

a.[X] VARIABLE INTEREST

I shall pay variable interest to the Bank as calculated by the Bank from the date of the provision of the Credit, at the rate of L. +2% (L. + 2 percent) per annum above the LIBOR rate (as defined below) (hereinafter: "the Interest") which consists of, at the date of this Request, annual adjusted interest at the rate of ___%, on the dates specified in paragraph 4.2.4 below.

b.[_] VARIABLE INTEREST SUBJECT TO LIMIT

I shall pay variable interest to the Bank as calculated by the Bank from the date of the provision of the Credit at the rate of ______% (_____________per cent) per annum above the LIBOR rate as defined below (hereinafter: "the Interest") which consists, as at the date of this Request, annual adjusted interest at the rate of ___%, provided the Interest rate will not exceed ___% (________ percent) per annum consisting of annual adjusted interest at the rate of ____% (_______per cent) per annum (hereinafter: "the Maximum Interest Rate"), all according to the update periods and on the dates specified on the Maximum Interest Rate, I shall pay interest to the Bank for the respective update period to which such Determination Date (as defined below) relates only according to the Maximum Interest Rate.

4.2.2 For the purpose of determining the Interest rate from time to time applicable to the Credit the following definitions and provisions shall apply:

"LIBOR" (London Interbank Offered Rate) - means the rate of interest determined by the Bank as being the highest rate (rounded upwards to the nearest 1/8 of one percent) at which deposits in the Currency of the Credit, for a tenor equal in duration to the Update Period (as defined below) are offered to it on the Determination Date (as defined below) in the London interbank market or in any other interbank market in Europe.

"Determination Date" means with reference to any Update Period (as defined below), two business days preceding the commencement of the respective Update Period (as defined below).

3 4.2.3 UPDATE PERIODS

I hereby declare that I am aware that notwithstanding that stated in this sub-paragraph and without derogating therefrom, the first and/or last Update Period may be shorter or longer than the other Update Periods, as the Bank in its discretion may deem fit and pursuant to the conditions prescribed for repaying the Credit.

4.2.4 INTEREST PAYMENT DATES

The Interest (but not including Default Interest) shall be paid by me to the Bank in the Currency of the Credit as follows:

a.[_] In one lump sum on __________________________________.

b.[_] at the end of each monthly/three/six 3 MONTHLY* period (hereinafter: "Interest Period") calculated on the balance of the Credit outstanding from time to time from the commencement of the current Interest Period up to the end of the respective Interest Period, according to the Interest rate fixed for the Update Period during which such Interest Period falls.

c.[_]

1. On the date prescribed for payment of any sum on account of the Credit, Interest will be paid on such sum as from the beginning of the respective Interest Period (as hereinafter defined) until the repayment date prescribed for such payment, according to the Interest rate fixed for the Update Period during which such payment falls to be paid.
1. At the end of each monthly/quarterly/semi-annual ______* period (hereinafter: "Interest Period") Interest will be paid calculated on the balance of the Credit outstanding from time to time from the commencement of the current Interest Period up to the end of the respective Interest Period, according to the Interest rate fixed for the Update Period during which such Interest Period falls. The Interest payable on the balance of the Credit outstanding will not include the Interest paid as above in respect of the installments which have fallen due during the current Interest Period.
d.[_] From the date of the provision of the Credit until _____________, the Interest amount, calculated from time to time as provided in sub-paragraph (b) above, will be compounded with the Credit on each payment date mentioned. The Credit, after each amount of Interest has been so

compounded, will bear Interest at the Interest rate mentioned in sub-paragraph 4.2.1 and be payable commencing the ____ day of _________________ in accordance with that stated in sub-paragraph (a)/(b)/(c) * above respectively.

- --------

* Delete as appropriate.

4.3 ADDITIONAL AMOUNTS

I undertake to pay to the Bank from time to time additional amounts (hereinafter: "the Additional Interest") which are calculated, as of the date of this Request, at the rate of _____% (____________ per cent) per annum (being adjusted annual interest at the rate of ____% per annum), or at any other rate to be determined by the Bank from time to time, which will, in the opinion of the Bank, compensate the Bank for any increased costs of the Credit, for whatever reason, including such increased cost to the Bank:

1. arising from any obligation under any law or agreement or otherwise, imposed on or incurred by the Bank, or from any demand made upon the Bank by the Bank of Israel or any competent or other authority and/or otherwise in Israel or abroad:
a. to hold liquid assets to any degree or in any currencies in connection with the granting or the continuation of the Credit, and/or
b. to pay and/or make provision for any payments whatsoever to the State Treasury or to the Bank of Israel or to any competent and/or other authority in connection with the granting or the continuation of the Credit, or
1. If as a result of any such obligation or demand the Bank is unable to obtain the rate of return on its overall capital which it would have been able to obtain but for its having complied with my request for the provision of the Credit.
4.4 The Additional Interest shall be paid in the Currency of the Credit, or in such other currency as will be determined for that purpose on the date prescribed for payment of the Interest as set out above, or on such other date as will be determined for such purpose under any law.
4.5 The Interest and/or the Additional Interest shall be computed on the basis of the actual number of calendar days elapsed divided by 360.

5. ALLOCATION COMMISSION

I shall pay the Bank on _________/ immediately upon receiving the Bank's demand* a one-time commission at the rate of _______% of the Credit amount (hereinafter: "Allocation Commission").

6. BUSINESS DAYS

6.1 If any payment due from me hereunder and/or if the last day of any Interest Period falls due on a day which is not a Business Day (as defined below) such payment shall be made on and/or the respective Interest Period shall be extended, as the case may be, until, the next day which is a Business Day (as defined below) and bear interest at the rate required according to paragraph 4 above, unless it would thereby be made in the next calendar month, in which case such payment will be made on the immediately preceding Business Day (as defined below).
6.2 Where any installment on account of the Credit falls due in a calendar month in which any Interest Period ends, the due date of said installment shall be deferred to the last day of said Interest Period so as to ensure that the due date for payment on account of the Credit

and the due date for payment of Interest in any such case are one and the same.

6.3 For the purposes hereof "Business Day" means a day on which banks in Tel-Aviv, London and the country in which the Currency of the Credit is legal tender are open for business. Where the basket of currencies (as set forth in the Schedule hereto) is defined as being the Currency of the Credit, the term "Business Day" shall mean a day on which the Bank of Israel publishes a representative rate for the basket of currencies (as set forth in the Schedule hereto).
1. The paragraph headings are indicative only and are not to be used in construing this Request.
1. This Request will be supplementary to the provisions contained in the Above Conditions, but in case of divergence between them, the provisions herein contained shall prevail. Subject thereto, all the terms defined herein bear the same meaning as contained in the Above Conditions.

9. SPECIAL CONDITIONS

IN WITNESS WHEREOF I HAVE SIGNED:

/S/ Hi-Tex (founded by Tefron) Ltd. /S/

SCHEDULE (In the event that the type of currency specified in the Request constitutes a basket of currencies)

I confirm that it has been brought to my knowledge that the constitution of each unit of the basket of currencies referred to in the above Request (hereinafter - "the Unit") as at the date hereof is as follows:

TYPE OF CURRENCY		CURRENCY AMOUNT
----------------	---------------

US$	US$ 0.6372
DM.	DM.0.3964
Pounds Sterling		(pound) 0.0604
French Franc	FF.0.3222
Japanese Yen		(Y) 7.0106

1. I am aware that the constitution of the Unit as detailed above is and will be the determining constitution for all intents and purposes in relation to the above Request and the above Conditions and any future change in the constitution of the basket of currencies by the Bank of Israel will affect neither the constitution of the Unit as detailed above nor the amounts which are due and/or may become due from me to the Bank.
1. The term "the Currency of the Credit" in relation to the basket of currencies means - each and every one of the currencies included in each Unit of the basket of currencies, as the case may be.
1. This Schedule constitutes an integral part of my above Request for Provision of Credit in Foreign Currency.

IN WITNESS WHEREOF I HAVE SIGNED:

12 Bank Hapoalim B.M. 01.01.05/22:57 Page: 391 22476 655 Bnei Brak Statement no. 3501999 - Repayment Schedule in respect of a Foreign Currency Loan As at: 31.12.04 Page: 5

No. 2260120

Hi-Tex (founded by Tefron) Ltd. Internal Bank Hapoalim POB No. 136 Bnei Brak 51461

RE: RE: CONFIRMATION OF THE EXECUTION AND REPAYMENT SCHEDULE OF LOAN NO.

.01230 IN BRANCH NO. 655 IN ACCOUNT NO. 70666 Amount of loan : 5,300,000.00 Type of loan : 878-0000602 Frequency of interest update : 3 m. commencing 31/12/04 Currency : 019 U.S. dollar Manner of debit : in foreign currency Loan value : 31/12/04 Loan portfolio no. : 1230 Account to be debited 655- 70666-142 Collection charges : with each paymentvariable Original Outstanding Payment on Payment/accrual payment principal current account of on account of Collection no. date balance payment amount principal interest fees - --- ---- ------- -------------- --------- -------- ---- 1 31/03/05 5,134,375.00 226,907.31 165,625.00 61,281.26 1.05 2 30/06/05 4,968,750.00 225,651.89 165,625.00 60,025.84 1.05 3 30/09/05 4,803,125.00 224,353.92 165,625.00 58,727.87 1.05 4 31/12/05 4,637,500.00 222,396.33 165,625.00 56,770.28 1.05 5 31/03/06 4,471,875.00 219,247.15 165,625.00 53,621.10 1.05 6 30/06/06 4,306,250.00 217,906.62 165,625.00 52,280.57 1.05 7 30/09/06 4,140,625.00 216,523.53 165,625.00 50,897.48 1.05 8 31/12/06 3,975,000.00 214,565.95 165,625.00 48,939.90 1.05 9 31/03/07 3,809,375.00 211,586.99 165,625.00 45,960.94 1.05 10 30/06/07 3,643,750.00 210,161.35 165,625.00 44,535.30 1.05

11	30/09/07	3,478,125.00	208,693.15	165,625.00	43,067.10	1.05
12	31/12/07	3,312,500.00	206,735.56	165,625.00	41,109.51	1.05
13	31/03/08	3,146,875.00	204,352.40	165,625.00	38,726.35	1.05
14	30/06/08	2,981,250.00	202,416.09	165,625.00	36,790.04	1.05
15	30/09/08	2,815,625.00	200,862.77	165,625.00	35,236.72	1.05
16	31/12/08	2,650,000.00	198,905.17	165,625.00	33,279.12	1.05

| | | | | |

	Amount for	No. of	Base	Nominal	Adjusted
	calculating	interest		interest interest	interest
no.	interest	days	rate	rate	rate
- ---	--------	----	--------	----

1	5,300,000.00	90	2.62500	4.62500	4.77234
2	5,134,375.00	91
3	4,968,750.00	92
4	4,803,125.00	92
5	4,637,500.00	90
6	4,471,875.00	91
7	4,306,250.00	92
8	4,140,625.00	92
9	3,975,000.00	90
10	3,809,375.00	91
11	3,643,750.00	92
12	3,478,125.00	92
13	3,312,500.00	91
14	3,146,875.00	91
15	2,981,250.00	92
16	2,815,625.00	92

12 Bank Hapoalim B.M. 01.01.05/22:57 Page: 392 22477

655 Bnei Brak Statement no. 3501999 - Repayment Schedule in respect of a Foreign Currency Loan As at: 31.12.04 Page: 2

No. 2260050

RE: CONFIRMATION OF THE EXECUTION AND REPAYMENT SCHEDULE OF LOAN NO. .01230 IN BRANCH NO. 655 IN ACCOUNT NO. 70666

Continuation of payment itemization

	Original	Outstanding		Payment on	Payment/accrual
	payment	principal	current payment	account of	on account of Collection
no.	date	balance	amount	principal	interestfees
- ---	----	-------	---------------	--------	----

17	31/03/09	2,484,375.00	196,266.68	165,625.00	30,640.63	1.05
18	30/06/09	2,318,750.00	194,670.81	165,625.00	29,044.76	1.05
19	30/09/09	2,153,125.00	193,032.39	165,625.00	27,406.34	1.05
20	31/12/09	1,987,500.00	191,074.79	165,625.00	25,448.74	1.05
21	31/03/10	1,821,875.00	188,606.52	165,625.00	22,980.47	1.05
22	30/06/10	1,656,250.00	186,925.54	165,625.00	21,299.49	1.05
23	30/09/10	1,490,625.00	185,202.01	165,625.00	19,575.96	1.05
24	31/12/10	1,325,000.00	183,244.41	165,625.00	17,618.36	1.05
25	31/03/11	1,159,375.00	180,946.37	165,625.00	15,320.32	1.05
26	30/06/11	993,750.00	179,180.28	165,625.00	13,554.23	1.05
27	30/09/11	828,125.00	177,371.63	165,625.00	11,745.58	1.05
28	31/12/11	662,500.00	175,414.03	165,625.00	9,787.98	1.05
29	31/03/12	496,875.00	173,371.32	165,625.00	7,745.27	1.05
30	30/06/12	331,250.00	171,435.00	165,625.00	5,808.95	1.05
31	30/09/12	165,625.00	169,541.25	165,625.00	3,915.20	1.05
32	31/12/12	0.00	167,583.65	165,625.00	1,957.60	1.05
	Total payment		6,325,132.86	5,300,000.00	1,025,099.26	33.60

	Amount for	No. of	Base	Nominal	Adjusted
	calculating	interest		interest interest	interest
no.	interest	days	rate	rate	rate
- ---	--------	----	--------	----

17	2,650,000.00	90	2.62500	4.62500	4.77234
18	2,484,375.00	91
19	2,318,750.00	92
20	2,153,125.00	92
21	1,987,500.00	90
22	1,821,875.00	91
23	1,656,250.00	92
24	1,490,625.00	92
25	1,325,000.00	90
26	1,159,375.00	91
27	993,750.00	92
28	828,125.00	92
29	662,500.00	91
30	496,875.00	91
31	331,250.00	92
32	165,625.00	92

Total payment

Continued on next page

12 Bank Hapoalim B.M. 01.01.05/22:57 Page: 393 22478 655 Bnei Brak Statement no. 3501999 - Repayment Schedule in respect of a Foreign Currency Loan As at: 31.12.04 Page: 3

No. 2260050

RE: RE: CONFIRMATION OF THE EXECUTION AND REPAYMENT SCHEDULE OF LOAN NO. 01230

IN BRANCH NO. 655 IN ACCOUNT NO. 70666

Notes: Changes may occur in the payment days pursuant to the business days in Israel and abroad.
Changes in principal and/or interest payment dates or interest update dates or in the date for compounding interest with principal, which fall on a day not being a Business Day, will entail a change in the dates appearing in the repayments schedule overall (except for the last installment) in order to maintain symmetrical periods.
Changes may occur in the interest amounts pursuant to changes in the payment dates.
The loan is at a variable interest rate the interest amounts for ensuing periods, as appearing above, are calculated according to the LIBOR rate known on the loan value date. On the interest update dates, changes may occur in accordance with the Loan Agreement.
The interest rate is based on LIBOR for three months.
Interest rate: LIBOR + 2.0000%.
Changes may occur in the collection fees from time to time according to the Bank's decision, and pursuant to the exchange rate of checks/sale transfers known on the date of effecting the debit.

Yours faithfully, Bank Hapoalim B.M. Bnei Brak Branch

E.& O.E.

EX-2.14 6 exhibit_2-14.txt

EXHIBIT 2.14

[UNOFFICIAL TRANSLATION FROM ORIGINAL HEBREW]




ISRAEL DISCOUNT BANK LTD.	Loan account no. 841-01-202251
Main, Foreign Currency Branch		Isr./For. currency proceeds current account no. 968-
892036
hereinafter: "the Bank")		[_] Proceeds account no. (principal+interest) 940-01-202251
	[_] Proceeds account no. (principal) 940-01-202251
Date: 25.12.04		[_] Proceeds account no. (interest)/______

| | |Code + target product /___/____/____/

803 APPLICATION TO RECEIVE A FOREIGN CURRENCY LOAN

I/we the undersigned:

1. Name Tefron Ltd. I.D./Passport no. 5520043402 Address BRANCH POB 028
1. Name ____________________________________ I.D./Passport no. ______________ Address ______________________________________
1. Name ____________________________________ I.D./Passport no. ______________ Address ______________________________________

Hereby apply to the Bank to grant us a loan in the sum of 2,910,000 (IN WORDS TWO MILLION, NINE HUNDRED AND TEN THOUSAND) currency U.S. DOLLARS (hereinafter: "the Loan") on the following conditions:

PURPOSE OF THE LOAN (complete as appropriate).

[_] The requested Loan has been designated for -

OR -

2. GRANT OF THE LOAN

a. Please open a special loan account in our name (the number of which will appear at the beginning of this form and be hereinafter called: "THE LOAN ACCOUNT") which will be operated according to the conditions contained herein.
b. Please credit the current account specified at the beginning of this form (hereinafter: "THE CURRENT ACCOUNT") with the proceeds of the Loan and debit the Loan Account with the proceeds of the Loan against such crediting of the Current Account.

The crediting of the Current Account with the proceeds of the Loan will be deemed to constitute the receipt of the Loan by us on such dates of crediting, and will be hereinafter called: "THE DATE OF RECEIPT OF THE LOAN".

c. The conditions of operating the Current Account signed by us constitute an integral part hereof.

The commission for entering the transaction in the Account at the Bank's current rates is NIS ________.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

3. INSTRUCTIONS REGARDING CONVERSION

If the Current Account is maintained in Israeli currency, please convert the full amount of the Loan into new shekels, according to the purchase rate ("for transfers and cheques") of the currency of the Loan, as customary in the Bank on the conversion date, plus such commissions and levies as will be customary for the time being.

4. CONDITIONS OF THE LOAN

a. TERM AND REPAYMENT OF THE LOAN

The Loan will be for a term of 96 months commencing the 31ST day of DECEMBER, 2004 and expiring on the 31ST day of DECEMBER, 2012 and be repaid by us in installments in the amounts and on the dates set out below as marked with an X save that it is hereby expressly stated that in the event the date of payment falls on a day which is not a business day in the Bank (as determined by the Bank in this regard) such payment date will be deferred until the banking business day next following.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

b. REPAYMENT OF THE LOAN
1. [_] PAYMENT BY SEPARATING THE PRINCIPAL FROM THE INTEREST ON THE LOAN*:
a) THE PRINCIPAL OF THE LOAN WILL BE REPAID by us as detailed below and marked with an X:

[_] by a single payment on the ____ day of _______________

OR -

[X] in a total of 32 consecutive installments which will be paid every 3 months on the 31 day of each Gregorian calendar month in which the payment of the principal of the Loan mentioned will occur commencing the 31 day of MARCH, 2005 and terminating on the 31 day of DECEMBER 2012.

SIGNATURE OF THE CUSTOMER (INITIALS)(INITIALLED)

b) INTEREST* WILL BE PAID by us on the date set out below as marked with an X:

[_] in a single payment on the ____ day of _______________

OR -

* The interest rate will be specified in paragraph (c) below.

[_] on the repayment dates of the principal of the Loan as detailed in sub-paragraph (a) above and marked with an X.

OR -

OR -

[_] first payment on ____ day of _________________ (namely ____ months after the date of receiving the Loan) and the remaining payments of principal in _______ equal consecutive installments which will be paid every ______ months on the ___ of each Gregorian calendar month in which payment of such interest on the Loan will be paid - commencing the ____ day of __________________ and terminating on the ____ day of __________________. During the period which will

commence on the date of receipt of the Loan and terminate on the first date prescribed for the payment thereof (hereinafter: "the Grace Period"), no payment is required to be paid on account of the outstanding balance of the Loan and/or on account of the interest that has accrued on the Loan except where any of the events enumerated in clause 14 hereof has occurred.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

2)[_] Repayment of the principal and interest* using the "Spitzer method" tables:

[_] the Loan Principal and the interest will be repaid in _________________ equal consecutive installments in the sum of ______________ in the currency of the Loan - each which include payment of both the principal of the Loan and the interest in respect thereof .

The above payments will fall every _________________ months on the ____ of each Gregorian calendar month commencing the ____ day of _________________ and terminating the ____ day of

_________________.

or -

For the avoidance of any doubt it is hereby expressly emphasized and declared that during the Grace Period, the interest on the Loan will be posted once every ____ months to the Proceeds Account, and similarly bear interest according to the terms of the Loan. On the first date prescribed for the payment thereof, the balance of the interest posted and which has accrued in the Proceeds Account as stated (according to the calculation and records of the Bank) will be compounded with the principal of the Loan and similarly be called in all respects "the Loan Principal". As from such date onwards, the Principal of the Loan and the interest (which will be calculated as stated in sub-paragraph (c) hereof) will be repaid in ____ equal, consecutive installments in the sum of ___________

(________________________) in the currency of the Loan each comprising payment of Principal of the Loan and the interest in respect thereof. The above installments will be paid every ____ months on the ____ of each Gregorian calendar month in which payment of the Principal of the Loan and such interest will fall - commencing the ____ day of _________________ and terminating on the ____ day of _________________.

SIGNATURE OF THE CUSTOMER (INITIALS) ___________
- or -
3)[_] The repayment of the Loan will be as follows:
a) The interest will be paid by us over _________________
months in _________________ consecutive installments. These
installments will be payable monthly on the
_________________ of each Gregorian calendar month
commencing the ____ day of _________________ and terminating
the ____ day of _________________.
b) The Principal of the Loan and the interest, using the
Spitzer method tables, will be repaid in _________________
equal consecutive installments in the sum of NIS.
_____________ each. These payments will fall monthly on the
_________________ of each Gregorian calendar month.

SIGNATURE OF THE CUSTOMER (INITIALS) ___________
c. INTEREST

1) The interest rate on the Loan will be as stated below and marked
with an X (hereinbefore and hereinafter: "the interest")

[_] Fixed interest at the rate of ____ % per annum (the nominal
interest rate) which is equal, using the annual adjusted
interest computation to ____% per annum.

- or -

[_] Variable interest at 2%, above the LIBOR rate (as hereinafter defined) calculated and adjusted annually as set out below:-

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

2) COMPUTATION AND PAYMENT OF THE INTEREST:

a) CALCULATION OF THE INTEREST

The interest will be computed on a daily basis in respect of the period commencing from the date of receipt of the Loan until the full and actual payment thereof based on a 360 day year.

b) MANNER OF DETERMINING THE LIBOR RATE

The Bank will determine the LIBOR interest rate in respect of each interest period 2 banking business days prior to the commencement of each respective interest period and each LIBOR interest rate determined by the Bank will apply in respect of the period commencing at the beginning of the respective interest period and continue until the expiration thereof. In this connection, it is emphasized and stated that any change in the LIBOR rate will lead to a corresponding change in the interest rate on the Loan, according to the rate of the change of the LIBOR interest as compared with the rate thereof prior to the change, as calculated by the Bank.

2) DEFINITIONS

In this sub-paragraph (b) the following expressions shall

bear the meanings set out opposite them:-

(a) "THE LONDON INTERBANK OFFERED RATE (LIBOR) means the interest rate determined by the Bank, having regard to the highest interest rate at which Interbank deposits and/or loans in foreign currency are offered in the London Euromarket in a tenor comparable to the interest period as quoted on or about 11.00 a.m. (London time) and published by Reuters Information Service, and, in the absence of such publication by Reuters, the LIBOR rate will be that determined by the Bank having regard to the LIBOR rate, quoted and published by such other information service or entity as will, in the opinion of the Bank, be an appropriate substitute for the Reuters publication. In the absence of such quotation and publication with respect to the LIBOR interest rate, the Bank's own determinations shall be in substitution therefor with respect to all the foregoing matters and will be absolute and final in all respects.

(b) "INTEREST PERIOD" means a period of _________________ months commencing the date of the receipt of the Loan with each interest period commencing upon the

expiration of the preceding interest period.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

(c) "MONTH" means a period commencing on a particular day in any Gregorian calendar month and terminating on the corresponding day of the next succeeding Gregorian calendar month.

If there is no corresponding day in the Gregorian month in which the interest period expires, the interest period will expire on the last banking business day in such Gregorian calendar month.

(d) "BANKING BUSINESS DAY" means a day on which banks in London effect transactions between them in deposits and/or loans in foreign currency in the Interbank Euromarket in London.
1. Without derogating from the generality of that stated in sub-paragraph (1) above, we are aware and agree that the current rate of the variable interest is _____% per annum (being the nominal interest rate) which is equal, when using the annual adjusted interest calculation, to _____% per annum.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

d. ARREARS INTEREST

Any amount due or becoming due to the Bank hereunder which is not paid by us on the date prescribed for the payment thereof hereunder or which remains unpaid to the Bank following the Bank's first demand, will bear interest on arrears at such variable rate (hereinafter: "ARREARS INTEREST") in respect of the period commencing on the date on which we were due to pay the same until the date of the actual payment thereof, the arrears interest to be calculated on a daily basis in a manner corresponding to the provisions of sub-paragraph (c)(2)(a) above, in accordance with the procedures of the Bank, and be subject to the provisions of any law, the arrears interest to be at the highest rate charged by the Bank from time to time on unauthorized overdrafts in current overdraft accounts in the currency of the Loan, or at the highest rate prevailing in the Bank from time to time on unauthorized overdrafts in current overdraft accounts, according to the currency in which the Proceeds Account is maintained, if it is maintained in a currency other than that of the currency of the Loan.

6

For the avoidance of doubt it is hereby stated that neither the Bank's right to arrears interest nor the actual recovery thereof will derogate, suspend or prejudice any remedy and/or relief available to the Bank hereunder or by law or the Bank's right to take any measures at any time whatsoever in order to collect any sum unpaid by us on due date or from continuing to take such steps.

5. COMMISSIONS AND OTHER PAYMENTS

a. We hereby undertake to bear the expense of and pay the Bank all costs, charges, commissions (including, but without derogating from the generality of the foregoing, the stamp duty hereof and all penalties in respect of late payment and non-payment of stamp duty on due date) and the commissions relating to the signature and issuance of this instrument and the implementation of the Loan hereunder, pursuant to the procedures customary in the Bank and in accordance with any variation applicable therein from time to time (hereinafter: "COSTS AND COMMISSIONS") including (but without diminishing) we shall pay you also a handling fee and collection charge on the dates and in the amounts set out below:
1. On the date of the receipt of the Loan we will pay you a handling fee
a)[_] equal to ___% (_______________ per centum) of the Loan, save that the amount of the handling fee will in no case be less than the minimum amount of the handling fee prescribed from time to time in the Bank's list of charges as appearing in the branches of the Bank. The current rate of the minimum handling fee in the Bank amounts to _______________
OR -

b)[X] in the sum of NIS. $5,000 (INITIALLED)_______

(__________________________________)

On any date prescribed in this instrument for making any repayment of the Loan, we will pay you in respect of such payment a collection charge in the sum of NIS. 4.60

We instruct the Bank to debit the Current Account with the amount of the costs and commissions on the date prescribed for the installments according to the conditions hereof, and undertake to ensure that there will be at such time a sufficient credit balance in the Current Account for effecting such debits. The Bank will be entitled to debit any account now or hereafter maintained in our name and/or in the name of any of us, with the amounts that will be required to discharge such costs and commissions, and, to the extent necessary, convert the payment into the currency of the Loan, according to the procedures of the Bank in this regard, according to the selling rate of the currency of the Loan customary in the Bank and prevailing at such time. The Bank will be entitled to debit the Current Account whether it is in credit or overdrawn, or becomes overdrawn as a result of such debit. Where the Account is overdrawn, the amount of the debit will bear interest in accordance with the conditions of the Current Account.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

b. Without prejudice to the generality of sub-paragraph (a) above, we are aware and agree that the Bank may vary the rate of the collection charge mentioned in sub-paragraph (a)(2) above provided notice to that effect will be sent to us by the Bank two weeks prior to the date of the variation.
c. In the event of any payments of any kind that we owe or will owe to the Bank under the terms hereof will be paid to or collected by the Bank (whether it is collected from us, from any third party or as a result of the realization of collateral or any of them) on a date which is not the respective date of the payment prescribed for that payment hereunder (whatever the reason, including by way of

accelerating all or any part of the Loan), we will then pay to the Bank, immediately upon its first demand, such sum or sums as will compensate and indemnify the Bank for any loss or damage that will be incurred by the Bank as a result of making such payment (in respect of interest differentials until the expiration of the relevant interest period) on the date being other than that prescribed herein, as determined by the Bank.

6. EFFECTIVE COST

(TO BE COMPLETED WHERE THE AMOUNT OF THE LOAN TO AN INDIVIDUAL DOES NOT

EXCEED NIS. 500,000 AND THE AMOUNT OF THE LOAN THAT IS GRANTED TO PURCHASE

OR PLEDGE A RESIDENTIAL APARTMENT, DOES NOT EXCEED NIS 1,000,000).

We are aware and agree that THE EFFECTIVE COST RATE of the Loan is ____% per annum.

SIGNATURE OF THE CUSTOMER (INITIALS) ___________

7. MANNER OF REPAYING THE LOAN

The Loan will be repaid by way of debiting the Proceeds Account, as set out below:

Mark x where appropriate:.

a)[_] We request that payment of the Principal of the Loan, and payment of the interest thereon be separated as below, and for such purpose please open in our name:
1. A special proceeds account for repaying the Principal of the Loan ("THE PROCEEDS ACCOUNT (PRINCIPAL)").

and

A special proceeds account for paying the interest on the Loan ("THE PROCEEDS ACCOUNT (INTEREST)").

The Proceeds Account (Principal) and the Proceeds Account (Interest), will be jointly and severally called in this document "(the) Proceeds Account".

or -
b)[_] For the purpose of repaying the Loan please open in our name a special proceeds account (in this document called "the Proceeds Account") that will be operated in accordance with the terms hereof, in Israeli currency / foreign currency*.
1. We hereby instruct the Bank to debit THE PROCEEDS ACCOUNT (as appropriate and as marked above) on the payment date of each installment or of any sum becoming due from us to the Bank under this instrument (hereinafter: "(THE) PAYMENT/S") except for the payment of the costs and commissions set out in sub-paragraph 5(a) above, with the amount required to discharge such installment and convert the payment into the currency of the Loan, and hereby undertake to ensure that there will be a sufficient balance standing to our credit in the Proceeds Account at that time in order to effect the foregoing debits - save that nothing in the foregoing shall derogate from our obligation to discharge any debit balance resulting, if and to the extent it results, in the Proceeds Account, together with arrears interest and all charges incidental to the foregoing.

* Delete as appropriate.

Any amount received in the Bank to the credit of the Proceeds

Account will be applied in repayment of the payments according to the following order: in payment of the interest and only thereafter, in discharging the principal of the Loan - or according to such other order as will be determined by the Bank.

1. With respect to repayment by way of debiting the Proceeds Account, it is hereby expressly stated and declared that:
a) Where the alternative has been chosen of debiting a Proceeds Account in the currency of the Loan, we are aware that the debit balance that will accrue in such Proceeds Account (together with arrears interest as mentioned in paragraph 4(d) above and any charges incidental to all of the foregoing), will at all times be in the currency of the Loan.
b) Where the alternative has been chosen of debiting a Proceeds Account in Israeli currency, we are aware and hereby instruct the Bank to convert the payment into Israeli currency on the date of debiting such Proceeds Account with any payment, according to the procedures of the Bank in this regard, at the selling rate of the currency of the Loan that will be customary in the Bank on the date the conversion is made, plus such commissions and/or levies as will be customary at that time. Any credit balance that will accrue in the Proceeds Account (together with arrears interest as stated in paragraph 4(d) above and/or charges incidental to all the foregoing) will at all times be in Israeli currency.
c) The Bank will be entitled, at any time, to debit any account that is and/or will be maintained in our name and/or in the name of any us with the amounts required to discharge any debit balance created in the Proceeds Account, or any part thereof and convert to the extent necessary the payment into Israeli currency according to the procedures of the Bank in this regard, according to the selling rate of the currency of the Loan that will be customary in the Bank on the date

of making the conversion, plus commissions and levies as will be customary at that time.

d) The debiting of any account/s with the debit balance amounts mentioned in sub-paragraph (1) above will not be deemed to be payment unless such account/s hold credit balances sufficient to fully cover such payment/s.
e) The Bank will be entitled to cancel any debit or any part thereof without sufficient cover as mentioned and redebit the Proceeds Account therewith and/or treat the same as an amount which was not paid on the date prescribed for the payment thereof according to the conditions hereof. Where the Bank has elected to leave the debit in the Current Account, such debit will bear interest on the conditions and at the rate that apply to the Account.

SIGNATURE OF THE CUSTOMER (INITIALS) (INITIALLED)

8. ADDITIONAL COSTS AS A RESULT OF CHANGES IN THE LAW

a. In the event of a change in any law or statute of any kind in Israel or abroad ("law") and/or in the event of any change in any directives or procedures or instructions of the State of Israel or of the Ministry of Finance and/or of the Bank of Israel and/or any competent authority or in the interpretation by the Bank of the provisions of any such law or directives, procedures or instructions or in the event of new procedures or requirements of any kind being directed to the Bank, directly or indirectly, or to any bodies in the control of the Bank, by the State of Israel or the Ministry of Finance or the Bank of Israel or any competent authority in Israel or abroad, as a result of

which:

The Bank's costs (whether direct or indirect) will increase, in connection with the grant of the Loan or continuing to maintain or grant the Loan will increase, as determined by the Bank, including, without derogating from the generality of the foregoing, in connection with the financing thereof or the collateral that have been or will be given to secure the same;

and/or

In the opinion of the Bank, and at its determination, there will be restrictions or more severe requirements for making financial provisions or there will be imposed upon the Bank taxes, levies, penalties and payments of interest or any other payments in connection with the grant of the Loan or continuing to maintain or grant the Loan, including, but without derogating from the generality of the foregoing, payments in connection with the financing of the Loan or the collateral that have been or will be given to secure the same ("COMPULSORY PAYMENTS") including new or additional obligatory payments;

and/or

Restrictions or liquidity requirements will be imposed on the Bank or become more severe or stricter requirements made in connection with liquid assets, including, without derogating from the generality of the foregoing, with respect to assets and/or deposits that the Bank is required to hold in connection with the grant of the Loan or continuing to maintain or grant the same;

and/or

The Bank will become liable to deduct tax at source on the interest in respect of the Loan or on the Bank's financial sources or, inter alia, for financing the Loan;

and/or

1. An adverse change occurs in the rate of return on the Bank's equity capital compared with the rate it was expected to obtain on the date of the signature hereof;
b. Then, and upon the occurrence of any of the cases set out in sub-paragraph (a) above, we undertake to pay the Bank, from time to time, and upon the Bank's first demand, such additional sums at such rate as will, in the opinion of the Bank, indemnify or compensate the Bank, including, but without derogating from the generality of the foregoing, in respect of any additional or new costs, liabilities and expenses or losses and damages, as stated in sub-paragraph (a) above, this being in addition to and without prejudice to our right to prepay the Loan, in accordance with its terms. For the avoidance of any doubt it is clarified that we will bear the payments mentioned above even if we elect to exercise our right to prepay the Loan as aforesaid.

c. For the avoidance of any doubt it is clarified that all payments will be paid by us to the Bank free and clear of any tax, deduction, levy or compulsory payment, and without set off. In the event of our being required to deduct or pay tax in respect of any payment that is due to the Bank in accordance with the present Application, the amount of the payment to the Bank will be increased so as to ensure that even after making such deduction, the Bank will be left with the net amount required to discharge such payment.

9. CHANGES IN MARKET CONDITIONS

a. If, at the discretion of the Bank, and in accordance with its determination, there will be no reasonable possibility of determining the interest rate, for any reason, or any adverse change occurs in the conditions of the Interbank Market with respect to trading in the currency of the Loan, or the Bank will have no reasonable possibility to raise sources of finance in the currency of the Loan in the ordinary course of its business, or it will have no possibility of raising sufficient sources of financing and/or the sources of the financing or the Bank's cost of raising the money will increase, the Bank will be entitled to vary the terms of the Loan in connection with continuing to grant the Loan, including, without derogating from the generality of the foregoing, in regard to determining the interest rate, the interest payment dates, the basis for calculating the interest or substituting the currency of the Loan by another, and like terms, all as will be customary in and acceptable to the Bank at such time, or to call for the early repayment of the entire outstanding balance of the Loan, all as determined by the Bank and subject as provided in sub-paragraph (b) below.

b. If the Bank decides to exercise its right under sub-paragraph (a) above to vary the terms of the Loan, the Bank will send us 14 days prior notice regarding the change of the terms and the date of their entering into effect.
c. 1) If the Bank decides to call for repayment of the Loan as mentioned in paragraphs 8, 9 and 10 hereof, 14 days' prior notice in writing to that effect will be sent to us by the Bank.
1. Such acceleration (early repayment) will be subject to the conditions set out in paragraph 12 hereof.

10. ILLEGALITY

a. If, at any time, and according to the determination of the Bank, a change occurs in any law or the directives or procedures or instructions mentioned in paragraph 8 above, in a manner whereby the granting of the Loan to us or continuing to maintain or grant the same will become illegal or impracticable for the Bank, the Bank will be entitled to refuse to grant us the Loan, in whole or in part, and in the event of the Loan or any part thereof having already been granted,

the Bank will be entitled to demand the early repayment of the outstanding balance of the Loan.

b. In the event of any requirement for such early repayment, we undertake to pay the Bank, within 30 days of the date of its first written demand given in accordance with the terms of this paragraph, the full amount of the outstanding balance of the Loan. For the avoidance of any doubt it is clarified that such early repayment will be subject to the conditions set out in paragraph 12 hereof.

11. COLLATERAL TO REPAY THE LOAN

12. PREPAYMENT

a) No event will have occurred that constitutes a ground for accelerating the Loan according to the documentation that has been or will be

signed by us in favour of the Bank;

b) The Bank will have received prior notice in writing from us regarding our intention to prepay, such notice to specify the amount we wish to prepay, the notice to be given to the Bank in a manner and upon the conditions set out in the aforementioned explanatory sheet;
c) We will furnish to the Bank prior to prepayment in the event of prior approval from the Bank of Israel or any other competent authority being required as a condition for effecting prepayment in accordance with our request as set out above.
1. If, in the opinion of the Bank, as a result of such prepayment, the preparation of a new or other repayment schedule for the Loan will be necessary, then and in those circumstances you will furnish us with such new or other repayment schedule, and we will repay the Loan in accordance therewith.

14. ACCELERATION OF THE LOAN

a. If a receivership order is granted against the customers or if the customers have passed a winding-up resolution or have requested a receivership order against them or a winding-up order has been made against them or if they have reached a compromise or settlement with all or any of their creditors or a petition is presented for the granting of such orders or if a stay of proceedings order is granted in relation to the customers or a petition presented for the grant of

such an order.

b. If we fail to pay the Bank any payment on the date prescribed for the payment thereof or in accordance with the Bank's first demand, or if such non-payment is anticipated in the opinion of the Bank.

c. If we commit a breach of any of our undertakings towards the Bank or such a breach is anticipated in the opinion of the Bank.
d. If any event or situation occurs which gives cause for accelerated repayment according to the conditions of any undertaking or agreement or document made or signed by us under which we are or may be committed towards the Bank or any third party.
e. If, in the opinion of the Bank, the collateral and securities that have been granted to you as set out in paragraph 11 above are insufficient to secure all the monies which are or will become due to you from us hereunder and/or by reason of any cause, document, agreement or other commitment or if any event or situation has occurred which could affect the Bank's prospects of being repaid out of the foregoing securities and collateral - all at the discretion of and as determined exclusively by, the Bank. /If a receiving order is granted against the Customers or if the Customers adopt a winding-up resolution or seek a receiving order against them or a winding-up order is issued against them or if they reach a compromise or arrangement with their creditors or any of them, or if a petition is presented to grant any of the foregoing orders or if a stay of proceedings order is granted in relation to them or petition filed for granting such an order.

15. BUSINESS DAYS

We are aware that if the Loan Principal or any of the installments or

prepayment of the Loan occurs on the Sabbath or on Sunday, or on a day on which the Bank does not transact business in foreign currency, such payment will be made on the first succeeding business day as determined by the Bank.

16. JURISDICTION AND PROPER LAW

a. This document will be construed in accordance with and pursuant to the laws of the State of Israel.
b. (1) The exclusive jurisdiction so far as territorial jurisdiction is concerned is hereby agreed between the parties as being vested solely in accordance with the following, in accordance with the election of the plaintiff:-
a. Actions which, according to their subject matter and substance must be dealt with by a District Court - will be dealt with by one of the following courts, as elected by the plaintiff:
1. the District Court in whose jurisdiction the branch in which the Account (of the customer) to which such action relates is maintained;
OR -
1. The Tel Aviv District Court.
b. Actions which, according to their subject matter and substance must be dealt with by a Magistrates Court - will be dealt with by one of the following courts, as elected by the plaintiff:
1. The Magistrates Court situated in the jurisdiction of the District Court in whose jurisdiction the branch in which the Account (of the customer) to which such action relates is maintained, or the Magistrates Court

nearest to such branch;

OR -

The Tel Aviv Magistrates Court.

(2) In instances where the action concerned relates to a number of accounts maintained in different branches for the customer - the jurisdiction will be as elected by the plaintiff in accordance with the possibilities set out in sub-paragraphs (1) (a) or (b) above (including all the options thereof).
c. Nothing in the foregoing shall derogate from the right of the winning party to conduct execution proceedings in any area which is consistent with the provisions of the Execution Law.

GENERAL

a. For the avoidance of any doubt the Bank will be entitled to make any technical or operational change in the manner of operating the Account or the Proceeds Account or the Loan Account or in the numbers thereof, provided that this will not serve to detract from the terms of the Loan.
b. A waiver by the Bank in our favour of any prior breach or non-performance of one or more of the conditions hereof will not be deemed to be as any justification or pretext for a further breach or non-performance of any of the conditions hereof, and the forbearance by the Bank of the exercise of any such right granted to it hereunder or under any of the collateral or security documents or by law will not be construed as a waiver of such right, and any other waiver, compromise or arrangement with the Bank will only be binding on the Bank if it is made in writing.
c. The Bank may transfer and assign its rights hereunder. We shall not be entitled to transfer and assign our rights and/or obligations hereunder.
d. The headings to the paragraphs herein are for purposes of reference and do not form part hereof nor do they have any meaning with regard to the interpretation of this instrument and any of the provisions thereof.
e. If this document has been signed by two or more persons, the provisions contained therein shall be binding upon them jointly and severally.
f. References herein to the plural shall include the singular and vice-versa; and everything stated herein in the masculine gender, shall also apply to the feminine gender and vice-versa.
g. Our signature hereto constitutes an acknowledge by us of the receipt thereof.

IN WITNESS WHEREOF THE PARTIES HAVE SET THEIR HANDS:

_______ Tefron Ltd. /s/ Signed by: 1. ___________________ I.D.____________ Date Customer's signature and name (to be completed in the case of a body corporate)

___________________ I.D.____________

Signed before: _______________________________________ (for identification Name and signature of person certifying the signature purposes only)

THE REST OF THIS FORM (WHICH HAS BEEN LEFT BLANK) HAS NOT BEEN TRANSLATED.

REPAYMENT SCHEDULE - FOREIGN CURRENCY LOAN AT VARIABLE INTEREST

LOAN ACCOUNT: 010-0841-01-2022511 PROCEEDS ACCOUNT: 0-0940-01-202251 Loan currency : U.S. dollar Original loan :2,910,000.00 Original no. of : 32 Loan value: 31.12.2004 amount installments Manner of repaying :Fixed principal Frequency of : 3 Final date 31.12.2012 principal principal repayment: Manner of paying : interest Interest payment : 3 interest frequency frequency : Interest rate : 4.5600% LIBOR interest : 2.5600 Margin % 0000 Next interest variation : 31/03/2005 Interest variation : 3 frequency Adjusted interest :4.6386% Loan term: : 96 months

Date	Principal	Interest	Installment amount New balance
- ----	---------	--------	------------------ -----------

31/12/2004			2,910,000.00
31/03/2005	90,937.50	33,174.00	124,111.50	2,818,062.50
30/06/2005	90,937.50	32,494.39	123,431.89	2,728,125.00

30/09/2005	90,937.50	31,791.75	122,729.25	2,637,187.50
31/12/2005	90,937.50	30,732.08	121,669.53	2,648,250.00
31/03/2006	90,937.50	29,027.25	119,964.75	2,455,312.50
30/06/2006	90,937.50	28,301.57	119,239.07	2,364,375.00
30/09/2006	90,937.50	27,552.85	118,490.35	2,273,437.50
31/12/2006	90,937.50	26,493.13	117,430.63	2,182,500.00
31/03/2007	90,937.50	24,880.50	115,818.00	2,091,562.50
30/06/2007	90,937.50	24,108.74	115,046.24	2,000,625.00
30/09/2007	90,937.50	23,313.95	114,251.45	1,909,687.50
31/12/2007	90,937.50	22,254.23	113,191.73	1,818,750.00
31/03/2008	90,937.50	20,964.13	111,901.63	1,727,812.50
30/06/2008	90,937.50	19,915.92	110,853.42	1,636,875.00
30/09/2008	90,937.50	19,075.05	110,012.55	1,545,937.50
31/12/2008	90,937.50	18,015.33	108,952.83	1,455,000.00
31/03/2009	90,937.50	16,587.00	107,524.50	1,364.062.50
30/06/2009	90,937.50	15,728.09	106,660.59	1,273,125.00
30/09/2009	90,937.50	14,836.15	105,773.65	1,182,187.50
31/12/2009	90,937.50	13,776.43	104,713.93	1,091,250.00
31/03/2010	90,937.50	12,440.26	103,377.75	1,000,312.50
30/06/2010	90,937.50	11,580.27	102,467.77	909,375.00
30/09/2010	90,937.50	10,597.28	101,534.75	818,437.50
31/12/2010	90,937.50	9,537.53	100,475.03	727,500.00
31/03/2011	90,937.50	8,298.50	99,231.00	636,562.50
30/06/2011	90,937.50	7,337.44	98,274.94	545,625,00
30/09/2011	90,937.50	6,358.35	97,295.85	454,687.50
31/12/2011	90,937.50	5,298.63	96,236.13	363,750.00
31/03/2012	90,937.50	4,192.83	95,130.33	272,812.50
30/06/2012	90,937.50	3,144.62	94,082.12	181,875.00
30/09/2012	90,937.50	2,119.45	93,085.95	90,937.50
31/12/2012	90,937.50	1,059.73	91,997.23	0.00
Total	2,910,000.00	554,927.34	3,464,927.34

| | | || | | | | | | | | | | | | | | | | | On each principal payment date, a collection charge will be made of NIS. 4.60 Collection fees according to the representative rate of exchange of 4.308000 US$ 1.07

Documentation commission according to the representative rate of exchange of 4.308000 US$ 4,609.00

By way of debiting proceeds/current account no. 010-0968-1-072036 according to an agreed sum.

Further costs in respect of the loan:	NIS. 1,469.03
---------------------------------------	---------------

Further expenses according to representative rate of exchange of 4.308000 US$ 341.00

In respect of crediting the loan proceeds account and at the time of repaying the loan principal, a "transaction entry" commission will be charged, as prescribed by the Bank from time to time, according to the Bank's standard list of charges. The rate thereof at present is ?.25.

2 EX-2.15

7 exhibit_2-15.txt

EXHIBIT 2.15

[UNOFFICIAL TRANSLATION FROM ORIGINAL HEBREW]

Account No./Nos. 531904

I.D. Card no.

Customer's Name Address & Area code Telephone no. /Corp.Reg.no

Tefron Ltd. 520043407

BANK HAPOALIM B.M. Bnei Brak Branch. Date: 31.12.04

Dear Sirs,

Re: REQUEST TO ALLOCATE A CREDIT - FURTHER TO MY LETTER OF UNDERTAKING FOR

CREDIT IN FOREIGN CURRENCY / APPLICATION TO OPEN AN ACCOUNT AND GENERAL

CONDITIONS FOR OPERATING AN ACCOUNT INCLUDING THE AMENDMENT(S) THERETO,

SIGNED BY ME ON THE __________________ DAY OF _____________ ______

(HEREINAFTER: "THE ABOVE CONDITIONS")

I hereby request that you provide me in my foreign currency account with you No.

531904, (hereinafter: "the Account") with Credit in U.S. DOLLARS currency (hereinafter: "the Currency of the Credit") in the amount of 5,080,000 (FIVE MILLION, EIGHTY THOUSAND U.S. DOLLARS) (hereinafter - "the Credit").

THE PROVISION OF THE CREDIT TO THE ACCOUNT SHALL BE TREATED BY ME AS YOUR AGREEMENT FOR THE GRANTING OF THE CREDIT IN ACCORDANCE WITH THE ABOVE CONDITIONS

AND THE SPECIAL CONDITIONS SET FORTH BELOW.

1. DATE OF PROVISION OF THE CREDIT __________________
1. PURPOSE OF THE CREDIT AND INSTRUCTIONS FOR DISPOSAL THEREOF
2.1 The Credit is being granted:
[_] for valid and lawful corporate purposes (mark x as applicable to corporate customers only).
[_] the financing of the cost of goods imported to Israel by me.
[_]___________________________

and I hereby undertake to use the Credit for that purpose only.

2.2 I HEREBY IRREVOCABLY INSTRUCT AND AUTHORIZE YOU TO DEBIT THE ACCOUNT

WITH THE AMOUNT OF THE CREDIT.

[_] and to pay the countervalue to ______________________________

[_] by __________________________________________________________
[_] to convert the countervalue of the Credit to Israeli currency according to the exchange rate to be fixed by yourselves on the date of conversion and credit the countervalue in Israeli currency to my account no. __________________ in the

______________ branch of Bank Hapoalim

______________________________________________________

3. TERMS FOR REPAYMENT OF THE CREDIT

I undertake to repay the Credit in the Currency of the Credit as follows:

[_] in one lump sum due and payable on __________________

[X] in 32 monthly/QUARTERLY/semi-annual/___________ */ installments, commencing on 31.3.05 and ending on 31.12.12.

[_] each installment to be in the sum of _________________ /_________________, first installments in the sum of _________________ and the last installment in the sum of _________________ /the frequency of the installments and the amount thereof to be in accordance with that stated in Appendix "A" attached/in the payment schedule. *

4. INTEREST

4.1 [_] FIXED INTEREST RATE

4.1.1 INTEREST RATE

4.1.2 INTEREST PAYMENT DATES

The Interest (excluding Default Interest) shall be paid by me to the Bank in the Currency of the Credit as follows:

a.[_] in one lump sum on __________________________________.

b.[_] in advance by deducting the Interest from the Credit.

c.[_] at the end of each monthly/quarterly/semi-annual ______* period (hereinafter: "Interest Period") with the Interest being calculated on the balance of the Credit outstanding from time to time from the commencement of the current Interest Period up to the end of the respective Interest Period.

d.[_]

1. On the date prescribed for payment of any sum on account of the Credit, Interest will be paid on such sum at the interest rate as from the beginning of the respective Interest Period (as hereinafter defined) until the repayment date prescribed for such payment of Credit;
1. at the end of each monthly/quarterly/semi-annual ______* period (hereinafter: "Interest Period") with the Interest being calculated on the balance of the Credit outstanding from time to time from the commencement of the current Interest Period up to the end of the respective Interest Period.

The Interest payable on the balance of the Credit outstanding will not include the Interest paid as above in respect of the installments which have fallen due during the current Interest Period.

2

**e. [_] From the date of the provision of the Credit until _____________, the Interest amount, calculated from time to time as provided in sub-paragraph (c) above, will be compounded with the Credit on each payment date mentioned. The Credit, after each amount of Interest has been so compounded, will bear Interest at the Interest rate and be payable commencing the ____ day of _________________ in accordance with sub-paragraph (a)/ (c) / (d)* above respectively.

4.2 VARIABLE INTEREST

4.2.1 INTEREST RATES

a.[_] VARIABLE INTEREST

b.[_] VARIABLE INTEREST SUBJECT TO LIMIT

4.2.2 For the purpose of determining the Interest rate from time to time applicable to the Credit the following definitions and provisions shall apply:

"Determination Date" means with reference to any Update Period (as defined below), two business days preceding the commencement of the respective Update Period (as defined below).

4.2.3 UPDATE PERIODS

The Interest applicable to the Credit shall be determined by the Bank every month/THREE/six _3__ *months in advance on the Determination Date by reference to the respective LIBOR applied by the Bank to the respective Update Period, (each such period being hereinafter called an "Update Period"). I hereby declare that I am aware that notwithstanding that stated in this sub-paragraph and without derogating therefrom, the first and/or last Update Period may be shorter or longer than the other Update Periods, as the Bank in its discretion may deem fit and pursuant to the conditions prescribed for repaying the Credit.

4.2.4 INTEREST PAYMENT DATES

The Interest (but not including Default Interest) shall be paid by me to the Bank in the Currency of the Credit as follows:

b.[X] at the end of each monthly/three/six 3 MONTHLY* period (hereinafter: "Interest Period") calculated on the balance of the Credit outstanding from time to time from the commencement of the current Interest Period up to the end of the respective Interest Period, according to the Interest rate fixed for the Update Period during which such Interest Period falls.

c.[_]

1. On the date prescribed for payment of any sum on account of the Credit, Interest will be paid on such sum as from the beginning of the respective Interest Period (as hereinafter defined) until the repayment date prescribed for such payment, according to the Interest rate fixed for the Update Period during which such payment falls to be paid.
1. At the end of each monthly/quarterly/semi-annual ______* period (hereinafter: "Interest Period") Interest will be paid calculated on the balance of the Credit outstanding from time to time from the commencement of the current Interest Period up to the end of the respective Interest Period, according to the Interest rate fixed for the Update Period during which such Interest Period falls. The Interest payable on the balance of the Credit outstanding will not include the Interest paid as above in respect of the installments which have fallen due during the current Interest Period.
d.[_] From the date of the provision of the Credit until

_____________, the Interest amount, calculated from time to time as provided in sub-paragraph (b) above, will be compounded with the Credit on each payment date mentioned. The Credit, after each amount of Interest has been so compounded, will bear Interest at the Interest rate mentioned in sub-paragraph 4.2.1 and be payable

commencing the ____ day of _________________ in accordance with that stated in sub-paragraph (a)/(b)/(c) * above respectively.

4.3 ADDITIONAL AMOUNTS

1. arising from any obligation under any law or agreement or otherwise, imposed on or incurred by the Bank, or from any demand made upon the Bank by the Bank of Israel or any competent or other authority and/or otherwise in Israel or abroad:
a. to hold liquid assets to any degree or in any currencies in connection with the granting or the continuation of the Credit, and/or
b. to pay and/or make provision for any payments whatsoever to the State Treasury or to the Bank of Israel or to any competent and/or other authority in connection with the granting or the continuation of the Credit, or
1. If as a result of any such obligation or demand the Bank is unable to obtain the rate of return on its overall capital which it would have been able to obtain but for its having complied with my request for the provision of the Credit.
4.4 The Additional Interest shall be paid in the Currency of the Credit, or in such other currency as will be determined for that purpose on the date prescribed for payment of the Interest as set out above, or on such other date as will be determined for such purpose under any law.
4.5 The Interest and/or the Additional Interest shall be computed on the basis of the actual number of calendar days elapsed divided by 360.

5. ALLOCATION COMMISSION

I shall pay the Bank on _________/ immediately upon receiving the Bank's demand* a one-time commission at the rate of _______% of the Credit amount (hereinafter: "Allocation Commission").

6. BUSINESS DAYS

6.1 If any payment due from me hereunder and/or if the last day of any Interest Period falls due on a day which is not a Business Day (as defined below) such payment shall be made on and/or the respective Interest Period shall be extended, as the case may be, until, the next day which is a Business Day (as defined below) and bear interest at the rate required according to paragraph 4 above, unless it would thereby be made in the next calendar month, in which case such payment will be made on the immediately preceding Business Day (as defined below).
6.2 Where any installment on account of the Credit falls due in a calendar month in which any Interest Period ends, the due date of said installment shall be deferred to the last day of said Interest Period so as to ensure that the due date for payment on account of the Credit and the due date for payment of Interest in any such case are one and the same.
6.3 For the purposes hereof "Business Day" means a day on which banks in Tel-Aviv, London and the country in which the Currency of the Credit is legal tender are open for business. Where the basket of currencies

(as set forth in the Schedule hereto) is defined as being the Currency of the Credit, the term "Business Day" shall mean a day on which the Bank of Israel publishes a representative rate for the basket of currencies (as set forth in the Schedule hereto).

1. The paragraph headings are indicative only and are not to be used in construing this Request.
1. This Request will be supplementary to the provisions contained in the Above Conditions, but in case of divergence between them, the provisions herein contained shall prevail. Subject thereto, all the terms defined herein bear the same meaning as contained in the Above Conditions.

SPECIAL CONDITIONS

IN WITNESS WHEREOF I HAVE SIGNED:

/S/ Tefron Ltd. /S/

SCHEDULE (In the event that the type of currency specified in the Request constitutes a basket of currencies)

I confirm that it has been brought to my knowledge that the constitution of each unit of the basket of currencies referred to in the above Request (hereinafter - "the Unit") as at the date hereof is as follows:

TYPE OF CURRENCY CURRENCY AMOUNT

US$ US$ 0.6372 DM. DM.0.3964 Pounds Sterling (pound) 0.0604 French Franc FF.0.3222 Japanese Yen (Y)7.0106

1. I am aware that the constitution of the Unit as detailed above is and will be the determining constitution for all intents and purposes in relation to the above Request and the above Conditions and any future change in the constitution of the basket of currencies by the Bank of Israel will affect neither the constitution of the Unit as detailed above nor the amounts which are due and/or may become due from me to the Bank.
1. The term "the Currency of the Credit" in relation to the basket of currencies means - each and every one of the currencies included in each Unit of the basket of currencies, as the case may be.
1. This Schedule constitutes an integral part of my above Request for Provision of Credit in Foreign Currency.

IN WITNESS WHEREOF I HAVE SIGNED:

12 Bank Hapoalim B.M. 01.01.05/22:57 Page: 381 22466 655 Bnei Brak Statement no. 3501999 - Repayment schedule in respect of a Foreign Currency Loan As at: 31.12.04 Page: 5

No. 2260100

Tefron Ltd. Internal Bank Hapoalim POB No. 136 Bnei Brak 51461

RE: CONFIRMATION OF THE EXECUTION AND REPAYMENT SCHEDULE OF LOAN NO. 01229

IN BRANCH NO. 655 IN ACCOUNT NO. 531904


-----------------	--

variable

	Original	Outstanding				Payment on Payment/accrual
	payment	principal		Current		account of on account of Collection
no.	date	balance		payment amount	principal	interest	fees
- ---	----	-------	--------------	---------	--------	----

1	31/03/05	4,921,250.00		217,488.55	158,750.00	58,737.50	1.05
2	30/06/05	4,762,500.00		216,285.24	158,750.00	57,534.19	1.05
3	30/09/05	4,603,750.00		215,041.16	158,750.00	56,290.11	1.05
4	31/12/05	4,445,000.00		213,164.82	158,750.00	54,413.77	1.05
5	31/03/06	4,286,250.00		210,146.37	158,750.00	51,395.32	1.05
6	30/06/06	4,127,500.00		208,861.48	158,750.00	50,110.43	1.05
7	30/09/06	3,968,750.00		207,535.81	158,750.00	48,784.76	1.05
8	31/12/06	3,810,000.00		205,659.47	158,750.00	46,908.42	1.05
9	31/03/07	3,651,250.00		202,804.18	158,750.00	44,053.13	1.05
10	30/06/07	3,492,500.00		201,437.71	158,750.00	42,686.66	1.05
11	30/09/07	3,333,750.00		200,030.47	158,750.00	41,279.42	1.05
12	31/12/07	3,175,000.00		198,154.13	158,750.00	39,403.08	1.05
13	31/03/08	3,016,250.00		195,869.89	158,750.00	37,118.84	1.05
14	30/06/08	2,857,500.00		194,013.94	158,750.00	35,262.89	1.05

15 30/09/08 2,698,750.00 192,525.11 158,750.00 33,774.06 1.05 16 31/12/08 2,540,000.00 190,648.78 158,750.00 31,897.73 1.05

	Amount for	No. of	Base	Nominal	Adjusted
	calculating	interest	interest	interest	interest
no.	interest	days	rate	rate	rate
- ---	--------	----	--------	----

1	5,080,000.00	90	2.62500	4.62500	4.77234
2	4,921,250.00	91
3	4,762,500.00	92
4	4,603,750.00	92
5	4,445,000.00	90
6	4,286,250.00	91
7	4,127,500.00	92
8	3,968,750.00	92
9	3,810,000.00	90
10	3,651,250.00	91
11	3,492,500.00	92
12	3,333,750.00	92
13	3,175,000.00	91
14	3,016,250.00	91
15	2,857,500.00	92
16	2,698,750.00	92

12 Bank Hapoalim B.M. 01.01.05/22:57 Page: 382 22467 655 Bnei Brak Statement no. 3501999 - Repayment schedule in respect of a Foreign Currency Loan As at: 31.12.04 Page: 6

No. 2260060

RE: CONFIRMATION OF EXECUTION AND REPAYMENT SCHEDULE OF LOAN NO. 01229

BRANCH NO. 655 IN ACCOUNT NO. 531904

Continuation of payment itemization

	Original	Outstanding		Payment on		Payment/accrual
	payment	principal	current	account of		on account of	Collection
no.	date	balance	payment amount		principal	interest	fees
- ---	----	-------	--------------	---------	--------	----

17	31/03/09	2,381,250.00	188,119.80		158,750.00	29,368.75	1.05
18	30/06/09	2,222,500.00	186,590.17		158,750.00	27,839.12	1.05
19	30/09/09	2,063,750.00	185,019.77		158,750.00	26,268.72	1.05
20	31/12/09	1,905,000.00	183,143.44		158,750.00	24,392.39	1.05
21	31/03/10	1,746,250.00	180,777.62		158,750.00	22,026.57	1.05
22	30/06/10	1,587,500.00	179,166.40		158,750.00	20,415.35	1.05
23	30/09/10	1,428,750.00	177,514.42		158,750.00	18,763.37	1.05
24	31/12/10	1,270,000.00	175,638.08		158,750.00	16,887.03	1.05
25	31/03/11	1,111,250.00	173,435.43		158,750.00	14,684.38	1.05
26	30/06/11	952,500.00	171,742.64		158,750.00	12,991.59	1.05
27	30/09/11	793,750.00	170,009.07		158,750.00	11,258.02	1.05
28	31/12/11	635,000.00	168,132.74		158,750.00	9,381.69	1.05
29	31/03/12	476,250.00	166,174.82		158,750.00	7,423.77	1.05
30	30/06/12	317,500.00	164,318.87		158,750.00	5,567.82	1.05
31	30/09/12	158,750.00	162,503.73		158,750.00	3,752.68	1.05
32	31/12/12	0.00	160,627.39		158,750.00	1,876.34	1.05
Total payment			6,062,581.50		5,080,000.00	982,547.90	33.60

Amount for No. of Base Nominal Adjusted

	calculating	interest	interest	interest	interest
no.	interest	days	rate	rate	rate
- ---	--------	----	----	--------

17	2,540,000.00	90	2.62500		4.62500	4.77234
18	2,381,250.00	91
19	2,222,500.00	92
20	2,063,750.00	92
21	1,905,000.00	90
22	1,746,250.00	91
23	1,587,500.00	92
24	1,428,750.00	92
25	1,270,000.00	90
26	1,111,250.00	91
27	952,500.00	92
28	793,750.00	92
29	635,000.00	91
30	476,250.00	91
31	317,500.00	92
32	158,750.00	92
Total payment

| | | | | || | | | | | | | | | Continued on next page | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 12 Bank Hapoalim B.M. | | | 01.01.05/22:57 Page: 383 22468 | | | | | | | | | | 655 Bnei Brak Statement no. 3501999 - Repayment schedule in respect of a Foreign | | | Currency Loan As at: 31.12.04 Page: 7 | | | | | | No. 2260060

RE: CONFIRMATION OF EXECUTION AND REPAYMENT SCHEDULE OF LOAN NO. 01229 IN

BRANCH NO. 655 IN ACCOUNT NO. 531904

Notes: Changes may occur in the payment days pursuant to the business days in Israel and abroad.
Changes in principal and/or interest payment dates or interest update dates or in the date for compounding interest with principal, which fall on a day not being a Business Day, will entail a change in the dates appearing in the repayments schedule overall (except for the last installment) in order to maintain symmetrical periods.
Changes may occur in the interest amounts pursuant to changes in the payment dates.
The loan is at a variable interest rate the interest amounts for ensuing periods, as appearing above, are calculated according to the LIBOR rate known on the loan value date. On the interest update dates, changes may occur in accordance with the Loan Agreement.
The interest rate is based on LIBOR for three months.
Interest rate: LIBOR + 2.0000%.
Changes may occur in the collection fees from time to time according to the Bank's decision, and pursuant to the exchange rate of checks/sale transfers known on the date of effecting the debit.

Yours faithfully, Bank Hapoalim B.M. Bnei Brak Branch E.& O.E.

EXHIBIT 4.9

AMENDMENT NO. 1 TO THE PUT OPTION AGREEMENT

This Amending Agreement (the "AMENDMENT") is entered into this 13th day of December, 2004, by and among ALBAHEALTH, LLC, a Delaware limited liability company (the "COMPANY"); ALBA-WALDENSIAN, INC., a Delaware corporation ("ALBA"); ENCOMPASS GROUP L.L.C., a Delaware limited liability company ("ENCOMPASS"); and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation ("GE CAPITAL").

WHEREAS, the parties entered into a series of agreements relating to the formation and operation of the Company, including that certain Put Option Agreement (the "PUT OPTION AGREEMENT"), dated as of September 6, 2002;

WHEREAS, pursuant to the terms of the Put Option Agreement, the Alba Party is entitled to exercise the Put Option for a period of three (3) years commencing on September 6, 2004;

WHEREAS, it is agreed among the parties that as of the date of this Amendment to the Put Option Agreement, the Alba Party is entitled to exercise the Put Option according to the terms of the Put Option Agreement; and whereas at the request of the Company and Encompass, Alba agreed not to exercise the Put Option during September 2004, and the parties wish to amend the Put Option Agreement on the terms and conditions set forth herein;

NOW THEREFORE, the parties hereby agree as follows:

This Amendment constitutes an integral part of the Put Option Agreement and sets forth the understandings of the parties thereto. Any capitalized term not defined herein shall have the same meaning ascribed to it in the Put Option Agreement.
In the event that the Alba Party does not deliver a Put Notice on or

before June 30, 2005, but delivers a Put Notice during the six month period beginning July 1, 2005, the terms for calculating the Alba Put Consideration shall be amended as follows:

a. (i) If LTM EBITDA (as currently defined in the Put Option Agreement) calculated based on the actual date of delivery of the Put Notice is less than US$6,434,000(six million four hundred and thirty-four thousand United States dollars) (the "MINIMUM EBITDA"), then "LTM EBITDA" for purposes of computing the Alba Put Consideration shall be deemed to be the Minimum EBITDA.

(ii) If LTM EBITDA calculated based on the date of delivery of the Put Notice is greater than the Minimum EBITDA, then "LTM EBITDA" for purposes of computing the Alba Put Consideration shall be the Minimum EBITDA plus 50% of the amount by which the actual LTM EBITDA exceeds Minimum EBITDA.

b. The "Initial Put Payment" for purposes of computing the Alba Put Consideration shall be the Initial Put Payment (as currently defined in the Put Option Agreement, based on the LTM EBITDA as defined in section 2(a) to this Amendment above) plus $325,000 (three hundred and twenty-five thousand United States dollars).

In the event that the Alba Party does not deliver a Put Notice during the six month period beginning July 1, 2005, the terms for calculating the Alba Put Consideration shall remain as set forth in the Put Option Agreement as in effect prior to this Amendment.
In case that the Alba Party delivers a Put Notice during the six month period beginning July 1, 2005, the consummation of the purchase of the Put Interest will take place 105 days following the Put Date.
An example of the calculation of the Alba Put Consideration assuming delivery of the Put Notice during the six month period beginning July 1, 2005 and in accordance with clause 2 above is set forth in ANNEX A to this Amendment.
Except as modified in this Amendment, all terms and conditions of the Put Option Agreement remain unmodified and in full force and effect.

IN WITNESS WHEREOF, the parties hereto have entered into and signed this Amendment to be effective as of the date first written above.

ALBAHEALTH, LLC By: /S/ Yos Shiran

Name: Yos Shiran Title: Chairman

ENCOMPASS GROUP, L.L.C. By: /S/ David H. - ----------------

Name: David H. Title: C.O.O.

GENERAL ELECTRIC CAPITAL CORPORATION

By: /S/ Eric A. Schaefer

Name: Eric A. Schaefer Title: C.O.O.

ALBA-WALDENSIAN, INC.

By: /S/ Yos Shiran /S/ Doug Dickson

Name: Yos Shiran Doug Dickson

Title: CEO CFO

ANNEX A

CALCULATION OF "PUT VALUE"

Debt = any indebtedness for borrowed money

Y = net debt ("Debt" minus cash and cash equivalents) at the last day of the quarter ended before the "put notice".

"PUT VALUE" IF ACTUAL EBITDA <= 6,434,000:

($ 6,434,000 x 6) + 325,000 - Y

"PUT VALUE" IF ACTUAL EBITDA > 6,434,000:

($ 6,434,000 x 6) + [(actual EBITDA - 6,434,000) x 3] + 325,000 - Y

EXHIBIT 4.11

AMENDMENT TO AGREEMENT

THIS AMENDMENT is as of March 31, 2005, by and between (i) Tefron Ltd.

("Tefron" or the "Company"), an Israeli company, and (ii) Norfet, Limited Partnership (the "Investor"), an Israeli limited partnership wholly owned by (x) N.D.M.S Ltd., an Israeli private company, wholly owned by FIMI Opportunity Fund, L.P., a limited partnership formed under the laws of the State of Delaware, (y) FIMI Israel Opportunity Fund, Limited Partnership, a limited partnership, formed under the laws of the State of Israel, and (z) certain designees and co-investors listed in Exhibit A to the Original Agreement (defined below).

WHEREAS, Tefron and the Investor are parties to a Share Purchase Agreement, dated as of February 17, 2004 (the "Original Agreement") and desire to amend Section 1(b) thereof.

NOW, THEREFORE, the parties hereby agree to amend the Original Agreement in the manner described in this Amendment:

1. AMENDMENT. The term "Additional Shares", defined in the last paragraph of Section 1(b) of the Original Agreement, shall be amended to mean an aggregate of 661,765 Ordinary Shares, which is the number of shares representing the sum of US$2,647,059 at a price of US$4 per share.
1. OTHER TERMS AND CONDITIONS. Unless expressly set forth herein, all other terms and conditions set forth in the Original Agreement shall remain in full force and effect.

IN WITNESS WHEREOF the parties have signed this Amendment as of the date first hereinabove set forth.

TEFRON LTD.	NORFET, LIMITED PARTNERSHIP
By: /s/ Gil. Rozen/s/ Yos Shiran	By: /s//s/
---------------	----------------
Name:	Name:
Title:	Title:

EXHIBIT 4.13

AMENDMENT TO AGREEMENT

THIS AMENDMENT is as of March 31, 2005, by and between (i) Tefron Ltd. ("Tefron" or the "Company"), an Israeli company, and (ii) Leber Partners, L.P., a limited partnership ("Investor").

WHEREAS, Tefron and the Investor are parties to a Share Purchase Agreement, dated as of March 3, 2004 (the "Original Agreement") and desire to amend Section 1(b) thereof.

NOW, THEREFORE, the parties hereby agree to amend the Original Agreement in the manner described in this Amendment:

1. AMENDMENT. The term "Additional Shares", defined in the last paragraph of Section 1(b) of the Original Agreement, shall be amended to mean an aggregate of 201,613 shares, which is the number of shares representing the sum of US $ 806,452 at a price of US$4 per share.
1. OTHER TERMS AND CONDITIONS. Unless expressly set forth herein, all other terms and conditions set forth in the Original Agreement shall remain in full force and effect.

IN WITNESS WHEREOF the parties have signed this Amendment as of the date first hereinabove set forth.

/s/ Gil Rozen,
/s/ Yos Shiran	/s/ Zvi Limon
- --------------	-------------

By: Yos Shiran, Gil Rozen By: Zvi Limon, director of Leber Limited, Title: CEO, CFO Title: General Partner of Leber Partners, L.P

EXHIBIT 8.1

SUBSIDIARIES OF THE COMPANY

SUBSIDIARY JURISDICTION

Tefron USA, Inc	Delaware
AlbaHealth, LLC	Delaware
Macro Clothing Ltd.	Israel
New Net Industries Ltd	Israel
New - Pal Ltd	Israel
Hi-Tex Founded By Tefron Ltd.	Israel
El-Masira Textile Company Ltd.	Jordan
Tefron Holding Netherland B.V.	Netherlands
JBA Production S.A. ("JBA")	Madagascar
Tefrani S.A.	Mauritius

EXHIBIT 12.(a).1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Yosef Shiran, certify that:

1. I have reviewed this annual report on Form 20-F of Tefron Ltd.;
1. Based on my knowledge, this report does not contain any untrue statement of a

material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c. disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and

The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of company's board of directors (or persons performing the equivalent function):

a. all significant deficiencies and material weaknesses in the design or

operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial data; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.

Date: April 19, 2005

/s/ Yosef Shiran

Yosef Shiran Chief Executive Officer

EXHIBIT 12.(a).2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Gil Rozen, certify that:

I have reviewed this annual report on Form 20-F of Tefron Ltd.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for

establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c. disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and

The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of company's board of directors (or persons performing the equivalent function):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial data; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.

Date: April 19, 2005

/s/ Gil Rozen - -------------

Gil Rozen Chief Financial Officer

EXHIBIT 13.(a).1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Tefron Ltd. (the "Company") on Form 20-F for the period ending December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify that to the best of our knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 19, 2005

/s/ Yosef Shiran

Name: Yosef Shiran Title: Chief Executive Officer

Date: April 19, 2005

/s/ Gil Rozen

Name: Gil Rozen Title: Chief Financial Officer

EXHIBIT 14.(a).1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the previously filed Registration Statements on Form S-8 (No No. 333-111932) of Tefron Ltd. ("Tefron") of our report dated March 16, 2005, with respect to the consolidated financial statements of Tefron included in this Annual Report on Form 20-F for the year ended December 31, 2004.

/s/ Kost Forer Gabbay & Kasierer

Tel-Aviv, Israel
April 21, 2005

Tel-Aviv, Israel Kost Forer Gabbay & Kasierer April 21, 2005 A Member of the Ernst & Young Global

EXHIBIT 14.(a).2

April 20, 2005 Kost Forer and Gabbay Certified Public Accountant 3 Aminadav Street Tel-Aviv 67067 Gentlemen:

RE: ALBAHEALTH LLC (HEREINAFTER - "THE COMPANY")

In connection with our examination of the financial statements of the Company for the year ended December 31, 2004, we wish to advise you:

1. We are aware that the financial statements of the Company, which we have examined, will be included in the consolidated financial statements of TEFRON LTD and our reports with respect to the financial statements of the Company will be relied upon by you.
1. We hereby consent to the inclusion of our report relating to our examination of the financial statements of the Company covering the balance sheets as of December 31, 2004 and 2003 and the related statements of income, members' equity and cash flows for the years ended December 31, 2004 and 2003, in the annual report of TEFRON LTD on Form 20F, which is to be filed with the U.S. Securities and Exchange Commission (U.S. SEC) and to the incorporation by reference of such report into the Registration Statement on Form S-8 (No. 333-111932).
1. We are independent with respect to all entities in the TEFRON LTD group, under the requirements of the Public Company Accounting Oversight Board (PCAB) and the requirements of the United States Securities and Exchange Commission (SEC).
1. We are familiar with accounting principles generally accepted in the United States of America and standards of the PCAOB and the financial statements of the above Company have been prepared in accordance with such principles.
1. We are familiar with auditing standards generally accepted in the United States of America (U.S. GAAS) promulgated by the American Institute of Certified Public Accountants, and our examination with respect to the financial statements of the Company was conducted in accordance with U.S. GAAS. Kost Forer and Gabbay.
1. We are familiar with Regulation S-X and other published accounting rules and regulations of the U.S. SEC and the financial statements of the Company are prepared in accordance with, and contain the necessary disclosures required by, such rules and regulations.

Sincerely,

/s/ McGladrey & Pullen, LLP

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 of The Securities Exchange Act of 1934

For the month of May, 2005

TEFRON LTD.

(Translation of registrant's name into English)

PARK AZURIM, DERECH EIM HAMOSHAVOT 94, PETACH TIKVA 49527, ISRAEL

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F X Form 40-F

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes No X

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- N/A_

Attached hereto and incorporated by reference herein are:

1. a press release, dated May 2, 2005, announcing Tefron Ltd.'s scheduling of a conference call to discuss first quarter 2005 financial results; and
1. a press release, dated May 9, 2005, announcing Tefron Ltd.'s first quarter 2005 results.

The earnings release contains non-GAAP financial measures. In this regard, GAAP refers to generally accepted accounting principles in the United States. Pursuant to the requirements of Regulation G, the Company has provided reconciliations within the earnings release of the non-GAAP financial measures to the most directly comparable GAAP financial measures. EBITDA represents earnings (loss) before interest, taxes, depreciation and amortization. EBITDA is presented in the earnings release because management believes that it enhances the understanding of our operating results and is of interest to its investors and lenders in relation to its debt covenants, as certain of the debt covenants include adjusted EBITDA as a performance measure. EBITDA, however, should not be considered as an alternative to operating income or income for the period as an indicator of our operating performance. Similarly, EBITDA should not be considered as an alternative to cash flows form operating activities as a measure of liquidity. EBITDA is not a measure of financial performance under generally accepted accounting principles and may not be comparable to other similarly titled measures for other companies.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TEFRON LTD.

(Registrant)

By: /s/ Gil Rozen

Name: Gil Rozen Title: Chief Financial Officer

By: /s/ Hanoch Zlotnik

Name: Hanoch Zlotnik Title: Finance Manager

Date: May 23, 2005

NEWS

FINANCIAL RELATIONS BOARD

FOR YOUR INFORMATION: RE: Tefron Ltd.

Park Azorim 94 Derech Em Hamoshavot Petach Tikva 49527 Israel (NYSE: TFR)

AT THE COMPANY AT FINANCIAL RELATIONS BOARD

Chief Financial Officer (212) 827-3773 +972-3-923-0215 Fax: +972-3-922-9035

Gil Rozen Marilynn Meek - General Info. -

TEFRON LTD. REPORTS FIRST QUARTER 2005 RESULTS

o SALES OF $52.6 MILLION. HIGHEST QUARTERLY SALES IN PAST FOUR YEARS.
o NET INCOME $1.2 MILLION.

o STRONG EBITDA AND OPERATING CASH FLOW FOR THE QUARTER OF $5.6 MILLION

AND $5.1 MILLION, RESPECTIVELY.

PETACH TIKVA, ISRAEL, MAY 9, 2005 - Tefron Ltd. (NYSE: TFR), one of the world's leading producers of seamless intimate apparel and active wear, today announced financial results for the first quarter ended March 31, 2005.

Sales for the first quarter of 2005 rose 7.6% to $52.6 million, compared to sales of $48.9 million in the first quarter of 2004. Gross profit for the first quarter of 2005 was $8.3 million, compared to $7.2 million in the first quarter of 2004. Operating income for the first quarter of 2005 increased 60% to $3.2 million, compared to operating income of $2.0 million in the first quarter of 2004. Net income rose to $1.2 million, or $0.07 per basic and diluted share for the first quarter of 2005, compared to net income of $106,000, or $0.01 per basic and diluted share, in the first quarter of 2004. Operating cash flow for the first quarter of 2005 was $5.1 million, compared to $2.5 million for the first quarter of 2004. EBITDA for the first quarter was $5.6 million, compared to $4.3 million in the comparable quarter in 2004.

Three months ended Three months ended Year ended March 31, 2005 March 31, 2004 December 31, 2004

	USD		USD	USD
	thousands	% of total	thousands	% of total		thousands % of total
- ---------------------------- ------------- ------------- ------------- ------------- ------------ ------------
Intimate Apparel	24,341	46.3	32,134	65.8	118,240	64.7
- ---------------------------- ------------- ------------- ------------- ------------- ------------ ------------Active wear	11,957	22.7	3,632	7.4	20,105	11.0
- ---------------------------- ------------- ------------- ------------- ------------- ------------ ------------Swimwear	8,157	15.5	4,589	9.4	10,275	5.6
- ---------------------------- ------------- ------------- ------------- ------------- ------------ ------------Health care products		8,16415.5	8,503	17.4	34,199	18.7
- ---------------------------- ------------- ------------- ------------- ------------- ------------ ------------Total	52,619	100.0	48,858	100.0	182,819	100.0
- ---------------------------- ------------- ------------- ------------- ------------- ------------ ------------

| | | | | || | -1- | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sales by segment | | | | | | | | - ---------------------------- --------------------------- -------------------------- -------------------------- | Three months ended | | | Three months ended | | Year ended | | | March 31, 2005 | | March 31, 2004 | | December 31, 2004 | | | - ---------------------------- --------------------------- -------------------------- -------------------------- | USD | | USD | USD | | | | | thousands | % of total | thousands | % of total | | thousands % of total | | - ---------------------------- ------------- ------------- ------------- ------------ ------------- ------------ | | | | | | | | Seamless (HiTex) | | 24,821 47.2 | 21,319 | 43.6 | 83,753 | 45.8 | | - ---------------------------- ------------- ------------- ------------- ------------ ------------- ------------ Cut & Sew | 19,634 | 37.3 | 19,036 | 39.0 | 64,867 | 35.5 | | - ---------------------------- ------------- ------------- ------------- ------------ ------------- ------------ Health Care | 8,164 | 15.5 | 8,503 | 17.4 | 34,199 | 18.7 | | - ---------------------------- ------------- ------------- ------------- ------------ ------------- ------------ Total | 52,619 | 100.0 | 48,858 | 100.0 | 182,819 | 100.0 |

Mr. Yos Shiran, Chief Executive Officer commented, "We are pleased to report sales of $52.6 million for the quarter, significantly higher than sales for each of our previous three quarters and, in fact, higher than reported sales for any of our last 18 quarters. As anticipated, we returned to profitability in our first quarter, showing a significant improvement in our quarterly net income both year over year and as compared to the fourth quarter in 2004.

"We expect this trend of improving sales and profitability to continue as we further benefit from the strategic plan we put in place two and a half years ago. Our improved results are accompanied by a significant diversification in our product lines and a significant change in our customer base which is comprised of fewer customers who suit our strategy. In the first quarter of 2005, our activewear and swimwear sales accounted for approximately 38% of our quarterly sales compared to about 17% in the equivalent quarter last year and for the full year of 2004. Also, Nike who is now our second largest customer accounted for 24% of our quarterly sales, further strengthening our customer base. Performance apparel segment is expected to grow significantly and we believe we are well positioned to enjoy the benefits of this expected growth with our EFP(TM) (Engineered for performance) concept. This growing potential will be well demonstrated in the "Nike Pro Vent" apparel program, Reebok's coming launch for the NFL equipment line and Patagonia's Capilene line.

"As we have reported in the past few quarters, the increase in demand for new product lines has been strong for a while. However, growth in actual sales was not realized due to production inefficiencies. During the first quarter in 2005, efficiency in our HiTex division began to improve and as a result we were able to increase sales. There is still room for further operational improvement and we believe this improvement will help us to continue our growth in sales and profitability for the balance of the year."

Mr. Shiran continued, "Looking forward, we expect a seasonal decrease of swimwear sales in the second quarter, which will be partially offset by a further increase in seamless production and sales. We do not expect our second quarter's profitability to be less than our first quarter's. We intend to

continue shifting our sewing capacity to our offshore sites which reached about 80% of our Cut & Sew and 25% of HiTex production in the first quarter of this year. During the course of the year, we expect to offset the continuing price erosion and the decline in sales of some old Cut & Sew products by moving their full production processes to offshore locations. Further improvement of production efficiency will support increased sales and profitability in the second half of the year."

Mr. Arie Wolfson, Chairman of the Board, stated: "I am very pleased with the results for the quarter and with our prospects for the future. The first quarter was the beginning of the realization of the strategic turnaround program put forward by our management team two and a half years ago and the

-2-

hard work and dedication of our entire team in executing the plan despite all of the difficulties. As Yos said, there is still room for further improvement and I believe that our team will achieve it."

Mr. Wolfson concluded: "This is a time to thank both our team headed by Mr. Shiran for their successful efforts and our investors who have patiently supported us. I look forward to sharing with you more good news in the future."

"I would also like to thank Mr. Gil Rozen, our CFO, who is leaving the company after three and a half years for having played an important role in our turnaround. At the same time, I would like to welcome Mr. Asaf Alperovitz, our new CFO, and wish him the best of luck together with us".

Tefron manufactures boutique-quality everyday seamless intimate apparel, active wear and swim wear sold throughout the world by such name-brand marketers as Victoria's Secret, Target, Warnaco/Calvin Klein, The Gap, Banana Republic, Mervyn's, Nike, Patagonia, Reebok and Adidas, as well as other well known American retailers and designer labels. The company's product line includes knitted briefs, bras, tank tops, boxers, leggings, crop, T-shirts, nightwear, bodysuits, swim wear, beach wear and active-wear. The Company's Healthcare

Division manufactures and sells a range of textile healthcare products.

THIS PRESS RELEASE CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITH RESPECT TO

THE COMPANY'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THESE

FORWARD LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD

CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED IN SUCH

FORWARD-LOOKING STATEMENTS, INCLUDING, BUT NOT LIMITED TO, FLUCTUATIONS IN

PRODUCT DEMAND, ECONOMIC CONDITIONS AS WELL AS CERTAIN OTHER RISKS DETAILED FROM

TIME TO TIME IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE

COMMISSION. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY

REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES

AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED.

FINANCIAL TABLES FOLLOW

-3-

TEFRON LTD. CONSOLIDATED STATEMENTS OF OPERATONS IN THOUSANDS OF US DOLLARS ( EXCEPT PER SHARE DATA )

		THREE MONTHS ENDED
		MARCH 31,		YEAR ENDED
	2005	2004	--------------------------- DECEMBER 31,2004
			------------ ------------ -------------
Sales	$	52,619 $	48,858 $	182,819
Cost of sales		44,287	41,645------------ ------------ -------------	159,937
Gross profit		8,332	7,213	22,882
Selling, general and administrative expenses			5,119------------ ------------ -------------	5,245	22,387
Operating income		3,213	1,968	495
Financing expenses, net		840	407------------ ------------ -------------	5,212
Income (loss) before taxes on income			2,373	1,561	(4,717)
Taxes on income		709	885	203
Minority interest in earnings of a subsidiary			454------------ ------------ -------------	570	1,945
Net income (loss)	$	1,210 $	106 $	(6,865)	============ ============ =============
Basic and diluted net income (loss) per share		$	0.07 $	0.01 $	(0.44)============ ============ =============
Weighted average number of shares used for computing
basic earning (loss) per share		17,031,013		12,412,166	15,603,904============ ============ =============
Weighted average number of shares used for computing
diluted earning (loss) per share		17,586,044		12,888,162	15,603,904============ ============ =============

-4-

TEFRON LTD. CONSOLIDATED BALANCE SHEETS IN THOUSANDS OF US DOLLARS

		MARCH 31,
	---------------------------2005	2004	DECEMBER 31,2004
	--------------------------------------	-----------UNAUDITED	-------------AUDITED-------------
ASSETS
CURRENT ASSETS:Cash and cash equivalents		$4,937	$2,809	$3,558
Trade receivables (net of allowance for doubtful debts)			25,130	26,523	21,402
Other accounts receivable and prepaid expenses			5,892	5,938	5,696
Inventories	29,985		32,244	33,137
TOTAL current assets	----------------------	-----------65,944-----------	-------------67,514-------------	63,793
DEFERRED TAXES	-----------	2,427-----------	2,871-------------	2,486
PROPERTY, PLANT AND EQUIPMENT	-----------	-----------	92,934-------------	97,877	93,931

GOODWILL	-----------	30,743-----------	30,865-------------	30,743
OTHER	-----------	431-----------	1,226-------------	578
TOTAL assets	===========	$ 192,479	$ 200,353===========	$191,531=============
		MARCH 31,
		---------------------------	DECEMBER 31,
	2005	2004	2004
	-----------	-----------UNAUDITED	-------------	AUDITED
LIABILITIES AND SHAREHOLDERS' EQUITY		---------------------------	-------------
CURRENT LIABILITIES:
Short-term bank credit		$21,407	$31,436	$21,355
Current maturities of long-term debt:
Loans from banks and other		9,010	11,286	9,039
Capital leases		120	952	206
Trade payables		30,236	29,578	28,991
Conditional obligation with respect to issuance of shares			-	-	3454
Other accounts payable and accrued expenses			9,346	12,736	9,189
	-----------	-----------	-------------
TOTAL current liabilities		70,119	85,988	72,234
	-----------	-----------	-------------
LONG-TERM LIABILITIES:
Banks and other loans (net of current maturities)			45,679	51,736	47,907
Capital leases (net of current maturities)			-121	-
Deferred taxes		5,828	7,750	5,611
Accrued severance pay		2,542	2,504	2,744

	-----------	-----------	-------------
TOTAL long-term liabilities	-----------	54,049-----------	62,111-------------		56,262
MINORITY INTEREST	-----------	16,614-----------	15,493-------------		16,291
SHAREHOLDERS' EQUITY:
Share capital
Ordinary shares of NIS 1 par value: Authorized: 50,000,000
shares; Issued: 18,068,580, 13,409,566 and 18,014,247
shares as of March 31, 2005 and 2004 and as of December
31, 2004 respectively;
Outstanding: 17,071,180, 12,412,166 and 17,016,847
shares as March 31, 2005 and 2004 and as of December
31, 2004 respectively;		6,595	5,757		6,582
Deferred shares of NIS 1 par value: Authorized, issu1d and
outstanding: 4,500 shares		1	1		1
Additional paid-in capital		82,875	62,810		79,243
Deferred stock-based compensation			(388)	-	(486)
Less - 997,400 Ordinary shares in treasury, at cost			(7,408)		(7,408)	(7,408)
Accumulated deficit	-----------	(29,978)-----------	(24,217)-------------		(31,188)
TOTAL shareholders' equity	-----------	51,697-----------	36,761-------------		46,744
TOTAL liabilities and shareholders' equity	===========	$ 192,479	===========	$ 200,353	$=============	191,531
-5-

| | | | | || | | | | | | | | | | | | | | | | | | | | | | |

CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. DOLLARS IN THOUSANDS

THREE MONTHS ENDED MARCH 31, YEAR ENDED --------------------------- DECEMBER 31, 2005 2004 2004 ----------- ----------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 1,210 $ 106 $ (6,865) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation, amortization and impairment of property, plant and equipment 2,305 2,318 10,760 Amortization of deferred stock-based compensation 98 - 554 Loss related to conditional obligation - - 150 Accrued severance pay, net (124) 31 380 Decrease (increase) in deferred income taxes, net 283 751 (853) Realization of pre-acquisition acquired operating losses - - 489 Gain on sale of property and equipment, net (18) (3) 28 Minority interest in earnings of a subsidiary 454 570 1,945 CHANGES IN OPERATING ASSETS AND LIABILITIES: Decrease (increase) in trade receivables, net (3,728) (1,606) 3,515 Decrease (increase) in other accounts receivable and prepaid expenses (504) 422 65 Decrease (increase) in inventories 3,152 (568) (1,461)

accrued expenses 694 395 (1,231)

Increase (decrease) in trade payables 1,245 36 (567)

Increase (decrease) in other accounts payable and

Net cash provided by operating activities-----------		5,067-----------	-------------	2,452		6,909
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(1,748)		(2,002)		(8,950)
Investment grants received		337	312		1,156
Proceeds from sale of property, plant and equipment			37	22		422
Acquisition of Macro Clothing-----------		(83)-----------	--------------		(106)
Net cash used in investing activities-----------		(1,457)-----------	-------------	(1,668)		(7,478)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term bank loans and other loans			(2,257)		(3,777)
(9,854)
Payments under capital lease		(86)	(621)		(1,488)
Increase (decrease) in short-term bank credit, net			52	(325)		(9,276)
Dividend paid to minority interest in subsidiaries		(131)		(129)		(706)
Proceeds from exercise of stock options, net		191		-		-
Proceeds from issuance of shares and conditional
obligation, net-----------	-	------------	-------------	19,704
Net cash used in financing activities-----------		(2,231)-----------	-------------	(4,852)		(1,620)
Increase (decrease) in cash and cash equivalents(2,189)			1,379	(4,068)
Cash and cash equivalents at beginning
of period-----------	3,558	6,877-----------	-------------	5,747

Cash and cash equivalents at end of period			$	4,937	$	2,809	$
3,558
		===========		===========			=============


		THREE MONTHS ENDED
		MARCH 31,				YEAR ENDED
		---------------------------				DECEMBER 31,
	2005		2004		2004
	-----------		-----------		-------------
(a) CASH PAID DURING THE PERIOD FOR:

Interest	$	1,312	$	1,067	$	2,809
		===========		===========			=============

Income taxes, net of refunds received				42		4.5	272
		===========		===========			=============


b) SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES

Purchase of property, plant and equipment

by credit, net of investment grants receivables			$	745	$	987	$	490
		===========		===========			=============

-6-

| | | | | | | || | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CALCULATION OF EBITDA | | | | | | | | |

THREE MONTHS ENDED

		MARCH 31,	YEAR ENDED
	---------------------------		DECEMBER 31,
	2005	2004	2004
	-----------	-----------	-------------

Income (loss) before taxes on income		2,373	1,561	$(4,717)
Finance expenses ,net		840	407	5,212
Depreciation , amortization and impairment of propety,
plant and equipment		2,305	2,318	10,760
Amortization of deferred stock compensation			98	554
	-----------	-----------	-------------
	$5,616	$4,286	$11,809
	===========		===========	=============

-7-

EX-2

tex2-6445.txt

EX-2

NEWS

FINANCIAL

RELATIONS BOARD

FOR YOUR INFORMATION RE: TEFRON LTD.

PARK AZORIM 94 DERECH EM HAMAHAVOT PETACH TIKVA 49527 ISRAEL (NYSE: TFR)

Gil Rozen, Chief Financial Officer Marilynn Meek - General Info Tefron Ltd. (212)827-3773 972-3-923-0215 Fax: 972-3-922-9035

FOR IMMEDIATE RELEASE May 2, 2005

TEFRON LTD. SCHEDULES CONFERENCE CALL TO DISCUSS FIRST QUARTER 2005 FINANCIAL RESULTS

PETACH TIKVA, ISRAEL - MAY 2, 2005 - Tefron Ltd. (NYSE:TFR) today announced that it will release first quarter financial results for the quarter ended March 31, 2005 on Monday, May 9, 2005. In conjunction with its release, the Company will host a conference call to discuss the release on Monday, May 9, 2005 at 10:00 a.m. Eastern Time.

Individuals wishing to participate on the conference call can access the live call via the web at WWW.VIAVID.NET or by dialing 800-219-6110, domestically and 303-262-2211, internationally. A replay of the call will be available through May 16, 2005 by dialing 800-405-2236 for domestic callers and 303-590-3000 for international callers. The pass code for the replay is 11029953.

Tefron manufactures boutique-quality everyday seamless intimate apparel sold throughout the world by such name-brand marketers as Victoria's Secret, Target, Warnaco/Calvin Klein, The Gap, Banana Republic, Nike, Mervyn's, Patagonia and Adidas, as well as other well known American retailers and designer labels. The

company's product line includes knitted briefs, bras, tank tops, boxers, leggings, crop, T-shirts, nightwear, bodysuits, swim wear, beach wear and active-wear. The Company's Healthcare Division manufactures and sells a range of textile healthcare products.

This press release contains certain forward-looking statements with respect to the Company's business, financial condition and results of operations. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements, including, but not limited to, fluctuations in product demand, economic conditions as well as certain other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 of The Securities Exchange Act of 1934

For the month of June, 2005

TEFRON LTD.

(Translation of registrant's name into English)

PARK AZURIM, DERECH EIM HAMOSHAVOT 94, PETACH TIKVA 49527, ISRAEL

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F __X__ Form 40-F _____

Yes _____ No __X__

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- N/A

376

Attached hereto and incorporated by reference herein are a Notice of Annual General Meeting of Shareholders and a Proxy Statement, each dated May 25, 2005, for the Annual General Meeting of Shareholders to be held on June 28, 2005.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TEFRON LTD.

(Registrant)

By: /s/ Asaf Alperovitz

Name: Asaf Alperovitz Title: Chief Financial Officer By: /s/ Hanoch Zlotnik

Name: Hanoch Zlotnik Title: Finance Manager

Date: June 22, 2005

EX-1 2 tex1-6796.txt EX-1

TEFRON LTD. PARK AZORIM, 94 DERECH EM HAMOSHAVOT PETACH TIKVA, 49527 ISRAEL

NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS

TO BE HELD ON TUESDAY, JUNE 28, 2005

Dear Shareholder,

You are cordially invited to attend the Annual General Meeting of the shareholders of Tefron Ltd. (the "Company") to be held at the Company's offices located at Park Azorim, 94 Derech Em Hamoshavot, Petach Tikva, Israel on Tuesday, June 28, 2005, at 11:00 a.m., local time, for the following purposes:

1. to receive and consider the Report of Directors, the Financial Statements of the Company and the Auditors' Report for the fiscal year ended December 31, 2004;
1. to re-elect Arie Wolfson, Yosef Shiran, Meir Shamir, Micha Korman and Shirith Kasher, and to elect Ishay Davidi and Avi Zigelman, as Company directors;
1. to approve the directors' fees;
1. to approve the extension of the term of the options granted to Taly Oren-Blazer, a former director of the Company;
1. to ratify the appointment of Kost Forer & Gabbay, a member firm of Ernst & Young International, as auditors of the Company for the year ending December 31, 2005 and for the period until the next Annual General Meeting of the shareholders, and authorize the Board of Directors, upon recommendation of the Audit Committee, to determine the auditors' compensation; and
1. To conduct such other business as may properly come before the Annual General Meeting or any adjournments or postponements thereof.

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.

The Board of Directors has fixed the close of business on May 20, 2005 as the record date for the determination of shareholders entitled to receive notice of, and to vote at, the Annual General Meeting.

Whether or not you plan to attend the Annual General Meeting, you are urged to promptly complete, date and sign the enclosed proxy, and mail it in the enclosed envelope which requires no postage if mailed in the United States. Return of your proxy does not deprive you of your right to attend the Annual General Meeting and vote your shares in person.

Pursuant to the Articles of Association of the Company, a proxy will be effective only if received by the Company at least two hours prior to the time of the Annual General Meeting. By Order of the Board of Directors,

ARIE WOLFSON Chairman of the Board of Directors May 25, 2005 Petach Tikva, Israel

TEFRON LTD. PARK AZORIM, 94 DERECH EM HAMOSHAVOT PETACH TIKVA, 49527 ISRAEL

PROXY STATEMENT

ANNUAL GENERAL MEETING OF SHAREHOLDERS

This Proxy Statement is furnished to shareholders in connection with the solicitation by the Board of Directors of Tefron Ltd. (the "Company" or "Tefron") of proxies to be voted at the Annual General Meeting (the "Meeting") of the shareholders of the Company to be held on Tuesday, June 28, 2005 at 11:00 a.m., local time, at the Company's offices located at Park Azorim, 94 Derech Em Hamoshavot, Petach Tikva, Israel and at any adjournments or postponements thereof. A copy of the Notice of Annual General Meeting of Shareholders accompanies this Proxy Statement. This Proxy Statement and the proxies solicited hereby are first being sent or delivered to the shareholders on or about May 27, 2005.

SOLICITATION OF PROXIES

If a proxy in the enclosed form is duly executed and returned, the Company's ordinary shares, par value NIS 1.00 per share (the "Ordinary Shares"), represented thereby will be voted. If specification is made by the shareholder on the form of proxy, the Ordinary Shares represented thereby will be voted in accordance with such specification. Subject to applicable law and the rules of the New York Stock Exchange, if no specification is made, the persons named in the accompanying proxy will vote the Ordinary Shares represented thereby (i) for the election as directors of the nominees named herein, (ii) for the approval of the directors' fees as set forth herein, (iii) for the approval of extension of the expiration date of the options granted to Taly Oren-Blazer; and (iv) for the ratification of the appointment of the firm of Kost Forer & Gabbay, a member firm of Ernst & Young International, as auditors of the Company for the year ending December 31, 2005 and for the period until the next Annual General Meeting of the shareholders and authorization of the Board of Directors, upon recommendation of the Audit Committee, to determine the auditors' compensation.

Any shareholder may revoke his proxy by delivering a subsequently dated proxy or by giving written notice of revocation to the Chairman of the Board of Directors at any time prior to two hours before the time of the Meeting or by voting in person at the Meeting. However, if the shareholder attends the Meeting and does not elect to vote in person, his proxy will not be revoked.

Pursuant to the provisions of the Articles of Association of the Company, a proxy will be effective only if it is received by the Company at least two hours prior to the time of the Meeting.

THE BOARD OF DIRECTORS DOES NOT KNOW OF ANY MATTER, OTHER THAN THOSE SET

FORTH HEREIN, THAT IS EXPECTED TO BE PRESENTED FOR CONSIDERATION AT THE MEETING.

HOWEVER, IF OTHER MATTERS PROPERLY COME BEFORE THE MEETING, THE PERSONS NAMED IN

THE ACCOMPANYING PROXY ARE AUTHORIZED TO VOTE ON SUCH MATTERS USING THEIR

DISCRETION.

RECORD DATE; OUTSTANDING VOTING SECURITIES; VOTING RIGHTS

Only shareholders of record at the close of business on May 20, 2005 will be entitled to receive notice of, and vote at, the Meeting and any adjustments or postponements thereof. As of May 20, 2005, 17,936,453 Ordinary Shares were issued, outstanding and eligible to vote at the Meeting. This number does not take into account 997,400 ordinary shares held by a wholly-owned subsidiary of the Company, which are considered part of the equity of the Company, but are not eligible to be voted at the Meeting (the "Equity Shares"). At the Meeting, each shareholder of record will be entitled to one vote for each Ordinary Share held by him in respect of each matter to be voted upon.

The presence, in person or by proxy, of at least two persons entitled to vote upon the business to be transacted at the Meeting, and holding or representing in the aggregate more than 25% of the voting power of the Company, is necessary to constitute a quorum at the Meeting. On all matters considered at the Meeting, abstentions and broker non-votes will be treated as neither a vote "for" nor "against" the matter, although they will be counted in determining whether a quorum is present.

The Company will bear the cost of soliciting proxies. Solicitation of proxies will be primarily by mail, but proxies may also be solicited by directors, officers, and employees of the Company (who will not be specifically compensated for such services) by telephone or otherwise. Brokerage houses and other custodians, nominees, and fiduciaries which forward proxies and proxy

materials to beneficial owners of Ordinary Shares will be reimbursed for their expenses by the Company for doing so.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

MAJOR SHAREHOLDERS

The following table sets forth the number of the Company's Ordinary Shares owned by any person known to the Company to be the beneficial owner of 5% or more of the Company's Ordinary Shares as of May 20, 2005. The information in this table is based on 17,936,453 Ordinary Shares outstanding as of such date but does not take into account the Equity Shares referred to above. The number of Ordinary Shares beneficially owned by a person includes Ordinary Shares subject to options held by that person that were currently exercisable at, or exercisable within 60 days of, May 20, 2005. The Ordinary Shares issuable under these options are treated as if they were outstanding for purposes of computing the percentage ownership of the person holding these options but are not treated as if they were outstanding for the purposes of computing the percentage ownership outstanding for any other person. None of the holders of the Ordinary Shares listed in this table have voting rights different from other holders of the Ordinary Shares.

4

NAME	NUMBER OFSHARES OWNED	PERCENT OFORDINARY SHARES*
- --------------------------------------------------------------------------------Norfet, Limited Partnership	5,663,085 (1)	31.6%
c/o Fimi 2001 Ltd.Rubinstein House
37 Begin Rd.Tel Aviv, Israel
Macpell Industries Ltd.	3,777,110 (2)	21.1%

28 Chida Street Bnei Brak, Israel 51371

Discount Investment Corporation Ltd .... 1,916,866 (3) 7.1% Azrieli Center 3, Triangular Building Tel Aviv, Israel 67023

Arie Wolfson ........................... 4,898,492 (4) 27.3% Sigi Rabinowicz......................... 4,071,451 (5) 22.7% Leber Partners, L.P. ................... 1,276,882 7.1% Zvi Limon 95 Avenue Kleber Paris, France 75116

* Does not take into account 997,400 Ordinary Shares held by a wholly owned subsidiary of the Company.

(1) Norfet L.P is an Israeli partnership. As of May 20, 2005, 51.963% of Norfet was held by FIMI Israel, Opportunity Fund, Limited Partnership, and 34.449% was held by Mivtach Shamir Holdings Ltd.. Pursuant to Rule 13d-5 of the U.S Exchange Act, Norfet may also be deemed to beneficially own the shares held by Macpell and Arwol due to the shareholders agreement between Arwol, Macpell and Norfet. In addition, pursuant to Rule 13d-5, Mr. Meir Shamir, a director in the Company, may be deemed to beneficially own the shares held by Norfet due to his 40% interest in Mivtah-Shamir.
(2) Macpell is an Israeli corporation. As of May 20, 2005, Arwol Holdings Ltd., an Israeli company wholly-owned by Arie Wolfson, the Company's Chairman of the Board, held 27.8% of Macpell; Riza Holdings Ltd., an Israeli company wholly-owned by Sigi Rabinowicz, held 25.0% of Macpell; and Condo Overseas Inc., a Panamanian company wholly-owned by Avi Ruimi, held 25.8% of Macpell, representing 78.7% of Macpell's shares in the aggregate. The aggregate number of Macpell's shares outstanding as of May 20, 2005 was 15,561,284 (included 398,651 shares held by New Net Holdings Ltd, a wholly owned subsidiary of Macpell). Pursuant to Rule

13d-5 of the U.S Exchange Act, Macpell may also be deemed to beneficially own the shares held by Norfet due to the shareholders agreement between Arwol, Macpell and Norfet. See "Shareholders Agreement" below.

(3) Consists of 958,433 shares held by Discount Investment Corporation Ltd. ("DIC") and 958,433 shares held by PEC Israel Economic Corporation ("PEC"), a wholly owned

5

subsidiary of DIC. DIC is controlled by IDB Development Corporation Ltd. ("IDB Development"). IDB Development is controlled by IDB Holding Corporation Ltd. ("IDBH"). DIC, IDB Development and IDBH are public companies traded on the Tel Aviv Stock Exchange.

In addition to the shares of IDBH owned by Ganden Investments, Manor

Holdings and Livnat Holdings, as at May 20, 2005: (i) Ganden Holdings itself owned directly approximately 6.44% of the outstanding shares of IDBH, (ii) Shelly Bergman owned, through a private Israeli company wholly owned by her, approximately 6.54% 7.23% of the outstanding shares of IDBH, (iii) Manor Holdings owned directly approximately 0.03% of the outstanding shares of IDBH and (iv) Livnat Ltd. owned directly approximately 0.04% of the outstanding shares of IDBH. These additional holdings of shares of IDBH are not subject to the Shareholders Agreement referred to above.

Nochi Dankner is Chairman and CEO of IDBH, and chairman of IDB Development and DIC. Shelly Bergman, Isaac Manor (the husband of Ruth Manor), Dori Manor (a son of Isaac and Ruth Manor) and Zvi Livnat (a son of Avraham Livnat) are directors of each of IDBH, IDB Development and DIC. Shai Livnat (a son of Avraham Livnat) is a director of IDB Development.

(4) Includes (a) 3,777,110 Ordinary Shares held by Macpell, (b) 971,282 Ordinary Shares held by Arwol, (c) 150,000 Ordinary Shares subject to options exercisable at $3.50 per share (which expire in 2012) and (d) 100 Ordinary Shares held by Mr. Wolfson. Pursuant to Rule 13d-5 of the Securities Exchange Act of 1934, as amended, Mr. Wolfson may be deemed to beneficially own the 3,777,110 Ordinary Shares held by Macpell due to his beneficial interest in Macpell and the Macpell Shareholders' Agreement. Does not include 2,250 Deferred Shares held by Mr. Wolfson. The Deferred Shares are non-transferable and entitle their holders, upon the liquidation of the Company, to the par value of the shares but to no voting, dividend or any other rights.
(5) Consists of (i) 3,777,110 Ordinary Shares held by Macpell, and (ii) exercisable options to purchase 294,341 Ordinary Shares at prices that are between $3.50 and $9.50 per share (which expire between 2009 and 2012). Pursuant to Rule 13d-5 of the U.S. Securities Exchange Act of 1934, as amended, Mr. Rabinowicz may be deemed to beneficially own the 3,777,110 Ordinary Shares held by Macpell due to his beneficial interest in Macpell and the Macpell Shareholders' Agreement. Does not include 2,250 Deferred Shares held

6

by Mr. Rabinowicz. The Deferred Shares are non-transferable and entitle their holders, upon the liquidation of the Company, to the par value of the shares but to no voting, dividend or any other rights.

DIRECTORS AND SENIOR MANAGERS

As of May 20, 2005, the following directors and senior managers beneficially held the number of Ordinary Shares set forth in the table below. The information in this table is based on 17,936,453 Ordinary Shares outstanding as of May 20, 2005. The number of Ordinary Shares beneficially owned by a person includes Ordinary Shares subject to options held by that person that were currently exercisable at, or exercisable within 60 days of May 20, 2005. The Ordinary Shares issuable under these options are treated as if they were outstanding for purposes of computing the percentage ownership of the person holding these options but are not treated as if they were outstanding for the purposes of computing the percentage ownership outstanding for any other person. Except as disclosed below, to the Company's knowledge, none of the directors or senior managers beneficially owns any Ordinary Shares.

			% OF ORDINARY
	NUMBER OF		SHARES
NAME	ORDINARY SHARES		OUTSTANDING**
- --------------------------------------------------------------------------------Arie Wolfson	4,898,492(1)		27.3%
Yos Shiran	553,750(2)		3%
Ishay Davidi	5,663,085(3)		31.6%
Talya Hanan	*	*
Micha Korman	*	*
Gil Rozen	*	*
Meir Shamir	5,663,085(4)		31.6%
Yacov Elinav	*	*
Arie Arieli	*	*

Itamar Harchol	*	*
Margalit Shahar	*	*
Zvi Avigad	*	*
Amit Eshet	*	*
Ilan Gilboa	*	*

Directors and senior managers

as a group (14 persons)	11,432,557 (5)	63.7%
-------------------------	----------------	-------

* Less than 1% of the outstanding Ordinary Shares.

** Does not take into account 997,400 Ordinary Shares held by a wholly owned subsidiary of the Company.

(1) Includes (a) 3,777,110 Ordinary Shares held by Macpell, (b) 971,282 Ordinary Shares held by Arwol Holdings Ltd., (c) 150,000 Ordinary Shares subject to options exercisable at $3.50 per share (which expire in 2012), and (d) 100 Ordinary Shares held by Mr. Wolfson. Pursuant to Rule 13d-5 of the U.S. Securities Exchange Act of 1934, as amended, Mr. Wolfson may be deemed to beneficially own the 3,777,110 Ordinary Shares held by Macpell and the 971,282 Ordinary Shares held by Arwol. See "Macpell Shareholders Agreement" below. The table above does not include 2,250 Deferred Shares (representing 50% of the outstanding Deferred Shares) held by Mr. Wolfson. The Deferred Shares are non-transferable and entitle their holders, upon the Company's liquidation, to the par value of the shares but to no voting, dividend or any other rights.

(2) Consists of 540,208 Ordinary Shares subject to options exercisable at prices that are between $3.50 and at $3.56 per share (which expire between 2011 and 2012).

(3) Consist of 5,663,085 Ordinary Shares held by Norfet, which Mr. Davidi may be

deemed to beneficially own due to his position as CEO of FIMI and his control interest in FIMI Israel Opportunity Fund, Limited Partnership ("FIMI"), which held an approximately 51.963% interest in Norfet as of May 20, 2005.

(4) Consists of 5,663,085 Ordinary Shares held by Norfet, which Mr. Shamir may be deemed to beneficially own due to his 40% interest in Mivtah-Shamir, which held an approximately 35.5% interest in Norfet as of May 20, 2005.

(5) Consists of 5,663,085 Ordinary Shares held by Norfet, which (i) Meir Shamir may be deemed to beneficially own under U.S securities laws due to his 40% interest in Mivtah-Shamir, which held an approximately 35.5% interest in Norfet as of May 20, 2005 and (ii) Ishay Davidi may be deemed to beneficially own under US securities laws due to his position as CEO of FIMI and his control interest in FIMI, which held an approximately 51.9% in Norfet as of May 20, 2005. Also include 3,777,110 Ordinary Shares held by Macpell of which Arie Wolfson may be deemed to be beneficial owner under U.S. securities laws due to his beneficial interests in Macpell and the Macpell Shareholders' Agreement. See "Macpell Shareholders Agreement" below. Also includes 971,282 Ordinary Shares held by Arwol of which Arie Wolfson may be deemed beneficial owner under U.S. securities laws. Further includes options (exercisable within 60 days) to purchase 1,021,080 Ordinary Shares. The exercise price of these options ranges from $3.50 to $9.50 per share. The expiration of these options ranges from 2007 to 2013.

EXECUTIVE COMPENSATION

The aggregate direct remuneration paid to all Directors and senior management as a group for services in all capacities for the year ended December 31, 2004 was approximately $2.2 million, of which $100,000 was paid to Directors in their capacities as Directors. This amount includes $150,000 which was set aside or accrued to provide pension, retirement or similar benefits. The amount does not include any amounts expended by the Company for automobiles made available to its officers, expenses (including business travel and professional and business association dues and expenses) reimbursed to officers and other fringe benefits commonly reimbursed or paid by companies in Israel and $118,000 in management fees paid to Norfet.

In 2004, the Company granted options for 730,000 Ordinary Shares under the Share Option Plan, of which 720,000 were granted to Directors and senior managers. Such options have an average exercise price of $4.264 per share and expire in 2014. Options for 115,768 Ordinary Shares under the Share Option Plan expired or were cancelled during 2004.

SHAREHOLDERS AGREEMENT

Under a shareholders agreement entered into on February 17, 2004 (the "Shareholders Agreement"), Arwol Holdings Ltd., Macpell Industries Ltd. and Norfet Limited Partnership agreed to meet regularly and in any event prior to each General Meeting of shareholders of the Company and to review, discuss and attempt to reach a unified position with respect to principal issues on the agenda of each such meeting. The parties clarified that this should not be interpreted as forcing any party to act or vote according to any position stated at such prior meeting. Under the Shareholders Agreement, the parties further agreed upon the composition of the Company's board of directors, the identity of the chairman of the board of directors and to appoint an executive committee for advisory purposes.

COMPOSITION OF THE BOARD OF DIRECTORS. Arwol, Macpell and the Norfet Limited Partnership agreed to vote all of the Company ordinary shares owned or controlled by each of them for the election to the Company's Board of Directors of: (i) three members (of whom at least one will qualify as an "independent director" under the NYSE rules) and, subject to applicable law - one external director, that shall be nominated by the Norfet Limited Partnership (one of whom shall be a woman and one of whom shall be a financial expert), (ii) three members (of whom at least one will qualify as an independent director under the NYSE rules)and, subject to applicable law, one external director, that shall be nominated by Arwol and Macpell, and (iii) the Company's chief executive officer.

CHAIRMAN OF THE BOARD OF THE COMPANY. Arwol, Macpell and Norfet Limited Partnership confirm in the Macpell Agreement that Arie Wolfson has agreed to remain as Chairman of the Board until the Company's first Annual General Meeting

of Shareholders in calendar year 2005 (to be convened by no later than July 31, 2005). Subject to the provisions of applicable law, on or before such shareholders meeting, Arwol, Macpell and Norfet Limited Partnership will endeavor to agree on the identity of the Chairman as of and following such shareholders meeting; PROVIDED, HOWEVER, that in the event they are unable to agree on the identity of the Chairman, each of Norfet Limited Partnership, on the one hand, and Macpell and Arwol, on the other hand, will be entitled to designate the Chairman for an 18 month period, provided that Norfet Limited Partnership will be the first to exercise such right commencing from the Company's first Annual General Meeting of Shareholders in the year 2005.

As of the date of this Proxy Statement, Arwol, Macpell and Norfet Limited Partnership have not agreed on the identity of the new Chairman of the Board as of and following the Meeting.

For more information about the Shareholders Agreement, please see the Company's Annual Report on Form 20-F filed with the Securities and Exchange Commission on April 21, 2005.

MACPELL SHAREHOLDERS AGREEMENT

Arwol Holdings Ltd., Riza Holdings Ltd. and Condo Overseas Inc. are parties to the Macpell Shareholders Agreement, dated as of December 28, 1999. The agreement provides, among other things, that subject to the agreement of the shareholders in Tefron, the distribution of the directors on Tefron's Board will reflect the direct and indirect holdings in Tefron (including through Macpell) of the parties to the agreement.

The Macpell Shareholders' Agreement provides, among other things, that so long as Mr. Wolfson's direct or indirect holdings in Tefron are larger than those of Avi Ruimi, Arie Wolfson and Sigi Rabinowicz will each be entitled to vote for two Directors of Tefron, and Mr. Ruimi will be entitled to vote for one Director of Tefron. In any other case, the distribution of the Directors on

Tefron's Board will reflect the direct and indirect holdings (including through Macpell) of the parties in Tefron.

Pursuant to the Macpell Shareholders' Agreement, the Ordinary Shares of Macpell held by the parties thereto will be voted at each meeting of Macpell's shareholders by the trustee in accordance with the resolution of the shareholders party to the agreement, each shareholder having one vote for each Macpell share held by such shareholder.

PROPOSAL ONE ELECTION OF DIRECTORS

At the Meeting, shareholders will be asked to elect seven persons to serve as directors of the Company, who, together with the Company's two external directors, whose terms will not expire until July 30, 2006 and July 15, 2007, respectively, will constitute the entire nine-member Board of Directors. As of the date of this proxy statement, all of the nominees listed currently serve as directors of the Company other than Ishay Davidi and Avi Zigelman. Each of the seven nominees is nominated to serve as a director until the end of the next Annual General Meeting. Following their appointment, the directors will elect one of the Directors to serve as Chairman of the Board of Directors.

It is the intention of the persons named in the proxy to vote for the election of the persons named below. If any nominee is unable or unwilling to serve (which the Board of Directors does not anticipate), the persons named in the proxy will vote in their discretion for another person.

The following information is supplied with respect to each person nominated and recommended to be elected to the Board of Directors of the Company and is based upon the records of the Company and information furnished to it by the nominees. Reference is made to "Security Ownership of Certain Beneficial Owners and Management" for information pertaining to stock ownership of certain of the nominees.

The nominees to serve on the Board of Directors are:

NAME	AGE	CURRENT POSITION WITH COMPANY
-------		-----------------------------
Arie Wolfson	43	Chairman of the Board (1)
Yosef Shiran	43	Chief Executive Officer and Director
Meir Shamir	53	Director
Ishay Davidi	43	(2)
Micha Korman	50	Director
Shirith Kasher	37	Director
Avi Zigelman	49	(2)

(1) Pursuant to an agreement among Arwol, Macpell and Norfet Limited Partnership, Mr. Wolfson will cease to serve as Chairman of the Board on and as of the date of the Meeting, and the parties to such agreement will endeavor to agree on the identity of the Chairman. See "Shareholders Agreement" above.

(2) Messrs. Davidi and Zigelman do not currently hold positions with the Company.

ARIE WOLFSON joined Tefron in 1987 and has served as Chairman of the Board of Directors since August 2002. Mr. Wolfson will cease to serve as Chairman of the Board on and as of the date of the Meeting, but will continue to serve as a director. He also served as Chairman of the Board of Directors from 1997 to 2000, and as President from 1993 to 2000. Mr. Wolfson served as Chief Financial Officer from 1988 to 1990 and Assistant to the Chief Executive Officer from 1990 to 1993. Mr. Wolfson has also served as Chairman of Macpell Industries Ltd., a principal shareholder in Tefron, since 1998 and served as Chief Executive Officer of Macpell from 1998 until March 2003. Mr. Wolfson is a graduate of High Talmudical Colleges in the United States and in Israel.

ISHAY DAVIDI serves as a CEO and a senior partner of First Israel Mezzanine Investors Ltd. and of FIMI 2001 Ltd, as a chairman of Tadir-Gan (Precision Products) 1993 Ltd, and as a director at Lipman Electronic Engineering Ltd, Caesarea Creation Industries Ltd, Medtechnica Ltd, Tedea Development & Automation Ltd, TAT Technologies Ltd and Formula Systems, Ltd. Mr. Davidi was also the former CEO of the Tikvah VC Fund. Mr. Davidi holds a B.Sc in Industrail and Management Engineering and an MBA

SHIRITH KASHER was elected as a director of the Company on March 31, 2004 and is the CEO of Shefa Yamim Finance Ltd. From 2001 to March 31, 2005, Ms. Kasher was the General Counsel and Secretary of The Israel Phoenix Assurance Company Ltd. and the General Counsel of Atara Investment Company Ltd. and Atara Technology Ventures Limited (both from the Phoenix Group) . From 1997 to 2000, Ms. Kasher worked at S. Horowitz & Co., first as an Articled Clerk and then as an Advocate. Ms. Kasher holds a B.Sc., from the Human Genetics department of the Sackler Medical School, and an LLB, all from Tel Aviv University and is admitted to practice law in Israel.

AVI ZIGELMAN serves as a director in the following companies: Plastro Irrigation 1971 Ltd., Hafenix Gemel Ltd., Fox Vizel Ltd., DCL Technologies Ltd. and Abe Trans Ltd. Mr. Zigelman served between 1996 and 2003 as a senior partner and head of the professional practice department KPMG Somekh Chaikin Accounting Firm in Tel Aviv, between 1994 and 1995 Mr. Zigelman served as a deputy managing director in Capital Holdings, and between 1985 and 1993 - as a head of professional practice departments in various accounting firms. Mr. Zigelman holds a B.A in Accounting and Economics, Economics with honors, Post degree Accounting Studies, with honors, Certified Public Accountant and M.A. in Business Economics, specialization in Finance, with honors - all from Tel Aviv University. It is proposed that at the Meeting, the following Resolution be adopted:

"RESOLVED, that each of Arie Wolfson, Yosef Shiran, Meir Shamir, Micha Korman, Shirith Kasher, Ishay Davidi and Avi Zigelman be, and hereby is, elected to hold office as a director of the Company until the close of the next Annual General Meeting."

The affirmative vote of holders of a majority of the Ordinary Shares represented at the Meeting in person or by proxy and voting thereon is necessary for approval of this resolution.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ARIE WOLFSON, YOSEF SHIRAN, MEIR SHAMIR, MICHA KORMAN, SHIRITH KASHER, ISHAY DAVIDI

AND AVI ZIGELMAN AS DIRECTORS OF THE COMPANY.

PROPOSAL TWO

APPROVAL OF DIRECTORS' FEES

Under the Companies Law, shareholders must approve the payment of compensation and fees to directors of the Company.

Following approval by the Audit Committee and by the Board of Directors, in accordance with the Companies Regulations (Relief from Related Party Transactions), 2000, shareholders will be asked at the Meeting to approve directors' fees, which are the same as the fees for 2004,

12

of NIS 2,000 (approximately $457) per meeting of the Board of Directors and an annual fee in the amount of NIS 50,000 (approximately $11,428) to each of our current and future directors who (i) is not an External Director (as defined in the Companies Law), (ii) is not deemed to be a controlling shareholder or (iii) does not hold a position with the Company or otherwise provide consulting services to the Company, until revised directors' fees are approved by our shareholders at a general meeting. Our shareholders have previously approved the same directors' fees for our External Directors.

It is proposed that at the Meeting, the following Resolution be adopted:

"RESOLVED, that the proposed fees to be paid to each of our current and future directors who (i) is not an External Director, (ii) is not deemed to be a controlling shareholder or (iii) does not hold a position with the Company or otherwise provide consulting services to the Company be, and hereby are, approved."

The affirmative vote of the holders of a majority of the Ordinary Shares represented at the Meeting in person or by proxy and voting thereon is necessary for approval of this resolution. Since certain of the nominees to the Board of Directors of the Company are deemed to be "Controlling Persons" of the Company, as defined by the Companies Law, pursuant to the Companies Regulations (Relief from Related Party Transactions), 2000, if one or more shareholders holding in the aggregate at least 1% of the issued share capital or the voting rights in the Company notify the Company in writing, on or prior to the seventh day following the publication of this Proxy Statement about his/their objection to the resolution, the approval of the resolution will require that either: (i) the majority of shares voting at the Meeting includes at least one third (1/3) of the shares of shareholders who do not have a personal interest in the approval of the resolution and who are voting in person or by proxy, at the Meeting (without taking into account abstentions); or (ii) the total number of shares voted against the proposal by shareholders without a personal interest does not exceed one percent (1%) of the aggregate voting rights in the Company.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE DIRECTORS' FEES AS SET FORTH ABOVE.

PROPOSAL THREE

APPROVAL OF EXTENSION OF TERM OF OPTIONS HELD BY TALY OREN-BLAZER

At the Meeting, shareholders will be asked to approve the extension until July 31, 2013 of the term of 8,000 options to purchase ordinary shares of the Company previously granted to Taly Oren-Blazer. Ms. Oren-Blazer served as a Director of the Company until March 31, 2004. In consideration of her service to the Company, the Board of Directors has agreed to extend the term of the options of Ms. Oren-Blazer, subject to shareholder approval.

It is proposed that at the Meeting, the following Resolution be adopted:

"RESOLVED, that the term of the 8,000 options to purchase shares of the Company held by Taly Oren-Blazer be extended until July 31, 2013 and the 1997 Share Option Plan shall be deemed amended accordingly only with respect to Ms. Oren-Blazer.

The affirmative vote of the holders of a majority of the Ordinary Shares represented at the Meeting in person or by proxy and voting thereon is necessary for approval of this resolution

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE EXTENSION OF THE EXPIRATION DATE OF THE OPTIONS AS SET FORTH ABOVE.

PROPOSAL FOUR

RATIFICATION OF THE APPOINTMENT OF AUDITORS

Shareholders will be asked to approve the appointment of Kost Forer & Gabbay, a member firm of Ernst & Young International, as auditors of the Company for the year ending December 31, 2005 and for the period until the next Annual General Meeting of shareholders and to authorize the Board of Directors to fix the remuneration of the auditors in accordance with the volume and nature of their services, in accordance with the recommendation of the Audit Committee. During the Meeting, the Board of Directors will state the amounts paid to the Company's past auditors for their services in the last year. A representative of Kost Forer & Gabbay is expected to be present at the Meeting and will be given an opportunity to make a statement if (s)he desires to do so and to respond to appropriate questions. Kost Forer & Gabbay, were also the auditors for the Company for the year ended December 31, 2004.

It is proposed that at the Meeting, the following Resolution be adopted:

"RESOLVED, that the appointment of Kost Forer & Gabbay, a member firm of Ernst & Young International, as auditors of the Company for the year ending December 31, 2005 and for the period until the next Annual General Meeting of shareholders, is hereby approved, and the Board of Directors is hereby authorized to fix the remuneration of the auditors in accordance with the volume and nature of their services, in accordance with the recommendation of the Audit Committee."

The affirmative vote of the holders of a majority of the Ordinary Shares represented at the Meeting in person or by proxy and voting thereon is necessary for approval of this resolution.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF KOST FORER & GABBAY A MEMBER FIRM OF ERNST & YOUNG INTERNATIONAL, AS THE COMPANY'S AUDITORS AND AUTHORIZATION OF THE BOARD OF DIRECTORS TO FIX THE REMUNERATION OF THE AUDITORS IN ACCORDANCE WITH THE VOLUME AND NATURE OF THEIR SERVICES, IN

ACCORDANCE WITH THE RECOMMENDATION OF THE AUDIT COMMITTEE.

REVIEW OF THE REPORT OF DIRECTORS, FINANCIAL STATEMENTS AND AUDITORS' REPORT

The Report of Directors for the year ended December 31, 2004 and the audited consolidated Financial Statements of the Company and the Auditors' Report in respect thereof for the year ended December 31, 2004 will be available for review by the Shareholders at the Meeting. In accordance with applicable Israeli law, at the Meeting, the directors will review the Report of Directors, the Financial Statements and the Auditors' Report in respect thereof and will answer appropriate questions relating thereto.

OTHER MATTERS

The Board of Directors knows of no matters that are to be brought before the meeting other than as set forth in the Notice of Annual General Meeting. If any other matter properly comes before the meeting, the persons named in the enclosed form of proxy are authorized to vote on such matter using their discretion.

By Order of the Board of Directors

ARIE WOLFSON Chairman of the Board of Directors May 25, 2005 Petach Tikva, Israel

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 of The Securities Exchange Act of 1934

For the month of August, 2005

TEFRON LTD.

(Translation of registrant's name into English)

IND. CENTER TERADYON, P.O. BOX 1365, MISGAV 20179, ISRAEL

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F __X__ Form 40-F _____

Yes _____ No __X__

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- N/A

Attached hereto and incorporated by reference herein is a press release, dated August 9, 2005, announcing Tefron Ltd.'s second quarter 2005 results.

The press release contains non-GAAP financial measures. In this regard, GAAP refers to generally accepted accounting principles in the United States. Pursuant to the requirements of Regulation G, the Company has provided reconciliations within the press release of the non-GAAP financial measures to the most directly comparable GAAP financial measures. EBITDA represents earnings (loss) before interest, taxes, depreciation and amortization. EBITDA is presented in the earnings release because management believes that it enhances the understanding of our operating results and is of interest to its investors and lenders in relation to its debt covenants, as certain of the debt covenants include adjusted EBITDA as a performance measure. EBITDA, however, should not be considered as an alternative to operating income or income for the period as an indicator of our operating performance. Similarly, EBITDA should not be considered as an alternative to cash flows form operating activities as a measure of liquidity. EBITDA is not a measure of financial performance under generally accepted accounting principles and may not be comparable to other similarly titled measures for other companies.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TEFRON LTD.

(Registrant)

By: /s/ Asaf Alperovitz

Name: Asaf Alperovitz Title: Chief Financial Officer

By: /s/ Hanoch Zlotnik

Name: Hanoch Zlotnik Title: Finance Manager

Date: August 15, 2005

EX-99.1 2 tex99_1-7342.txt EX-99.1

news

FINANCIAL RELATIONS BOARD RE: Tefron Ltd. Ind. Center Teradyon P.O. Box 1365 Misgav 20179 Israel (NYSE: TFR)

AT THE COMPANY AT FINANCIAL RELATIONS BOARD

Asaf Alperovitz Marilynn Meek - General Info. - (212) 827-3773 Chief Financial Officer +972-4-9900803 Fax: +972-4-9900054

TEFRON LTD. REPORTS 2005 SECOND QUARTER AND SIX MONTH RESULTS

o SALES ROSE 9.1% TO $49.8 MILLION FOR THE QUARTER AND 8.4% TO $102.4 MILLION FOR THE SIX MONTHS PERIOD.
o NET INCOME OF $1.5 MILLION FOR THE QUARTER AND $2.7 MILLION FOR THE SIX MONTHS PERIOD.
o STRONG EBITDA AND OPERATING CASH FLOW FOR THE QUARTER OF $6.0 MILLION

AND $6.9 MILLION, RESPECTIVELY.

o STRONG EBITDA AND OPERATING CASH FLOW FOR THE FIRST SIX MONTHS OF $11.7 MILLION AND $12.0 MILLION, RESPECTIVELY.

MISGAV, ISRAEL, AUGUST 9, 2005 -- Tefron Ltd. (NYSE:TFR), one of the world's leading producers of seamless intimate apparel and active wear, today announced financial results for the second quarter and six months ended June 30, 2005.

Sales for the second quarter rose 9.1% to $49.8 million, compared to sales of $45.6 million in the second quarter of 2004. Gross profit for the second quarter was $8.4 million, compared to $7.6 million in the second quarter of 2004. Operating income for the second quarter increased 63.8% to $3.5

million, compared to operating income of $2.1 million in the second quarter of 2004. Net income rose to $1.5 million, or $0.08 per basic and diluted share, for the second quarter of 2005, compared to net income of $90,000, or $0.01 per basic and diluted share, in the second quarter of 2004. Operating cash flow for the second quarter was $6.9 million, compared to $2.9 million for the second quarter of 2004. EBITDA for the second quarter was $6.0 million, compared to $4.6 million in the second quarter of 2004.

The Company reported sales of $102.4 million for the first six months of 2005, up 8.4% compared to sales of $94.5 million for the same period last year. Gross profit for the first six months was $16.7 million, compared to $14.8 million for the same period last year. Operating income increased 62.6% to $6.7 million for the first half of 2005, compared to $4.1 million for the same period last year. Net income for the first six months was $2.7 million, or $0.16 per basic share and $0.15 per diluted share, compared to $196,000, or $0.01 per basic and diluted share, for the same period last year. Operating cash flow for the first six months was $12.0 million, up 121.3% compared to operating cash flow of $5.4 million for the same period last year. EBITDA for the first six months was $11.7 million, up 30.5% compared to EBITDA of $8.9 million for the same period last year.

SALES BY PRODUCT line:

- ----------------------- ------------------------ --------------------- ------------------------- -------------------------	Six months ended			Six months ended			Three months ended	Three
months ended- ----------------------- ------------------------ --------------------- ------------------------- -------------------------	June 30, 2005			June 30, 2004		June 30, 2005		June 30, 2004
	USDmillions	% oftotal	USDmillions total	% of	USDmillions	% oftotal	USDmillions	% oftotal
- ----------------------- ------------- ---------- ---------- ---------- ------------ ------------ ----------- -------------

Intimate Apparel	46.2	45.1	62.0	65.6	21.9	44.0	29.8	65.4
- ----------------------- ------------- ---------- ---------- ---------- ------------ ------------ ----------- -------------Active wear	27.8	27.1	7.7	8.1	15.8	31.8	4.0	8.9
- ----------------------- ------------- ---------- ---------- ---------- ------------ ------------ ----------- -------------Swimwear (*)- ----------------------- ------------- ---------- ---------- ---------- ------------ ------------ ----------- -------------	11.3	11.1	8.0	8.5	3.2	6.4	3.4	7.5
Health care products- ----------------------- ------------- ---------- ---------- ---------- ------------ ------------ ----------- -------------	17.1	16.7	16.9	17.8	8.9	17.9	8.4	18.3
Total- ----------------------- ------------- ---------- ---------- ---------- ------------ ------------ ----------- -------------	102.4	100.0	94.5	100.0	49.8	100.0	45.6	100.0

(*) Seasonal sales

SALES BY SEGMENTS:

- ----------------------- ------------------------ --------------------- ------------------------- -------------------------	Six months ended			Six months ended		Three months ended		Three
months ended	June 30, 2005			June 30, 2004		June 30, 2005		June 30, 2004
- ----------------------- ------------------------ --------------------- ------------------------- -------------------------	USDmillions	% oftotal	USDmillions total	% of	USDmillions	% oftotal	USDmillions	% oftotal
- ----------------------- ------------- ---------- ---------- ---------- ------------ ------------ ----------- -------------Seamless (HiTex)	52.8		51.6	41.6	44.0	28.156.4	20.3	44.4
- ----------------------- ------------- ---------- ---------- ---------- ------------ ------------ ----------- -------------Cut & Sew- ----------------------- ------------- ---------- ---------- ---------- ------------ ------------ ----------- -------------	32.5	31.8	36.0	38.2	12.8	25.7	17.0	37.3
Health	17.1	16.7	16.9	17.8	8.9	17.9	8.4	18.3
- ----------------------- ------------- ---------- ---------- ---------- ------------ ------------ ----------- -------------Total- ----------------------- ------------- ---------- ---------- ---------- ------------ ------------ ----------- -------------	102.4	100.0	94.5	100.0	49.8	100.0	45.6	100.0

Mr. Yos Shiran, Chief Executive Officer, commented, "We are pleased to report year over year growth in both sales and net income for the second quarter and first six months of 2005. We were also happy to report a significant rise in our income from operations, operating cash flow and EBITDA for the quarter and six months.

2

As anticipated, our decrease in sales compared to the first quarter of this year is mainly attributed to lower sales in swimwear due to seasonality."

"The strength of our product line diversification was further established during the quarter. In the second quarter, active wear and swimwear represent 38.2% of our sales, up from approximately 16.4% last year. For the first six months of 2005, active wear and swimwear represented 38.2% of sales, up from approximately 16.6% of sales for the first six months of 2005. As mentioned last quarter, our customer base also changed significantly and it is now comprised of fewer leading customers that reflect our targeted product line diversification.

Last quarter's trend of improving profitability has continued as our Sports Innovation Division generated growth and boosted sales for the Company. Tefron EFP(TM) (ENGINEERED FOR PERFORMANCE) technology has been a driving force in the active wear segment and is yielding positive results in terms of successful product launches and fruitful business relationships with key partners".

Mr. Shiran, added, "In the second quarter we continued to experience operational improvement in our HiTex division. This improvement is expected to increase sales and profitability for the second half of the year, which will be mainly realized in the forth quarter.

"During the quarter we continued shifting our sewing capacity offshore for both our HiTex and Cut & Sew divisions. Our Cut & Sew offshore capacity now accounts for approximately 90% of overall Cut & Sew sewing production. We expect this will further improve our profitability in the second half of the year".

Mr Shiran, concluded, "We are enthusiastic about the growth we are experiencing in sales and profitability, as we benefit from the diversification of our product line, improved performance and focus on our customers' needs. We believe that Tefron's future is promising and we remain focused on increasing our sales

and profitability".

On another note, the Company is considering registration of its shares also in the Tel-Aviv Stock Exchange (TASE). The Company believes that dual listing will increase the trading volume of its shares and allow more flexibility to its investors in terms of trading days and trading hours.

Tefron manufactures boutique-quality everyday seamless intimate apparel, active wear and swim wear sold throughout the world by such name-brand marketers as Victoria's Secret, Nike, The Gap, Banana Republic, Target, Warnaco/Calvin Klein, Patagonia, Reebok and El Corte Englese, as well as other well known retailers and designer labels. The company's product line includes knitted briefs, bras, tank tops, boxers, leggings, crop, T-shirts, nightwear, bodysuits, swim wear, beach wear and active-wear. The Company's Healthcare Division manufactures and sells a range of textile healthcare products.

THIS PRESS RELEASE CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITH RESPECT TO

THE COMPANY'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THESE

FORWARD LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD

CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED IN SUCH

FORWARD-LOOKING STATEMENTS, INCLUDING, BUT NOT LIMITED TO, FLUCTUATIONS IN

PRODUCT DEMAND, ECONOMIC CONDITIONS AS WELL AS CERTAIN OTHER RISKS DETAILED FROM

TIME TO TIME IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY

REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES

AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED.

FINANCIAL TABLES FOLLOW

TEFRON LTD. CONSOLIDATED STATEMENTS OF OPERATONS IN THOUSANDS OF US DOLLARS ( EXCEPT PER SHARE DATA )

			SIX MONTHS ENDED			THREE MONTHS ENDED
		JUNE 30,		JUNE 30,		YEAR ENDED
	--------------------------			-------------------------- DECEMBER 31,
	2005------------ ------------	2004		2005------------ ------------ ------------	2004	2004
	--------------------------			--------------------------

Sales	$102,397		$94,480	$49,778		$45,622
$182,819
Cost of sales		85,688	79,632	41,401		37,987
159,937	------------ ------------			------------ ------------ ------------

Gross profit		16,709	14,848	8,377		7,635	22,882
Selling, general and administrative expenses22,387			10,026	10,739		4,907	5,517
	------------ ------------			------------ ------------ ------------
Operating income495		6,683	4,109		3,470	2,118

Financing expenses, net5,212------------ ------------	1,714	1,744	------------ ------------ ------------	8741,314
Income (loss) before taxes on income(4,717)		4,969	2,365	2,596	804
Taxes on incomeMinority interest in earnings of a subsidiary1,945------------ ------------	1,372	1,188882	663981------------ ------------ ------------	303428	203411
Net income (loss)$(6,865)	$2,715	$196============ ============	$1,505	$90============
============ ============Basic and diluted net income (loss) per share$(0.44)		$0.16============ ============	$0.01	$0.08============	$0.01
============ ============Diluted net earning (loss) per share$(0.44)		$0.15============ ============	$0.01	$0.08============	$0.01
============ ============
Weighted average number of shares used for computingbasic earning (loss) per share17,017,00015,603,904	17,485,251	============ ============	17,017,000	18,936,442============
============ ============
Weighted average number of shares used for computingdiluted earning (loss) per share17,097,21115,603,904	17,744,589	============ ============	17,217,366	19,059,549============
============ ============

| | | | |5

TEFRON LTD. CONSOLIDATED BALANCE SHEETS IN THOUSANDS OF US DOLLARS

2005	2004		2004




			23,972	23,891	21,402
			5,766	6,330	5,696


			73,344	63,793
				2,486
PROPERTY, PLANT AND EQUIPMENT			91,602	97,510	93,931
	30,743			30,743
	376			578
		JUNE 31,UNAUDITEDOther accounts receivable and prepaid expenses28,830	-------------------------------------- --------------------------------------$6,231Trade receivables (net of allowance for doubtful debts)------------ ------------64,799------------ ------------2,426------------ ------------------------ ------------------------ ------------------------ ------------	------------------------33,262------------------------------------------------30,865------------1,090------------	DECEMBER 31,AUDITED$9,861$3,55833,1372,785

411

TOTAL assets		$189,946	$205,594	$191,531
			============ ============	============


		JUNE 30,
		--------------------------	DECEMBER 31,
	2005	2004	2004
		------------ ------------	------------
		UNAUDITED		AUDITED
		--------------------------	------------
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Short-term bank credit		$19,992	$21,236	$21,355
Current maturities of long-term debt:
Loans from banks and other		8,989	10,829	9,039
Capital leases		68	668	206
Trade payables		31,384	28,523	28,991
Conditional obligation with respect to issuance of shares			-	3304	3454
Other accounts payable and accrued expenses			7,689	11,341	9,189
		------------ ------------	------------

TOTAL current liabilities		68,122	75,901	72,234
		------------ ------------	------------

LONG-TERM LIABILITIES:
Banks and other loans (net of current maturities)			43,447	50,144	47,907
Capital leases (net of current maturities)			-67	-
Deferred taxes		6,254	7,799	5,611
Accrued severance pay		2,024	2,593	2,744
		------------ ------------	------------

TOTAL long-term liabilities		51,725	60,603	56,262
		------------ ------------	------------

MINORITY INTEREST		16,845	15,666	16,291
		------------ ------------	------------

SHAREHOLDERS' EQUITY:

Share capital
Ordinary shares of NIS 1 par value:
Authorized: 50,000,000 shares; Issued: 18,944,186,
18,014,247 and 18,014,247 shares as of June 30, 2005
and 2004 and as of December 31, 2004 respectively;
Outstanding: 17,946,786, 18,014,247 and 17,0166,797
shares as of June 30, 2005 and 2004 and as of
December 31, 2004 respectively;		6,797	6,582	6,582
Deferred shares of NIS 1 par value: Authorized,
issued and outstanding: 4,500 shares		1	1	1
Additional paid-in capital	82,715	79,265		79,243
Deferred stock-based compensation		(308)	(889)	(486)
Less - 997,400 Ordinary shares in treasury, at cost		(7,408)	(7,408)	(7,408)
Other comrehensive loss	(70)	-	-
Accumulated deficit	(28,473)	(24,127)		(31,188)
	------------ ------------	------------

TOTAL shareholders' equity	53,254		53,424	46,744
	------------ ------------	------------


TOTAL liabilities and shareholders' equity		$189,946	$205,594	$191,531
	============ ============			============

| | | | || | | | | | | | 6 | | | | | | | | | | | | | | | | | | | | | | | | | | | | CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | U.S. DOLLARS IN THOUSANDS | | | | | | | | | | | | | | | SIX MONTHS ENDED | | | THREE MONTHS ENDED | | | | JUNE 30, | | JUNE 30, | YEAR ENDED | | | | | | | | |

	--------------------------			-------------------------- DECEMBER 31,
	2005	2004	2005		2004	2004
	------------ ------------		(UNAUDITED)	------------ ------------ ------------
				--------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$(6,865)		$2,715	$196	$1,506		$90
ADJUSTMENTS TO RECONCILE NET LOSSTO NET CASH PROVIDED BYOPERATING ACTIVITIES:
Depreciation, amortization and impairment ofproperty, planet and equipment		4,804		4,680	2,467		2,362
10,760
Amortization of deferred stock-based compensation554			178		151	80	151
Loss related to conditional obligation			--		-	-	150
Increase (decrease) in accrued severance pay, net380			(624)	135		(500)	104
Decrease (increase) in deferred income taxes, net			725	794		359	43
(853)
Realization of pre-acquisition acquired operating
losses	-	-	-	-		489
Loss (gain) on sale of property and equipment, net			(31)	191		(13)	194
28
Minority interest in earnings of a subsidiary1,945			882	981	428		411
Decrease (increase) in trade receivables, net			(2,570)	1,026		1,158	2,632
3,515
Decrease (increase) in other accounts receivable and
prepaid expenses		(191)	124	313		(548)	65
Decrease (increase) in inventories(1,461)			4,307	(1,586)	1,155		(1,018)

Increase (decrease) in trade payables(567)	3,247	(1,019)	1,548	(805)
decrease in other accounts payable and accrued
expenses------------ ------------	(1,487)(272)	(1,644)------------ ------------ ------------	(667)	(1,231)
Net cash provided by operating activities6,909------------ ------------	11,955	5,401------------ ------------ ------------	6,857	2,949
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment(3,035)(8,950)	(3,524)	(5,037)	(1,793)
Investment grants received1,156	341	538	52226
Proceeds from sale of property, plant and equipment422		9033	53	11
Acquisition of Macro Clothing------------ ------------	(83)	-------------- ------------ ------------	-	(106)
Net cash used in investing activities(7,478)------------ ------------	(3,176)	(4,466)------------ ------------ ------------	(1,688)	(2,798)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term bank loans and other loans(2,049)(9,854)		(4,510)	(5,826)	(2,253)
Payments under capital lease	(138)	(959)	(52)	(338)
(1,488)
Decrease in short-term bank credit, net	(1,363)	(10,525)	(1,415)	(10,200)
(9,276)
Dividend paid to minority interest in subsidiaries(706)	(328)	(367)	(197)	(238)
Proceeds from exercise of stock options, net	233	-	42	-

Proceeds from issuance of shares and conditional
obligation, net		-	19,726	-		19,726	19,704
Net cash used in financing activities(1,620)	------------ ------------		(6,106)	------------ ------------ ------------2,049		(3,875)	6,901
	------------ ------------			------------ ------------ ------------
Increase (decrease) in cash and cash equivalents7,052(2,189)Cash and cash equivalents at beginning of period2,8095,747			2,6733,558		2,9846,877	1,2944,937
	------------ ------------			------------ ------------ ------------
Cash and cash equivalents at end of period$9,861$3,558	============ ============		$6,231		$9,861	$6,231============
============ ============


	JUNE 30,	SIX MONTHS ENDED		JUNE 30,			THREE MONTHS ENDEDYEAR ENDED
	--------------------------2005	2004		2005	2004		-------------------------- DECEMBER 31,2004
	------------ ------------		(UNAUDITED)	------------ ------------ ------------
(a) CASH PAID DURING THE PERIOD FOR:	--------------------------------------------------------
Interest	$1,752============ ============		$1,726	$440		$659============	$2,809
============ ============
Income taxes, net of refunds received$272	============ ============		$47	$318		$5============	$314
============ ============

b) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Purchase of property, plant and equipment by
credit, net of investment grants receivables	$	-$ 257	$ -	$ -	$
-
	============ ============		============
============ ============

Settlement of a conditional obligation	$3,454	$ -	$ -	$ -	$
-
	============ ============		============
============ ============

| | | | | || 7 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | SIX MONTHS ENDED | | | THREE MONTHS ENDED | | | | JUNE 30, | | JUNE 30, | | YEAR ENDED | | | | -------------------------- | | -------------------------- DECEMBER 31, | | | | | | 2005 | 2004 | 2005 | 2004 | 2004 | | | | ------------ ------------ | | ------------ ------------ ------------ | | | | | | | (UNAUDITED) | | | | | | | | | -------------------------------------------------------- | | | | | | | | | | | | | Income (loss) before taxes on income | | 4,969 | 2,365 | | 2,596 | 804 | | $(4,717) | | | | | | | | | | | | | | | | Finance expenses ,net | | 1,714 | 1,744 | 874 | 1,314 | | | 5,212 | | | | | | |

4,804			2,467	2,362

		151		151
			$4,631	$11,809
Depreciation , amortization and impairment ofAmortization of deferred stock compensation$11,665	------------ ------------------------ ------------	178$8,940	4,680$6,017	80------------ ------------ ------------------------ ------------ ------------

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 of The Securities Exchange Act of 1934

For the month of August, 2005

TEFRON LTD.

(Translation of registrant's name into English)

IND. CENTER TERADYON, P.O. BOX 1365, MISGAV 20179, ISRAEL

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F ___X___ Form 40-F _______

Yes _______ No ___X___

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- N/A

Attached hereto and incorporated by reference herein is management's discussion and analysis of financial condition and results of operations for the fiscal quarter ended June 30, 2005, with respect to the financial statements of Tefron.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TEFRON LTD.

(Registrant)

By: /s/ Asaf Alperovitz

Name: Asaf Alperovitz Title: Chief Financial Officer

By: /s/ Hanoch Zlotnik

------------------------------- Name: Hanoch Zlotnik

Title: Finance Manager

Date: August 31, 2005

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Tefron Ltd. manufactures intimate apparel, active wear and swim wear sold throughout the world by such name-brand marketers as Victoria's Secret, Nike, Target, Warnaco/Calvin Klein, The Gap, Banana Republic, Mervyn's, Patagonia Adidas and Reebok, and other well known American retailers and designer labels. Through the utilization of manufacturing technologies and techniques developed or refined by us, we are able to mass-produce quality garments featuring unique designs tailored to our customers' individual specifications at competitive prices. Our product line includes knitted briefs, bras, tank tops, boxers, leggings, crop, T-shirts, nightwear, bodysuits, swim wear, beach wear and active-wear. Our Healthcare Division manufactures and sells a range of textile healthcare products.

separate machines at separate workstations. Following this single-machine operation, all the Hi-Tex manufacturing process requires to complete the garment is dyeing and a reduced amount of sewing and finishing. Our Hi-Tex manufacturing process enables us to produce a substantially wider range of fabrics, styles and product lines, resulting in a consistently high level of comfort, quality and durability.

The financial information below reflects the operations of the Company and its subsidiaries on a consolidated basis.

THREE MONTHS ENDED JUNE 30, 2005

SALES

Sales for the second quarter ended June 30, 2005 increased by 9.1% to $49.8 million, compared to sales of $45.6 million for the second quarter ended June 30, 2004. This increase in sales was primarily due to an increase in sales of our active wear products which was partially offset by a decrease in our intimate apparel products.

COST OF SALES

Cost of sales consists primarily of materials, certain salaries and related expenses, subcontracting expenses and other overhead expenses related to our manufacturing operations. Cost of sales increased by 9.0% to $41.4 million in the second quarter of 2005 as compared to $38.0 million in the equivalent period of 2004. This increase in cost of sales was primarily due to the increase in sales.

As a percentage of sales, cost of sales in the second quarter of 2005 decreased to 83.2% as compared to 83.3% in the second quarter of 2004.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses consist primarily of costs relating to salaries to employees engaged in sales, marketing, administration and management activities, freight and other administrative costs. Selling, general and administrative expenses decreased by 11.1% to $4.9 million in the second quarter of 2005 as compared to $5.5 million in the equivalent period of 2004 due to improved delivery to our customers and to a decrease in amortization of deferred stock compensation.

As a percentage of sales, selling, general and administrative expenses decreased to 9.9% in the second quarter of 2005 as compared to 12.1% in the second quarter of 2004. This decrease was mainly attributed to a reduction of air freight expenses due to improved delivery to our customers and to a decrease in amortization of deferred stock compensation.

FINANCING EXPENSES, NET

Financing expenses, net, decreased to $0.9 million in the second quarter of 2005 as compared to $1.3 million in the equivalent period of 2004. This decrease in financing expenses was primarily due to the strengthening of the USD as compared to the NIS and the EUR.

INCOME TAXES

Tax expense for the second quarter of 2005 was $0.7 million as compared to $0.3 million for the second quarter of 2004. This increase is a result of an increase in pretax profit which was $2.6 million for the second quarter of 2005 compared to $0.8 million for the second quarter of 2004.

LIQUIDITY AND CAPITAL RESOURCES

During the second quarter of 2005, the company generated $6.9 million of cash flow from operations compared to $2.9 million during the second quarter of 2004. This cash flow was used to repay $3.7 million in bank debt, invest $1.7 million in machinery and equipment, net of grants received, and together with other cash flow activities increased the cash and cash equivalents balance by $1.3 million from $4.9 million at March 31, 2005 to $ 6.2 million at June 30, 2005.

SIX MONTHS ENDED JUNE 30, 2005

SALES

Sales for the six months ended June 30, 2005 increased by 8.4% to $102.4 million, compared to sales of $94.5 million for the six months ended June 30, 2004. This increase in sales was primarily due to an increase in sales of our active wear products and of our swimwear products which was partially offset by a decrease in our intimate apparel products.

COST OF SALES

Cost of sales consists primarily of materials, certain salaries and related expenses, subcontracting expenses and other overhead expenses related to our manufacturing operations. Cost of sales increased by 7.6% to $85.7 million in the first half of 2005 as compared to $79.6 million in the equivalent period of 2004. This increase in cost of sales was primarily due to the increase in sales.

As a percentage of sales, cost of sales in the first half of 2005 decreased to 83.7% as compared to 84.3% in the first half of 2004. This improvement was mainly due to increased efficiency in our Hi-Tex division.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses consist primarily of costs relating to salaries to employees engaged in sales, marketing, administration and management activities, freight and other administrative costs. Selling, general and administrative expenses decreased by 6.6% to $10.0 million in the first half of 2005 as compared to $10.7 million in the equivalent

period of 2004 due to improved delivery to our customers and to a decrease in amortization of deferred stock compensation.

As a percentage of sales, selling, general and administrative expenses decreased to 9.8% in the second quarter of 2005 as compared to 11.4% in the first half of 2004. This decrease was mainly attributed to a reduction of air freight expenses due to improved delivery to our customers and to a decrease in amortization of deferred stock compensation.

FINANCING EXPENSES, NET

Financing expenses, net, were $1.7 million in the first half of 2005, which were at the same level as in the equivalent period of 2004. The finance income increase in the first half of 2005 as a result of the strengthening of the USD as compared to the NIS and EUR was offset by an increase in interest expenses on our long term bank loans due to the refinancing we performed and the increase in the LIBOR.

INCOME TAXES

Tax expense for the first half of 2005 was $1.4 million compared to $1.2 million for the first half of 2004. The main reason for this increase is the increase in pretax profit which was $5.0 million for the second quarter of 2005 compared to $2.4 million for the second quarter of 2004. In addition, the reported tax rate for the first six months of 2004 was higher than the usual tax rate of the company primarily due to a one-time expense related to a reduction of a deferred tax asset in our US subsidiary Alba Waldensian, as a result of an adjustment of our expected utilization of tax losses in light of expected future earnings.

LIQUIDITY AND CAPITAL RESOURCES

During the first half of 2005, the company generated $12.0 million of cash flow from operations compared to $5.4 million during the first half of 2004.

This cash flow was used to repay $6.0 in bank debt, invest $3.2 million in machinery and equipment, net of grants received, and together with other cash flow activities increased the cash and cash equivalents balance by $2.7 million from $3.6 million at December 31, 2004 to $6.2 million at June 30, 2005.

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 2004 REGISTRATION NO. 333 - 115413

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM F-2

PRE-EFFECTIVE AMENDMENT NO. 2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

TEFRON LTD. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

ISRAEL NOT APPLICABLE

(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION INCORPORATION OR ORGANIZATION) No.)

PARK AZURIM DERECH E'M HAMOSHAVOT 94 PETACH TIKVA 49527 ISRAEL (972) 3-923-0215

(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

CSC CORPORATION SERVICE COMPANY 2711 CENTERVILLE ROAD, SUITE 400 WILMINGTON, DE 19808 (302) 636-5450

(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

COPIES TO:

GIL ROZEN RICHARD J. MANN, ADV. Tefron Ltd. Gross, Kleinhendler,Hodak, 28 Chida Street Halevy, Greenberg & Co. Bnei-Brak 51371 One Azrieli Center Israel Tel Aviv 67021 Israel

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

From time

to time after this registration statement becomes effective.

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.[_]

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box.[X]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[_]

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.[_]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

=========================================================================
=======

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED

WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES NOR DOES IT SEEK AN OFFER TO BUY

THESE SECURITIES, IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS, DATED OCTOBER 21, 2004

TEFRON LTD.

2,470,021 ORDINARY SHARES

This prospectus covers the sale of up to 2,470,021 of our ordinary shares (the "Shares"). All of the Shares are being offered and sold by the selling shareholder. The prices at which the selling shareholder may sell the Shares will be determined by the prevailing market price for the Shares or in privately negotiated transactions. Information regarding the selling shareholder and the times and manner in which it may offer and sell the Shares under this prospectus is provided under "Selling Shareholder" and "Plan of Distribution" in this prospectus. The selling shareholder will receive all of the proceeds from the sale of the Shares. The selling shareholder is an underwriter of the Shares.

Our ordinary shares are listed on the New York Stock Exchange under the symbol "TFR". On October 18, 2004, the last reported sale price on the New York Stock Exchange was $4.10 per share.

THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 9.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A

CRIMINAL OFFENSE.

You should rely only on the information incorporated by reference or provided in this prospectus or any supplement. We have not authorized anyone else to provide you with different or additional information. This prospectus may only be used where it is legal to sell these securities. You should not assume that the information in this prospectus or any supplement is accurate as of any date other than the date on the front of those documents.

The date of this Prospectus is October 21, 2004

	PAGE
	----

About this Prospectus	5
The Shares	6
Corporate Information	6
The Company	6
Risk Factors	9
Forward-Looking Statements	21
Use of Proceeds	22
Offering Price	22
Offer and Listing Details	22
Capitalization	23

Notice Regarding Arthur Andersen LLP			24
Selling Shareholder	24
Additional Information		26
Plan of Distribution	27
Regulation M	29
Expenses for the Offering		29
Legal Matters	29
Experts	29
Where You Can Find More Information			30
Incorporation of Certain Documents by Reference				30
Enforceability of Civil Liabilities		31

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we filed with the SEC utilizing a "shelf" registration process. Under this shelf process, the selling shareholder may sell up to 2,470,021 ordinary shares, in one or more offerings. Each time the selling shareholder sells securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. You should read both this prospectus and any prospectus supplement together with the additional information described under the heading "Where You Can Find More Information".

THE SHARES

The Shares covered by this Prospectus are issuable by us pursuant to the

equity line credit facility between us and the selling shareholder entered into on March 9, 2004. We entered into this facility in order to expand the available resources available to us and to decrease our reliance on our existing bank credit facilities. In addition, we expect that by drawing on the equity line credit facility, we will improve our capitalization. We have no other relationship with the selling shareholder.

Under the equity line credit facility, we have an option to call funds of up to the lesser of $15 million or 19.9% of our outstanding share capital over the next three years. Under the financing facility, we will be entitled to issue shares to the selling shareholder from time to time, at our own election, subject to certain minimum and maximum limitations, but in no event will the selling shareholder be obligated to own more than 4.99% of our ordinary shares at any one time. The price to be paid by the selling shareholder will be at a discount of 6% to the market price of our ordinary shares (as calculated under the agreement) during a period prior to the issuance of the shares. The "market price" under the agreement is calculated to be the average of the lowest closing prices for any four trading days (not necessarily consecutive) during the ten trading day period immediately following the date on which we deliver a written notice to the selling shareholder setting forth the dollar amount with respect to which we will require the selling shareholder to purchase our ordinary shares.

Before drawing on the equity line, we must satisfy certain closing conditions, including the effectiveness of a registration statement that we must file relating to the shares to be issued to the selling shareholder. In addition, under our agreement with Norfet, Limited Partnership, we require the consent of Norfet for the issuance of shares under an equity line of credit if such issuance is at a price of less than $4.60 per share unless the issuance is required in order for us to satisfy covenants relating to shareholders equity under company loan agreements or to satisfy certain NYSE listing requirements. In addition, the issuance under the equity line of an aggregate sum of more than 12% of our issued capital will also require the consent of Norfet.

We expect that we will apply any proceeds from the equity line credit facility for investments in knitting, dyeing and sewing machines to expand our production capacity and for working capital to finance expansion of our

operations.

CORPORATE INFORMATION

Our principal executive offices are located at 28 Chida Street, Bnei-Brak 51371, Israel and our telephone number is 972-3-579-8701.

THE COMPANY

Tefron Ltd. was incorporated under the laws of the State of Israel on March 10, 1977. We are subject to the provisions of the Israeli Companies Law, 5759-1999.

6

We manufacture intimate apparel, active-wear and swimwear sold throughout the world by such name-brand marketers as Victoria's Secret, Target, Warnaco/Calvin Klein The Gap, Banana Republic, Nike, Mervin's and as well as other well known American retailers and designer labels. Through the utilization of manufacturing technologies and techniques developed or refined by us, we are able to mass-produce quality garments featuring unique designs tailored to our customers' individual specifications at competitive prices. Our product line includes knitted briefs, bras, tank tops, boxers, leggings, crop, T-shirts, nightwear, bodysuits, swim wear, beach wear and active-wear. Our Healthcare Division manufactures and sells a range of textile healthcare products. These products include: anti-embolism stockings and compression therapy systems, an intermittent pneumatic compression device; sterile wound dressings; and XX-Span(R) dressing retainers, an extensible net tubing designed to hold dressings in place without the use of adhesive tape.

We are known for the technological innovation of our Hi-Tex and cut-and-sew manufacturing process. Our Hi-Tex manufacturing process was implemented as part of our strategy to streamline our manufacturing process and improve the design and quality of our products. The Hi-Tex manufacturing process includes the utilization of a single machine that transforms yarn directly into a nearly complete garment, replacing the knitting, cutting, and significant sewing functions which, in traditional manufacturing, are performed sequentially on separate machines at separate workstations. Following this single-machine operation, all the Hi-Tex manufacturing process requires to complete the garment is dyeing and a reduced amount of sewing and finishing. Our Hi-Tex manufacturing process enables us to produce a substantially wider range of fabrics, styles and product lines, resulting in a consistently high level of comfort, quality and durability. Our fabric engineering, product design and the comfort of our products provide us with an opportunity to expand our sales of active-wear products.

We seek to develop strong relationships with large name-brand marketers of intimate apparel and active-wear and to become their principal supplier for those products we manufacture. We believe that customers are attracted by our manufacturing capabilities, which allow for consistently high-quality merchandise at competitive prices as well as for the capacity to accommodate rapid sales growth. We believe that our collaboration with our customers in the design and development of our products strengthens our relationships with our customers and improves the quality of our products. We began our relationship with Victoria's Secret in 1991, with Banana Republic and The Gap in 1993 and with Warnaco/Calvin Klein in 1994. In 2000, we began our relationship with Target, which was an existing customer of Alba. In 2003, these customers accounted for approximately 58.7% of our total sales.

Below is a summary of significant events in our development:

1990 First bodysize cotton panty with applicated elastics.

1997	Formation of Hi-Tex Founded by Tefron Ltd. and production of first
seamless
	panty.

	Initial public offering of our shares on the NYSE.

1998	Acquisition of a dyeing and finishing facility to achieve greater verticalintegration of our business.

1999	Acquisition of Alba, a manufacturer of seamless apparel and healthcare
products.
	The main purpose of the acquisition of Alba was to acquire additional
production
	capacity, a presence in the United States, direct store distribution capacity, a
	broader customer base and incremental revenues.

2001	Initial significant shifting of sewing production to Jordan

|| | | | | | | | 7 | | | | | | | | | | | | | | | | | | | | 2001 | Acquisition of a 50% stake in JBA Productions S.A., an intimate | | apparel | | | | manufacturer located in Madagascar that specializes in bras manufacturing. | | JBA | | | | enjoys most of the free trade privileges that we do in Israel, such as | | exemption | | | | from import quotas and customs duties in the United States and Europe, | | and the | | | | labor costs of its production facility are significantly lower. |

2001	Launch of a turn around program, including significant cost reduction,
downsizing
	and consolidation of operations.
2002and	Reorganization of Alba, including a spin off of the Health Product Division
	the formation of the AlbaHealth joint venture with a strategic investor, and the
	initial consolidation of the seamless production activity in Hi-Tex in Israel,
	was completed in the second quarter of 2003.

2003	Acquisition of all of the outstanding ordinary shares of Macro Clothing Ltd.,
an	entity that manufactures, markets and sells swimsuits and beachwear.
	Implementation of strategic steps to expand our product line, includingactive-wear products, to diversify our product line and client base.
MARCH-APRIL 2004the aggregate	Closing of equity investments with two groups of investors in
	amount of $20 million. In addition, entering into an equity credit line facility
	providing Tefron with the option to call funds of up to an additional amount
	equal to the lesser of $15 million or 19.9% of Tefron's ordinary share capital,
	subject to limitations and the satisfaction of certain conditions.

We enjoy several strategic advantages by reason of our location in Israel, Jordan and Madagascar. Israel is one of the few countries in the world that has free trade agreements with the United States, Canada, the European Union, or EU, and the European Free Trade Association, or EFTA. These agreements permit us to sell our products in the United States, Canada and the member countries of the EU and the EFTA free of customs duties and import quotas. Due to our locations in Jordan and Madagascar we benefit from exemptions from customs duties and import quotas. We also currently benefit from substantial investment grants and tax incentives provided by the Government of Israel and from the availability in

Israel of both skilled engineers and relatively inexpensive unskilled workers.

RISK FACTORS

An investment in our Ordinary Shares involves a high degree of risk. You should carefully consider the following risk factors, in addition to the other information included and incorporated by reference in this prospectus, including the consolidated financial statements and notes, before you invest.

WE DEPEND ON A SMALL NUMBER OF PRINCIPAL CUSTOMERS WHO HAVE IN THE PAST

BOUGHT OUR PRODUCTS IN LARGE VOLUMES. WE CANNOT ASSURE THAT THESE CUSTOMERS

OR ANY OTHER CUSTOMER WILL CONTINUE TO BUY OUR PRODUCTS IN THE SAME VOLUMES

OR ON THE SAME TERMS.

Our sales to Victoria's Secret accounted for approximately 43% of our total sales in 2001, 49.8% of our total sales in 2002 and 38.2% of our total sales in 2003. Our sales to Target, Warnaco/Calvin Klein, Banana Republic and The Gap, and Cardinal Healthcare accounted in the aggregate for approximately 28.6% of our total sales in 2001, 26.3% of our total sales in 2002 and 31.4 % of our total sales in 2003. We do not have long-term purchase contracts with our customers, and our sales arrangements with our customers do not have minimum purchase requirements. We cannot assure that Victoria's Secret, Target, Warnaco/Calvin Klein, Banana Republic and The Gap, and Cardinal Healthcare or any other customer will continue to buy our products in the same volumes or on the same terms as they did in the past. Their failure to do so may significantly reduce our sales. In addition, we cannot assure that we will be able to attract

new customers. A material decrease in the quantity of sales made to our principal customers, a material adverse change in the terms of such sales or a material adverse change in the financial conditions of our principal customers could significantly reduce our sales.

OUR LARGEST CUSTOMER OWNS AN INTEREST IN COMPETING PRODUCTION FACILITIES.

WE CANNOT ASSURE THAT THIS CUSTOMER WILL CONTINUE TO BUY OUR PRODUCTS IN

THE SAME VOLUMES OR ON THE SAME TERMS.

In 2003, sales to Victoria's Secret totaled $62.2 million, or 38.2% of our sales that year, a decrease from the 2002 sales to Victoria's Secret of $94.7 million, or 49.8% of our sales for that year. Controlling or related entities of Victoria's Secret own an interest in production facilities that are in direct competition to our businesses. We cannot assure that Victoria's Secret will continue to buy our products in the same volumes or on the same terms as in earlier years.

consequently decreased our order backlog and production levels. A prolonged economic downturn could harm our financial condition.

OUR EXPANSION INTO NEW PRODUCT LINES WITH MORE COMPLICATED PRODUCTS, AND

OUR MANUFACTURE OF PRODUCTS IN SHORTER PRODUCTION RUNS REDUCED OUR

OPERATING EFFICIENCY DURING 2003 AND MAY CONTINUE TO REDUCE OUR FUTURE

OPERATING EFFICIENCY.

During 2003, we invested significant efforts to develop and expand new product lines, including active-wear products, to diversify our product line and our client base. The manufacturing of new, more complicated products has reduced our operating efficiency, and may continue to do so.

In addition, in the past, we relied on selling our products in relatively long production runs to achieve the manufacturing and logistical efficiencies that enable us to maintain sales and profitability at relatively high levels and to price our products competitively. During 2003, due to our expansion into new product lines and due to changing market conditions, we began manufacturing our products in shorter production runs, which also reduced our operating efficiency, and may continue to do so.

Although we believe that our efficiency will improve as we continue to manufacture our new product lines, we cannot assure that we will be able to return to our previous efficiency levels in the future.

OUR EXPANSION INTO NEW PRODUCT LINES, IN PARTICULAR ACTIVE-WEAR BUSINESS

PRODUCTS, INVOLVES THE MANUFACTURE OF NEW PRODUCTS, WHICH HAS AND MAY

REQUIRE US TO PURCHASE ADDITIONAL MACHINERY ADAPTED TO MANUFACTURE SUCH

PRODUCTS. THE ADDITIONAL CAPITAL EXPENDITURES INCURRED IN CONNECTION WITH

THESE PURCHASES MAY REDUCE OUR FUTURE CASH FLOW.

During 2003, we invested significant efforts to develop and expand our new product lines, in particular active-wear products, to diversify our product line and our client base. Active-wear products that we manufacture are made in bigger sizes than intimate apparel, both because our active-wear products are intended for both men and women, and because our active-wear products involve the manufacture of more tops, we have purchased and may need to purchase additional knitting machines and other equipment adapted to manufacture our new products lines. In addition, the manufacture of active-wear products at times requires equipment with new technologies. The additional capital expenditures that may be incurred in connection with these purchases may reduce our future cash flow.

HOLDERS OF OUR ORDINARY SHARES ARE SUBJECT TO THE RISK OF ADDITIONAL AND

SUBSTANTIAL DILUTION TO THEIR INTERESTS AS A RESULT OF THE ISSUANCES OF ORDINARY SHARES IN CONNECTION WITH THE EQUITY LINE CREDIT FACILITY.

The following table describes the number of ordinary shares that would be issuable, assuming that the full amounts of the equity line credit facility had been put to the selling shareholder, and further assuming that the applicable put prices to the selling shareholder at the time of such put were the following amounts:

Hypothetical Conversion Price Shares issuable upon puts aggregating $15,000,000, up to a maximum of 2,470,021


	$ 3.50	2,470,021
	$ 4.00	2,470,021
	$ 4.50	2,470,021
	$ 5.00	2,470,021
	$ 5.20	2,470,021
	$ 5.50	2,470,021
	$ 7.00	2,142,857
	$ 8.00	1,875,000

If the market price of the ordinary shares decreases, the number of ordinary shares issuable in connection with the equity facility credit facility will increase and, accordingly, the aggregate dollar amount of draws under the equity facility credit facility will decrease. Despite our right to draw up to $15,000,000 under the equity facility credit facility, we may run out of shares given the maximum 2,470,021 ordinary shares that may be issued to the selling shareholder in connection with our draws under the equity line credit facility and are registered under this prospectus and the registration statement of which it is a part.

The following table demonstrates the correlation between share price decline and decreases in aggregate draw amounts available, given the maximum 2,471,021 ordinary shares that may be issued to the selling shareholder and are registered under this prospectus and the registration statement of which it is a part:

Hypothetical Put Price	Shares issuable upon puts, up to aMaximum draws
available up to
	maximum of 2,470,021		$15,000,000


$ 3.00	2,470,021	$ 7,410,063
$ 3.50	2,470,021	$ 8,645,073
$ 4.00	2,470,021	$ 9,880,084
$ 4.50	2,470,021	$11,115,094
$ 5.00	2,470,021	$12,350,105
$ 5.50	2,470,021	$13,585,115
$ 6.00	2,470,021	$14,820,126
$ 7.00	2,142,857	$14,999,999
$ 8.00	1,875,000	$15,000,000

Our issuances of shares under the equity line credit facility likely will result in overall dilution to market value and relative voting power of previously issued ordinary shares, which could result in substantial dilution to the value of shares held by shareholders prior to sales under this prospectus. Furthermore, public resales of our ordinary shares by the selling shareholder following the issuance of ordinary shares in connection with the equity line credit facility likely will depress the prevailing market price of our ordinary shares. Even prior to the time of puts and public resales, the market "overhang" resulting from the mere existence of the equity line credit facility could depress the market price of our ordinary shares.

EXISTING SHAREHOLDERS LIKELY WILL EXPERIENCE INCREASED DILUTION WITH DECREASES IN MARKET VALUE OF ORDINARY SHARES IN RELATION TO OUR ISSUANCES

OF SHARES UNDER THE EQUITY LINE CREDIT FACILITY, WHICH COULD REDUCE THE VALUE OF THEIR SHARES.

The formula for determining the number of ordinary shares to be issued

under the equity line credit facility is based, in part, on the market price of our ordinary shares and includes a discount from the market price equal to 94% of the average of the four lowest closing bid prices of our ordinary shares over the ten trading days after the put notice is tendered by us to the selling shareholder. As a result, the lower the market price of our ordinary shares at and around the time we put shares under the equity line credit facility, the more shares of our ordinary shares the selling shareholder receives, subject to a ceiling of 2,470,021 shares. Any increase in the number of ordinary shares issued upon puts of shares as a result of decreases in the prevailing market price would compound the risks of dilution described in the preceding paragraph.

There is an increased potential for short sales of our ordinary shares due to the sales of shares put to the selling shareholder in connection with the equity line credit facility, which could reduce the market price of our ordinary shares.

Downward pressure on the market price of our ordinary shares that likely will result from sales of our ordinary shares by the selling shareholder issued in connection with a put under the equity line credit facility could encourage short sales of ordinary shares by the selling shareholder. Significant amounts of such short selling could place further downward pressure on the market price of our ordinary shares.

The restrictions on the extent of puts may have little, if any, effect on our ability to issue shares under the equity line credit facility, and as such, the selling shareholder may sell a large number of shares, resulting in substantial dilution to the value of shares held by our existing shareholders.

received in connection with a put, and then receiving additional ordinary shares in connection with a subsequent put. In this way, the selling shareholder could sell more than 4.99% of the outstanding ordinary shares in a relatively short time frame while never holding more than 4.99% at one time.

SINCE MOST OF OUR REVENUES ARE GENERATED IN U.S. DOLLARS AND A LARGE PART

OF OUR EXPENSES ARE IN ISRAELI CURRENCY, WE ARE SUBJECT TO FLUCTUATIONS IN

INFLATION AND CURRENCY RATES.

Because most of our revenues in the foreseeable future are expected to continue to be generated in U.S. dollars and a significant portion of our expenses are expected to continue to be incurred in NIS, we are exposed to the risk of appreciation of the NIS vis-a-vis the U.S. dollar. This appreciation would cause an increase in our NIS expenses as recorded in our U.S. dollar denominated financial reports, even though the expenses denominated in NIS will remain unchanged. A portion of our NIS denominated expenses is linked to changes in the Israeli cost of living index, a portion is linked to increases in NIS payments under collective bargaining agreements and a portion is unlinked.

In addition, an increase in our expenses in NIS will not always be compensated for fully by a devaluation of NIS vis-a-vis the U.S. dollar. In 2001 and 2002, the rate of devaluation of the NIS vis-a-vis the dollar exceeded the inflation rate in Israel. During 2001 and 2002, the rate of inflation was 1.4% and 6.5%, respectively, while NIS devalued against the U.S. dollar by 9.3% and 7.3% in 2001 and 2002. During 2003, the rate of inflation was (1.9)%, while NIS appreciated against the U.S. dollar by 7.6%. However, to the extent in the future that the rate of inflation in Israel exceeds the rate of devaluation of the NIS in relation to the dollar or if the timing of such devaluation lags behind inflation in Israel, it could reduce our profitability.

WE REQUIRE A SIGNIFICANT AMOUNT OF CASH TO PAY OUR DEBT. IF WE FAIL TO GENERATE SUFFICIENT CASH FLOW FROM OPERATIONS, WE MAY NEED TO RENEGOTIATE

OR REFINANCE OUR DEBT, OBTAIN ADDITIONAL FINANCING OR POSTPONE CAPITAL EXPENDITURES.

We depend mainly on our cash generated by operating activities to make payments on our debts. In 2003, the cash generated by operating activities was approximately $2.9 million. We cannot assure that we will generate sufficient cash flow from operations to make the scheduled payments on our debt. We have repayment obligations on our long-term debt of approximately $11.7 million in 2004, $25.2 million in 2005, $20.1 million in 2006 and $11.5 million in 2007. These amounts do not include any repayment obligations under our short-term debt in the amount of approximately $31.8 million as of December 31, 2003. Our ability to meet our debt obligations will depend on whether we can successfully implement our strategy, as well as on economic, financial, competitive and technical factors. Some of the factors are beyond our control, such as economic conditions in the markets where we operate or intend to operate, changes in our customers' demand for our products, and pressure from existing and new competitors.

12

On April 22, 2004, we closed transactions with Norfet, Limited Partnership and with a group of investors represented by Mr. Zvi Limon who invested an aggregate of $20 million in cash in Tefron in exchange for the issuance of ordinary shares in Tefron. We used a majority of the proceeds from such investments to repay existing bank debt. In March 2004, we announced that we had entered into an equity credit line facility agreement under which we have an option to call funds of up to the lesser of $15 million or 19.9% of our outstanding share capital over the next three years, but in no event will the investor be obligated to own more than 4.99% of our ordinary shares at any one time, and subject to certain other limitations. The closing of each put under the equity credit line facility agreement is subject to the satisfaction of certain closing conditions, and there is no assurance we will exercise any puts, or if exercised, that the putswill actually close.

Bank Hapoalim and Israel Discount Bank have agreed to extend the repayment schedule of the long term debt due to them commencing with the payments due for 2005, such that each year from 2005 until 2012 we would be obligated to pay approximately $7 million. These agreements from the banks are subject to negotiation of final documentation.

o our financial condition at the time;
o restrictions in agreements governing our debt; and
o other factors, including market conditions.

OUR DEBT OBLIGATIONS MAY HINDER OUR GROWTH AND PUT US AT A COMPETITIVE DISADVANTAGE.

We have a significant amount of bank debt mainly as a result of our acquisition of Alba in December 1999 and the investments made in our Hi-Tex Division. As of December 31, 2003, we had approximately $65.8 million of long term loans outstanding (including current maturities of $9.8 million). We also had approximately $2.7 million in long term capital lease obligations and other loans (including current maturities of $1.9 million) and approximately $31.8

million in short term bank credit.

Our substantial debt obligations could have important consequences. For example, they could:

o require us to use a substantial portion of our operating cash flow to pay interest, which reduces funds available to grow and expand our business, invest in machinery and equipment and for other purposes;

13

o place us at a competitive disadvantage compared to our competitors that have less debt;
o make us more vulnerable to economic and industry downturns and reduce our flexibility in responding to changing business and economic conditions;
o limit our ability to pursue business opportunities; and
o limit our ability to borrow money for operations or capital in the future.

DUE TO RESTRICTIONS IN OUR LOAN AGREEMENTS, WE MAY NOT BE ABLE TO OPERATE

OUR BUSINESS AS WE DESIRE.

for companies comparable in size. These limitations and covenants may force us to pursue less than optimal business strategies or forgo business arrangements which could have been financially advantageous to us or our shareholders.

Due to our incurrence in 2002 of expenses totaling approximately $26.4 million (mainly resulting from a non-cash goodwill adjustment of $18.8 million in compliance with SFAS 142; a capital loss of approximately $1.8 million associated with the sale of 52% of the Health Products Division of Alba; and restructuring costs of Alba of approximately $5.3 million), and a net loss for 2003 of approximately of $3.5 million, our shareholders equity as of December 31, 2003 was $36.7 million and our ratio of shareholders'equity to total assets was 18.1%. These figures were below the minimum level of approximately $67 million for shareholders' equity and the minimum percentage of 30% for our ratio of shareholders' equity to total assets required by the covenants under our credit facility with Bank Hapoalim B.M. and Israel Discount Bank of New York. Bank Hapoalim has agreed to amend the minimum shareholders' equity requirement to $36.5 million and the ratio of shareholders' equity to total assets to not less than 18% for the period from December 31, 2003 to March 31, 2004 (inclusive). Israeli Discount Bank has agreed to amend the minimum shareholders' equity requirement to $36.5 million and the ratio of shareholders equity to total assets to not less than 18% for the period from December 31, 2003 to March 31, 2004 (inclusive).

Bank Hapoalim and Israel Discount Bank have agreed to permanently amend our shareholders' equity requirement to not less than $40 million and our ratio of shareholders' equity to total assets to not less than 20% following our payment to the banks of a portion of the proceeds of the $15 million investment from Norfet, Limited Partnership.

Our failure to comply with the covenants and restrictions contained in our loan agreements could lead to a default under the terms of these agreements. If a default occurs and we are unable to renegotiate the terms of the debt, the lenders could declare all amounts borrowed and all amounts due to them under the agreements due and payable. If we are unable to repay the debt, the lenders could foreclose on our assets that are subject to liens and sell our assets to satisfy the debt.

OUR ANNUAL AND QUARTERLY OPERATING RESULTS MAY VARY WHICH MAY CAUSE THE

MARKET PRICE OF OUR ORDINARY SHARES TO DECLINE.

We may experience significant fluctuations in our annual and quarterly operating results which may be caused by, among other factors:

o the timing, size and composition of orders from customers;
o varying levels of market acceptance of our products;
o the timing of new product introductions by us, our customers or their competitors;
o economic conditions in the geographical areas in which we operate or sell products; and
o operating efficiencies.

OUR MARKETS ARE HIGHLY COMPETITIVE AND SOME OF OUR COMPETITORS HAVE NUMEROUS ADVANTAGES OVER US; WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.

We compete directly with a number of manufacturers of intimate apparel and active-wear many of which have longer operating histories, larger customer bases, greater geographical proximity to customers and significantly greater financial and marketing resources than we do. Increased competition, direct or indirect, could reduce our revenues and profitability through pricing pressure, loss of market share and other factors. We cannot assure that we will be able to compete successfully against existing or new competitors, as the market for our products evolves and the level of competition increases. Moreover, our existing and prospective competitors, especially those from the Far East, have established, or may in the future establish, relationships with our existing and potential customers, which could have a materially affect on our ability to compete. In addition, we cannot assure that our customers will not seek to manufacture our products through alternative sources and thereby eliminate the need to purchase our products.

In addition, our competitors may be able to purchase seamless knitting

machines and other equipment similar to, but less expensive than, the Santoni knitting machines we use to knit garments in our Hi-Tex manufacturing process. By reducing their production cost, our competitors may lower their selling prices. If we are forced to reduce our prices and we cannot reduce our production costs, it will cause a reduction in our profitability. Furthermore, if there is a weak retail market or a downturn in the general economy, competitors may be pressured to sell their inventory at substantially depressed prices. A surplus of intimate apparel at significantly reduced prices in the marketplace would significantly reduce our sales.

WE ARE SUBJECT TO FLUCTUATING COSTS OF RAW MATERIALS.

We use cotton yarn, lycra, spandex, various polymeric yarn and elastic as primary materials for manufacturing our products. Our financial performance depends, to a substantial extent, on the cost and availability of these raw materials. The capacity, supply and demand for such raw materials are subject to cyclical and other market factors and may fluctuate significantly. As a result, our cost in securing raw materials is subject to substantial increases and decreases over which we have no control except by seeking to time our purchases of cotton and polymeric yarns, which are our principal raw material, to take advantage of favorable market conditions. For example, during 2003, the cost of cotton increased by 45-50% due to an increase in demand. We cannot assure that we will be able to pass on to customers the increased costs associated with the procurement of raw materials. Moreover, there has in the past been, and there may in the future be, a time lag between the incurrence of such increased costs and the transfer of such increases to customers. To the extent that increases in the cost of raw materials cannot be passed on to customers or there is a delay in passing on the increased costs to customers, we are likely to experience an increase in the cost of raw materials which may materially reduce our margin of profitability.

IF OUR ORDINARY SHARES ARE DELISTED FROM THE NEW YORK STOCK EXCHANGE, THE

LIQUIDITY AND PRICE OF OUR ORDINARY SHARES AND OUR ABILITY TO ISSUE ADDITIONAL SECURITIES MAY BE SIGNIFICANTLY REDUCED.

In order to maintain the listing of our ordinary shares on The New York

Stock Exchange, or NYSE, we are required to meet specified maintenance standards. In addition, the NYSE has proposed amending its continued listing criteria requiring a minimum stockholders' equity of $75 million and minimum market capitalization of $75 million.

In the event we fail to meet any current or revised listing criteria of the NYSE, our ordinary shares may be delisted from trading on The New York Stock Exchange. We cannot assure you that we will meet all NYSE criteria in the future. Delisting of our ordinary shares would result in limited availability of market price information and limited news coverage. In addition, delisting could diminish investors' interest in our ordinary shares as well as significantly reduce the liquidity and price of our ordinary shares. Delisting may also make it more difficult for us to issue additional securities or secure additional financing.

WE DEPEND ON OUR SUPPLIERS FOR MACHINERY; WE MAY EXPERIENCE DELAYS OR

ADDITIONAL COSTS SATISFYING OUR PRODUCTION REQUIREMENTS.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY.

in substantially the same manner as we do. Any replication of our manufacturing process by a competitor would significantly reduce our sales.

WE FACE POTENTIAL CONFLICTS OF INTEREST CAUSED BY INVESTOR INFLUENCE.

Our principal shareholders have a great deal of influence over the constitution of our Board of Directors and over matters submitted to a vote of the shareholders. As of August 10, 2004, Arie Wolfson, the Chairman of our Board of Directors, had direct voting power over approximately 6.34% of the outstanding ordinary shares of Tefron, not including options to acquire 150,000 ordinary shares of Tefron that have already vested. Mr. Wolfson is also the Chairman and a significant shareholder of Macpell Industries Ltd., an Israeli company that owns approximately 22.16% of the outstanding ordinary shares of Tefron as of August 10, 2004. Mr. Wolfson and Mr. Sigi Rabinowicz, a Director of Tefron, and another Macpell shareholder collectively own a controlling interest in Macpell, have entered into a shareholders' agreement regarding corporate actions of Macpell, including the process by which Macpell votes its ordinary shares of Tefron to elect our Directors. As a result, the corporate actions of Tefron may be influenced significantly by Messrs. Wolfson and Rabinowicz.

As of August 10, 2004, Norfet, Limited Partnership had voting power over approximately 28.76% of the outstanding ordinary shares of Tefron. In connection with the acquisition of Tefron ordinary shares by Norfet, Limited Partnership from the Company and from Arwol Holdings Ltd., an Israeli company wholly owned by Arie Wolfson, and from Macpell, each of Norfet, Limited Partnership, Arwol and Macpell have agreed to vote all of the Tefron ordinary shares owned or controlled by each of them for the election to the Company's nine-member Board of Directors of: (i) two members plus one independent director and one external director nominated by Norfet, Limited Partnership, (ii) two members plus one independent director and one external director nominated by Arwol and Macpell, and (iii) the Company's chief executive officer.

We are party to a consulting and management services agreement with Mr. Wolfson and a company controlled by him, pursuant to which the company controlled by Mr. Wolfson has agreed to provide consultancy and management services to Tefron. We also engage in transactions with Macpell and its affiliates. We believe that the consulting and management agreement and these transactions are beneficial to us and are conducted upon terms which are no less favorable to us than those terms available to us from unaffiliated third parties. We intend to continue to engage in transactions with Macpell and its affiliates. We may be in direct or indirect competition with Macpell or its affiliates in the future. Moreover, opportunities to develop, manufacture or sell new products or market them to new customers may arise in the future and Macpell or its affiliates might pursue such opportunities while excluding us from, or competing with us for, such opportunities. We have also agreed to pay Norfet management fees for certain non-exclusive strategic guidance and consulting services.

Israeli companies law imposes procedures, including, for certain material transactions, a requirement of shareholder approval, as a precondition to entering into interested party transactions. These procedures may apply to transactions between us and any of our major shareholders, such as Norfet and Macpell. However, we cannot assure that we will be able to avoid the possible detrimental effects of any such conflicts of interest by complying with the procedures mandated by Israeli law.

WE ARE AFFECTED BY CONDITIONS TO, AND POSSIBLE REDUCTION OF, GOVERNMENT

PROGRAMS AND TAX BENEFITS

certain conditions, including making certain specified investments in fixed assets and conducting our operations in specified "Approved Enterprise" zones. If we fail to meet such conditions in the future, we could be required to refund tax benefits and grants already received, in whole or in part, with interest linked to the Consumer Price Index in Israel from the date of receipt. We have granted a security interest over all of our assets to secure our obligations to fulfill these conditions.

We also benefit from exemptions from customs duties and import quotas due to our location in Israel, Jordan (Qualified Industrial Zone) and Madagascar and the free trade agreements Israel maintains with the United States, Canada, the European Union and the European Free Trade Association. If there is a change in such benefits or if other countries enter into similar agreements and obtain similar benefits or if any such agreements were terminated, our profitability may be reduced.

WE FACE SEVERAL RISKS, INCLUDING POLITICAL, ECONOMIC, SOCIAL, CLIMATIC RISKS, ASSOCIATED WITH INTERNATIONAL BUSINESS.

Approximately 95% of our sales in 2003 were made to customers in the United States, and we intend to continue to expand our sales to customers in the United States and Europe. In addition, a substantial majority of our raw materials are purchased outside of Israel. Our international sales and purchases are affected by costs associated with shipping goods and risks inherent in doing business in international markets, including:

o changes in regulatory requirements;
o export restrictions, tariffs and other trade barriers;
o currency fluctuations;
o longer payment cycles;
o difficulties in collecting accounts receivable; and
o political instability and seasonal reductions in business activities.

In addition to our production facilities in Israel, we currently have production facilities in Jordan and Madagascar and are in the process of shifting additional sewing production to Jordan to take advantage of lower labor costs. During the last quarter of 2003, disputes arose between us and the other shareholders in our joint subsidiaries that manage our operations in Madagascar. As a result, effectively, we lost our influence in those companies. We intend to terminate our partnership with these other shareholders and are currently exploring our options with respect to our continued operations in Madagascar.

Our ability to benefit from the lower labor costs will depend on the political, social and economic stability of these countries and in the Middle East and Africa in general. We cannot assure that the political, economic or social situation in these countries or in the Middle East and Africa in general will not have a material adverse effect on our operations, especially in light of the potential for hostilities in the Middle East. The success of the production facilities also will depend on the quality of the workmanship of laborers, and our ability to maintain good relations with such laborers, in these countries. We cannot guarantee that our operations in Madagascar or Jordan will be cost-efficient or successful.

19

Furthermore, Madagascar experiences wide climate variations and a yearly hurricane season generally between the months of November to March. These weather conditions could negatively affect our operations in Madagascar by, among other things, requiring us to delay or halt production, hindering our ability to transport raw materials to, and finished products from, the Madagascar production facility or even requiring us to replace or perform costly repairs to our equipment at the facility. We cannot assure that our operations will not be materially affected by weather conditions or natural disasters in any area where we maintain production facilities.

WE ARE SUBJECT TO VARIOUS RISKS RELATING TO OPERATIONS IN ISRAEL

We are incorporated under the laws of, and our main offices and manufacturing facilities are located in, the State of Israel. We are directly influenced by the political, economic and military conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. Any major hostilities involving Israel, the interruption or curtailment of trade between Israel and its trading partners or a significant downturn in the economic or financial condition of Israel could have a material adverse effect on our operations. Since October 2000, there has been a substantial deterioration in the relationship between Israel and the Palestinians which has resulted in increased violence. The future effect of this deterioration and violence on the Israeli economy and our operations is unclear. We cannot assure that ongoing or revived hostilities or other factors related to Israel will not have a material adverse effect on us or our business.

FORWARD-LOOKING STATEMENTS

Our disclosure in this prospectus (including documents incorporated by reference herein) contains "forward-looking statements." Forward-looking statements are our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning. These include statements, among others, relating to our planned future actions, our prospective products or product approvals, our beliefs with respect to the sufficiency of our cash and cash equivalents, plans with respect to funding operations, projected expense levels and the outcome of contingencies, such as future financial results.

Any or all of our forward-looking statements in this prospectus may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual results may vary materially. The uncertainties that may cause differences include, but are not limited to:

o our customers' continued purchase of our products in the same volumes or on the same terms;
o the cyclical nature of the retail industry;
o the potential adverse effect on our future operating efficiency resulting from our new product lines and our manufacture of products in shorter production runs;
o the purchase of new equipment that may be necessary as a result of our expansion into new product lines;
o fluctuations in inflation and currency rates;
o our failure to generate sufficient cash from our operations to pay our debt;
o the limitations and restrictions imposed by our substantial debt

obligations;

o the competitive nature of the intimate apparel and active-wear markets; and
o the fluctuating costs of raw materials.

In addition, you should note that our past financial and operation performance is not necessarily indicative of future financial and operational performance. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

USE OF PROCEEDS

We will not receive any proceeds from the sales of the Shares by the selling shareholder to others. However, we will receive proceeds from the issuance of the Shares to the selling shareholder. The purchase price to be paid by the selling shareholder will be at a discount of 6% to the market price of our ordinary shares. The "market price" will be calculated to be the average of the lowest closing prices for any four trading days (not necessarily consecutive) during the ten trading day period immediately following the date on which we deliver a written notice to the selling shareholder setting forth the dollar amount with respect to which we will require the selling shareholder to purchase our ordinary shares.

OFFERING PRICE

The selling shareholder has advised us that it may sell the Shares offered by this prospectus at the prevailing market price at the time of such sales, at

prices related to such prevailing market price, at negotiated prices, or at fixed prices. The actual number of Shares to be sold and the prices at which they will be sold will depend upon the market price at the time of those sales. Therefore, we have not included in this prospectus information about the price to the public.

OFFER AND LISTING DETAILS

Since the initial public offering of our ordinary shares on September 24, 1997, our ordinary shares have been traded on the New York Stock Exchange, or NYSE, under the symbol "TFR." Prior to the offering, there was no market for our ordinary shares. There is no non-United States trading market for our ordinary shares.

The high and low sales prices for our ordinary shares as reported on the NYSE during the first, second and third quarters of 2004 as well as for October 2004 (to date) are set forth below. Other information regarding the market price of our ordinary shares is located in our Form 20-F for the year ended December 31, 2003 filed with the SEC on April 1, 2004.

	2004
	----
		HIGH		LOW
		----	---

First quarter		6.30		4.31
Second quarter			6.00	4.74
Third quarter		4.70		3.92

October (until October 18, 2004) 4.45 4.10

CAPITALIZATION

The following table sets forth, as of June 30, 2004, our consolidated unaudited capitalization (i) on an actual basis and (ii) as adjusted to give effect to the issuance of 2,470,021 of our ordinary shares to the selling shareholder at a price of $3.85 per share (94% of the closing price per share on October 18, 2004), the application of the approximately $10 million in proceeds therefrom to the repayment of short-term debt, and the resale of these shares by the selling shareholder under this Prospectus. The financial data in the following table should be read in conjunction with the Company's consolidated financial data and notes thereto incorporated by reference herein.

JUNE 30, 2004

ACTUAL AS ADJUSTED

UNAUDITED (IN THOUSANDS)

Short term bank debt 21,236 11,717

Current maturities of long term debt:

Bank	10,829		10,829
Lease	668	668
Long term debt, net of current maturities:
Bank	50,144		50,144
Lease	67	67
Shareholder's equity:
Share Capital(1)	6,583		7,135

Additional paid-in capital	79,115		88,082
Accumulated deficit	(24,127)		(24,127)
Deferred compensation		(889)	(889)

Treasury shares	(7,408)		(7,408)

Total shareholders' equity	53,274		62,793

Consisting of Ordinary Shares, par value NIS 0.01 per share, 50,000,000 authorized, 17,016,847 issued and outstanding (not including 997,400 ordinary shares held in treasury) on an actual basis, and 19,486,868 issued and outstanding (not including 997,400 ordinary shares held in treasury) on an as adjusted basis, in each case as of June 30, 2004

23 NOTICE REGARDING ARTHUR ANDERSEN LLP

firm of Arthur Andersen ("Andersen"), as set forth in its audit report thereon. On August 5, 2002, we appointed Kost Forer & Gabbay (now known as Kost Forer Gabbay & Kasierer), a member firm of Ernst & Young International, to replace Andersen, as our independent auditors.

Section 11(a) of the Securities Act of 1933, as amended, provides that if any part of a registration statement at the time it becomes effective contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to the registration statement (unless it is proved that at the time of the acquisition the person knew of the untruth or omission) may sue, among others, every accountant who has consented to be named as having prepared or certified any part of the registration statement or as having prepared or certified any report or valuation which is used in connection with the registration statement with respect to the statement in the registration statement, report or valuation which purports to have been prepared or certified by the accountant.

Prior to the date of this prospectus, the Andersen partner who reviewed our most recent audited financial statements resigned from Andersen. In response to our requests for Andersen's consent to include its audit report in the registration statement on Form F-2, of which this prospectus forms a part, a representative of Andersen advised us that Andersen would not provide consents where the Andersen audit partner was no longer with Andersen. As a result, after reasonable efforts, we have been unable to obtain Andersen's written consent to the incorporation by reference into this registration statement of Andersen's audit reports with respect to our financial statements.

Under these circumstances, Rule 437a promulgated under the Securities Act permits us to file this registration statement without a written consent from Andersen. Accordingly, Andersen will not be liable to you under Section 11(a) of the Securities Act because it has not consented to being named as an expert in the registration statement.

SELLING SHAREHOLDER

This prospectus and the registration statement of which it is a part cover the resale of the Shares to be issued to the selling shareholder pursuant to a Private Equity Credit Agreement between Tefron and the selling shareholder, dated as of March 9, 2004. We have agreed to prepare and file a registration statement on Form F-2 with the SEC covering the Shares as set forth in the table below. The registration statement to which this prospectus relates has been filed with the SEC pursuant to this agreement. We have also agreed to maintain the effectiveness of this registration statement to allow the selling shareholder to sell the Shares covered by this prospectus until the earlier to occur of (1) the date that is one year after the completion of the last closing date under the Private Equity Credit Agreement, (2) the date the selling shareholder may sell all ordinary shares covered by the Registration Rights Agreement under the provisions of Rule 144 without limitation as to volume, or (3) the date that the selling shareholder no longer owns any of the ordinary shares covered by the Registration Rights Agreement. The selling shareholder currently holds no ordinary shares of Tefron, and to the best of our knowledge, prior to our drawing on the equity line, the selling shareholder will hold no ordinary shares of Tefron. The selling shareholder is an underwriter with respect to its resales of the Shares.

The following table provides information about the actual and potential ownership of our ordinary shares by the selling shareholder in connection with the equity line credit facility as of April 28, 2004, and the number of our shares registered for sale in this prospectus. The number of ordinary shares issuable under the equity line credit facility varies according to the market price at and immediately preceding the put date. Solely for purposes of estimating the number of ordinary shares that would be issuable to the selling shareholder as set forth in the table below, we have assumed a hypothetical put by us on October 18, 2004, of 2,470,021 ordinary shares (which equals 19.9% of our outstanding ordinary shares as of the date we entered into the Private Equity Credit Agreement) under the equity line credit facility at a per share price of approximately $3.85. The actual per share price and the number of

shares issuable upon actual puts by us could differ substantially. This prospectus and the registration statement of which it is a part covers the resale of up to 2,470,021 of our ordinary shares.

Under the terms and conditions of the equity line credit facility, the selling shareholder is prohibited from having shares put to it to the extent such put by us would result in that person beneficially owning more than 4.99% of our then outstanding ordinary shares following such put. This restriction does not prevent the selling shareholder from receiving and selling put shares and thereafter receiving additional put shares. In this way, the selling shareholder could sell more than 4.99% of our outstanding ordinary shares in a relatively short time frame while never beneficially owning more than 4.99% of the outstanding ordinary shares at any one time. For purposes of calculating the number of ordinary shares issuable to the selling shareholder assuming a put of 19.9% of our outstanding ordinary shares under the equity line credit facility, as set forth below, the effect of such 4.99% limitation has been disregarded. The number of shares issuable to the selling shareholder as described in the table below therefore may exceed the actual number of shares the selling shareholder may be entitled to beneficially own under the equity line credit facility.

The following information is not determinative of the selling shareholder's beneficial ownership of our ordinary shares pursuant to Rule 13d-3 or any other provision under the Securities Exchange Act of 1934, as amended.

Neither selling shareholder nor any of its affiliates has held any position or office with, been employed by or otherwise has had any material relationship with us or our affiliates during the three years prior to the date of this prospectus.

ORDINARY PERCENTAGE OF

SHARES ORDINARY SHARES NUMBER OF NUMBER OF PERCENTAGE ORDINARY ISSUABLE TO ISSUABLE TO ORDINARY ORDINARY OF ORDINARY SHARES SELLING SELLING SHARES SHARES SHARES NAME AND ADDRESS BENEFICIALLY SHAREHOLDER IN SHAREHOLDER IN REGISTERED OWNED BENEFICIALLY OF SELLING OWNED PRIOR TO CONNECTION WITH CONNECTION WITH HEREUNDER AFTER OWNED AFTER SHAREHOLDER(1) OFFERING OFFERING OFFERING (2) (3) OFFERING THE OFFERING - ----------- -------- -------- ------------ --- -------- ------------ Brittany Capital 0 2,470,021(4) 12.68% 2,470,021 0 (5) 0%(5) Management Limited c/o Lion Corporate Services Limited Cumberland House 27 Cumberland Street P.O. Box N-10818 Nassau, The Bahamas

(1) Mr. Barry Herman has the ultimate voting and investment control over the shares listed in this selling shareholder table.

(2) Based on 17,016,847 ordinary shares outstanding as of October 18, 2004. As

noted above, the selling shareholder is prohibited by the terms of the equity line credit facility from having shares put to it to the extent that such put of shares by us would result in the selling shareholder beneficially owning more than 4.99% of our then outstanding ordinary shares following such put. The percentage set forth is not determinative of the selling shareholder's beneficial ownership of our ordinary shares pursuant to Rule 13d-3 or any other provision under the Securities Exchange Act of 1934, as amended. The percentage may change based on the selling shareholder's decision to sell or hold the Shares.

(3) The registration statement of which this prospectus is a part covers up to 2,470,021 ordinary shares issuable under the equity line credit facility. Because the specific circumstances of the issuances under the equity line credit facility are not ascertainable at this time, the precise total number of our ordinary shares offered by the selling shareholder cannot be fixed at this time, but cannot exceed 2,470,021, which is the maximum number of ordinary shares that may be issued under the Private Equity Credit Agreement. The amount set forth represents the number of our ordinary shares that would be issuable, and hence offered hereby, assuming a put of the 19.9% of our outstanding ordinary shares (as of the date we entered into the Private Equity Credit Agreement) to the selling shareholder under the equity line credit facility as of October 18, 2004. The actual number of our ordinary shares offered hereby may differ according to the actual number of shares issued upon such puts.

(4) Consists of 2,470,021 ordinary shares issuable upon a hypothetical put of 19.9% of our outstanding ordinary shares (as of the date we entered into the Private Equity Credit Agreement) under the equity line credit facility as of October 18, 2004.

(5) Assumes a hypothetical draw of 19.9% of our outstanding ordinary shares (as of the date we entered into the Private Equity Credit Agreement) under the equity line credit facility as of October 18, 2004, which equals 2,470,021 of our ordinary shares. There is no assurance that the selling shareholder will sell any or all of the shares offered hereby. However, the selling shareholder is contractually prohibited from holding shares, and we are contractually prohibited from putting shares to the selling shareholder that would cause the selling shareholder to hold shares, in excess of 4.99% of our then-issued

ordinary shares.

ADDITIONAL INFORMATION

Our authorized capital is NIS 50,000,000 consisting of 49,995,000 ordinary shares, par value NIS 1 per share, and 4,500 deferred shares, par value NIS 1 per share. The number of ordinary shares outstanding remained unchanged at 12,412,166 (not including 997,400 shares held by a subsidiary of Tefron) and the number of deferred shares outstanding remained unchanged at 4,500 from January 1, 2001 until April 22, 2004, at which time 4,604,681 ordinary shares were issued to Norfet, Limited Partnership and Leber Partners, L.P.

As of October 18, 2004, there were 17,016,847 of our ordinary shares outstanding and 4,500 of our deferred shares outstanding, all of which were fully paid. In addition, at October 18, 2004, we had outstanding 2,495,638 options to purchase ordinary shares as follows:

	NUMBER OF OPTIONS		EXERCISE PRICE PER SHARE
DATE
	-----------------	------------------------	---------------

	1,150,305	$ 3.500	Oct. 2011 - July 2013
	300,000	$ 3.563	January 2011
	15,000	$ 3.590	August 2012
	10,000	$ 3.680	January 2014
	13,333	$ 3.890	July 2012
	650,000	$ 4.250	April 2014
	35,000	$ 4.310	January 2014
	35,000	$ 4.650	April 2014
	128,000	$ 8.125	April 2009

100,000	$ 9.500	May 2009
59,000	$ 15.00	June 2010

PLAN OF DISTRIBUTION

We are registering the Shares covered by this prospectus for the selling shareholder. We will receive no proceeds from the sale of Shares in this offering. The selling shareholder may sell any or all of the Shares for value at any time or from time to time under this prospectus in one or more transactions on the New York Stock Exchange or any stock exchange, market or trading facility on which the ordinary shares are traded, in a negotiated transaction or in a combination of such methods of sale, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at prices otherwise negotiated. The selling shareholder will act independently of us in making decisions with respect to the timing, manner and size of each sale. The selling shareholder may use any one or more of the following methods when selling Shares:

o ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
o an exchange distribution in accordance with the rules of the applicable exchange;
o privately negotiated transactions;
o underwritten offerings;

o short sales;

o agreements by the broker-dealer and the selling shareholder to sell a specified number of such Shares at a stipulated price per Share;

o a combination of any such methods of sale; or

o any other method permitted by applicable law.

The selling shareholder may also sell Shares under Rule 144 under the Securities Act, if available, under Section 4(1) of the Securities Act or directly to us in certain circumstances rather than under this prospectus.

Unless otherwise prohibited, the selling shareholder may enter into hedging transactions with broker-dealers or other financial institutions in connection with distributions of the Shares or otherwise. In such transactions, broker-dealers or financial institutions may engage in short sales of the Shares in the course of hedging the position they assume with the selling shareholder. The selling shareholder may also engage in short sales, puts and calls, forward-exchange contracts, collars and other transactions in our securities or derivatives of our securities and may sell or deliver Shares in connection with these trades. If the selling shareholder sell shares short, they may redeliver the Shares to close out such short positions. The selling shareholder may also enter into option or other transactions with broker-dealers or financial institutions which require the delivery to the broker-dealer or the financial institution of the Shares. The broker-dealer or financial institution may then resell or otherwise transfer such Shares pursuant to this prospectus. In addition, the selling shareholder may loan their Shares to broker-dealers or financial institutions who are counterparties to hedging transactions and the broker-dealers, financial institutions or counterparties may sell the borrowed Shares into the public market. The selling shareholder may also pledge their

Shares to their brokers or financial institutions and under the margin loan the broker or financial institution may, from time to time, offer and sell the pledged Shares. The selling shareholder have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters, broker-dealers or financial institutions regarding the sale of their Shares other than ordinary course brokerage arrangements, nor is there an underwriter or coordinating broker acting in connection with the proposed sale of Shares by the selling shareholder.

Broker-dealers or agents may receive compensation in the form of commissions, discounts or concessions from the selling shareholder in amounts to be negotiated in connection with the sale. Such broker-dealers and any other participating broker-dealers are deemed to be "underwriters" within the meaning of the Securities Act, in connection with such Sales and any such commission, discount or concession may be deemed to be underwriting discounts or commissions under the Securities Act. The selling shareholder is an underwriter with respect to its resales of the Shares.

All costs, expenses and fees in connection with the registration of the Shares will be borne by us. Commissions and discounts, if any, attributable to the sales of the Shares will be borne by the selling shareholder. The selling shareholder may agree to indemnify any broker-dealer or agent that participates in transactions involving sales of the Shares against certain liabilities, including liabilities arising under the Securities Act of 1933.

We have advised the selling shareholder that the anti-manipulation rules under the Securities Exchange Act of 1934 may apply to sales of our ordinary shares in the market and to the activities of the selling shareholder and its affiliates. In addition, we will make copies of this prospectus available to the selling shareholder and have informed it of the need for delivery of copies of this prospectus to purchasers at or prior to the time of any sale of the Shares offered hereby.

There is no assurance that the selling shareholder will sell all or any portion of the Shares offered under this prospectus. Because it is possible that a significant number of Shares could be sold simultaneously by means of this prospectus, such sales, or the possibility thereof, may have an adverse effect on the market price of our ordinary shares.

REGULATION M

We have advised the selling shareholder that during any period when they may be engaged in a distribution of the Shares covered by this prospectus, they may be required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes any selling shareholder, any affiliated purchaser and any broker-dealer or other individual who participates in a distribution of securities from bidding for or purchasing, or attempting to induce any individual to bid for or purchase, any security that is the subject of the distribution until such person's participation in the distribution is complete. Regulation M also prohibits bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security, subject to certain exceptions. All of these factors may affect the marketability of our ordinary shares.

EXPENSES OF THE OFFERING

The following table sets forth the estimated expenses in connection with this registration:


SEC Registration Fees	$ 1,509.99
Printing Registration Statement, Prospectus
and Related Documents	$ 1,000
Legal Fees and Expenses	$ 10,000

Miscellaneous	$ 5,000
	---------
Total	$ 17,509.99

LEGAL MATTERS

The validity of the securities offered under this registration statement will be passed upon for us by Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co.

EXPERTS

Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, independent auditors, have audited our consolidated financial statements included in our Annual Report on Form 20-F for the year ended December 31, 2003, as set forth in their report which is incorporated by reference in this prospectus and elsewhere in the registration statement. Our financial statements are incorporated by reference in reliance on such firm's report given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form F-2 with the Securities and Exchange Commission under the Securities Act of 1933, as amended. This Prospectus, which is part of our registratin statement, omits some information, exhibits and undertakings included in the registration statement. For futher information with respect to us and this offering, please refer to the registration statement.

29

We are subject to the reporting requirements of the Exchange Act of 1934, as amended, that are applicable to a foreign private issuer. In accordance with the Exchange Act, we file with the Commission reports, including annual reports on Form 20-F by June 30 of each year, and other information. In addition, we file interim financial information on Form 6-K on a quarterly basis. We also furnish to the Commission under cover of Form 6-K certain other material information. The registration statement on Form F-2, including the exhibits thereto, and reports and other information filed by us with the Commission can be inspected and copied at the Public Reference Room maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. Copies of that material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission maintains a web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission at http://www.sec.gov. Our internet address is http://www.tefron.com.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The SEC allows us to incorporate by reference the information we file with them, which means that we can disclose important information to you by referring to those documents. The information incorporated by reference is considered to be part of this prospectus. We incorporate by reference the documents listed below:

(1) Our Annual Report on Form 20-F, as filed with the Commission on April 1, 2004 and our Annual Report on Form 20-F/A, as filed with the Commission on September 21, 2004;

(2) Our Current Reports on Form 6-K as filed with the Commission on April 29, 2004, May 24, 2004, June 1, 2004, August 11, 2004 and September 21, 2004, and

(3) The description of our ordinary shares contained in the registration statement under the Exchange Act on Form 8-A dated September 4, 1997.

All information appearing in this prospectus is qualified in its entirety

by the information and financial statements, including the notes thereto, contained in the documents incorporated by reference herein. Our Exchange Act file number is 0-28878.

Copies of all documents which are incorporated by reference will be provided without charge to anyone to whom this Prospectus is delivered upon a written or oral request to Tefron Ltd. at 28 Chida Street, Bnei-Brak 51371, Israel, Attention: Gil Rozen. Our telephone number is 972-3-579-8701.

ENFORCEABILITY OF CIVIL LIABILITIES

Service of process upon us and upon our directors and officers and the Israeli experts named in this prospectus, most of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore, because all of our assets and most of our directors and officers are located outside the United States, any judgment obtained in the United States against us or any of our directors and officers may not be collectible within the United States.

We have been informed by our legal counsel in Israel, Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co., that there is doubt concerning the enforceability of civil liabilities under the Securities Act and the Exchange Act in original actions instituted in Israel. However, subject to specified time limitations, Israeli courts may enforce a United States final executory judgment in a civil matter, including a monetary or compensatory judgment in a non-civil matter, obtained after due process before a court of competent jurisdiction according to the laws of the state in which the judgment is given and if the rules of enforcing foreign judgments prevailing in Israel enable its enforcement. The rules of enforcing foreign judgments currently prevailing in Israel do not prohibit the enforcement of a U.S. judgment by Israeli courts

provided that:

o the judgment is enforceable in the state in which it was given;
o adequate service of process has been effected and the defendant has had a reasonable opportunity to present his arguments and evidence;
o enforcement of the judgment is not contrary to the security or sovereignty of the State of Israel;
o the content of the judgment is not contrary to public policy;
o the judgment was not obtained by fraud;
o the judgment does not conflict with any other valid judgment in the same matter between the same parties;
o an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted in the foreign court; and
o the judgment was not issued by an incompetent court under the rules of private international law prevailing in Israel.

We have irrevocably appointed CT Corporation System as our agent to receive service of process in any action against us in any federal court or court of the State of New York arising out of this offering or any purchase or sale of securities in connection with this offering.

If a foreign judgment is enforced by an Israeli court, it generally will be payable in Israeli currency, which can then be converted into non-Israeli currency and transferred out of Israel. The usual practice in an action before an Israeli court to recover an amount in a non-Israeli currency is for the Israeli court to issue a judgment for the equivalent amount in Israeli currency at the rate of exchange in force on the date of the judgment, but the judgment debtor may make payment in foreign currency. Pending collection, the amount of the judgment of an Israeli court stated in Israeli currency ordinarily will be

linked to the Israeli consumer price index plus interest at an annual statutory rate set by Israeli regulations prevailing at the time. Judgment creditors must bear the risk of unfavorable exchange rates.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 8. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Israeli Companies Law 1999 provides that an Israeli company cannot exculpate an office holder from liability with respect to a breach of his duty of loyalty, but may exculpate in advance an office holder from his liability to the company, in whole or in part, with respect to a breach of his duty of care. Our Articles of Association provide that subject to any restrictions imposed by the Companies Law, we may enter into a contract for the insurance of the liability of any of its directors and office holders with respect to:

o a breach of his duty of care to us or to another person;
o a breach of his duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice our interests; or
o a financial liability imposed upon him in favor of another person in respect of an act performed by him in his capacity as an office holder.

Our Articles of Association also include the following provisions:

o a provision authorizing us to grant in advance an undertaking to indemnify an office holder, provided that the undertaking is limited to types of events that the board of directors deems to be anticipated and limited to an amount determined by the board of directors to be reasonable under the circumstances;

o a provision authorizing us to retroactively indemnify an office holder;
o a provision authorizing us to indemnify an office holder against a financial liability imposed on him in favor of another person by any judgment, including a settlement or an arbitrator's award approved by a court in respect of an act performed in his capacity as an office holder; and
o a provision authorizing us to indemnify an office holder against reasonable litigation expenses, including attorneys' fees, expended by such office holder or charged to him by a court, in proceedings we institutes against him, or instituted on our behalf or by another person, or in a criminal charge from which he was acquitted, all in respect of an act performed in his capacity as an office holder.

These provisions are specifically limited in their scope by the Israeli Companies Law 1999, which provides that a company may not indemnify an office holder for, nor enter into an insurance contract that would provide coverage for any monetary liability incurred as a result of, any of the following:

o a breach by the office holder of his duty of loyalty unless the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
o a breach by the office holder of his duty of care if such breach was done intentionally or in disregard of the circumstances of the breach or its consequences;

o any act or omission done with the intent to derive an illegal personal benefit; or
o any fine levied against the office holder as a result of a criminal offense.

In addition, pursuant to the Israeli Companies Law 1999, indemnification of and procurement of insurance coverage for our office holders must be approved by its audit committee and board of directors and, for indemnification and insurance for directors, also by its shareholders.

We have obtained directors' and officers' liability insurance covering our officers and directors and those of our subsidiaries for claims arising from wrongful acts they committed in their capacity as an officer or a director.

ITEM 9. EXHIBITS

The following exhibits are filed herewith:

EXHIBIT

NO. DESCRIPTION

4.1 Specimen Certificate for ordinary shares (incorporated by reference from the Registration Statement on Form F-1 of the Registrant, File No. 333-333-7538, filed on August 29, 1997).
4.2 Articles of Association of Tefron Ltd., as amended (incorporated by reference from Exhibit 1.2 to the Registrant's Annual Report on Form 20-F for the year ended December 31, 2002).
4.3 Tefron Ltd. 1997 Share Option Plan (incorporated by reference from Registration Statement on Form S-8 of the Registrant, File No. 333-111932, filed on January 15, 2004).
5.1 Opinion of Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. with respect to the legality of the ordinary shares being registered (filed with

Amendment No. 1 to Form F-2 (Registration No. 333-115413) filed by the Company on September 21, 2004).

10.1. Agreement and Plan of Merger, dated as of November 8, 1999, by and among Tefron U.S. Holdings Corp., AWS Acquisition Corp. and Alba-Waldensian, Inc. (incorporated by reference to Exhibit (c)(1) to Schedule 14D-1 in respect of Alba-Waldensian, Inc. filed by the Company on November 12, 1999)
10.2. Employment Agreement, dated as of August 5, 2002, between the Company and Sigi Rabinowicz (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
10.3. Consulting and Management Services Agreement, dated as of August 5, 2002, between the Company, New York Delights Ltd., and Arie Wolfson (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
10.4 Management and Services Agreement, effective as of July 30, 2003, between the Company, Yosef Shiran and Shiran & Partners - Consulting, Entreprenuership, and Financing (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
10.5 Lease Agreement dated as of August 12, 1997, between the Company and New Net Assets (1994) Ltd. and an Assignment Agreement dated as of December 25, 1998 between the Company and Hi-Tex Founded by Tefron Ltd. The Company and/or its subsidiary, Hi-Tex Founded by Tefron Ltd., have entered in to similar lease agreements with New Net Assets (1994) Ltd. (incorporated by reference to Exhibit 4.5 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2001).

10.6 Contribution Agreement, dated as of September 6, 2002, between AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric

Capital Corporation (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2002).

10.7 The Limited Liability Company Agreement of AlbaHealth LLC, dated as of September 6, 2002, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.7 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2002).
10.8 Put Option Agreement, dated as of September 6, 2002, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.8 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2002).
10.9 Share Purchase Agreement dated February 17, 2004, by and between the Company and Norfet Limited Partnership, including related Registration Rights Agreement attached as a schedule (incorporated by reference to Exhibit 4.9 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2003).
10.10 Share Purchase Agreement, made as of March 3, 2004, by and between Tefron and Leber Partners, L.P, including related Registration Rights Agreement attached as a schedule (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2003).
10.11 Private Equity Credit Agreement, dated as of March 9, 2004, by and between the Company and Brittany Capital Management Limited (incorporated by reference to Exhibit 4.11 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2003).
10.12 Registration Rights Agreement, dated as of March 9, 2004, by and between the Company and Brittany Capital Management Limited (incorporated by reference to Exhibit 4.12 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2003).
23.1 Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global.*
23.2 Consent of McGladrey & Pullen, LLP.
23.3 Consent of Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. (contained in the opinion filed as Exhibit 5.1 to this Registration Statement)
24.1 Powers of Attorney (included on the signature page) (filed with Form F-2 (Registration No. 333 - 115413) filed by the Company on May 12, 2004).

* The financial statements for the year ended December 31, 2001 were audited by other auditors who have ceased operations as a foreign associated firm by the Securities and Exchange Commission Practice Section of the American Institute of Certified Public Accountants and whose report, dated March 25, 2002, expressed an unqualified opinion on those statements.

ITEM 10. UNDERTAKINGS

The Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:

(i) include any prospectus required by Section 10(a)(3) of the Securities Act;

(ii) reflect in the prospectus any facts or events arising after the effective date of the registration statement (or for the most recent post-effective amendment hereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this

Registration Statement.

(iii) include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter

has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to which the prospectus is sent or given, the registrant's latest filing on Form 20-F, Form 40-F or Form 10-K; and any filing on Form 10-Q, Form 8-K or Form 6-K incorporated by reference into the prospectus.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-2and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Bnei-Brak, Israel, on October 19, 2004.

TEFRON LTD.

By: /s/ Yos Shiran

------------------ Yosef Shiran

Chief Executive Officer

By: /s/ Gil Rozen

----------------- Gil Rozen Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this amendment to registration statement on Form F-2 has been signed by the following persons in the capacities indicated on October 19, 2004.




*	/s/ Yosef Shiran
- ----------------------------------Arie Wolfson	----------------------------------Yosef Shiran
Chairman of the Board of Directors	Chief Executive Officer (principal
	executive officer) and Director

*	/s/ Gil Rozen
- ----------------------------------Sigi Rabinowicz	----------------------------------Gil Rozen
President and Director	Chief Financial Officer (principal
	financial and accounting officer)
*
- ----------------------------------Arie Arieli	----------------------------------Yacov Elinav
Director	Director


	*
- ----------------------------------	----------------------------------
Shirith Kasher	Micha Korman
Director	Director

---------------------------------- ---------------------------------- Yarom Oren Meir Shamir

Director Director

Authorized Representative in the United States

TEFRON U.S. HOLDINGS CORP.

/s/ Yosef Shiran

Yosef Shiran

* By: /s/ Yosef Shiran

Yosef Shiran Attorney - In - Fact

* By: /s/ Gil Rozen

Gil Rozen Attorney - In - Fact

EXHIBIT INDEX


Exhibit		Page
Number	Description	Number

| |

4.1 Specimen Certificate for ordinary shares (incorporated by reference from the Registration Statement on Form F-1 of the Registrant, File No. 333-333-7538, filed on August 29, 1997).
4.2 Articles of Association of Tefron Ltd., as amended (incorporated by reference from Exhibit 1.2 to the Registrant's Annual Report on Form 20-F for the year ended December 31, 2002).
4.3 Tefron Ltd. 1997 Share Option Plan (incorporated by reference from Registration Statement on Form S-8 of the Registrant, File No. 333-111932, filed on January 15, 2004).
5.1 Opinion of Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. with respect to the legality of the ordinary shares being registered (filed with Amendment No. 1 to Form F-2 (Registration No. 333 - 115413) filed by the Company on September 21, 2004).
10.1. Agreement and Plan of Merger, dated as of November 8, 1999, by and among Tefron U.S. Holdings Corp., AWS Acquisition Corp. and Alba-Waldensian, Inc. (incorporated by reference to Exhibit (c)(1) to Schedule 14D-1 in respect of Alba-Waldensian, Inc. filed by the Company on November 12, 1999)
10.2. Employment Agreement, dated as of August 5, 2002, between the Company and Sigi Rabinowicz (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
10.3. Consulting and Management Services Agreement, dated as of August 5, 2002, between the Company, New York Delights Ltd., and Arie Wolfson (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
10.4 Management and Services Agreement, effective as of July 30, 2003, between the Company, Yosef Shiran and Shiran & Partners - Consulting, Entreprenuership, and Financing (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
10.5 Lease Agreement dated as of August 12, 1997, between the Company and New Net Assets (1994) Ltd. and an Assignment Agreement dated as of December 25, 1998 between the Company and Hi-Tex Founded by Tefron Ltd. The Company and/or its subsidiary, Hi-Tex Founded by Tefron Ltd., have entered in to similar lease agreements with New Net Assets (1994) Ltd. (incorporated by reference to Exhibit 4.5 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2001).

10.6 Contribution Agreement, dated as of September 6, 2002, between AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
10.7 The Limited Liability Company Agreement of AlbaHealth LLC, dated as of September 6, 2002, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation

(incorporated by reference to Exhibit 4.7 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).

10.8 Put Option Agreement, dated as of September 6, 2002, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.8 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
10.9 Share Purchase Agreement dated February 17, 2004, by and between the Company and Norfet Limited Partnership, including related Registration Rights Agreement attached as a schedule (incorporated by reference to Exhibit 4.9 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
10.10 Share Purchase Agreement, made as of March 3, 2004, by and between Tefron and Leber Partners, L.P, including related Registration Rights Agreement attached as a schedule (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
10.11 Private Equity Credit Agreement, dated as of March 9, 2004, by and between the Company and Brittany Capital Management Limited (incorporated by reference to Exhibit 4.11 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
10.12 Registration Rights Agreement, dated as of March 9, 2004, by and between the Company and Brittany Capital Management Limited (incorporated by reference to Exhibit 4.12 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
23.1 Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global.*
23.2 Consent of McGladrey & Pullen, LLP.
23.3 Consent of Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. (contained in the opinion filed as Exhibit 5.1 to this Registration Statement)

24.1 Powers of Attorney (included on the signature page) (filed with Form F-2 (Registration No. 333 - 115413) filed by the Company on May 12, 2004).

EX-99 3 exhibit_23-1.txt

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption "Experts" in the Amendment No. 2 to Registration Statement on Form F-2 and related prospectus of Tefron Ltd. for the registration of 2,470,021 of its ordinary shares and to the incorporation by reference therein of our report dated September 14, 2004 with respect to the consolidated financial statements of Tefron Ltd. included in its Annual Report (Form 20-F/A) for the year ended December 31, 2003, filed with the Securities and Exchange Commission.

/s/ Kost Forer Gabbay & Kasierer

Tel Aviv, Israel Kost Forer Gabbay & Kasierer October 22, 2004 A Member of Ernst & Young Global

EX-99 4 exhibit_23-2.txt

Exhibit 23.2

CONSENT OF INDEPENDENT AUDITOR

We consent to the incorporation by reference in this Amendment No. 2 to Registration Statement of Tefron Ltd. on Form F-2 (File No. 333-115413) of our report, dated January 30, 2004, with respect to the financial statements of AlbaHealth LLC, included in the Annual Report (Form- 20F/A) of Tefron Ltd. for the year ended December 31, 2003. We also consent to the reference to our Firm under the caption "Experts" in the Prospectus, which is part of this Registration Statement.

/s/ McGladrey & Pullen LLP

Charlotte, North Carolina October 20, 2004

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 21, 2004

REGISTRATION NO. 333 - 115413

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM F-2

PRE-EFFECTIVE AMENDMENT NO. 1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

TEFRON LTD. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

ISRAEL NOT APPLICABLE

INCORPORATION OR ORGANIZATION) No.)

(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION

28 CHIDA STREET BNEI-BRAK 51371 ISRAEL

(972) 3-579-8701

(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

CSC CORPORATION SERVICE COMPANY 2711 CENTERVILLE ROAD, SUITE 400 WILMINGTON, DE 19808 (302) 636-5450 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

COPIES TO:

GIL ROZEN RICHARD J. MANN, ADV. Tefron Ltd. Gross, Kleinhendler,Hodak, 28 Chida Street Halevy, Greenberg & Co. Bnei-Brak 51371 One Azrieli Center Israel Tel Aviv 67021 Israel

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after this registration statement becomes effective.

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.[_]

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box.[X]

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.[_]

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED

WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES NOR DOES IT SEEK AN OFFER TO BUY

THESE SECURITIES, IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS, DATED SEPTEMBER 21, 2004

TEFRON LTD.

2,470,021 ORDINARY SHARES

Our ordinary shares are listed on the New York Stock Exchange under the symbol "TFR". On September 17, 2004, the last reported sale price on the New York Stock Exchange was $4.47 per share.

THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 9.

may only be used where it is legal to sell these securities. You should not assume that the information in this prospectus or any supplement is accurate as of any date other than the date on the front of those documents.

The date of this Prospectus is September 21, 2004

	PAGE
	----

About this Prospectus	5
The Shares	6
Corporate Information	6
The Company	6
Risk Factors	9
Forward-Looking Statements	21
Use of Proceeds	22
Offering Price	22
Offer and Listing Details	22
Capitalization	23
Notice Regarding Arthur Andersen LLP	24
Selling Shareholder	24
Additional Information	26
Plan of Distribution	27

Regulation M	29
Expenses for the Offering		29
Legal Matters	29
Experts	29
Where You Can Find More Information			29
Incorporation of Certain Documents by Reference				30
Enforceability of Civil Liabilities		30

ABOUT THIS PROSPECTUS

THE SHARES

The Shares covered by this Prospectus are issuable by us pursuant to the equity line credit facility between us and the selling shareholder entered into on March 9, 2004. We entered into this facility in order to expand the available resources available to us and to decrease our reliance on our existing bank credit facilities. In addition, we expect that by drawing on the equity line

credit facility, we will improve our capitalization. We have no other relationship with the selling shareholder.

Before drawing on the equity line, we must satisfy certain closing conditions, including the effectiveness of a registration statement that we must file relating to the shares to be issued to the selling shareholder. In addition, under our agreement with Norfet, Limited Partnership, we require the consent of Norfet for the issuance of shares under an equity line of credit if such issuance is at a price of less than $4.60 per share unless the issuance is required in order for us to satisfy covenants relating to shareholders equity under company loan agreements or to satisfy certain NYSE listing requirements. In addition, the issuance under the equity line of an aggregate sum of more than 12% of our issued capital will also require the consent of Norfet.

CORPORATE INFORMATION

Our principal executive offices are located at 28 Chida Street, Bnei-Brak 51371, Israel and our telephone number is 972-3-579-8701.

THE COMPANY

Tefron Ltd. was incorporated under the laws of the State of Israel on March 10, 1977. We are subject to the provisions of the Israeli Companies Law, 5759-1999.

6

functions which, in traditional manufacturing, are performed sequentially on separate machines at separate workstations. Following this single-machine operation, all the Hi-Tex manufacturing process requires to complete the garment is dyeing and a reduced amount of sewing and finishing. Our Hi-Tex manufacturing process enables us to produce a substantially wider range of fabrics, styles and product lines, resulting in a consistently high level of comfort, quality and durability. Our fabric engineering, product design and the comfort of our products provide us with an opportunity to expand our sales of active-wear products.

Below is a summary of significant events in our development:


1990	First bodysize cotton panty with applicated elastics.
1997seamless	Formation of Hi-Tex Founded by Tefron Ltd. and production of first
	panty.

Initial public offering of our shares on the NYSE.

1998	Acquisition of a dyeing and finishing facility to achieve greater verticalintegration of our business.
1999	Acquisition of Alba, a manufacturer of seamless apparel and healthcare
products.
	The main purpose of the acquisition of Alba was to acquire additional
production
	capacity, a presence in the United States, direct store distribution capacity, a
	broader customer base and incremental revenues.
2001	Initial significant shifting of sewing production to Jordan

|| | | | | 7 | | | | | | | | | | | | | | | | | | | | 2001 | Acquisition of a 50% stake in JBA Productions S.A., an intimate | | apparel | | | | manufacturer located in Madagascar that specializes in bras manufacturing. | | JBA | | | | enjoys most of the free trade privileges that we do in Israel, such as | | exemption | | | | from import quotas and customs duties in the United States and Europe, | | and the | | | | labor costs of its production facility are significantly lower. | | 2001 | Launch of a turn around program, including significant cost reduction, | | downsizing | | | | and consolidation of operations. |

2002	Reorganization of Alba, including a spin off of the Health Product Division
and
	the formation of the AlbaHealth joint venture with a strategic investor, and the
	initial consolidation of the seamless production activity in Hi-Tex in Israel,
	was completed in the second quarter of 2003.

2003 Acquisition of all of the outstanding ordinary shares of Macro Clothing Ltd.,

entity that manufactures, markets and sells swimsuits and beachwear.

Implementation of strategic steps to expand our product line, including active-wear products, to diversify our product line and client base.

MARCH-APRIL 2004 Closing of equity investments with two groups of investors in the aggregate amount of $20 million. In addition, entering into an equity credit line facility providing Tefron with the option to call funds of up to an additional amount equal to the lesser of $15 million or 19.9% of Tefron's ordinary share capital,

subject to limitations and the satisfaction of certain conditions.

RISK FACTORS

WE DEPEND ON A SMALL NUMBER OF PRINCIPAL CUSTOMERS WHO HAVE IN THE PAST

BOUGHT OUR PRODUCTS IN LARGE VOLUMES. WE CANNOT ASSURE THAT THESE CUSTOMERS

OR ANY OTHER CUSTOMER WILL CONTINUE TO BUY OUR PRODUCTS IN THE SAME VOLUMES

OR ON THE SAME TERMS.

OUR LARGEST CUSTOMER OWNS AN INTEREST IN COMPETING PRODUCTION FACILITIES.

WE CANNOT ASSURE THAT THIS CUSTOMER WILL CONTINUE TO BUY OUR PRODUCTS IN

THE SAME VOLUMES OR ON THE SAME TERMS.

OUR EXPANSION INTO NEW PRODUCT LINES WITH MORE COMPLICATED PRODUCTS, AND

OUR MANUFACTURE OF PRODUCTS IN SHORTER PRODUCTION RUNS REDUCED OUR

OPERATING EFFICIENCY DURING 2003 AND MAY CONTINUE TO REDUCE OUR FUTURE

OPERATING EFFICIENCY.

OUR EXPANSION INTO NEW PRODUCT LINES, IN PARTICULAR ACTIVE-WEAR BUSINESS

PRODUCTS, INVOLVES THE MANUFACTURE OF NEW PRODUCTS, WHICH HAS AND MAY

REQUIRE US TO PURCHASE ADDITIONAL MACHINERY ADAPTED TO MANUFACTURE SUCH

PRODUCTS. THE ADDITIONAL CAPITAL EXPENDITURES INCURRED IN CONNECTION WITH

THESE PURCHASES MAY REDUCE OUR FUTURE CASH FLOW.

HOLDERS OF OUR ORDINARY SHARES ARE SUBJECT TO THE RISK OF ADDITIONAL AND

SUBSTANTIAL DILUTION TO THEIR INTERESTS AS A RESULT OF THE ISSUANCES OF ORDINARY SHARES IN CONNECTION WITH THE EQUITY LINE CREDIT FACILITY.

	Hypothetical Conversion Price	Shares issuable upon puts
		aggregating $15,000,000, up to
		a maximum of 2,470,021

	$ 3.50	2,470,021
	$ 4.00	2,470,021

$ 4.50 2,470,021

$ 5.00	2,470,021
$ 5.20	2,470,021
$ 5.50	2,470,021
$ 7.00	2,142,857
$ 8.00	1,875,000

10

Hypothetical Put Price	Shares issuable upon puts, up to a	Maximum draws
available up to

maximum of 2,470,021 $15,000,000


$ 3.00	2,470,021	$ 7,410,063
$ 3.50	2,470,021	$ 8,645,073
$ 4.00	2,470,021	$ 9,880,084
$ 4.50	2,470,021	$11,115,094
$ 5.00	2,470,021	$12,350,105
$ 5.50	2,470,021	$13,585,115
$ 6.00	2,470,021	$14,820,126
$ 7.00	2,142,857	$14,999,999
$ 8.00	1,875,000	$15,000,000

EXISTING SHAREHOLDERS LIKELY WILL EXPERIENCE INCREASED DILUTION WITH DECREASES IN MARKET VALUE OF ORDINARY SHARES IN RELATION TO OUR ISSUANCES

OF SHARES UNDER THE EQUITY LINE CREDIT FACILITY, WHICH COULD REDUCE THE VALUE OF THEIR SHARES.

The formula for determining the number of ordinary shares to be issued under the equity line credit facility is based, in part, on the market price of our ordinary shares and includes a discount from the market price equal to 94% of the average of the four lowest closing bid prices of our ordinary shares over the ten trading days after the put notice is tendered by us to the selling

shareholder. As a result, the lower the market price of our ordinary shares at and around the time we put shares under the equity line credit facility, the more shares of our ordinary shares the selling shareholder receives, subject to a ceiling of 2,470,021 shares. Any increase in the number of ordinary shares issued upon puts of shares as a result of decreases in the prevailing market price would compound the risks of dilution described in the preceding paragraph.

11

We are prohibited from putting shares to the selling shareholder under the equity line credit facility if such put would result in that investor holding more than 4.99% of the then outstanding ordinary shares. These restrictions, however, do not prevent the selling shareholder from selling ordinary shares received in connection with a put, and then receiving additional ordinary shares in connection with a subsequent put. In this way, the selling shareholder could sell more than 4.99% of the outstanding ordinary shares in a relatively short time frame while never holding more than 4.99% at one time.

SINCE MOST OF OUR REVENUES ARE GENERATED IN U.S. DOLLARS AND A LARGE PART

OF OUR EXPENSES ARE IN ISRAELI CURRENCY, WE ARE SUBJECT TO FLUCTUATIONS IN

INFLATION AND CURRENCY RATES.

Because most of our revenues in the foreseeable future are expected to continue to be generated in U.S. dollars and a significant portion of our expenses are expected to continue to be incurred in NIS, we are exposed to the risk of appreciation of the NIS vis-a-vis the U.S. dollar. This appreciation would cause an increase in our NIS expenses as recorded in our U.S. dollar denominated financial reports, even though the expenses denominated in NIS will remain unchanged. A portion of our NIS denominated expenses is linked to changes in the Israeli cost of living index, a portion is linked to increases in NIS payments under collective bargaining agreements and a portion is unlinked.

WE REQUIRE A SIGNIFICANT AMOUNT OF CASH TO PAY OUR DEBT. IF WE FAIL TO GENERATE SUFFICIENT CASH FLOW FROM OPERATIONS, WE MAY NEED TO RENEGOTIATE

OR REFINANCE OUR DEBT, OBTAIN ADDITIONAL FINANCING OR POSTPONE CAPITAL EXPENDITURES.

cash flow from operations to make the scheduled payments on our debt. We have repayment obligations on our long-term debt of approximately $11.7 million in 2004, $25.2 million in 2005, $20.1 million in 2006 and $11.5 million in 2007. These amounts do not include any repayment obligations under our short-term debt in the amount of approximately $31.8 million as of December 31, 2003. Our ability to meet our debt obligations will depend on whether we can successfully implement our strategy, as well as on economic, financial, competitive and technical factors. Some of the factors are beyond our control, such as economic conditions in the markets where we operate or intend to operate, changes in our customers' demand for our products, and pressure from existing and new competitors.

o our financial condition at the time;
o restrictions in agreements governing our debt; and
o other factors, including market conditions.

OUR DEBT OBLIGATIONS MAY HINDER OUR GROWTH AND PUT US AT A COMPETITIVE

DISADVANTAGE.

Our substantial debt obligations could have important consequences. For example, they could:

13

o place us at a competitive disadvantage compared to our competitors that have less debt;
o make us more vulnerable to economic and industry downturns and reduce our flexibility in responding to changing business and economic conditions;
o limit our ability to pursue business opportunities; and
o limit our ability to borrow money for operations or capital in the future.

DUE TO RESTRICTIONS IN OUR LOAN AGREEMENTS, WE MAY NOT BE ABLE TO OPERATE

OUR BUSINESS AS WE DESIRE.

OUR ANNUAL AND QUARTERLY OPERATING RESULTS MAY VARY WHICH MAY CAUSE THE

MARKET PRICE OF OUR ORDINARY SHARES TO DECLINE.

We may experience significant fluctuations in our annual and quarterly operating results which may be caused by, among other factors:

o the timing, size and composition of orders from customers;
o varying levels of market acceptance of our products;
o the timing of new product introductions by us, our customers or their competitors;
o economic conditions in the geographical areas in which we operate or sell products; and
o operating efficiencies.

have occurred during the second quarter, but the dates of many of those holidays are based on the lunar calendar and vary from year to year.

OUR MARKETS ARE HIGHLY COMPETITIVE AND SOME OF OUR COMPETITORS HAVE NUMEROUS ADVANTAGES OVER US; WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.

15

production costs, it will cause a reduction in our profitability. Furthermore, if there is a weak retail market or a downturn in the general economy, competitors may be pressured to sell their inventory at substantially depressed prices. A surplus of intimate apparel at significantly reduced prices in the marketplace would significantly reduce our sales.

WE ARE SUBJECT TO FLUCTUATING COSTS OF RAW MATERIALS.

IF OUR ORDINARY SHARES ARE DELISTED FROM THE NEW YORK STOCK EXCHANGE, THE

LIQUIDITY AND PRICE OF OUR ORDINARY SHARES AND OUR ABILITY TO ISSUE ADDITIONAL SECURITIES MAY BE SIGNIFICANTLY REDUCED.

In order to maintain the listing of our ordinary shares on The New York Stock Exchange, or NYSE, we are required to meet specified maintenance standards. In December 2002, we were notified by the NYSE that we failed to comply with the listing standards of minimum stockholders' equity of $50 million and minimum market capitalization of $50 million over a consecutive 30 trading

day period. As a result, we submitted a business plan to the NYSE demonstrating how we anticipate meeting these criteria within 18-months as required by the NYSE rules. In February 2003, we were notified that we had been approved for continued listing on the NYSE, subject to the successful implementation of the business plan that we submitted to the Exchange. We cannot guarantee that we will successfully implement our business plan. In March 2004, we were informed by the NYSE that it intends to publish for public comment amended continued listing criteria requiring a minimum stockholders' equity of $75 million and minimum market capitalization of $75 million.

In the event we fail to successfully implement our business plan and meet the prior NYSE criteria within 18 months from the time we submitted the plan, or we fail to meet any other current or revised listing criteria of the NYSE, our ordinary shares may be delisted from trading on The New York Stock Exchange. We cannot assure you that we will meet all NYSE criteria in the future. Delisting of our ordinary shares would result in limited availability of market price information and limited news coverage. In addition, delisting could diminish investors' interest in our ordinary shares as well as significantly reduce the liquidity and price of our ordinary shares. Delisting may also make it more difficult for us to issue additional securities or secure additional financing.

WE DEPEND ON OUR SUPPLIERS FOR MACHINERY; WE MAY EXPERIENCE DELAYS OR

ADDITIONAL COSTS SATISFYING OUR PRODUCTION REQUIREMENTS.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY.

WE FACE POTENTIAL CONFLICTS OF INTEREST CAUSED BY INVESTOR INFLUENCE.

and (iii) the Company's chief executive officer.

17

Israeli companies law imposes procedures, including, for certain material transactions, a requirement of shareholder approval, as a precondition to entering into interested party transactions. These procedures may apply to transactions between us and any of our major shareholders, such as Norfet and Macpell. However, we cannot assure that we will be able to avoid the possible detrimental effects of any such conflicts of interest by complying with the procedures mandated by Israeli law.

WE ARE AFFECTED BY CONDITIONS TO, AND POSSIBLE REDUCTION OF, GOVERNMENT

PROGRAMS AND TAX BENEFITS

We benefit from certain Israeli Government programs and tax benefits, particularly as a result of the "Approved Enterprise" status of substantially

all of our existing production facilities in Israel. As a result of our "Approved Enterprise" status, we have been able to receive significant investment grants with respect to our capital expenditures. Following our exhaustion of our net operating loss carry forwards, we have been able to benefit from a reduced tax rate of 25% on earnings derived from these investments for which the benefit period has not expired. To maintain eligibility for these programs and tax benefits, we must continue to meet certain conditions, including making certain specified investments in fixed assets and conducting our operations in specified "Approved Enterprise" zones. If we fail to meet such conditions in the future, we could be required to refund tax benefits and grants already received, in whole or in part, with interest linked to the Consumer Price Index in Israel from the date of receipt. We have granted a security interest over all of our assets to secure our obligations to fulfill these conditions.

We also benefit from exemptions from customs duties and import quotas due

to our location in Israel, Jordan (Qualified Industrial Zone) and Madagascar and the free trade agreements Israel maintains with the United States, Canada, the European Union and the European Free Trade Association. If there is a change in such benefits or if other countries enter into similar agreements and obtain similar benefits or if any such agreements were terminated, our profitability may be reduced.

18 WE FACE SEVERAL RISKS, INCLUDING POLITICAL, ECONOMIC, SOCIAL, CLIMATIC RISKS, ASSOCIATED WITH INTERNATIONAL BUSINESS.

o changes in regulatory requirements;
o export restrictions, tariffs and other trade barriers;
o currency fluctuations;
o longer payment cycles;
o difficulties in collecting accounts receivable; and
o political instability and seasonal reductions in business activities.

in connection with the sale or procurement of goods in international markets in the future or that one or more of these factors will not significantly reduce our sales or profitability.

Our ability to benefit from the lower labor costs will depend on the political, social and economic stability of these countries and in the Middle East and Africa in general. We cannot assure that the political, economic or social situation in these countries or in the Middle East and Africa in general will not have a material adverse effect on our operations, especially in light of the potential for hostilities in the Middle East. The success of the production facilities also will depend on the quality of the workmanship of laborers, and our ability to maintain good relations with such laborers, in these countries. We cannot guarantee that our operations in Madagascar or Jordan will be cost-efficient or successful.

19

WE ARE SUBJECT TO VARIOUS RISKS RELATING TO OPERATIONS IN ISRAEL

We are incorporated under the laws of, and our main offices and manufacturing facilities are located in, the State of Israel. We are directly influenced by the political, economic and military conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. Any major hostilities involving Israel, the interruption or curtailment of trade between Israel and its trading partners or a significant downturn in the economic or financial condition of Israel could have a material adverse effect on our operations. Since October 2000, there has been a substantial deterioration in the relationship between Israel and the Palestinians which has resulted in increased violence. The future effect of this deterioration and violence on the Israeli economy and our operations is unclear. We cannot assure that ongoing or revived hostilities or other factors related to Israel will not have a material adverse effect on us or our business.

20 FORWARD-LOOKING STATEMENTS

o our customers' continued purchase of our products in the same volumes or on the same terms;
o the cyclical nature of the retail industry;
o the potential adverse effect on our future operating efficiency resulting from our new product lines and our manufacture of products in shorter production runs;
o the purchase of new equipment that may be necessary as a result of our expansion into new product lines;
o fluctuations in inflation and currency rates;
o our failure to generate sufficient cash from our operations to pay our debt;
o the limitations and restrictions imposed by our substantial debt obligations;
o the competitive nature of the intimate apparel and active-wear markets; and
o the fluctuating costs of raw materials.

USE OF PROCEEDS

purchase our ordinary shares.

OFFERING PRICE

The selling shareholder has advised us that it may sell the Shares offered by this prospectus at the prevailing market price at the time of such sales, at prices related to such prevailing market price, at negotiated prices, or at fixed prices. The actual number of Shares to be sold and the prices at which they will be sold will depend upon the market price at the time of those sales. Therefore, we have not included in this prospectus information about the price to the public.

OFFER AND LISTING DETAILS

The high and low sales prices for our ordinary shares as reported on the NYSE during the first quarter of 2004 as well as for March and April 2004 and May 2004 (to date) are set forth below. Other information regarding the market price of our ordinary shares is located in our Form 20-F for the year ended December 31, 2003 filed with the SEC on April 1, 2004.

2004 ---- HIGH LOW ---- ---


First quarter	6.30	4.31
Second quarter	6.00	4.74
July	4.70	4.00
August	4.64	3.92
September (until September 17, 2004)		4.64	4.40

CAPITALIZATION

The following table sets forth, as of June 30, 2004, our consolidated unaudited capitalization (i) on an actual basis and (ii) as adjusted to give effect to the issuance of 2,470,021 of our ordinary shares to the selling shareholder at a price of $4.20 per share (94% of the closing price per share on September 17, 2004), the application of the approximately $10 million in proceeds therefrom to the repayment of short-term debt, and the resale of these shares by the selling shareholder under this Prospectus. The financial data in the following table should be read in conjunction with the Company's consolidated financial data and notes thereto incorporated by reference herein.

JUNE 30, 2004

ACTUAL AS ADJUSTED

UNAUDITED

(IN THOUSANDS)

EXCLUDING ALBAHEALTH LLC

Short term bank debt18,424
Current maturities of long term debt:
Bank	18,424	7,828
Lease	374	394
Long term debt, net of current maturities:
Bank	42,644	42,644
Lease	0	0

ALBAHEALTH LLC

Short term bank debt	2,812
Current maturities of long term debt:
Bank	3,000	3,000
Lease	274	274
Long term debt, net of current maturities:
Bank	7,500	7,500
Lease	67	67

CONSOLIDATED

Shareholder's equity:
Share Capital(1)	6,583	7,134
Additional paid-in capital	78,234	88,061
Accumulated deficit	(24,135)	(24,135)
Treasury shares	(7,408)	(7,408)

Total shareholders' equity 53,274 63,653

Consisting of Ordinary Shares, par value NIS 0.01 per share, 50,000,000 authorized and 17,016,847 issued and outstanding (not including 997,400 ordinary shares held in treasury), as of June 30, 2004

NOTICE REGARDING ARTHUR ANDERSEN LLP

Our consolidated financial statements for the year ended December 31, 2001, which are incorporated in the registration statement on Form F-2 of which this prospectus forms a part, were audited by Luboshitz, Kasierer & Co., a member firm of Arthur Andersen ("Andersen"), as set forth in its audit report thereon. On August 5, 2002, we appointed Kost Forer & Gabbay (now known as Kost Forer Gabbay & Kasierer), a member firm of Ernst & Young International, to replace Andersen, as our independent auditors.

SELLING SHAREHOLDER

The following table provides information about the actual and potential ownership of our ordinary shares by the selling shareholder in connection with the equity line credit facility as of April 28, 2004, and the number of our shares registered for sale in this prospectus. The number of ordinary shares issuable under the equity line credit facility varies according to the market price at and immediately preceding the put date. Solely for purposes of estimating the number of ordinary shares that would be issuable to the selling shareholder as set forth in the table below, we have assumed a hypothetical put by us on September 17, 2004, of 2,470,021 ordinary shares (which equals 19.9% of our outstanding ordinary shares as of the date we entered into the Private Equity Credit Agreement) under the equity line credit facility at a per share price of approximately $4.20. The actual per share price and the number of shares issuable upon actual puts by us could differ substantially. This prospectus and the registration statement of which it is a part covers the resale of up to 2,470,021 of our ordinary shares.

facility.

ORDINARY PERCENTAGE OF

SHARES ORDINARY SHARES NUMBER OF NUMBER OF PERCENTAGE ORDINARY ISSUABLE TO ISSUABLE TO ORDINARY ORDINARY OF ORDINARY SHARES SELLING SELLING SHARES SHARES SHARES NAME AND ADDRESS BENEFICIALLY SHAREHOLDER IN SHAREHOLDER IN REGISTERED OWNED BENEFICIALLY OF SELLING OWNED PRIOR TO CONNECTION WITH CONNECTION WITH HEREUNDER AFTER OWNED AFTER SHAREHOLDER OFFERING OFFERING OFFERING (1) (2) OFFERING THE OFFERING - ----------- -------- -------- ------------ --- -------- ------------ Brittany Capital 0 2,470,021(3) 12.68% 2,470,021 0 (4) 0%(4) Management

Limited

c/o Lion Corporate

Services Limited

Cumberland House 27 Cumberland Street P.O. Box N-10818 Nassau, The Bahamas

(1) Based on 17,016,847 ordinary shares outstanding as of September 17, 2004. As noted above, the selling shareholder is prohibited by the terms of the equity line credit facility from having shares put to it to the extent that such put of shares by us would result in the selling shareholder beneficially owning more than 4.99% of our then outstanding ordinary shares following such put. The percentage set forth is not determinative of the selling shareholder's beneficial ownership of our ordinary shares pursuant to Rule 13d-3 or any other provision under the Securities Exchange Act of 1934, as amended. The percentage may change based on the selling shareholder's decision to sell or hold the Shares.

(2) The registration statement of which this prospectus is a part covers up to 2,470,021 ordinary shares issuable under the equity line credit facility. Because the specific circumstances of the issuances under the equity line credit facility are not ascertainable at this time, the precise total number of our ordinary shares offered by the selling shareholder cannot be fixed at this time, but cannot exceed 2,470,021, which is the maximum number of ordinary shares that may be issued under the Private Equity Credit Agreement. The amount set forth represents the number of our ordinary shares that would be issuable, and hence offered hereby, assuming a put of the 19.9% of our outstanding ordinary shares (as of the date we entered into the Private Equity Credit Agreement) to the selling shareholder under the equity line credit facility as of September 17, 2004. The actual number of our ordinary shares offered hereby may differ

according to the actual number of shares issued upon such puts.

(3) Consists of 2,470,021 ordinary shares issuable upon a hypothetical put of 19.9% of our outstanding ordinary shares (as of the date we entered into the Private Equity Credit Agreement) under the equity line credit facility as of September 17, 2004.

(4) Assumes a hypothetical draw of 19.9% of our outstanding ordinary shares (as of the date we entered into the Private Equity Credit Agreement) under the equity line credit facility as of September 17, 2004, which equals 2,470,021 of our ordinary shares. There is no assurance that the selling shareholder will sell any or all of the shares offered hereby. However, the selling shareholder is contractually prohibited from holding shares, and we are contractually prohibited from putting shares to the selling shareholder that would cause the selling shareholder to hold shares, in excess of 4.99% of our then-issued ordinary shares.

ADDITIONAL INFORMATION

As of September 17, 2004, there were 17,016,847 of our ordinary shares outstanding and 4,500 of our deferred shares outstanding, all of which were fully paid. In addition, at September 17, 2004, we had outstanding 2,495,638 options to purchase ordinary shares as follows:

	NUMBER OF OPTIONS		EXERCISE PRICE PER SHARE
DATE
	-----------------	------------------------	---------------


	1,150,305	$ 3.500	Oct. 2011 - July 2013
	300,000	$ 3.563	January 2011
	15,000	$ 3.590	August 2012
	10,000	$ 3.680	January 2014
	13,333	$ 3.890	July 2012
	650,000	$ 4.250	April 2014
	35,000	$ 4.310	January 2014
	35,000	$ 4.650	April 2014
	128,000	$ 8.125	April 2009
	100,000	$ 9.500	May 2009
	59,000	$ 15.00	June 2010

PLAN OF DISTRIBUTION

o ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
o an exchange distribution in accordance with the rules of the applicable exchange;
o privately negotiated transactions;
o underwritten offerings;
o short sales;

o agreements by the broker-dealer and the selling shareholder to sell a specified number of such Shares at a stipulated price per Share;
o a combination of any such methods of sale; or
o any other method permitted by applicable law.

Unless otherwise prohibited, the selling shareholder may enter into hedging

transactions with broker-dealers or other financial institutions in connection with distributions of the Shares or otherwise. In such transactions, broker-dealers or financial institutions may engage in short sales of the Shares in the course of hedging the position they assume with the selling shareholder. The selling shareholder may also engage in short sales, puts and calls, forward-exchange contracts, collars and other transactions in our securities or derivatives of our securities and may sell or deliver Shares in connection with these trades. If the selling shareholder sell shares short, they may redeliver the Shares to close out such short positions. The selling shareholder may also enter into option or other transactions with broker-dealers or financial institutions which require the delivery to the broker-dealer or the financial institution of the Shares. The broker-dealer or financial institution may then resell or otherwise transfer such Shares pursuant to this prospectus. In addition, the selling shareholder may loan their Shares to broker-dealers or financial institutions who are counterparties to hedging transactions and the broker-dealers, financial institutions or counterparties may sell the borrowed Shares into the public market. The selling shareholder may also pledge their Shares to their brokers or financial institutions and under the margin loan the broker or financial institution may, from time to time, offer and sell the pledged Shares. The selling shareholder have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters, broker-dealers or financial institutions regarding the sale of their Shares other than ordinary course brokerage arrangements, nor is there an underwriter or coordinating broker acting in connection with the proposed sale of Shares by the selling shareholder.

Broker-dealers or agents may receive compensation in the form of commissions, discounts or concessions from the selling shareholder in amounts to be negotiated in connection with the sale. Such broker-dealers and any other participating broker-dealers are deemed to be "underwriters" within the meaning of the Securities Act, in connection with such Sales and any such commission, discount or concession may be deemed to be underwriting discounts or commissions under the Securities Act. The selling shareholders is an underwriter with respect to its resales of the Shares.

REGULATION M

security, subject to certain exceptions. All of these factors may affect the marketability of our ordinary shares.

EXPENSES OF THE OFFERING

The following table sets forth the estimated expenses in connection with this registration:


SEC Registration Fees			$ 1,509.99
Printing Registration Statement, Prospectus
and Related Documents			$ 1,000
Legal Fees and Expenses			$ 10,000
Miscellaneous		$ 5,000
	---------
Total	$ 17,509.99

LEGAL MATTERS

The validity of the securities offered under this registration statement will be passed upon for us by Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co.

EXPERTS

in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The SEC allows us to incorporate by reference the information we file with

them, which means that we can disclose important information to you by referring to those documents. The information incorporated by reference is considered to be part of this prospectus. We incorporate by reference the documents listed below:

(1) Our Annual Report, Form 20-F, as filed with the Commission on April 1, 2004;

(2) Our Current Reports on Form 6-K as filed with the Commission on April 29, 2004, May 24, 2004, June 1, 2004 and August 11, 2004, and

(3) The description of our ordinary shares contained in the registration statement under the Exchange Act on Form 8-A dated September 4, 1997.

All information appearing in this prospectus is qualified in its entirety by the information and financial statements, including the notes thereto, contained in the documents incorporated by reference herein. Our Exchange Act file number is 0-28878.

ENFORCEABILITY OF CIVIL LIABILITIES

o the judgment is enforceable in the state in which it was given;
o adequate service of process has been effected and the defendant has had a reasonable opportunity to present his arguments and evidence;
o enforcement of the judgment is not contrary to the security or sovereignty of the State of Israel;
o the content of the judgment is not contrary to public policy;
o the judgment was not obtained by fraud;
o the judgment does not conflict with any other valid judgment in the same matter between the same parties;
o an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted in the foreign court; and
o the judgment was not issued by an incompetent court under the rules of

private international law prevailing in Israel.

31 PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 8. INDEMNIFICATION OF DIRECTORS AND OFFICERS

o a breach of his duty of care to us or to another person;
o a breach of his duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice our interests; or
o a financial liability imposed upon him in favor of another person in respect of an act performed by him in his capacity as an office holder.

Our Articles of Association also include the following provisions:

o a provision authorizing us to grant in advance an undertaking to indemnify an office holder, provided that the undertaking is limited to types of events that the board of directors deems to be anticipated and limited to an amount determined by the board of directors to be reasonable under the circumstances;
o a provision authorizing us to retroactively indemnify an office holder;
o a provision authorizing us to indemnify an office holder against a financial liability imposed on him in favor of another person by any judgment, including a settlement or an arbitrator's award approved by a court in respect of an act performed in his capacity as an office holder; and
o a provision authorizing us to indemnify an office holder against reasonable litigation expenses, including attorneys' fees, expended by such office holder or charged to him by a court, in proceedings we institutes against him, or instituted on our behalf or by another person, or in a criminal charge from which he was acquitted, all in respect of an act performed in his capacity as an office holder.

o a breach by the office holder of his duty of loyalty unless the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
o a breach by the office holder of his duty of care if such breach was done intentionally or in disregard of the circumstances of the breach or its consequences;

o any act or omission done with the intent to derive an illegal personal benefit; or
o any fine levied against the office holder as a result of a criminal offense.

ITEM 9. EXHIBITS

The following exhibits are filed herewith:

EXHIBIT NO. DESCRIPTION

4.1 Specimen Certificate for ordinary shares (incorporated by reference from the Registration Statement on Form F-1 of the Registrant, File No. 333-333-7538, filed on August 29, 1997).
4.2 Articles of Association of Tefron Ltd., as amended (incorporated by reference from Exhibit 1.2 to the Registrant's Annual Report on Form 20-F for the year ended December 31, 2002).
4.3 Tefron Ltd. 1997 Share Option Plan (incorporated by reference from Registration Statement on Form S-8 of the Registrant, File No. 333-111932, filed on January 15, 2004).
5.1 Opinion of Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. with respect to the legality of the ordinary shares being registered.
10.1. Agreement and Plan of Merger, dated as of November 8, 1999, by and among Tefron U.S. Holdings Corp., AWS Acquisition Corp. and Alba-Waldensian, Inc. (incorporated by reference to Exhibit (c)(1) to Schedule 14D-1 in respect of Alba-Waldensian, Inc. filed by the Company on November 12, 1999)
10.2. Employment Agreement, dated as of August 5, 2002, between the Company and Sigi Rabinowicz (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
10.3. Consulting and Management Services Agreement, dated as of August 5, 2002, between the Company, New York Delights Ltd., and Arie Wolfson (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
10.4 Management and Services Agreement, effective as of July 30, 2003, between the Company, Yosef Shiran and Shiran & Partners - Consulting, Entreprenuership, and Financing (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
10.5 Lease Agreement dated as of August 12, 1997, between the Company and New

Net Assets (1994) Ltd. and an Assignment Agreement dated as of December 25, 1998 between the Company and Hi-Tex Founded by Tefron Ltd. The Company and/or its subsidiary, Hi-Tex Founded by Tefron Ltd., have entered in to similar lease agreements with New Net Assets (1994) Ltd. (incorporated by reference to Exhibit 4.5 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2001).

10.6 Contribution Agreement, dated as of September 6, 2002, between AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2002).
10.7 The Limited Liability Company Agreement of AlbaHealth LLC, dated as of September 6, 2002, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.7 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2002).
10.8 Put Option Agreement, dated as of September 6, 2002, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.8 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2002).
10.9 Share Purchase Agreement dated February 17, 2004, by and between the Company and Norfet Limited Partnership, including related Registration Rights Agreement attached as a schedule (incorporated by reference to Exhibit 4.9 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2003).
10.10 Share Purchase Agreement, made as of March 3, 2004, by and between Tefron and Leber Partners, L.P, including related Registration Rights Agreement

attached as a schedule (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2003).

10.11 Private Equity Credit Agreement, dated as of March 9, 2004, by and between the Company and Brittany Capital Management Limited (incorporated by reference to Exhibit 4.11 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2003).
10.12 Registration Rights Agreement, dated as of March 9, 2004, by and between the Company and Brittany Capital Management Limited (incorporated by reference to Exhibit 4.12 to the Company's Annual Report on Form 20 F for the fiscal year ended December 31, 2003).
23.1 Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global.*
23.2 Consent of McGladrey & Pullen, LLP.
23.3 Consent of Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. (contained in the opinion filed as Exhibit 5.1 to this Registration Statement)
24.1 Powers of Attorney (included on the signature page) (filed with Form F-2 (Registration No. 333 - 115413) filed by the Company on May 12, 2004).

ITEM 10. UNDERTAKINGS

The Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:

(i) include any prospectus required by Section 10(a)(3) of the Securities Act;

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

financial statements.

SIGNATURES

TEFRON LTD.

By: /s/ Yos Shiran

Yosef Shiran Chief Executive Officer

By: /s/ Gil Rozen ----------------- Gil Rozen Chief Financial Officer

- ----------------------------------	*----------------------------------
Shirith Kasher	Micha Korman
Director	Director

|| | | | | | | | | | | | | | | | | | | - ---------------------------------- Yarom Oren | ---------------------------------- Meir Shamir | | Director | Director | | | | Authorized Representative in the United States

TEFRON U.S. HOLDINGS CORP.

/s/ Yosef Shiran

Yosef Shiran

* By: /s/ Yosef Shiran

Yosef Shiran

Attorney - In - Fact

* By: /s/ Gil Rozen

Gil Rozen

Attorney - In - Fact

EXHIBIT INDEX


Exhibit		Page
Number	Description	Number

| |

4.1 Specimen Certificate for ordinary shares (incorporated by reference from the Registration Statement on Form F-1 of the Registrant, File No. 333-333-7538, filed on August 29, 1997).
4.2 Articles of Association of Tefron Ltd., as amended (incorporated by reference from Exhibit 1.2 to the Registrant's Annual Report on Form 20-F for the year ended December 31, 2002).
4.3 Tefron Ltd. 1997 Share Option Plan (incorporated by reference from Registration Statement on Form S-8 of the Registrant, File No. 333-111932, filed on January 15, 2004).
5.1 Opinion of Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. with respect to the legality of the ordinary shares being registered.
10.1. Agreement and Plan of Merger, dated as of November 8, 1999, by and among Tefron U.S. Holdings Corp., AWS Acquisition Corp. and Alba-Waldensian, Inc. (incorporated by reference to Exhibit (c)(1) to Schedule 14D-1 in respect of Alba-Waldensian, Inc. filed by the Company on November 12, 1999)
10.2. Employment Agreement, dated as of August 5, 2002, between the Company and Sigi Rabinowicz (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
10.3. Consulting and Management Services Agreement, dated as of August 5, 2002, between the Company, New York Delights Ltd., and Arie Wolfson (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
10.4 Management and Services Agreement, effective as of July 30, 2003, between the Company, Yosef Shiran and Shiran & Partners - Consulting, Entreprenuership, and Financing (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
10.5 Lease Agreement dated as of August 12, 1997, between the Company and New Net Assets (1994) Ltd. and an Assignment Agreement dated as of December 25, 1998 between the Company and Hi-Tex Founded by Tefron Ltd. The Company and/or its subsidiary, Hi-Tex Founded by Tefron Ltd., have entered in to similar lease agreements with New Net Assets (1994) Ltd. (incorporated by reference to Exhibit 4.5 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2001).

10.6 Contribution Agreement, dated as of September 6, 2002, between AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
10.7 The Limited Liability Company Agreement of AlbaHealth LLC, dated as of September 6, 2002, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.7 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
10.8 Put Option Agreement, dated as of September 6, 2002, by and among AlbaHealth, LLC, Alba-Waldensian, Inc., Encompass Group, L.L.C. and General Electric Capital Corporation (incorporated by reference to Exhibit 4.8 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2002).
10.9 Share Purchase Agreement dated February 17, 2004, by and between the Company and Norfet Limited Partnership, including related Registration Rights Agreement attached as a schedule (incorporated by reference to Exhibit 4.9 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
10.10 Share Purchase Agreement, made as of March 3, 2004, by and between Tefron and Leber Partners, L.P, including related Registration Rights Agreement attached as a schedule (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
10.11 Private Equity Credit Agreement, dated as of March 9, 2004, by and between the Company and Brittany Capital Management Limited (incorporated by reference to Exhibit 4.11 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
10.12 Registration Rights Agreement, dated as of March 9, 2004, by and between the Company and Brittany Capital Management Limited (incorporated by reference to Exhibit 4.12 to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2003).
23.1 Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global.*
23.2 Consent of McGladrey & Pullen, LLP.
23.3 Consent of Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. (contained in the opinion filed as Exhibit 5.1 to this Registration Statement)
24.1 Powers of Attorney (included on the signature page) (filed with Form F-2 (Registration No. 333 - 115413) filed by the Company on May 12, 2004).

EX-99 3 exhibit_5-1.txt

EXHIBIT 5.1

September 21, 2004

Tefron Ltd. 28 Chida Street Bnei-Brak, 51371

Ladies and Gentlemen:

We have acted as counsel to Tefron Ltd., a company organized under the laws of the State of Israel (the "Company"), in connection with its filing of an Amendment No. 1 to Registration Statement on Form F-2 (File No. 333-115413) (the "Registration Statement") under the Securities Act of 1933, relating to the registration for resale by a selling shareholder of the Company of 2,470,021 of the Company's ordinary shares, par value NIS 1.0 per share.

In our capacity as counsel to the Company, we have examined originals or copies, satisfactory to us, of the Company's Articles of Association, resolutions of the Company's Audit Committee and Board of Directors provided to us by the Company and the Private Equity Credit Agreement by and between the Company and Brittany Capital Management Limited, the selling shareholder. In such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals and the conformity with the original documents of all documents submitted to us as copies or facsimiles. As to any facts material to such opinion, to the extent that we did not independently establish relevant facts, we have relied on certificates of public officials and certificates of officers

or other representatives of the Company. We are admitted to practice law in the State of Israel and the opinion expressed herein is expressly limited to the laws of the State of Israel.

On the basis of the foregoing, we are of the opinion that the 2,470,021 ordinary shares being registered pursuant to the Registration Statement, when issued and paid for in accordance with the Private Equity Credit Agreement, will be validly issued, fully paid and non-assessable under Israeli law.

It is our understanding that this opinion is to be used only in connection with the offer and sale of the shares while the Registration Statement is in effect.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement.

Very truly yours,

/s/ Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co.

EX-99 4 exhibit_23-1.txt

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption "Experts" in the Amendment No. 1 to Registration Statement on Form F-2 and related prospectus of Tefron Ltd. for the registration of 2,470,021 of its ordinary shares and to the incorporation by reference therein of our report dated September 14, 2004 with respect to the consolidated financial statements of Tefron Ltd. included in its Annual Report (Form 20-F/A) for the year ended December 31, 2003, filed with the Securities and Exchange Commission.

/s/ Kost Forer Gabbay & Kasierer

Tel Aviv, Israel Kost Forer Gabbay & Kasierer September 20, 2004 A Member of Ernst & Young Global

EX-99 5 exhibit_23-2.txt

Exhibit 23.2

CONSENT OF INDEPENDENT AUDITOR

We consent to the incorporation by reference in this Amendment No. 1 to Registration Statement of Tefron Ltd. on Form F-2 (File No. 333-115413) of our report, dated January 30, 2004, with respect to the financial statements of AlbaHealth LLC, included in the Annual Report (Form- 20F/A) of Tefron Ltd. for the year ended December 31, 2003. We also consent to the reference to our Firm under the caption "Experts" in the Prospectus, which is part of this Registration Statement.

/s/ McGladrey & Pullen LLP Charlotte, North Carolina September 20, 2004

AI assistant

Tefron Ltd. — Annual Report 2004

7077_rns_2005-09-25_b090b5e3-a95e-4c24-9a4f-d6f947ebf989.pdf

תוכן עניינים

מסמך רישום

תפרון בע"מ (להלן: "החברה")

18,958,586 מניות רגילות בנות 1 ₪ ע"נ כ"א רשומות על שם בעלי המניות רישום למסחר של וכן עד 2,608,362 מניות רגילות בנות 1 ₪ ע"נ שתנבענה ממימוש אופציות בלתי סחירות

סימן ניירות הערך בבורסה בתל- אביב - תפרון

ניירות הערך של החברה רשומים למסחר ב- NYSE וסימנם – TFR.

תוכן עניינים

חלק ראשון

1.1 התאגיד

חלק שני – נספחים בשפת המקור (אנגלית)

חלק ראשון

1.1 התאגיד

1.2 מידע על התאגיד

1.3 תאור המניות

1.4 אישור הבורסה לניירות ערך בתל- אביב בע"מ

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 20-F

YES [X] NO [_]

ITEM 17 [_] ITEM 18 [X]

NOT APPLICABLE

TABLE OF CONTENTS

INTRODUCTION

FORWARD-LOOKING STATEMENTS

ITEM 3. KEY INFORMATION

3B. CAPITALIZATION AND INDEBTEDNESS

3C. REASONS FOR THE OFFER AND USE OF PROCEEDS

5

DUE TO RESTRICTIONS IN OUR LOAN AGREEMENTS, WE MAY NOT BE ABLE TO OPERATE

OUR BUSINESS AS WE DESIRE.

OUR MARKETS ARE HIGHLY COMPETITIVE AND SOME OF OUR COMPETITORS HAVE NUMEROUS ADVANTAGES OVER US; WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.

WE ARE SUBJECT TO FLUCTUATING COSTS OF RAW MATERIALS.

financing.

WE FACE POTENTIAL COMPETITION BY OUR FORMER EMPLOYEES.

WE FACE POTENTIAL CONFLICTS OF INTEREST CAUSED BY INVESTOR INFLUENCE.

WE ARE AFFECTED BY CONDITIONS TO, AND POSSIBLE REDUCTION OF, GOVERNMENT

10

WE ARE SUBJECT TO VARIOUS RISKS RELATING TO OPERATIONS IN ISRAEL

ITEM 4. INFORMATION ON THE COMPANY

4A. HISTORY AND DEVELOPMENT OF THE COMPANY

ALBAHEALTH LLC

CAPITAL EXPENDITURES

Consolidated Financial Statements.

14

OVERVIEW

PRODUCTS

MANUFACTURING AND PRODUCTION

MANUFACTURING PROCESS

manufacturing process.

HI-TEX MANUFACTURING PROCESS

SALES AND MARKETING

INTELLECTUAL PROPERTY

SEASONALITY

CUSTOMERS

AlbaHealth.

BACKLOG

ISRAELI INVESTMENT GRANTS AND TAX INCENTIVES

LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959

21

LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969

COMPETITION

CONDITIONS IN ISRAEL

POLITICAL CONDITIONS IN ISRAEL

ECONOMIC CONDITIONS IN ISRAEL

TRADE AGREEMENTS

U.S. GOVERNMENT REGULATION

4C. ORGANIZATIONAL STRUCTURE

4D. PROPERTY, PLANTS AND EQUIPMENT

ISRAEL

UNITED STATES

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

GENERAL

OUR BUSINESS; DEVELOPMENTS

2004 DEVELOPMENTS

CURRENCY; REVENUES; RAW MATERIALS

OPERATING RESULTS

SALES

COST OF SALES

Tefron Ltd. Annual Report 2004