CUSIP No. M40868107 13D
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
(Amendment No. 8)
ESC Medical Systems Ltd.
(Name of Issuer)
Ordinary Shares, NIS 0.10 par value per share
(Title of Class of Securities)
M40868107
(CUSIP Number)
Barnard J. Gottstein
Carr-Gottstein Properties
550 West 77th Avenue, Suite 1540
Anchorage, Alaska 99501
(907) 278-2277
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
with a copy to:
Joseph J. Giunta, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071-3144
(213) 687-5000
May 11, 1999
(Date of Event which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d- 1(e), 13d-1(f) or 13d-1(g), check
the following box:
/ /
Page 1 of 35 Pages
CUSIP No. M40868107 13D
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This Amendment No. 8 (the "Amendment") amends and supplements the
Statement on Schedule 13D, dated September 29, 1998, as amended by
Amendment No. 1, dated January 15, 1999, Amendment No. 2, dated March 9,
1999, Amendment No. 3, dated March 22, 1999, Amendment No. 4, dated March
24, 1999, Amendment No. 5, dated April 14, 1999, Amendment No. 6, dated
April 19, 1999, and Amendment No. 7, dated May 10, 1999 (the "Original
Schedule 13D"), relating to the Ordinary Shares, par value NIS 0.10 per
share (the "Shares"), of ESC Medical Systems Ltd., an Israeli corporation
(the "Company"). Each of the Barnard J. Gottstein Revocable Trust, Barnard
J. Gottstein, as trustee of the Barnard J. Gottstein Revocable Trust, and
Barnard J. Gottstein, as an individual (collectively, the "Reporting
Persons"), are filing this Amendment to update the information with respect
to the Reporting Persons' purposes and intentions with respect to the
Shares.
Item 4. Purpose of Transaction.
Item 4 of the Original Schedule 13D is hereby amended and
supplemented as follows:
On May 10, 1999, the legal representative of Messrs. Genger and
Gottstein sent a letter addressed to the legal representative of the
Company, notifying the Company that Messrs. Genger and Gottstein were
exercising their right under Section 66 of the Israel Companies Ordinance
to request a copy of the Register of Members of the Company, as of May 10,
1999. A copy of such letter is attached hereto as Exhibit 16.
In response to the complaint filed by the Company on April 23,
1999 (a copy of which was filed as Exhibit 11 to the Schedule 13D filed on
May 10, 1999), on May 11, 1999, the legal representative of Messrs. Genger
and Gottstein served the legal representative of the Company with a motion
to dismiss the complaint. A copy of the motion to dismiss is attached
hereto as Exhibit 17.
On May 11, 1999, Messrs. Genger and Gottstein issued a press
release, commenting on the Company's legal action filed in an Israeli court
seeking to prevent the Company's shareholders meeting called by Messrs.
Genger and Gottstein from occurring as scheduled on June 2, 1999. A copy of
the press release is attached hereto as Exhibit 18. The Israeli court denied
the Company's attempt to prevent the solicitation through an ex parte motion
and set May 26, 1999 as the date for a full hearing. On May 12, 1999, the
Israeli court reset the hearing date from May 26 to May 25, 1999.
Other than as described above and as previously described in the
Original Schedule 13D, the Reporting Persons do not have any present plans
or proposals which relate to or would result in (although they reserve the
right to develop such plans or proposals) any transaction, change or event
specified in clauses (a) through (j) of Item 4 of the form of Schedule 13D.
Item 7. Material to be Filed as Exhibits.
Item 7 of the Original Schedule 13D is hereby amended to add the
following exhibits:
Exhibit 16: Letter, dated May 10, 1999, from the legal
representative of Messrs. Genger and
Gottstein to the legal representative of the
Company
Exhibit 17: Motion to Dismiss
Exhibit 18: Press Release, dated May 11, 1999
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: May 12, 1999
/s/ Barnard J. Gottstein
--------------------------------------
Barnard J. Gottstein
Individually and as Trustee of
the Barnard J. Gottstein Revocable Trust
BARNARD J. GOTTSTEIN REVOCABLE
TRUST
/s/ Barnard J. Gottstein
---------------------------------------
Barnard J. Gottstein Trustee
EXHIBIT INDEX
Exhibit
Number Title Page
-------- ----- ----
16 Letter, dated May 10, 1999, 6
from the legal representative
of Messrs. Genger and
Gottstein to the legal
representative of the Company
17 Motion to Dismiss 7
18 Press Release, dated May 11, 35
1999
Exhibit 16
May 10, 1999
Hand Delivery
Gene Kleinhendler, Adv.
Kleinhendler & Halevy
30 Kalisher St.
Tel Aviv
Re: ESC Medical Systems Ltd.
Dear Mr. Kleinhendler,
Further to our letter of May 9, 1999, advising you that our
clients, TRP Investments Associates, Inc., Trans-Resources, Inc., Haifa
Chemicals Holdings Ltd. and Barnard Jacob Gottstein TTEE, are convening an
extraordinary general meeting pursuant to Section 110 of the Companies
Ordinance, on behalf of our said clients we hereby request under Section 66
of the Ordinance a copy of the Register of Members of the Company, as of
May 10, 1999.
Sincerely yours,
/s/ Yoram Ashery, Adv.
Cc: Arie Genger
Barnard J. Gottstein
Exhibit 17
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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ESC MEDICAL SYSTEMS, LTD.,
:
Plaintiff,
:
-against- No. 99 CV 2984 (KMW)
:
ARIE GENGER, BARNARD J. GOTTSTEIN,
THOMAS G. HARDY, TPR INVESTMENTS :
ASSOCIATES, INC., TRANS-RESOURCES,
INC., HAIFA CHEMICALS LTD., HAIFA :
CHEMICALS HOLDINGS, INC., and
BARNARD J. GOTTSTEIN REVOCABLE :
TRUST,
:
Defendants.
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MEMORANDUM OF LAW IN SUPPORT OF
DEFENDANTS' MOTION TO DISMISS THE COMPLAINT
TABLE OF CONTENTS
TABLE OF AUTHORITIES.........................................................i
PRELIMINARY STATEMENT........................................................1
STATEMENT OF FACTS...........................................................5
ARGUMENT....................................................................11
I. SECTION 13(d) WAS NEVER INTENDED TO BE USED AS ARMAMENT
FOR ENTRENCHED MANAGEMENT TO DEPRIVE SHAREHOLDERS OF
THEIR RIGHT TO EFFECT CHANGES IN CORPORATE MANAGEMENT .........11
II. DEFENDANTS FULLY COMPLIED WITH SECTION 13(d) AS A
MATTER OF LAW, BY DISCLOSING ALL REQUIRED FACTS ................13
A. Defendants have Disclosed All Required Facts
Concerning Their Alleged "Group" Status .................14
B. Defendants Have Disclosed All Required Facts
Concerning Their "Intent to Control" ESC .................16
1. Plaintiff Does Not And Cannot Allege that
the Defendants Will Control A Majority
Of The Board Of Directors Even If
Successful In The Proxy Contest ....................16
2. Defendants' Disclosures, Including Attaching
A Copy Of The Complaint To Their Schedules 13D,
Adequately Disclose All Pertinent Information
Required By Law ....................................17
III. PLAINTIFF'S COMPLAINT FAILS TO COMPLY WITH THE
PLEADING REQUIREMENTS OF PSLRA SECTION 21D .....................20
IV. PLAINTIFF'S BREACH OF FIDUCIARY
DUTY CLAIM SHOULD BE DISMISSED..................................22
CONCLUSION..................................................................24
TABLE OF AUTHORITIES
CASES PAGE(S)
- ----- -------
Amalgamated Clothing & Textile Workers Union, v. Fieldcrest
Cannon, Inc., No. 93 Civ. 3580 (RO), 1993 WL 300011
(S.D.N.Y. Aug. 4, 1993) ...............................................18
Avnet Inc. v. Scope Industries, 499 F. Supp. 1121 (S.D.N.Y.
1980)......................................................14, 15, 17, 20
Ballan v. Wilfred American Education Corp., 720 F. Supp. 241
(E.D.N.Y. 1989), citing, Field v. Trump, 850 F.2d 938, 949
(2d Cir. 1988), cert. denied, 489 U.S. 1012 (1989) ....................5
Citizens First Bancorp, Inc. v. Harreld, 559 F. Supp. 867
(W.D. Ky. 1982) .......................................................17
Condec Corp. v. Farley, 573 F. Supp. 1382 (S.D.N.Y. 1983) .........14, 15, 20
Corenco Corp. v. Schiavone & Sons, Inc., 488 F.2d 207 (2d Cir. 1973) ......13
Dan River, Inc. v. Unitex Ltd., 624 F.2d 1216 (4th Cir. 1980) .............13
Horsehead Resource Dev. Co. v. B.U.S. Envtl. Services, Inc.,
916 F. Supp. 305 (S.D.N.Y.), opinion vacated in part on
other grounds, 928 F. Supp. 287 (S.D.N.Y. 1996) .......................13
ICN Pharm., Inc. v. Khan, 2 F.3d 484 (2d Cir. 1993) .......................13
Piper v. Chris-Craft Industrial, Inc., 430 U.S. 1 (1977) ..................12
Pitchell v. Callan, 13 F.3d 545 (2nd Cir. 1994) ...........................23
Rondeau v. Mosinee Paper Corp., 422 U.S. 49 (1975) .....................5, 12
Schnell v. Conseco, Inc., No. 98 Civ. 2527, 1999 WL 182327
(S.D.N.Y. Mar. 31, 1999) ..........................................21, 22
Sea Containers Ltd. v. Stena AB, 741 F. Supp. 231 (D. D.C.), aff'd in
pertinent part, rev'd in part, 890 F.2d 1205 (D.C. Cir. 1989) .........18
Todd Shipyards Corp. v. Madison Fund, Inc., 547 F. Supp. 1383
(S.D.N.Y. 1982) ......................................................17
Treadway Companies, Inc.v. Care Corp, 638 F.2d 357 (2d Cir. 1980) .....12, 13
United Mine Workers v. Gibbs, 383 U.S. 715, 86 S. Ct. 1130 (1996) .........23
Weeden v. Continental Health Affiliates, Inc., 713 F. Supp. 396
(N.D. Ga. 1989) ...................................................14, 15
Wellman v. Dickinson, 682 F.2d 355 (2d Cir. 1982), cert. denied,
460 U.S. 1069 (1983) ..................................................14
STATUTES PAGE(S)
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The Private Securities Litigation Reform Act of 1995,
Pub. L. No. 104-67, 109 Stat. 737 (1995), 15 U.S.C.
ss. 78u-4(b) .......................................................1, 21
Securities Exchange Act of 1934, 15 U.S.C.ss. 78m(d) ...................1, 12
Defendants Arie Genger ("Genger"), Barnard J. Gottstein
("Gottstein"), Thomas G. Hardy ("Hardy"), TPR Investments Associates, Inc.
("TPR"), Trans-Resources, Inc. ("TRI"), Haifa Chemicals Ltd. ("HCL"), Haifa
Chemicals Holdings, Inc. ("HCH"), and Barnard J. Gottstein Revocable Trust
("Gottstein Trust"), respectfully submit this Memorandum of Law in support
of their motion, pursuant to Rules 12(b)(6) and 12(b)(1) of the Federal
Rules of Civil Procedure and Section 21D of the Private Securities
Litigation Reform Act of 1995 ("PSLRA"), for an Order dismissing the
complaint (the "Complaint") of plaintiff ESC Medical Systems, Ltd. ("ESC"
or "Plaintiff"), a corporation organized under the laws of Israel and
headquartered in Israel.(1)
Preliminary Statement
From a cursory review of the Complaint, one might believe that
this is a case about a successful corporation being raided and exploited by
outsiders bent on seizing control from competent leadership. But, in truth,
this is a case about entrenched management, with the rubber-stamp consent
of an entrenched Board, using Section 13(d) of the Securities Exchange Act
of 1934 ("1934 Act"), 15 U.S.C. ss. 78m(d), to try to stifle the
shareholders' franchise until the insiders have wrung every bit of
shareholder value from the company.
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(1) A copy of the Complaint (cited herein as "Compl.") is attached as
Exhibit1 to the accompanying Declaration of Anthony Ragozino
("Ragozino Dec.").
Given incumbent management's dismal performance, it is no
wonder that they would seek to chill shareholder democracy in this manner.
After all, ESC stock traded on the NASDAQ system at $46.50 per share on
June 14, 1996, yet closed at only $4.75 on February 24, 1999. (Compl. Exh.
E at 6, Exh. K at 4) The market value of the company fell from almost $1
billion in mid-1998 to less than $200 million in March 1999. (Compl. Exh. K
at 4) And earnings per share have fallen from $.48, in 1998's second
quarter, to only $.05 in 1998's fourth quarter. (Compl. Exh. K at 4) These
disappointing results were accompanied by an independent research report
prepared by Donaldson, Lufkin & Jenrette ("DLJ"), dated October 21, 1998,
which noted that "institutional sponsorship [of ESC] appears to be almost
non-existent at this juncture given management's lack of credibility...."
(Id. (emphasis added))
Defendants Genger and Gottstein each control significant blocks
of the common stock of ESC. Like every other ESC shareholder, they have
watched the value of their shares plummet with ever-increasing
disappointment. And, like independent analyst DLJ and other institutional
investors, they naturally have grown uncomfortable with incumbent
management's unwillingness or inability to arrest ESC's downward spiral.
Genger and Gottstein, at first individually and later as allies, therefore
have proposed to alter the present composition of ESC's Board of Directors
in an effort to resurrect shareholder value. They wrote letters to the
company, seeking to achieve such a restructured Board consensually. Each
also filed Schedules 13D, disclosing their ownership of ESC stock and (i)
their desires to replace several members of the ESC Board of Directors with
independent persons; and (ii) their hopes that a restructured, truly
independent Board would then exercise tighter control over perhaps even
consider replacing - present management, including ESC's CEO.
But, importantly, although Genger and Gottstein have proposed
to replace a majority of the incumbent Board, they do not seek to take or
exercise control themselves. Genger and Gottstein have not sought to have
themselves named Directors of ESC. Indeed, they have not proposed a
majority of candidates for election to ESC's Board over whom they even
arguably could exercise any "control." As Genger and Gottstein stated in a
letter to the company, which was publicly disclosed in their Schedules 13D:
we believe that the composition of the Board of Directors needs to be
restructured to include capable individuals who have established
themselves in the business and/or scientific community. We are
convinced that such action would instill a new sense of direction
into the Company and give much needed credibility to the Company's
plans and prospects. The newly restructured Board will provide a
valuable resource to management to help rebuild the profitability of
the Company and restore shareholder value which has been
significantly eroded over the past several months.
It is our intent that after such restructuring a majority of the
Board would be unaffiliated with either management or ourselves.
(Compl. Exh. D at 24-25 (emphasis added))
After ESC refused to alter materially the composition of the
Board in response to Genger's and Gottstein's proposals, defendants called
upon ESC to convene an extraordinary meeting of ESC shareholders to vote on
the issue. In violation of governing Israeli law - and further confirming
their resolve to entrench themselves - management simply refused to convene
that required meeting in the statutory time period for doing so.(2) The
second branch of management's response to Genger's and Gottstein's efforts
to return control of the company to the shareholders at large was to cause
ESC to institute this lawsuit. ESC interposed claims under Section 13(d),
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(2) Under Israeli law, shareholders with an interest in excess of 10% of
the Company's ordinary shares currently outstanding have the right to
require an extraordinary general meeting of shareholders, which must
then be convened between 7 and 21 days after the shareholders' formal
request. See Section 109 of the Israel Companies Ordinance.
the rules and regulations of the Securities and Exchange Commission ("SEC")
promulgated thereunder, as well as a claim of breach of fiduciary duty.(3)
ESC's first claim is that defendants are acting as a "group,"
within the meaning of the 1934 Act, and have failed to disclose that fact.
But defendants' Schedules 13D specifically disclose that they may be deemed
to be a "group" by virtue of their alliance. Although defendants dispute
that they are such a "group," this disclosure renders this claim defective
as a matter of law.
ESC's second claim is that defendants are actually seeking to
gain control of ESC, and have failed to disclose, or affirmatively
misstated, that intention. But ESC's conclusory allegation in this respect,
which is premised entirely on "information and belief," is not supported by
a single fact, or group of facts, that would support any reasonable
inference that defendants intend to take control of ESC. Specifically,
while ESC alleges that defendants seek to replace six of the eight
directors of ESC, even the most charitable view of the allegations
contained in the Complaint demonstrate that defendants would "control" at
most three directors. As a result, defendants would not have "control" over
a majority of the board, and ESC's unsupported conclusion to the contrary
is without merit. Moreover, ESC's conclusory, "information and belief"
allegations that defendants have misstated their intentions concerning ESC
is not plead with the requisite degree of specificity required by Section
21D of the PSLRA and thus must be dismissed.
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(3) Plaintiffs have asserted the Section 13(d) claims against all
defendants, and the breach of fiduciary duty claim solely against
Hardy.
ESC's third claim is that Hardy, a non-management Director of
ESC who is allied with Genger and Gottstein, has breached a fiduciary duty
to ESC by participating in Defendants' alleged wrongdoing. But because
ESC's claims that Defendants filed misleading Schedules 13D are without
merit, its pendent claim that Hardy breached a fiduciary duty to ESC by
participating in the filing of those documents should be dismissed as well.
* * *
In sum, rather than containing any detailed, factual
allegations of wrongdoing, the Complaint demonstrates nothing more than an
improper effort by an entrenched management to chill the fundamental
corporate right of shareholders to hold a democratic election of directors.
In this respect, Plaintiff has failed to heed the caution of the Supreme
Court:
[In enacting Section 13(d),] Congress intended to do no more than
give incumbent management an opportunity to express and explain its
position. The Congress expressly disclaimed an intention to provide a
weapon for management . . . [or to discourage checks on entrenched
but inefficient management].
Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58 & n. 8 (1975)
(citation omitted).
Statement of Facts
The following statement of facts is taken from the Complaint
(and the exhibits attached thereto), the allegations of which are assumed
to be true solely for purposes of this motion, and Exhibits 2 and 3 to the
Ragozino Declaration.(4)
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(4) Exhibits 2 and 3 to the Ragozino Dec. are amendments to Gottstein's
and Genger's Schedules 13D, respectively, dated and filed with the
SEC on May 10, and May 11, 1999, respectively. On a motion to
dismiss, the Court may consider documents filed with the SEC that are
available to the public. Ballan v. Wilfred American Educ. Corp., 720
F. Supp. 241, 247 (E.D.N.Y. 1989) (citing Field v. Trump, 850 F.2d
938, 949 (2d Cir. 1988), cert. denied, 489 U.S. 1012 (1989)).
A. The Plaintiff
ESC is an Israeli corporation engaged in the development,
manufacture and marketing of high-technology medical devices. Its stock is
publicly listed and traded on the NASDAQ system. (Compl. P. 2)
B. The Defendants
Genger is the Chairman of the Board of Directors and Chief
Executive Officer of defendant TRI, a global developer, producer and
marketer of specialty plant nutrients and specialty industrial and
agricultural chemicals. (Compl. Exh. A at 7) Genger founded TRI in 1985 and
the company now has thirteen manufacturing plants around the world. (Compl.
Exh. K at 13) Genger is also a director and/or officer of defendants TPR,
HCL, and HCH. Genger and his family own all of the common stock of TPR,
which is the parent corporation of TRI. TRI is the parent corporation of
HCL, which owns HCH. (Compl. Exh. A at 7)
Gottstein is a founding investor of ESC and a partner of
Carr-Gottstein Properties, a real estate partnership based in Anchorage,
Alaska. (Compl. Exh. B, at 5) He is also the sole trustee of defendant
Gottstein Trust. (Compl. P. 11) Gottstein started his career in business in
1949 at his father's grocery company which he, along with a partner,
expanded and eventually sold in 1990 for $300 million. (Compl. Exh. K, at
14)
Hardy is President and Chief Operating Officer of TRI, a
director and/or officer of HCL and HCH, and a non-management director of
ESC. (Compl. P. 12)
C. The Original 13D Filings
On October 9, 1998, Genger filed a Schedule 13D on behalf of
himself, as well as TPR, TRI, HCL and HCH (the "TRI Entities"), disclosing
that those parties had acquired 7.4% of ESC's outstanding common stock for
investment purposes. (Compl. P. 19) The filing disclosed that the reporting
parties had no arrangements or understandings with any other party
involving the voting of ESC stock. (Id.)
Also on October 9, 1998, Gottstein filed a Schedule 13D on
behalf of himself as an individual and as trustee of the Gottstein Trust,
disclosing that those parties had acquired 5.23% of ESC's outstanding
common stock for investment purposes. (Id. P. 20) The filing disclosed that
none of the reporting parties had any contract, arrangement, understanding,
or relationship with any other persons. (Id.)
D. Amendments to the 13D Filings
On or around January 19, 1999, Gottstein filed an amendment to
the original 13D filing ("Gottstein Amendment No. 1") to reflect that the
filing parties had acquired additional shares of ESC common stock. (Id. P.
21) On or around March 12, 1999, Genger, filed an amendment to his original
13D filing ("Genger Amendment No. 1"), this time on behalf of himself,
certain of the entities in the original filing, and Hardy. (Id. P. 22) This
amendment also disclosed that: (1) on March 9, 1999, Genger and Gottstein
reached an agreement to work together; (2) they agreed that "the
composition of [ESC's] Board of directors needed to be restructured" to
give ESC, among other things, "a new sense of direction"; and (3) in
pursuit of their common objectives, Genger and Gottstein agreed to share
expenses. (Id.) The amendment also disclosed that Hardy would generally be
cooperating with Genger, Gottstein and the other filing parties. (Id. P.
23)
Genger Amendment No. 1 also disclosed that Genger and Gottstein
had sent a joint letter to ESC's directors proposing: (a) the removal of
two management directors other than ESC Chairman and CEO Dr. Shimon
Eckhouse ("Eckhouse"); (b) the removal of one non-management director other
than Hardy; and (c) the addition of four new directors to be selected by
Genger and Gottstein. (Id. P. 24)(5)
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(5) In characteristically conclusory fashion, Plaintiff alleges that
these changes would "yield a new nine member Board, with five members
- defendants' four nominees and Hardy - controlled by defendants."
(Id.) Notably absent from the Complaint, however, are any factual
allegations supporting the conclusion that these four nominees would
be controlled by Genger and Gottstein. To the contrary, Genger
Amendment No. 1 discloses that the result of the restructuring would
be that "a majority of [ESC's] Board would be unaffiliated with
either management or Genger and [Gottstein]." (Id. P. 25)
On March 12, 1999, Gottstein filed another amendment to his
Schedule 13D ("Gottstein Amendment No. 2"), disclosing that he had reached
an understanding to cooperate with Genger in attempting to achieve a change
in the composition of ESC's Board of Directors. (Id. P. 27) In this
amendment, as the Complaint notes, Gottstein expressly states that he and
Genger are not working as a group and that they have no intention to take
control of ESC. (Id.)
On or around March 23, 1999, Genger and Hardy filed a second
amendment to the original 13D filing ("Genger Amendment No. 2"), which
discloses that on March 22, 1999, legal representatives of Genger and
Gottstein sent a letter to ESC's counsel listing the names of Genger's and
Gottstein's four nominees for ESC's Board of Directors. (Id. P. 28) The
amendment denies that Genger and Hardy are acting as a group and includes a
copy of a letter to ESC, which repeats that with the proposed change to the
Board of Directors, neither Genger nor Gottstein will control a majority of
the Board. (Id.)
Also on or around March 23, 1999, Gottstein filed a third
amendment to his Schedule13D ("Gottstein Amendment No. 3"), in which he
disclosed information consistent with his and Genger's prior 13D filings
and, in addition, disclosed the March 22, 1999 letter sent to ESC listing
the proposed nominees. (Id.)
On March 26, 1999, Genger and Hardy filed a third amendment to
Genger's Schedule 13D ("Genger Amendment No. 3") disclosing that on March
24, 1999, Genger and Gottstein received notice that ESC was prepared to
consider nominating two of the four candidates proposed by Genger and
Gottstein, along with two candidates selected by the Board, but Genger and
Gottstein rejected that offer and renewed their original proposal. (Id. P.
30) Significantly, Genger and Gottstein noted that, even though two of
their nominees were paid directors of TRI, which is wholly-owned by Genger,
neither nominee was under Genger's control. (Id.) Moreover, Genger and
Gottstein noted that, "[i]n any event, these two individuals, together with
Mr. Hardy, would constitute less than a majority of the Company's Board of
Directors as proposed to be restructured." (Id.)
Genger and Gottstein also disclosed that, if the Board did not
accept their proposal, they would exercise their lawful rights under
Israeli law to convene an extraordinary general meeting of shareholders to
remove all of the directors (except Hardy and perhaps the CEO), and fill
all of the vacancies on the Board. (Id.) Importantly, this Schedule 13D
amendment disclosed once again that "it is not Mr. Genger's nor Mr.
Gottstein's intention to control the Company, but rather to restructure the
Board of Directors with an independent Board." (Id. P. 31)
On March 26, 1999, Gottstein filed a fourth amendment to his
Schedule 13D ("Gottstein Amendment No. 4") disclosing information
consistent with his and Genger's prior filings and the new information in
Genger Amendment No. 3. (Id. P. 32) On April 15, 1999, Gottstein filed
another amendment ("Gottstein Amendment No. 5"), in which he stated that on
April 14, 1999, he and Genger "had jointly commenced mailing solicitation
materials to shareholders of ESC, and that counsel for Genger and Gottstein
intended to send, on April 15, 1999, 'a letter addressed to each of [ESC]'s
directors demanding that [ESC] convene an Extraordinary General Meeting.'"
(Id. P. 33) Gottstein attached to this amendment a letter from himself and
Genger to ESC shareholders, wherein they stated that "the Company lacks the
professional expertise and appropriate oversight by a board of directors"
that it requires, and that he and Genger sought a "truly independent Board
of Directors." (Id. P. 34) The letter further disclosed that Genger and
Gottstein were soliciting the shareholders' proxies to vote for the purpose
of replacing all current directors (except the CEO and Hardy) with six
nominees. (Id.) Notably, neither Genger nor Gottstein sought to place
themselves on ESC's Board of Directors. Once again, Genger and Gottstein
clearly state that "[o]ur intention is not to acquire control of the
Company." (Id. P. 36)
In the proxy materials sent by Genger and Gottstein, they
disclose that one of their proposed nominees to the ESC Board, S.A. Spencer
("Spencer"), receives $15,000 per year as a director of TRI, and that
Spencer's firm provides investment banking advice to TRI, but that the firm
has received no compensation from TRI since January 1998. (Id. P. 37) In
addition, the proxy materials disclose that another nominee, Professor
Zehev Tadmor, receives $15,000 per year as a director of HCL, and that he
is a technological consultant for TRI, for which he receives a retainer
fee. (Id.)
On or around April 15, 1999, Gottstein delivered to ESC and its
Board of Directors a demand that the Board convene an Extraordinary General
Meeting of the Company's shareholders for the purpose of removing all of
the directors other than Hardy and Eckhouse and to elect Genger's and
Gottstein's six nominees. (Id. P. 39) Also on April 15, 1999, Genger filed
the fourth amendment to his Schedule 13D ("Genger Amendment No. 4"), which
disclosed, among other things, the mailing of the proxy materials. On April
19, 1999, Gottstein filed a sixth amendment to his Schedule 13D ("Gottstein
Amendment No. 6") in which he included a letter from himself and Genger to
ESC's CEO, Eckhouse. Once more, in this letter, Gottstein and Genger
expressly state that they were not attempting to gain control of ESC and
that any suggestion that any of their nominees were "somehow under our
influence and control is absurd." (Id. P. 41) On or around April 20, 1999,
Genger filed another amendment ("Genger Amendment No. 5") which disclosed
information consistent with that disclosed in his and Gottstein's prior
filings, including the letter he and Gottstein sent to Eckhouse. (Id. P.
42)
On May 10 and May 11, 1999, Genger and Gottstein, respectively,
filed amendments to their Schedules 13D, in which they disclosed the
existence of this lawsuit and disclosed all of management's allegations by
attaching copies of the Complaint as exhibits thereto. (Ragozino Dec. Exhs.
2 and 3)
ARGUMENT
I. SECTION 13(d) WAS NEVER INTENDED TO BE USED AS ARMAMENT
FOR ENTRENCHED MANAGEMENT TO DEPRIVE SHAREHOLDERS OF THEIR RIGHT TO
EFFECT CHANGES IN CORPORATE MANAGEMENT.
Section 13(d) requires that any person who acquires beneficial
ownership of more than 5% of any registered equity security must file a
Schedule 13D within 10 days of acquiring such beneficial ownership,
disclosing, among other things, the purpose for buying such shares, and
information as to any contracts, arrangements, or understandings with any
person with respect to the securities of the issuer. See Treadway
Companies, Inc. v. Care Corp., 490 F. Supp. 660, 664 (S.D.N.Y.) (noting
that Section 13(d) is purely a notice statute, the purpose of which is "to
alert the marketplace to every large, rapid aggregation or accumulation of
securities . . . which might represent a potential shift in corporate
control . . . and which is, therefore, information that shareholders and
potential investors in a corporation need in order to determine both the
likelihood of change in corporate control, and the probable future value of
the corporation") (citations omitted), aff'd in pertinent part, 638 F.2d
357 (2d Cir. 1980). Filing persons are also required to file amendments to
the Schedule 13D upon certain changes in the facts disclosed in the
original filing. See ss. 13(d)(2); 15 U.S.C. ss. 78m(d)(2).
Congress passed the Williams Act (of which Section 13(d) is a
part) as a legislative response to a gap in the federal securities laws
which permitted cash tender offers and other acquisitions to occur without
adequate disclosure to investors of relevant information. See Piper v.
Chris-Craft Indus., Inc., 430 U.S. 1, 22 (1977). However, it was never
intended to arm management with a weapon with which to frustrate a proposed
control change. Rondeau v. Mosinee Paper Co., 422 U.S. 49, 58-59 (1975);
see also Corenco Corp. v. Schiavone & Sons, Inc., 488 F.2d 207, 209-10 (2d
Cir. 1973) (noting that the institution of a lawsuit claiming Williams Act
violations is a familiar defensive tactic).
As the Supreme Court in Rondeau stated:
By requiring disclosure of information to the target corporation as
well as the Securities and Exchange Commission, Congress intended to
do no more than give incumbent management an opportunity to express
and explain its position. The Congress expressly disclaimed an
intention to provide a weapon for management to discourage takeover
bids or prevent large accumulations of stock which would create the
potential for such attempts. Indeed, the Act's draftsmen commented
upon the 'extreme care' which was taken 'to avoid tipping the balance
of regulation either in favor of management or in favor of the person
making the takeover bid.'
422 U.S. at 58-59 (citations omitted) (emphasis added).
The Williams Act thus provides only a narrow right of action on
behalf of the issuer: "the right of the corporation . . . is limited to
equitable relief, compelling the filing of a full and accurate Schedule
13D." Dan River, Inc. v. Unitex Ltd., 624 F.2d 1216, 1225 (4th Cir. 1980).
Therefore, once a defendant has disclosed all relevant facts through
amendments to their Schedules 13D, including management's allegations
against them, Section 13(d) is fully satisfied and the claim should be
dismissed. See Treadway, 638 F.2d at 380 (holding that an action claiming a
violation of Section 13(d) in the face of curative Schedule 13D amendments
should be dismissed as moot for failure to state a claim).
II. DEFENDANTS FULLY COMPLIED WITH SECTION 13(d) AS A
MATTER OF LAW, BY DISCLOSING ALL REQUIRED FACTS.
Defendants' amended Schedules 13D disclose that they may be
deemed to be a "group" by virtue of their shared activities, and explicitly
detail defendants desire to effect a change in control of ESC. Thus, even
if defendants' original Schedules 13D were arguably deficient in some
manner - which they were not - the subsequent amendments and the
supplemental information they contain cured any lapse and rendered
Plaintiff's claims moot as a matter of law. E.g., ICN Pharm., Inc. v. Khan,
2 F.3d 484, 489-92 (2d Cir. 1993); Treadway, 638 F.2d at 380; Horsehead
Resource Dev. Co. v. B.U.S. Envtl. Servs., Inc., 916 F. Supp. 305, 309
(S.D.N.Y.) (granting defendant's motion to dismiss in part and stating that
"[g]enerally, once a subsequent 13D filing cures alleged omissions in prior
filings, the ss. 13(d) claim alleging omissions must be dismissed as moot")
(citation omitted), opinion vacated in part on other grounds, 928 F. Supp.
287 (S.D.N.Y. 1996); see also Avnet Inc. v. Scope Indus., 499 F. Supp.
1121, 1124 (S.D.N.Y. 1980).
Indeed, in this case, defendants have gone well beyond
divulging the relevant facts, by including ESC's Complaint as an exhibit to
their Schedules 13D and therefore disclosing even ESC's adverse
interpretation of those facts. The investing public now possesses all
relevant information with which to make an investment decision. Section
13(d) requires nothing more. See Condec Corp. v. Farley, 573 F. Supp. 1382,
1387 (S.D.N.Y. 1983) (Where "there is a dispute as to the facts, the law
requires only that the disputed facts and the possible outcomes be
disclosed."); Weeden v. Continental Health Affiliates, Inc., 713 F. Supp.
396 (N.D. Ga. 1989) (rejecting issuer's argument that amended Schedule 13D
would have to disclose the facts themselves, not merely the existence of a
dispute concerning the facts; holding disclosure requirements satisfied
when filing was amended to reveal the dispute).
A. Defendants have Disclosed All Required Facts
Concerning Their Alleged "Group" Status.
When two or more persons act as a "group" for the purposes of
acquiring, holding or otherwise disposing of more than 5% of the securities
of an issuer, the group must file a joint Schedule 13D, "disclosing, inter
alia, the identity of its members and the purpose of its acquisition."
Wellman v. Dickinson, 682 F.2d 355, 362 (2d Cir. 1982), cert. denied, 460
U.S. 1069 (1983). The purpose of this provision is to prevent multiple
shareholders from secretly accumulating shares of the company which in the
aggregate amount to 5% or more of the company's stock, while avoiding
filing a Schedule 13D because each of their individual holdings amount to
less than 5%. This is not such a case.
Genger (on behalf of himself and the TRI Entities) and
Gottstein (on behalf of himself and the Gottstein Trust) each filed
Schedules 13D disclosing the ownership of their ESC stock. Further, they
both have amended their respective Schedules 13D multiple times to include
complete and updated information concerning the acquisition of more shares,
their plans with respect to the company, and the allegations of this
lawsuit, including their alleged "group" status. See Condec, 573 F. Supp.
at 1386 (noting that defendant was not seeking to evade the filing
requirement, but rather, fully disclosed all relevant facts in his 13D
filings; stating, "[t]his is the limit of the law").
To be sure, while they have disclosed that they might be deemed
a group by virtue of their shared desires, Genger and Gottstein dispute
that they are a group.(6) But there simply is no legitimate basis on which
to allow ESC to pursue litigation over a disputed legal conclusion; i.e.,
whether Gottstein and Genger are a statutory Section 13(d) group. Avnet,
Inc. v. Scope Indus., 499 F. Supp. 1121, 1125 (S.D.N.Y. 1980) (sufficient
to disclose dispute as to whether filing party is an investment company).
Even where "there is a dispute as to the facts, the law requires only that
- ------------
(6) Although it is not necessary for the Court to resolve the issue on
the present motion, Genger and Gottstein have a good faith basis for
disputing that they are a "group." Genger and Gottstein have asserted
repeatedly that, although they are coordinating their efforts to
restore a truly independent Board to ESC, they each retain complete,
independent control over their respective investments and have no
agreement concerning acquisition, disposition, voting, or otherwise,
with respect to their ESC shares. (See, e.g., Compl. Exh. D at 7).
the disputed facts and the possible outcomes be disclosed." Condec Corp. v.
Farley, et al., 573 F. Supp. 1382, 1387 (S.D.N.Y. 1983); Weeden v.
Continental Health Affiliates, Inc., 713 F. Supp. 396, 399-400 (N.D. Ga.
1989) (rejecting issuer's argument that amended Schedule 13D would have to
disclose the facts themselves, not merely the existence of a dispute
concerning the facts; holding disclosure requirements satisfied when filing
was amended to reveal the dispute). A fortiori, it is sufficient for
purposes of Section 13(d) to disclose a dispute over a legal conclusion
such as whether the filing parties are a group.
The decision in Citizens First Bancorp, Inc. v. Harreld, 559 F.
Supp. 867, 873 (W.D. Ky. 1982), is directly on point. There, the defendants
disclaimed group status in their 13D filings. The court held that although
there was a substantial likelihood that the plaintiff would be able to
establish that the defendants were acting as a group for purposes of
calling a special stockholders meeting and voting their shares together to
remove members of the board of directors, no irreparable harm existed
because the party had filed a Schedule 13D which "substantially complie[d]
with the S.E.C. rules." Id. at 873. Further, the court noted that "[s]uch a
disclaimer [of group status] is specifically allowed by the instructions"
for Schedule 13D. Id.; see 1934 Act, Schedule 13D, Instructions for Cover
Page (2) ("If the reporting person disclaims membership in a group or
describes a relationship with other person but does not affirm the
existence of a group, please check row 2(b)").
B. Defendants Have Disclosed All Required Facts
Concerning Their "Intent to Control" ESC
1. Plaintiff Does Not And Cannot Allege That The
Defendants Will Control A Majority Of The Board
Of Directors Even If Successful In The Proxy Contest
Taking ESC's allegations as true for purposes of this motion,
even if defendants succeeded in nominating all of the directors they have
proposed, defendants still would not "control" a majority of the directors.
The Complaint states that Hardy is the defendants' representative on the
current board. (Compl. P. 35) It further alleges that Mr. Spencer is a
member of the board of directors of TRI, a company founded by Genger, and
Professor Zehev Tadmor is a member of the board of directors of HCL, a
wholly-owned subsidiary of TRI. Assuming the truth of such allegations,
ESC's argument that because of such relationships, Gottstein and Genger
will control all three of these directors insofar as ESC is concerned, is a
preposterous proposition on its face. Nevertheless, Plaintiff has alleged -
at most - that the defendants will "control" at most three of the eight
members of the ESC board of directors, not a majority. See Todd Shipyards
Corp. v. Madison Fund, Inc., 547 F. Supp. 1383, 1389 (S.D.N.Y. 1982)
(holding that defendants' Schedule 13D disclosures which stated that they
may seek some representation on plaintiff's board of directors and might
seek to affect the course of the company by advice and suggestion to
management to be "full and fair" and were not the equivalent of a desire to
attain control of a company). Thus, ESC's claim that defendants seek to
control ESC fails as a matter of law.
2. Defendants' Disclosures, Including Attaching A Copy
Of The Complaint To Their Schedules 13D, Adequately
Disclose All Pertinent Information Required By Law.
In any event, ESC's position on this issue is known to
investors since Gottstein and Genger each attached copies of the Complaint
to their latest Schedule 13D amendments. "'The only regulatory objective is
that access to material information be enjoyed equally, but this objective
requires nothing more than the disclosure of basic facts so that outsiders
(read here investors) may draw upon their own evaluative expertise in
reaching their own investment decisions with knowledge equal to that of the
(discloser).'" Avnet, 499 F. Supp. at 1125 (quoting SEC v. Texas Gulf
Sulpher Co., 401 F.2d 833, 849 (2d Cir. 1968), cert. denied, 394 U.S. 976
(1969)).
The defendants' disclosures more than adequately comply with
Section 13(d) and thus cannot be deemed misleading. See Amalgamated
Clothing & Textile Workers Union v. Fieldcrest Cannon, Inc., No. 93 Civ.
3580 (RO), 1993 WL 300011, at *2 (S.D.N.Y. Aug. 4, 1993) (granting motion
to dismiss where "any reasonable reader of [the] 13Ds would have concluded
that there was a real possibility that [defendants] would divest control .
. . . The federal securities laws do not require controlling shareholders .
. . to go further . . . . Fair and accurate notice to the investing public
of such clear possibility is enough").
The holding in Sea Containers Ltd. v. Stena AB, 741 F. Supp.
231 (D. D.C.), aff'd in pertinent part, rev'd in part, 890 F.2d 1205 (D.C.
Cir. 1989), is illustrative. There, the 13D reporting persons stated that
their intention in acquiring the shares was for investment. The plaintiff
alleged that the defendants had an intent to take control of the company.
The district court stated that the defendants' activities suggested that
the purpose of the acquisition of the securities was other than as stated
in the 13D and subsequent amendments. 741 F. Supp. at 235. However, the
court held that it was "only concerned with the adequate information
available to the public shareholders pursuant to securities law" and that
the defendants had "conform[ed] with the intent of securities disclosure
law" by attaching a copy of the complaint to their filings. The court of
appeals affirmed on this issue. 890 F.2d at 1211.
Here, in addition to the 13D amendments which attach copies of
the Complaint, the defendants made multiple disclosures concerning their
purposes. For example, Gottstein explains how he and Genger came to discuss
their investments in ESC and explore the possibility of working together
"to affect the policies of the Company in order to reverse its recent
setbacks and begin restoring its long-term potential value;" he discloses
the understanding reached between himself and Genger to "encourag[e] the
Company to take certain actions which Gottstein and Genger believe are
necessary in order for the Company to grow and prosper as an independent
public company;" he describes the letter sent to ESC's Board of Directors.
(Compl. Exh. E at 5) Importantly, the amendment states that:
the Reporting Persons may otherwise become more active in attempting
to affect the policies of the Company, with or without the
cooperation of Mr. Genger and possibly with the cooperation of as yet
uncontacted shareholders other than Mr. Genger in order that the
long-term potential of the Company be realized; and the Reporting
Persons may buy more Shares depending upon market conditions and
other factors described below.
* * *
Other than as described above, the Reporting Persons do not have any
present plans or proposals which relate to or would result in
(although they reserve the right to develop such plans or proposals)
any transaction, change or event specified in clauses (a) through (j)
of Item 4 of the form of Schedule D.
(Id. at 5-7)
Genger's disclosures describe the correspondence between ESC
and Genger and Gottstein concerning the restructuring of the Board of
Directors and state that "Genger and [Gottstein] intend to continue to have
discussions with other shareholders of the Issuer regarding their proposal
and to seek shareholder support." (Compl. Exh. H, at p.5) Gottstein also
discloses that he and Genger commenced mailing solicitation materials to
ESC shareholders, and attaches copies of such materials to the filing.
(Compl. Exh. J, at p.2) Significantly, Gottstein discusses the letter sent
by Gottstein and Genger to Eckhouse on April 19, 1999, wherein the
amendment quotes the letter:
[W]e strongly object to the Company's statement that we are
attempting 'to seize control' of the Company. . . . Moreover, the
nominees proposed to replace the current directors are in no way
controlled by us. In fact, a majority of the directors of the new
Board will have had no prior business relationship with either of us.
To suggest that somehow these directors - who would be elected by a
majority of outside shareholders - are somehow under our influence
and control is absurd. We demand that you immediately cease such
characterizations.
(Compl. Exh. L, at pp. 2-3)
In light of the foregoing disclosures, ESC's claim that
defendants have filed false and misleading Schedules 13D is without merit
and must be dismissed. See Condec, 573 F. Supp. at 1386 (in finding no
violation of Section 13(d), the court stated that "the net consequence of
the filings . . ., which include a full recitation of the issues raised by
plaintiff in this litigation, is that all interested parties now have
access to all of the facts").(7)
- -----------
(7) In any event, requiring Defendants to state that they do intend to
take control of ESC, as Plaintiff requests (Compl. p.15), may
actually render their Schedules 13D false. In Avnet, this Court
refused to require a filing person to acknowledge in an amendment to
its Schedule 13D that it was an unregistered investment company
because its status as an investment company was a contested fact
issue. The court noted that "a statement that [defendant] is in fact
an unregistered investment com pany may actually render the Schedule
13D false, since [defendant] alleges that it does not consider itself
to be an investment company, and it would be misleading for it to
file a statement the contents of which it does not, in truth,
believe." Avnet, 499 F. Supp. at 1126. This reasoning applies with
equal force here. It would be inappro priate to force defendants to
disclose an intent to control when it does not, in fact, exist.
Avnet, 499 F. Supp. at 1126; see also Condac, 573 F. Supp. at 1386
(denying injunctive relief and noting that "what plaintiff now seeks
by way of a court man dated corrective revision to the 13D filings is
not a further factual disclosure by defendants but rather a
'confession of judgment,' i.e., an admission that an intent to seek
control antedated any of defendants' stock purchases").
III. PLAINTIFF'S COMPLAINT FAILS TO COMPLY WITH THE
PLEADING REQUIREMENTS OF PSLRA SECTION 21D.
Even if the extensive Schedule 13D disclosures concerning
defendants' purposes were not sufficient as a matter of law to require
dismissal of the Complaint, dismissal would still be warranted because the
Complaint fails to allege with specificity facts that would, if true,
support Plaintiff's allegations about defendants' supposed control intent.
Section 21D of the Private Securities Litigation Reform Act of 1995
("PSLRA"), Pub. L. No. 104-67, 109 Stat. 737 (1995), 15 U.S.C. ss.
78u-4(b), requires that:
In any private action arising under [the 1934 Act] in which the
plaintiff alleges that the defendant -
(A) made an untrue statement of a material fact; or
(B) omitted to state a material fact necessary in order to make the
statements made, in the light of the circumstances in which they were
made, not misleading;
the complaint shall specify each statement alleged to have been
misleading, the reason or reasons why the statement is misleading,
and, if an allegation regarding the statement or omission is made on
information and belief, the complaint shall state with particularity
all facts on which that belief is formed.
15 U.S.C. ss. 78u-4(b) (emphasis added). See Schnell v. Conseco, Inc., No.
98 Civ. 2527, 1999 WL 182327, at *8-9 (S.D.N.Y. Mar. 31, 1999) (holding
that the PSLRA's "heightened pleading standard" applies to 1934 Act claims
alleging misrepresentations and omissions).
ESC alleges that, with respect to defendants' intent to
"control" ESC, defendants both (1) made untrue statements of material fact,
and (2) omitted to state material facts in their Schedules 13D. (See, e.g.,
Compl. P. P. 5, 18, 44) Further, ESC states that its Complaint is based, in
this respect, on information and belief. (See Compl. P. P. 1, 37) As such,
PSLRA ss. 78u-4(b) applies to ESC's Section 13(d) claims and, "in order to
survive a motion to dismiss, plaintiff must 'state with particularity all
facts on which that belief is formed.'" Schnell, 1999 WL 182327, at *9.
The Complaint simply fails to state any facts, let alone with
particularity, to support its allegation that defendants have an intent, or
even an ability, to control ESC. Rather, ESC simply notes an affiliation
between two of Genger and Gottstein's nominees and Genger-related entities
(Compl. P. 37), and that Hardy is Genger and Gottstein's "representative"
on the Board. (Id. 35) ESC fails to plead sufficient facts to support that
Genger and Gottstein could assert any control over these three individuals.
Moreover, although Plaintiff notes that Genger and Gottstein intended to
select six additional nominees (id. 38), the Complaint is devoid of any
factual basis for concluding that any of these additional nominees has any
connection with Genger or Gottstein whatsoever, let alone a relationship
that would enable Genger or Gottstein to control their behavior once
elected to the Board.(8) Thus, under the PSLRA's pleading standards,
Plaintiff's claim must be dismissed. See Schnell, 1999 WL 182327, at *9
(dismissing plaintiff's complaint for failing to meet the PSLRA's pleading
- --------------
(8) Thus, even if three of the nominees were subject to Genger and/or
Gottstein's control - an inference simply not justified from the
facts presented - less than half of the directors (at most) would be
subject to Genger and Gottstein's control, not a majority as alleged
by Plaintiff. In addition, as disclosed in Genger and Gottstein's
Schedules 13D, neither of them alone, nor both together, own even
close to a majority of ESC's outstanding shares and, thus, they
cannot exercise control of ESC based on voting power.
standard and noting that "[s]uch allegations, bereft of any facts on which
plaintiff's belief of [defendant's] misconduct is based, are insufficient
to withstand a motion to dismiss").
IV. PLAINTIFF'S BREACH OF FIDUCIARY
DUTY CLAIM SHOULD BE DISMISSED
Plaintiff's fiduciary duty claim against Hardy is predicated on
the same conduct underlying the federal securities law claim; namely, his
participation in the filing of an allegedly misleading disclosure document.
(Compl. P. 47) However, there is no independent basis for federal subject
matter jurisdiction over this claim. As a result, because Plaintiff's
federal securities claims must be dismissed, this Court should also dismiss
Plaintiff's pendent claim for breach of fiduciary duty. See, e.g., United
Mine Workers v. Gibbs, 383 U.S. 715, 726 (1996) ("Certainly, if the federal
claims are dismissed before trial . . . the state claims should be
dismissed as well."); Pitchell v. Callan, 13 F.3d 545, 549 (2d Cir. 1994)
("[I]t is axiomatic that a court should decline to exercise jurisdiction
over state-law claims when it dismisses the federal claims prior to
trial.").
CONCLUSION
For all the foregoing reasons, the Complaint should be
dismissed.
Dated: New York, New York
May 11, 1999
Respectfully submitted,
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
By: /s/ Samuel Kadet
------------------------------
Samuel Kadet (SK 1856)
Of Counsel: 919 Third Avenue
- ---------- New York, New York 10022
James W. Brown (JB 0981) (212) 735-3000
Anthony Ragozino (AR 1601)
Attorneys for Defendants Arie Genger,
Barnard J. Gottstein, Thomas G. Hardy,
TPR Investments Associates, Inc.,
Trans-Resources, Inc., Haifa Chemicals
Ltd., Haifa Chemicals Holdings, Inc.,
and Barnard J. Gottstein Revocable Trust
Exhibit 18
For Immediate Release
ESC SHAREHOLDERS REACT TO ESC MEDICAL
ATTEMPT TO STOP SHAREHOLDER MEETING
May 11, 1999 -- New York, New York -- Messrs. Arie Genger and
Barnard J. Gottstein, two of the largest shareholders of ESC Medical
Systems Ltd. (NASDAQ: ESCMF), commented today on the ESC legal action filed
in Israeli court seeking to prevent the ESC shareholders meeting called by
Messrs. Genger and Gottstein from occurring as scheduled on June 2, 1999.
The court has denied ESC's attempt to prevent the solicitation through an
ex parte motion and has set May 26 as the date for a full hearing.
Messrs. Genger and Gottstein stated "This is typical of ESC's
continuing pattern to disenfranchise shareholders at every opportunity. All
we have done is sought to exercise our legal rights to have a shareholder
referendum on whether a majority of the current board of directors should
be replaced. Instead of allowing this vote to go forward with ample
opportunity for both sides to present their views, this management has
chosen once again to use the court process in an attempt to inhibit
shareholders from stating their views. We wonder how much more evidence
shareholders need to become convinced as we are that the current board and
management are not acting in the interest of all shareholders but seem more
interested in entrenching themselves in office at all cost."
Messrs. Genger and Gottstein have called for a special meeting
of shareholders to be convened June 2, 1999. Shareholders of record on May
10 will be entitled to vote and be represented at the meeting.
