UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year
ended December 31, 1999, or
[ ] 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: 0-13012
ESC MEDICAL SYSTEMS LTD.
(Exact name of registrant as specified in its charter)
Israel N.A.
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 240, Yokneam, Israel 20692
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 972-4-959-9000
Securities Registered pursuant to Section 12(b) of the Act: None.
Name of exchange
Title of each class on which registered
- ------------------- -------------------
None None
Securities registered pursuant to Section 12(g)of the Act:
Ordinary Shares, NIS 0.10 par value per share
----------------------------------------------
(Title of Class)
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 _
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The number of Ordinary Shares, NIS 0.10 par value per share, of the
registrant outstanding as of March 17, 2000 was 27,629,017.
The aggregate market value of the Ordinary Shares held by non-affiliates of
the registrant, based on the closing price of the Ordinary Shares on March
17, 2000 as reported on the Nasdaq National Market, was approximately
$336,513,374. Ordinary Shares held by each current executive officer and
director and by each person who is known by the registrant to own 5% or
more of the outstanding Ordinary Shares have been excluded from this
computation in that such persons may be deemed to be affiliates of the
Company. Share ownership information of certain persons known by the
Company to own greater than 5% of the outstanding common stock for purposes
of the preceding calculation is based solely on information on Schedule 13G
filed with the Commission and is as of December 31, 1999. This
determination of affiliate status is not a conclusive determination for
other purposes.
Documents Incorporated by Reference
Portions of the registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders are incorporated herein by reference in response to items 10
through 13 in Part III of this report.
2
ITEM 1. BUSINESS.
GENERAL
ESC Medical Systems Ltd. ("ESC" or the "Company") is a world leader in the
design, manufacture, and marketing of a broad range of pulsed light and
laser-based systems for the aesthetic and medical communities. The Company
is a pioneer in bringing new technologies and applications to these market
segments. ESC offers a broad line of products making ESC one of the largest
companies in each of its market segments. The primary markets served
include dermatology, plastic surgery, cosmetic surgery, general surgery,
ear, nose and throat (ENT), gynecology, oncology, urology, orthopedics,
veterinary medicine, oral surgery and dentistry.
The Company was incorporated in Israel on December 21, 1991. In January
1996, the Company completed an initial public offering ("IPO") in the
United States. Since its IPO, the Company has raised both equity and debt
finance in the public capital market.
The Company has historically expanded its product line through internal
development, joint ventures and strategic business acquisitions. The most
significant of those transactions was the acquisition of Laser Industries
Limited ("Laser Industries"), completed in February 1998. In particular,
the Company seeks products that enhance its ability to adapt to changing
market needs.
Unless the context otherwise requires, all references to the Company or ESC
shall mean ESC and each of its subsidiaries.
MARKET FOCUS
The Company's systems are designed for use in a variety of medical
environments, as well as aesthetic salons and clinics. The principal target
markets for the Company's aesthetic products are physicians with private
practices or clinics, as well as leading beauty/hair removal centers. These
are customers who wish to tap into the vanity market and are looking to
increase their revenues and reduce dependence on reimbursements. The target
market for the Company's surgical products are hospitals and outpatient
clinics that use lasers for surgical procedures.
TECHNOLOGY
Most of the Company's products are based on proprietary technologies using
intense pulsed light ("IPL") or state-of-the-art laser applications
pioneered by the Company.
INTENSE PULSED LIGHT TECHNOLOGY. The Company offers several products that
incorporate patented proprietary IPL technology. Applications of the
Company's IPL products are primarily aimed at the private aesthetic markets
and include: hair removal; non-invasive treatment of varicose veins and
other benign vascular lesions; and removal of benign pigmented lesions; such
as age spots and tattoos. The products include: MultiLight for vascular and
pigmented lesions; VascuLight for both deep and superficial vascular
lesions and pigmented lesions; and EpiLight Hair Removal System for hair
removal. The Company introduced the AestiLight, a compact, lightweight, IPL
hair removal system to selected markets outside the United States in 1999.
The Company has recently introduced several upgrades and added features to
its existing product line.
3
LASER TECHNOLOGY. The Company offers many laser systems, utilizing CO2
ruby, alexandrite, Nd:YAG, erbium, holmium and diode technologies. The
lasers come in a variety of sizes and power levels designed to serve a
broad range of medical procedures in physician offices, out-patient clinics
and hospitals. In addition, the Company offers over 500 application-driven
laser accessories designed for integration with its laser systems. Many of
these accessories are disposables, which generate recurring revenue.
PHOTODYNAMIC THERAPY (PDT). The Company has developed two systems using
PDT, both of which are saleable internationally, but have not been cleared
for use in the United States by the Food and Drug Administration. The
Company holds exclusive worldwide rights to patented technology in the PDT
field, which are intended for use in the treatment of malignant and benign
skin and other tumors.
PRODUCTS AND APPLICATIONS
AESTHETIC APPLICATIONS. The Company's main focus in the past years has been
in the quickly growing aesthetic market, responding to the public's demand
to look better. The primary applications for ESC products are: hair
removal; removal of benign vascular lesions, including leg veins, spider
veins on legs and face, rosaceae and other red spots; removal of benign
pigmented lesions including brown spots, age spots, sunspots and tattoos;
skin rejuvenation and wrinkle removal; and cellulite therapy. In 1999,
aesthetic applications accounted for 53% of the Company's revenues.
SURGICAL APPLICATIONS. Laser Industries, which was acquired by the Company
in 1998, has been a leading force in the surgical applications marketplace
for close to thirty years, with a wide range of product offerings. In 1999,
surgical applications accounted for 22% of the Company's revenues. The
major specialties include:
EAR, NOSE AND THROAT (ENT). The Company has pioneered several
applications for ambulatory and operating room procedures including
snoring and nasal airways. The most recent product introduced to
the ENT market is OtoLam, for replacing the tubes inserted into
children's ears when suffering from otitis media. These chronic ear
infections affect 20% of all children.
GYNECOLOGY. The Company offers several systems for various
gynecologic applications including laparoscopy, endometrial
ablation, microsurgery and tubal infertility and lesions of the
lower genital tract. The Company's newest product, GyneLase, treats
menorraghia, excessive menstrual bleeding, using an in-office
procedure of endometrial ablation. Menorraghia affects 20% of all
menstruating women.
NEUROSURGERY. The Company offers lasers and accessories for brain
tumor and disk microsurgery, and neuroendoscopy.
ORTHOPEDICS. The Company offers a Holmium laser system for
orthopedic surgical procedures, including knee and shoulder
arthroscopic procedures.
UROLOGY. The Company offers a variety of Nd:YAG lasers in varying
power ranges and a broad range of fiber delivery devices for laser
treatment of the bladder, urethra, prostate and external genitalia.
In addition, the Company offers urologists its Holmium laser for
lithotripsy (a laser procedure which results in the breakage of
kidney, urethra and bladder stones) and for various soft tissue
procedures.
4
VETERINARY. The Company has developed a compact, easy to use CO2
laser for the veterinary market. The many surgical applications
include: removal of cysts, tumors and warts; specialized internal
procedures, neutering, spaying and declawing.
ORAL SURGERY AND DENTAL APPLICATIONS. The Company has developed several
dental lasers to enable dentists to perform hard and soft tissue
applications including drilling, cavity preparation, gum trimming and
periodontic procedures, as well as teeth whitening.
INDUSTRIAL APPLICATIONS. The industrial unit develops and sells a number of
different laser systems for specialized applications based upon customer
requests. As part of the restructuring program, as described under in Item
7 below, Surgilase of Providence, Rhode Island, an industrial division of
Sharplan Laser Inc. in the United States, was integrated into Spectron UK
so that it could function as the United States sales and marketing arm
of Spectron UK.
PRODUCTS UNDER DEVELOPMENT
In order to maintain its competitive position, the Company believes it is
imperative to develop new products and introduce new technologies.
INTENSE PULSED LIGHT PRODUCTS (IPL). The Company is continuously
expanding the applicability of its IPL products. The Company has
developed an upgrade policy enabling its existing IPL customers to
enhance the capability of their (PhotoDerm) MultiLight, VascuLight
and EpiLight units. The Company is developing additional
applications for these devices and enhancing their safety and
effectiveness for a variety of aesthetic applications.
SURGICAL PRODUCTS. Several novel surgical applications are under
development. These include, among others, lithotripsy with a
Holmium laser, nasal office procedures for breath improvement with
a CO2 compact laser and the treatment of very deep veins with a
novel disposable catheter.
DENTAL PRODUCTS. The Company is developing a range of dental lasers
to enable dentists to treat hard tissue and soft tissue
applications. The most recent product that completed its
development and was introduced to markets outside of the United
States is the Opus 20. This device enables the dentist to perform
hard tissue drilling at speeds equal to high speed mechanical
drills. The advantage of this device is its painless application.
The Company is also developing a variety of hand-pieces and
accessories for its dental lasers.
BUSINESS STRATEGY
The Company intends to maintain its leadership position in the aesthetic
and surgical markets by providing leading edge high quality systems,
accessories and service. While its primary markets are cosmetic medical
practitioners and surgeons, the Company intends to broaden its sales
channels and product offerings to reach a wider audience for its products.
The Company intends to use the resources at its disposal to ensure that it
can compete effectively in each of the markets it has targeted.
5
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Please refer to Note 14 of the Financial Statements with respect to
financial information about industry segments.
MARKETING, DISTRIBUTION AND SALES
As part of the restructuring (referred to in Item 7 hereafter) which took
place during 1999, the Company set up five business units that enable it to
address its markets more effectively. Three of the business units handle
the aesthetic and surgical markets and are organized geographically. The
other two units are the Dental Unit and the Industrial Unit. Each business
unit employs a variety of distribution channels such as direct sales by
Company personnel, independent representatives, and regional distributors,
depending upon the nature of the marketplace.
ESC Americas handles aesthetic and surgical sales for the Company in the
United States, Canada and South America. There is a direct sales force in
the United States in addition to distributors in the United States, Canada
and South America.
ESC Europe coordinates aesthetic and surgical sales for the Company's
European subsidiaries, in the United Kingdom, France, Italy, and Germany,
as well as sales via distributors in other European countries, the Middle
East and Africa.
ESC Asia coordinates aesthetic and surgical sales for the Company's
subsidiary in Japan, with a direct sales force as well as distributors in
Southeast and Northeast Asia.
The Dental Unit is setting up an international sales network made up
primarily of distributors and independent sales agents.
The Industrial Unit designs, manufactures and sells its products using a
direct sales force located in the United Kingdom and United States.
The Company's marketing and distribution practice is based upon the
manufacture and delivery of products to customers based upon specific
orders received from its customers. On average, the Company delivers a
customer order within two to three weeks of receipt of the order and
therefore, does not have, and does not rely upon, any material backlog.
Generally, the Company sells more of its products during the second and the
fourth fiscal quarters as compared with the first and third fiscal
quarters. The Company believes that this is because during the third fiscal
quarters many of the Company's physician customers take summer vacation and
during the first fiscal quarter many hospitals and medical organizations
have yet to assess their needs and budget for the upcoming year.
6
BREAKDOWN OF NET SALES BY REGION
FOR THE YEAR ENDED
DECEMBER 31
(dollar amounts in thousands)
-----------------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
-------------- -------------- ---------------
North America.................. $ 51,223 $ 117,377 $ 109,687
Europe......................... 40,774 69,968 43,167
Asia........................... 33,662 9,375 16,051
Central and South America...... 4,079 13,655 17,671
Other.......................... 12,413 14,831 7,407
-------------- -------------- ---------------
$ 142,151 $ 225,206 $ 193,983
============== ============== ===============
To assist customers in financing their purchases of the Company's products,
the Company or its distributors may introduce them to one of a number of
independent leasing companies. As is common in this industry, a substantial
portion of the Company's sales are completed in the last few weeks of each
calendar quarter.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company's products are manufactured from a large number of parts, using
standard components and subassemblies supplied by subcontractors and
vendors to the Company's specifications.
The Company's policy is to maintain more than one source for each of its
major components, to the extent possible, although in some cases parts are
supplied by a sole source. Due to their sophisticated nature, certain
components must be ordered three to four months in advance, resulting in a
substantial lead time for each production run. In the event that such
limited source suppliers are unable to meet the Company's requirements in a
timely manner, the Company may experience an interruption in production
until an alternate source of supply can be obtained.
The Company uses an outsourcing vendor to store and stock its raw material
inventory.
The Company orders raw materials, including optical and electronic parts,
which it sends in kits to subcontractors for assembly of components and
subassemblies. Assembly (in part), integration, and quality assurance of the
components and subassemblies are conducted at the Company's manufacturing
facilities. In some cases, quality is tested on-site at the subcontractor's
facility.
RESEARCH AND DEVELOPMENT
The Company's research and development strategy is to develop high-quality
products and related accessories to maintain ESC's competitive advantage.
The Company's research and development expenses, net of participations by
the Israeli Office of the Chief Scientist, were approximately $15.35
million in 1999, $18.68 million in 1998 and $17.37 million in 1997. The
Company believes that the close interaction between its research and
development, marketing, and manufacturing groups allows for timely and
effective realization of the Company's new product concepts.
7
ESC receives certain grants and tax benefits from, and participates in,
programs sponsored by the Government of Israel.
Israeli tax law permits, under certain conditions, a tax deduction in the
year incurred for expenditures (including capital expenditures) in
scientific research and development projects, if the expenditures are
approved by the relevant Israeli Government Ministry (determined by the
field of research), and the research and development is for the promotion
of enterprise and is carried out by or on behalf of a company seeking such
deduction. Expenditures not approved as such are deductible over a three
year period; however; grants made available to the Company by the
Government of Israel are considered taxable income.
Under the Law for the Encouragement of Industrial Research and Development
1984 (the "Research Law"), research and development programs that are
approved by a research committee and meet certain criteria are eligible for
grants against payment of royalties from the sale of the products developed
in accordance with the program. Regulations promulgated under the Research
Law generally provide for the payment of royalties to the Office of the
Chief Scientist of Israel ranging from 3% to 5% on sales of products
developed as a result of a research project and so funded until 100% of the
dollar-linked amount of the grant (carrying an interest rate at LIBOR) is
repaid. The Research Law requires that the manufacture of any product
developed as a result of research and development funded by the Israeli
Government take place in Israel. It also provides that any know-how from
the research and development, that is used to produce the product, may not
be transferred to third parties without the approval of a research
committee. Such approval is not required for the export of any products
resulting from such research and development.
In connection with an initial program approved by the Office of the Chief
Scientist, the Company and an Israeli subsidiary received participation
payments from the State of Israel in the amount of approximately $275,000
for the year ended December 31, 1999. In return for the Government's
participation payments, the Company and its subsidiary are obliged to pay
in full royalties at a rate of 3% to 5% of sales of the developed product.
As of December 31, 1999, the balance of the Company's outstanding
obligation to the State of Israel in connection with the participation
payments is approximately $6,234,000, which will be repaid to the
government in the form of royalties on sales of those products that reach
the market.
COMPETITION
ESC faces keen competition in its different market niches. Competition
arises from utilizing other light products as well as alternate technologies.
Competitors range in size from small single product companies to large
multifaceted corporations, which may have greater resources than those
available to the Company. Major competitors in the aesthetic market place
are: Coherent, Inc., Candela Corporation, Cynosure, Inc., and Laserscope,
Inc.
In addition, the Company competes in a market subject to rapid
technological change. The entry of new companies or new technologies could
have a material adverse effect on the Company.
PATENTS AND INTELLECTUAL PROPERTY
The Company has obtained and now holds approximately 84 patents in the
United States and approximately 38 additional patents outside of the United
States, and has applied for approximately 34 and 64 additional patents in
the United States and outside of the United States, respectively. In
general, however, the Company relies on its research and development
program, production techniques and marketing and service programs to
8
advance its products. The Company also licenses certain of its technologies
from third parties pursuant to various license agreements. Patents filed
both in the United States and Europe have a life cycle of twenty years
from the filing date. However, patents filed in the United States prior to
June 1995 expire either twenty years from filing or seventeen years from
issue date. None of the Company's material patents are expected to expire
in the near future.
Technologies related to the Company's business, such as laser and IPL
technologies, have been rapidly developing in recent years. Numerous parties
have sought patent protection on developments in these technologies.
The Company's policy is to obtain patents by application, license or
otherwise, to maintain trade secrets and to operate without infringing on
the intellectual property rights of third parties. Loss or invalidation of
certain of these patents, or a finding of unenforceability of certain of
the Company's license agreements with respect to many third party patents,
could have a material adverse effect on the Company. The patent position of
many inventions in the areas related to the Company's business is highly
uncertain, involves many complex legal, factual and technical issues and
has recently been the subject of litigation industry-wide. There is no
certainty in predicting the breadth of allowable patent claims in such
cases or the degree of protection afforded under such patents. As a result,
there can be no assurance that patent applications relating to the
Company's products or technologies will result in patents being issued,
that patents issued or licensed to the Company will provide protection
against competitors or that the Company will enjoy patent protection for
any significant period of time.
It is possible that patents issued or licensed to the Company will be
successfully challenged, or that patents issued to others may preclude the
Company from commercializing its products under development. Litigation to
establish the validity of patents, to defend against infringement claims or
to assert infringement claims against others, if required, can be lengthy
and expensive, and may result in a determination which is adverse to the
Company. There can be no assurance that the products currently marketed or
under development by the Company will not be found to infringe patents
issued or licensed to others. Likewise, there can be no assurance that
other parties will not independently develop similar technologies,
duplicate the Company's technologies or, with respect to patents which are
issued to the Company or rights licensed to the Company, design around the
patented aspects of the technologies. Third parties could also obtain
patents that may require licensing of their patented technology for the
conduct of the Company's business.
Because of the rapid development of technologies which relate to the
Company's products, there may be other patents which relate to basic
relevant technologies and other technologies marketed by the Company. From
time to time, the Company receives inquiries from third-parties contending
that their patents are being infringed by the Company. If such
third-parties were to commence infringement suits against the Company, and
such patents were found by a court to be valid and infringed upon by the
Company, the Company could be required to pay damages and make royalty
payments. Depending on the nature of the patent found to be infringed upon
by the Company, a court order requiring the Company to cease such
infringement could have a material adverse effect on the Company.
GOVERNMENT REGULATION
The products manufactured and marketed by the Company are subject to
regulatory requirements mandated by the United States Food and Drug
Administration (FDA), the European Union and similar authorities in other
countries. The Company believes that its principal products will be
regulated as "devices" under United States Federal law and FDA regulations.
9
The process of obtaining clearances or approvals from the FDA and other
regulatory authorities is costly, time consuming and subject to
unanticipated delays.
Among the conditions for FDA approval of a medical device is the
requirement that the manufacturer's quality control and manufacturing
procedures comply with Good Manufacturing Practice (GMP), or the Quality
System Regulations (QSR), which must be followed at all times. The GMP and
QSR regulations impose certain procedural and documentation requirements
upon a company with respect to design, manufacturing and quality assurance
activities. These GMP and QSR requirements control every phase of design
and production from the receipt of raw materials, components and
subassemblies to the labeling of the finished product. It also includes the
tracing of consignees after distribution as well as documentation of
training, follow-up and customer complaint reporting. Design control was
implemented by the FDA in 1998 as part of the QSR Quality Systems
Requirements.
The Company received a Quality System Certification Award for being in
compliance with ISO 9001. ISO 9001 is a globally recognized standard
established by the International Standard Organization in Geneva,
Switzerland and has been adopted by more than 90 countries worldwide. ISO
9001 embraces all principles of the GMP and QSR and is the most
comprehensive of the quality assurance standards. ISO certification is
based upon adherence to established quality assurance standards and
manufacturing process control.
In 1998, the European Union (EU) determined that marketing or selling any
medical product or devices with the European community required a CE Mark.
The Company has complied with the EU standards and has received the CE Mark
for all our Intense Light and Laser Systems.
A company is now required to obtain the CE Mark prior to sale of certain
medical devices within the EU. It is the responsibility of member states to
ensure that devices capable of compromising the health and safety of
patients (and users) do not enter the market. Obtaining a CE Mark for
medical devices is regulated according to the European Medical Device
Directive. The medical device must comply with the requirements of the
European Medical Device Directive that applies at each stage, from design
to final inspection.
International sales are subject to specific foreign government regulation
and those regulations vary from country to country. The time required to
obtain approval by a foreign country may be longer or shorter than that
required for FDA approval, and the requirements may differ.
EMPLOYEES
As of December 31, 1999, the Company and its subsidiaries had 730 full-time
employees. In Israel there are 280 employees, in the United States 274
employees, in Europe 152 employees and in Asia 24 employees. As of December
31, 1999, there were about 55 employees who had been given a notice of
termination.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
Please refer to Note 14 of the Financial Statements with respect to
financial information about geographic areas of the Company's business.
The Company's worldwide business is subject to risks of currency
fluctuations, governmental actions and other governmental proceedings
abroad. The Company does not regard these risks as a deterrent to further
10
expansion of its operations abroad. However, the Company closely reviews
its methods of operations and adopts strategies responsive to changing
economic and political conditions.
Within the EU, there has been an evolution toward a single market in
pharmaceuticals, for which Economic and Monetary Union ("EMU"), including
the adoption of the euro as a single currency, marks an important step. The
Company has recognized the strategic significance of this development and
has adopted the euro in the beginning of year 2000 for use in EMU markets.
In this way, the Company is demonstrating its support for the European
Community's industrial policy. The Company is continually seeking to take
advantage of these opportunities to improve the efficiency and productivity
of its EU operations.
For risks related to the Company's operations in Israel, see "Conditions in
Israel."
CONDITIONS IN ISRAEL
GENERAL
The Company is incorporated under the laws of the State of Israel, and
substantially all of its research and development and significant executive
facilities are located in Israel. Accordingly, the Company is directly
affected by political, economic and military 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
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its neighbors. 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, a peace agreement between
Israel and Jordan was signed in 1994 and, since 1993, several agreements
between Israel and Palestinian representatives have been signed. In
addition, Israel and several Arab States have announced their intention to
establish trade and other relations and are discussing certain projects.
Israel has not entered into any peace agreement with Syria or Lebanon, and
there have been difficulties in the negotiations with the Palestinians. We
cannot be certain as to how the peace process will develop or what effect
it may have upon the Company. Despite the 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. The Company does not believe that the boycott has had a material
adverse effect on the Company, but restrictive laws, policies or practices
directed towards Israel or Israeli businesses may have an adverse impact on
the expansion of the Company's business. Generally, all male adult citizens
and permanent residents of Israel under a certain age are obligated to
perform up to 39 days, or longer under certain circumstances, of military
reserve duty annually. Additionally, all such residents are subject to
being called to active duty at any time under emergency circumstances.
Currently, some of our senior officers and key employees are 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.
11
ECONOMIC CONDITIONS
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 controls of wages, prices and foreign currency exchange
rates. Until May 1998, Israel imposed restrictions on transactions in
foreign currency. These restrictions affected our operations in various
ways, and also affected the right of non-residents of Israel to convert
into foreign currency amounts they received in Israeli currency, such as
the proceeds of a judgment enforced in Israel. Despite these restrictions,
foreign investors who purchased shares with foreign currency were able to
repatriate in foreign currency both dividends (after deduction of
withholding tax) and the proceeds from the sale of the shares. In 1998, the
Israeli currency control regulations were liberalized significantly, as a
result of which Israeli residents generally may freely deal in foreign
currency and non-residents of Israel generally may freely purchase and sell
Israeli currency and assets. There are currently no Israeli currency
control restrictions on remittances of dividends on the ordinary shares or
the proceeds from the sale of the ordinary shares; however, legislation
remains in effect pursuant to which currency controls can be imposed by
administrative action at any time.
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 also a signatory to the
General Agreement on Tariffs and Trade, which provides for reciprocal
lowering of trade barriers among its members. In addition, Israel has been
granted preferences under the Generalized System of Preferences from
Australia, Canada and Japan. These preferences allow Israel to export the
products covered by such programs either duty-free or at reduced tariffs.
Israel has entered into preferential trade agreements with the European
Union, the United States and the European Free Trade Association. In recent
years, Israel has established commercial and trade relations with a number
of the other nations, including Russia, China and India, with which Israel
had not previously had such relations.
YEAR 2000 COMPLIANCE
The Company has not experienced any material Year 2000 computer or system
related problems or any supply failures resulting from Year 2000 issues. In
addition, the Company has not received any material Year 2000 complaints
from any of its customers relating to products purchased from the Company.
ITEM 2. PROPERTIES.
The Company's principal executive offices and principal engineering,
development, manufacturing, shipping and service operations are located in
a facility occupying an aggregate of approximately 30,000 square feet in
Yokneam, Israel. In March 1996, the Company signed a ten-year lease on the
facility in Yokneam from a non-affiliated lessor with annual lease payments
of approximately $200,000 payable in NIS linked to the Israeli CPI. In
March 1998, the Company signed an additional ten-year lease on a new
facility in Yokneam occupying an aggregate of approximately 30,000 square
feet.
12
The Company also leases approximately 32,500 square feet at the Atidim
Science-Based Industrial Park, Neve Sharett, Tel Aviv, Israel which is
primarily utilized for research and development operations. The term of the
lease is for a period of one year ending in November 30, 2000, with an
option to extend the lease for up to nine years thereafter.
During the second half of 1999, the Company had consolidated most of the
manufacturing activities which were conducted at the Tel-Aviv facilities to
the Company's Yokneam headquarters. In addition, the Company's research and
development activities were reorganized, so that most of the research and
development activity for aesthetic/cosmetic lasers and IPL products is
conducted in Yokneam and most of the research and development activity for
medical/surgical and disposable products activity is conducted in Tel-Aviv.
In addition, the Company, through its subsidiaries, maintains the following
premises:
UNITED STATES
o ESC Medical Systems, Inc. Marketing and sales operations are
located in a facility in Norwood, Massachusetts.
o Sharplan Lasers, Inc. Service, marketing and sales operations
are located in a facility in Allendale, New Jersey.
o Luxar Corporation. Manufacturing, operations, administrative and
research and development facilities are located in Bothell,
Washington.
o Applied Optronics Corporation. Manufacturing, operations and
research and development facilities are located in South
Plainfield, New Jersey.
EUROPE
o Sharplan Lasers UK Limited. Operations are conducted from an
office in London, England.
o Sharplan Laser Europe Limited. Operations are conducted from an
office in London, England.
o ESC Medizintechnik Vertriebs GmbH. Operations are conducted from
an office in Munich, Germany.
o Sharplan Lasers Germany. Operations are conducted from an office
in Munich, Germany.
o Spectron. Operations are conducted from a facility in Rugby,
England.
o ESC Medical Systems (Italy) Srl. Operations are conducted from
an office in Rome, Italy.
o ESC Medical Systems (France) SARL. Operations are conducted from
an office in Paris, France.
JAPAN
o ESC Japan, K.K. Operations are conducted from an office in
Tokyo, Japan.
LEASE COMMITMENTS
The Company also operates sales offices and research and development and
manufacturing facilities in the United States, the United Kingdom, Italy,
Germany, Japan and France. Aggregate rental expense for the years 1996,
1997, 1998 and 1999 amounted to $1,746,000, $2,626,000, $3,423,000 and
$3,729,000 respectively.
13
Future minimum annual lease payments for operating leases are as follows:
Year Lease Payment
- ---- -------------
2000 $3,676,000
2001 $2,856,000
2002 $2,555,000
2003 $2,134,000
2004 $1,774,000
In connection with the Company's restructuring and the consolidation of its
facilities, $3,484,000 of the above amounts has been accrued and included
in restructuring costs for the year ended December 31, 1999.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to various legal proceedings incident to its
business. Except as noted below, there are no legal proceedings pending or
threatened against the Company that management believes are likely to have
a material adverse effect on the Company's consolidated financial position.
The Company has been named in a number of purported class action securities
lawsuits filed in the fall of 1998 that have been consolidated in the
United States District Court for the Southern District of New York. The
consolidated action is captioned In Re ESC Medical Systems Ltd. Securities
Litigation, 98 Civ. 7530 (NRB). On July 9, 1999, a consolidated amended
complaint was filed naming the Company, Salomon Smith Barney Inc., and
several additional current and former directors and officers as defendants.
The consolidated amended complaint seeks damages and attorneys fees under
the United States securities laws for alleged irregularities in the way in
which the Company reported its financial results and disclosed certain
facts throughout 1997 and 1998 and for alleged "tipping" of non-public
information to Salomon Smith Barney Inc. in September 1998. On December 23,
1999, the Company moved to dismiss the consolidated amended complaint. The
plaintiffs' brief in opposition to the Company's motion has been filed and
the Company's reply brief is scheduled to be filed on March 28, 2000.
ESC subsidiaries Laser Industries, Ltd. ("Laser") and Sharplan Lasers, Inc.
("Sharplan") have settled their long-running litigation with Reliant
Technologies, Inc. entitled Laser Industries Ltd. and Sharplan Lasers, Inc.
v. Reliant Technologies, Inc. The litigation commenced in September 1995
when Laser and Sharplan filed suit against Reliant for, among other things,
patent infringement arising from Reliant's introduction of a new laser
resurfacing product. Reliant counterclaimed for antitrust and other
violations, and asserted that the patent was invalid. The Northern District
of California ("California Court") ultimately agreed with Reliant with
respect to the validity of the Laser patent, and held the patent invalid on
summary judgment. Thereafter, the court found that Laser's and Sharplan's
patent suit against Reliant was objectively baseless, and set a trial date
for April 2000 to consider whether filing and pursuing the suit constituted
an antitrust violation. In the meantime, Laser and Sharplan filed an appeal
with the U.S. Court of Appeals for the Federal Circuit of the court's
determination that the patent was invalid.
Under the terms of the settlement, Laser and/or ESC will pay Reliant the
sum of Seven Million Five Hundred Thousand Dollars (U.S.$7,500,000), which
is allocated as follows: (i) $5,750,000 is a lump-sum payment to Reliant;
(ii) $500,000 is the first installment of a three-year consultant
arrangement with Reliant whereby it will make Michael Black, President and
CEO of Reliant, available to provide consulting services to Laser and/or
14
ESC; and (iii) $250,000 is Laser's contribution to a final and complete
settlement of all claims by Reliant's insurer. In addition, ESC granted
Reliant incentive stock options to purchase 100,000 shares of ESC stock at
an exercise price of $9.75 per share.
Further included in the settlement is a complete and mutual release by all
parties of any and all claims that were asserted or might have been
asserted in the litigation. Consistent with this broad release, the parties
have dismissed their claims against each other with prejudice.
On November 5, 1998, Light Age, Inc. ("Light Age") instituted an ex-parte
application in the Tel-Aviv District Court (the "Tel-Aviv Court") against
the Company and others, seeking a temporary injunction against the
development, production and sale of the Company's Alexandrite laser for
dermatological or hair removal treatments. Light Age's principal
contentions are that the Alexandrite laser is based on technology developed
by Light Age and is competing with Light Age's Alexandrite laser, in breach
of the Company's non-disclosure and non-compete undertaking in a supply
agreement with Light Age. In addition, Light Age is seeking a permanent
injunction against the Company engaging in such activities. The Tel-Aviv
Court denied Light Age's request for an ex-parte injunction and ordered
that a hearing be held with both parties present. On March 21, 1999, the
Tel-Aviv Court denied Light Age's motion for a preliminary injunction. The
parties have since agreed to submit their dispute for arbitration.
Accordingly, the parties filed a motion to stay the proceedings, which was
granted by the Tel Aviv Court on October 14, 1999.
On January 25, 1999, the Company, along with three affiliated entities,
brought an action seeking declaratory and injunctive relief in Superior
Court of New Jersey, Somerset County: Law Division, against Light Age,
Inc., entitled Laser Industries Ltd., ESC Medical Systems Inc., Sharplan
Lasers Inc., and ESC Medical Systems Ltd. v. Light Age, Inc., Docket No.
SOM-L-14199. The litigation relates to disputes arising out of an agreement
between Light Age and Laser Industries pursuant to which Light Age supplied
certain medical laser devices to Laser Industries. On March 5, 1999,
defendant Light Age answered the complaint and counterclaimed against
plaintiffs, seeking unspecified damages under thirteen counts alleging a
variety of causes of action such as breach of contract, tortious
interference with contract, unjust enrichment, and misappropriation. On
July 1, 1999 the court granted Light Age's motion to compel the Company and
the three affiliated entities to arbitrate. On August 13, 1999, Light Age
filed a demand for arbitration on its counterclaim with the American
Arbitration Association. On November 22, 1999 the Company and the three
affiliated entities filed a response to Light Age's demand. The parties are
currently awaiting the appointment of the arbitration panel.
On December 31, 1998, the Company and Luxar were named as defendants in an
action filed in the United States District Court for the Southern District
of Florida (the "Florida Court"), entitled LPG USA, Inc. v. ESC Medical
Systems Ltd. and Luxar Corporation, Civ. No. 98-7509 (S.D. Fla.). The
action alleged violations of the Lanham Act (including false advertising
and trade dress infringement) and related state laws (including trade
secret and unfair competition laws). The plaintiffs in the action sought an
injunction and monetary damages of an unspecified amount. The Company and
Luxar filed an answer on February 8, 1999, which also asserted
counterclaims for intentional interference with business relationships and
prospective business relationships, trade libel and product disparagement,
Lanham Act violations, unfair competition and related counterclaims. The
parties have since reached an out of court settlement pursuant to which,
among other things, the Company made a cash payment to the plaintiff and
agreed to become a distributor of LPG products in North America (see note
12 of the Company's financial statement).
15
On September 20, 1999, Dr. Richard Urso filed what purports to be a class
action lawsuit against the Company in the State District Court in Harris
County, Texas. Dr. Urso alleges a number of causes of action including,
breach of contract, breach of warranty, product liability,
misrepresentation and violations of the Texas Deceptive Trade Practices
Act. The complaint purports to be filed on behalf of a national class. The
Company has taken steps to remove the case to Federal court and intends to
vigorously deny all allegations and challenge Plaintiff's class
certification motion when it is filed.
In addition to the foregoing proceedings, the Company is a party in certain
actions in various countries in which the Company sells its products in
which plaintiffs have alleged that the Company's products did not perform
as promised and/or that the Company made certain misrepresentations in
connection with the sale of products to the plaintiffs. The largest single
such case presently pending against the Company is a case filed by H.K.
Hashalom Medical Centers Ltd. in Tel-Aviv District Court against the
Company and Dr. Shimon Eckhouse in connection with the sale of the
Company's EpiLight systems. H.K. Hashalom is seeking monetary damages in
the amount of NIS10,000,000 (approximately $2.5 million at current exchange
rates) but has reserved the right to increase such amount as well as a
declaratory judgment that, among other things, the Company indemnify it for
certain costs and expenses arising out of the transaction between the
parties. On July 15, 1999, the defendants filed a Statement of Defense. The
case has not yet been set for a first hearing.
Apart from H.K. Hashalom's action, management believes that none of the
other of these types of cases that are presently pending individually would
have a material adverse impact on the consolidated financial position
of the Company, although such other proceedings could have a material
effect on quarterly or annual operating results or cash flows when resolved
in a future period.
Finally, the Company also is a defendant in various product liability
lawsuits in which the Company's products are alleged to have caused
personal injury to certain individuals who have received treatments using
the Company's products. The Company maintains insurance against these types
of claims and believes that these claims individually or in the aggregate
are not likely to have a material adverse impact on the business, financial
condition or operating results of the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS.
The Ordinary Shares of the Company have been listed on the Nasdaq National
Market ("Nasdaq") under the symbol ESCMF since the commencement of the
Company's initial public offering on January 24, 1996. The Company began
trading on September 17,1999 under the new ticker symbol, "ESCM.".
The ticker symbol was changed as a result of ESC's new reporting status
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
As of June 23, 1999, ESC was no longer considered a "foreign private
issuer" under the Exchange Act. Rather, the Company started to report under
disclosure obligations applicable to United States issuers, which are
16
broader than the obligations applicable to foreign private issuers which
ESC was subject to prior to June 23, 1999.
As of March 17, 2000, there were 340 shareholders of record of the Company.
The prices set forth below are high and low closing sale prices for the
Ordinary Shares of the Company as reported by the Nasdaq for the period
indicated. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
1998 High Low
First Quarter $38.75 $31.63
Second Quarter $35.19 $26.81
Third Quarter $35.50 $ 6.50
Fourth Quarter $11.50 $ 6.06
1999 High Low
First Quarter $11.56 $4.84
Second Quarter $ 6.81 $5.50
Third Quarter $ 6.47 $3.78
Fourth Quarter $ 9.56 $4.13
In May 1996, the shareholders approved a two for three share dividend for
all outstanding Ordinary Shares. All shares, per share amounts and share
prices have been adjusted to give effect to this dividend.
The Company has never paid a cash dividend on its Ordinary Shares and does
not anticipate that it will pay any cash dividend on its Ordinary Shares in
the foreseeable future.
The Company intends to retain its earnings to finance the development of
its business. Any future dividend policy will be determined by ESC's Board
of Directors (the "Board") based upon conditions then existing, including
the Company's earnings, financial condition, tax position and capital
requirements as well as such economic and other conditions as the Board may
deem relevant. Pursuant to ESC's Articles of Association, certain
dividends, referred to as final dividends (which are comparable to annual
dividends) are customarily paid by some United States companies and are not
related to distributions on dissolution or liquidation or similar final
distributions. These dividends are recommended by the Board and may be
approved by shareholders at the annual meeting of shareholders, but only in
the amount per share equal to or less than the amount recommended by the
Board. In addition, depending upon the factors described above, the Board
may declare to pay interim dividends on account of the final dividend. ESC
may only pay dividends in any given fiscal year out of "profits," which
generally are defined for Israeli statutory purposes to be net after tax
earnings. In addition, because ESC has received certain benefits under the
Israeli law relating to "Approved Enterprises," the payment of dividends by
ESC may be subject to certain Israeli taxes to which it would not otherwise
be subject. Furthermore, pursuant to the terms of certain financing
agreements, the Company is restricted from paying dividends to its
shareholders. In the event that cash dividends are declared by the Company,
such dividends will be paid in NIS.
Dividends paid out of income derived from the Approved Enterprise is
subject to a 15% withholding tax. Approved Enterprises may receive
exemption from Israeli tax for up to ten years (see discussion provided
under the caption "Effective Corporate Tax Rate"). Should dividends be paid
out of income earned by the Company from an Approved Enterprise during the
17
period of the tax holiday, such income will be subject to tax at the rate
of up to 25%. The Company does not anticipate paying dividends from income
derived from the Approved Enterprise and any such earnings distributed upon
dissolution will not subject the Company to income taxes.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data was derived from the Company's
Consolidated Financial Statements, which have been prepared in accordance
with generally accepted accounting principles in the United States ("U.S.
GAAP"). The financial data set forth below should be read in conjunction
with, and are qualified in their entirety by, the Company's Consolidated
Financial Statements, related notes and other financial information
contained in this Annual Report.
18
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------------------------------------
1999 1998 1997 (*) 1996 (*) 1995(*)
(RESTATED) (RESTATED) (RESTATED)
----------- ----------- ----------- ---------- -----------
In thousands of US$ except for share data
Revenues
<S> <C> <C> <C> <C> <C>
Net Sales $ 142,151 $ 225,206 $ 193,983 $ 119,578 $ 71,727
Other Revenues - 2,100 - -
----------- ----------- ----------- ---------- -----------
142,151 225,206 196,083 119,578 71,727
Cost of Sales 96,474 78,585 65,068 37,264 25,653
----------- ----------- ----------- ---------- -----------
Gross Profit 45,677 146,621 131,015 82,314 46,074
----------- ----------- ----------- ---------- -----------
Operating Expenses
Research and Development,
Net 15,351 18,680 17,371 9,835 5,689
Marketing and Selling 78,432 76,882 55,877 37,505 22,802
General and Administrative 25,799 14,667 16,091 9,430 8,215
Restructuring costs 20,530 - - - -
Settlement of litigations 23,780 - - - -
Impairment of intangible and
tangible assets 17,616 - - - -
Acquired research and development - 2,451 11,912 3,500 -
Other 4,987 - - - -
----------- ----------- ----------- ---------- -----------
Total Operating Expenses 186,495 112,680 101,251 60,270 36,706
----------- ----------- ----------- ---------- -----------
Operating Income (loss) (140,818) 33,941 29,764 22,044 9,368
Financing Income (expenses), Net (3,865) 1,211 1,409 1,608 (715)
----------- ----------- ----------- ---------- -----------
(144,683) 35,152 31,173 23,652 8,653
Nonrecurring Expenses - 28,951 4,650 - 8,125
----------- ----------- ----------- ---------- -----------
Income (loss) Before Income Taxes (144,683) 6,201 26,523 23,652 528
Taxes on Income 4,079 2,201 4,429 308 38
----------- ----------- ----------- ---------- -----------
Net Income (loss) before
extraordinary items $(148,762)$ 4,000 $ 22,094 $ 23,344 $ 490
Extraordinary gain on purchase of
Company's Subordinated
Convertible Notes 7,974 - - - -
Net income (loss) for the year $(140,788)$ 4,000 $ 22,094 $ 23,344 $ 490
=========== =========== =========== ========== ===========
Earning (loss) Per Share
Basic
Income (loss) before
extraordinary items $ (5.79)$ 0.15 $ 0.86 $ 1.00 $ 0.03
Extraordinary gain 0.31 - - - -
Net earnings (loss) per shar$ (5.48)$ 0.15 $ 0.86 $ 1.00 $ 0.03
=========== =========== =========== ========== ===========
19
Diluted
Income (loss) before
extraordinary items $ (5.79) $ 0.15 $ 0.86 $ 1.00 $ 0.03
Extraordinary gain 0.31 - - - -
Net earnings (loss) per shar $ (5.48) $ 0.15 $ 0.86 $ 1.00 $ 0.03
=========== =========== =========== ========== ===========
Weighted Average Number Of
Shares
Basic 25,674 26,027 25,604 23,445 17,313
=========== =========== =========== ========== ===========
Diluted 25,674 27,381 27,194 25,568 19,276
=========== =========== =========== ========== ===========
(*) Relates to the restatement as a result of the mergers with Laser Industries Ltd.
and Luxar Corporation.
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
1999 1998 1997 (*) 1996 (*) 1995(*)
(RESTATED) (RESTATED) (RESTATED)
----------- ----------- ----------- ---------- -----------
(In thousands of US$)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $24,524 $42,950 $54,616 $49,280 $6,944
Total assets $174,907 $327,666 $335,646 $142,218 $53,346
Long-term debt $96,691 $116,306 $127,427 $4,272 $14,462
Retained earning (deficit) $(113,975) $26,813 $22,813 $(144) $(23,065)
Shareholders' equity (deficit) $5,943 $155,508 $150,004 $110,834 $18,646
(*) Relates to the restatement as a result of the mergers with Laser Industries Ltd.
and Luxar Corporation.
</TABLE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
ESC is a world leader in the design, manufacture, marketing and servicing
of a broad range of medical devices that incorporate proprietary intense
pulsed light technology, state-of-the-art lasers and accessories as well as
other technologies. The Company's systems incorporate these technologies
for applications in aesthetic dermatology, plastic and re-constructive
surgery, ear, nose and throat procedures and oral and dental surgery, among
others. The Company's systems are designed for use in a variety of medical
environments, ranging from physicians' offices to acute care hospitals.
On September 14, 1999, the Board approved a comprehensive restructuring
program designed to align the Company's cost structure with its revenue
capabilities, while capitalizing on the market potential of its innovative
light technology products, including products in various development and
regulatory stages.
The restructuring plan was developed by the Company's senior management
team, together with the consulting firm of McKinsey & Company. The Company
expects the majority of the plan to be implemented by March 31, 2000. Under
the plan, ESC has:
20
o Reduced or eliminated certain fixed and variable costs from the
Company's organizational structure. If those cost savings would
have been implemented prior to January 1, 1999, management
estimates that expenses would have been over $40 million lower as
compared to annualized revenue and expense levels in the first half
of the year. The cost reductions include over $25 million in
selling, general and administrative expenses not considered
essential to the continued growth of sales.
o Implemented certain changes in management, reduced headcount in
certain departments, adjusted certain employee compensation plans
and reduced non-core research and development expenditures.
o Brought the selling and marketing teams closer to the customers and
markets being served by reorganizing into regional business units.
o Reorganized the internal reporting structure of the Company in a
manner intended to provide all management levels with greater
accountability.
A number of personnel changes took place during the year and especially
during the second half of the year, some of which were related to the
restructuring. Changes included the replacement of the Company's Chief
Executive Officer and Chief Financial Officer, and the elimination of
certain vice president level positions.
In addition, the Company organized itself into five business units
consisting of (1) three geographical units serving the aesthetic and
surgical market, (2) one unit serving the dental market and (3) one unit
serving the industrial market.
Year Ended December 31, 1999 Compared With Year Ended December 31, 1998
- -----------------------------------------------------------------------
(In thousands of dollars)
NET SALES. The Company's net sales decreased by 37% to approximately
$142,151 in 1999 compared to approximately $225,206 in 1998. In 1999, net
sales decreased due to a decrease in unit sales and lower selling prices in
the United States aesthetic market.
The competitive price pressure mainly on hair removal products resulted in
lower price and lower unit sales of the Company's high margin products.
In addition, sales are reflected net of reserves for sales returns.
GROSS PROFIT. Gross profit decreased by 69% to approximately $45,677 in
1999 from approximately $146,621 in 1998. Gross profits decreased mainly
due to the reduction in sales. In addition, in 1999, the Company recorded
inventory write-off and other charges of approximately $30,050.
Gross profit for the year ended December 31,1999 was 32% compared to 65% in
1998. Excluding a write-off of inventory and other reserves, gross profits
for the year ended December 31,1999 was $75,727 or 53% compared to $146,621
or 65% in 1998.
RESEARCH AND DEVELOPMENT COSTS, NET. Net research and development costs in
1999 decreased by 18% to approximately $15,351 from approximately $18,680
in 1998. As a percentage of sales, research and development costs were 11%
in 1999 as compared to 8% in 1998. The decrease in research and development
costs net is due to a reduction in staff and lower material consumption.
Research and development expenses are net of the participation of the
Office of the Chief Scientist in Israel.
21
MARKETING AND SELLING EXPENSES. Marketing and selling expenses increased by
2% to approximately $78,432 in 1999 from approximately $76,882 in 1998. As
a percentage of sales, marketing and selling expenses were 55% in 1999
compared to 34% in 1998.
The increase in marketing and selling expenses as a percentage of sales was
mainly due to the lower level of sales in 1999.
Increased marketing and selling expenses in 1999 were primarily attributed
to the expansion and reorganization of the Company's selling efforts in the
United States. Marketing and selling expenses include $4,800 which related
to the restructuring plan adopted in 1999.
The Company has adopted a restructuring plan which started to effect the
marketing and selling expenses by lowering them drastically. The Company
expects the majority of the plan to be implemented by March 31, 2000.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by 76% to approximately $25,799 in 1999 from approximately
$14,667 in 1998. As a percentage of sales, general and administrative
expenses were 18% in 1999 and 7% in 1998.
General and administrative expenses for 1999 included bad debt charges of
$13,430 and litigation expenses of $4,400 which were not part of the legal
settlements which were recorded in settlement of litigations described
below.
RESTRUCTURING COSTS. In the quarter ended March 31, 1999, the Company
developed and started the implementation of a restructuring plan. In
connection with that restructuring plan, the Company recorded charges in
1999 of $5,398 related to its sales and marketing operations and $16,608
related to inventory write-off (included in the cost of goods sold).
In the third quarter of 1999, the Company commenced another restructuring
program. In connection with that restructuring program, the Company
recorded write downs of inventories (included in cost of goods sold) of
approximately $3,130. The restructuring charge which amounted to $15,132 is
comprised of writedowns of fixed assets of $4,592 and severance charges and
a lease contract termination cost of $10,540. The majority of the
restructuring charge was attributable to the Company's divisions in the
United States. The restructuring program provides for a reduction of
approximately 200 employees. In addition, the Company recorded $4,983 of
expenses associated with the same plan which was charged to operating and
income tax expense. The Company expects approximately an additional $2,000
in charges related to the restructuring plan through the year 2000.
SETTLEMENT OF LITIGATIONS. During 1999 the Company had made several legal
settlements mainly related to the Reliant and LPG lawsuits. The total
amounts for the legal settlements was $23,780, which includes both
settlement fees and related legal fees incurred by the Company (see Item 3-
"Legal Proceedings" above).
WRITE-OFF OF INTANGIBLE AND TANGIBLE ASSETS. During 1999 the Company
wrote-off intangible assets for the amount of $16,049 which mainly related
to goodwill from acquisitions and acquired technology in prior years. In
addition, the Company wrote-off tangible assets in the amount of $1,567
that related to the restructuring plan adopted during 1999.
22
ACQUIRED RESEARCH AND DEVELOPMENT. In 1998, there was $2,451 of acquired
research and development expenses in connection with the acquisition of
technology from Ballard Purchase Corporation.
OTHER EXPENSES. For the year ended December 31, 1999, other expenses were
$4,987 comprised mainly of the following:
1. Fees in the amount of $1,412 related to the McKinsey & Co. work
on the restructuring plan.
2. $3,575 of expenses incurred during 1999 in connection with the
election contest relating to the Company's June 23, 1999
combined annual and extraordinary general meeting of
shareholders. The election contest resulted in the reimbursement
of expenses incurred by certain shareholders in connection with
the election contest, in accordance with the resolution adopted
by the Board of Directors and the audit committee of the
Company, during a meeting held on June 23, 1999, which resolved
that "all costs and expenses of Messrs. Arie Genger and Barnard
J. Gottstein and their affiliates in connection with the
election contest shall be reimbursed by the Company promptly on
submission of invoices therefor, subject to refund when such
reimbursement is submitted to shareholders and not approved by
such shareholders at a meeting noticed for such purpose." The
Company intends to present the foregoing expense reimbursement
arrangement to shareholders for approval at the next Annual
General Meeting of Shareholders. Messrs. Genger and Gottstein
have submitted to the Company invoices for a sum of
approximately $1,510. Separate from these shareholder incurred
expenses, the officers and directors of the Company incurred
expenses of $2,065 in connection with the election contest that
were charged to the Company.
OPERATING INCOME (LOSS)
FINANCING INCOME (EXPENSE), NET. For the year ended December 31, 1999,
financing expenses were approximately $3,865 from financing income of
$1,211 in 1998.
Financing income in 1999 consisted of interest income of $5,483 from the
Company's short term and long term investment securities which was offset
by interest and amortization of deferred expenses, in the amount of $7,626
attributable to the Company's 6% subordinated convertible notes and by
other interest and exchange rate differences of $1,722.
At December 31, 1999, approximately $43,841 was invested in short term bank
deposits.
NON-RECURRING EXPENSES. For the year ended December 31, 1998, the Company
incurred expenses in the amount of $28,951 related to the costs associated
with the Laser Industries acquisition.
TAXES ON INCOME. Taxes on income were approximately $4,079 for the year
ended December 31, 1999 compared to approximately $2,201 for the year ended
December 31, 1998. In 1999 the Company wrote off deferred tax assets of
approximately $ 3,300 which is reflected as tax expense in the period.
Because most of the Company's income in Israel is presently exempt from
income taxes, the Israeli statutory tax rate for the purposes of the
reconciliation of the reported tax expense is approximately zero. Income
tax expense in the financial statements relates primarily to the income
taxes of non-Israeli subsidiaries.
23
EXTRAORDINARY GAIN ON PURCHASE OF THE COMPANY'S SUBORDINATED CONVERTIBLE
NOTES. During 1999 the Company had purchased $22,071 principal amount of
its 6% Subordinated convertible notes. As a result of the repurchase the
Company had an extraordinary income of approximately $7,974.
NET INCOME. As a result of the foregoing factors, the Company's net loss
was $140,788 in 1999 from a net income of approximately $4,000 in 1998.
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
- -----------------------------------------------------------------------
(In thousands of dollars)
NET SALES. The Company's net sales increased by 16% to approximately
$225,206 in 1998 compared to approximately $193,983 in 1997. In the first
two quarters of 1998, net sales increased to approximately $123,200 from
$84,100 for the comparable period in 1997 due to an increase in sales of
the Company's intense pulsed light products, including the EpiLight and
PhotoDerm systems. A slowdown in revenue growth occurred in the second half
of the year. The third quarter decrease in revenue was due to a general
slowdown in activity during the summer months, mainly in Europe, as well as
lower sales volumes in South America. In addition, the uncertainty
surrounding elections in Germany and Brazil had delayed the decision making
of some of ESC's customers, thus impacting sales for the quarter. In the
fourth quarter, an additional slowdown in sales was noted. Most of this
shortfall can be attributed to strong price pressures on hair removal
products and by a general slowdown in the United States aesthetic markets.
The competitive price pressure on hair removal products resulted in the
Company reducing the price of its Alexandrite laser. In addition, there was
a decrease in the number of EpiLight hair removal units sold during this
quarter. These changes in the market reduced revenues in the fourth quarter
of 1998 compared to previous quarters, both due to the change in product
mix and a reduction in sales of IPL hair removal products.
GROSS PROFIT. Gross profit increased by 12% to approximately $146,621 in
1998 from approximately $131,015 in 1997. The Company's gross profit margin
in 1998 was 65% (excluding other revenues) as compared to 67% in 1997. In
the first two quarters of 1998, gross profit increased by 43% to
approximately $80,797 from approximately $56,664 for the comparable period
in 1997. The reduction was due to the changes in product price and product
mix discussed above.
RESEARCH AND DEVELOPMENT COSTS, NET. Net research and development costs in
1998 increased by 7.5% to approximately $18,680 from approximately $17,371
in 1997. As a percentage of sales, research and development costs were 8.3%
in 1998 as compared to 9% in 1997. Research and development expenses are
net of the participation of the Office of the Chief Scientist in Israel
which in 1998 were approximately $603.
MARKETING AND SELLING EXPENSES. Marketing and selling expenses increased by
38% to approximately $76,882 in 1998 from approximately $55,877 in 1997. As
a percentage of sales, marketing and selling expenses were 34% in 1998
compared to 29% in 1997. Increased marketing and selling expenses in 1998
were primarily attributable to expansion and re-organization of the
Company's selling efforts in the United States.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased by 10% to approximately $14,667 in 1998 from approximately
$16,091 in 1997. As a percentage of sales, general and administrative
expenses were 7% in 1998 and 8% in 1997. The reduced expenditure was
primarily attributable to the integration of Laser Industries into ESC.
Consequently, overlapping positions were consolidated and administrative
expenses were reduced.
24
OTHER EXPENSES. In 1998 there was $2,451 of acquired research and
development expenses in connection with the acquisition of technology from
Ballard Purchase Corporation.
FINANCING INCOME, NET. Financing income decreased to approximately $1,211
(net of $7,832 interest and amortization of deferred expenses attributed to
the Company's 6% subordinated convertible notes) in 1998, from financing
income of approximately $1,409 (net of $2,417 interest and amortization of
deferred expenses attributed to the Company's 6% subordinated convertible
notes) in 1997 (see note 18 to the Company's Financial Statements contained
in this Annual Report). The decrease in the financing income occurred due
to a significant decrease in interest rates in the United States, where the
Company invests in marketable securities, and amortization of deferred
expenses attributed to the Company's 6% subordinated convertible notes.
At December 31, 1998, approximately $46,867 was invested in short-term bank
deposits.
NON-RECURRING EXPENSES. For the year ended December 31, 1998, the Company
incurred expenses in the amount of $28,951 related to costs associated with
the Laser Industries acquisition.
TAXES ON INCOME. Taxes on income were approximately $2,201 for the year
ended December 31, 1998 compared to approximately $4,429 for the year ended
December 31, 1997.
Because most of the Company's income in Israel is exempt from income taxes,
the Israeli statutory tax rate for purposes of the reconciliation of the
reported tax expense is approximately zero. Income tax expense in the
financial statements relates primarily to the income taxes of non-Israeli
subsidiaries.
NET INCOME. As a result of the foregoing factors, the Company's net income
decreased to approximately $4,000 in 1998 from a net income of
approximately $22,094 in 1997. Net income as a percentage of revenues was
2% in 1998 compared to 11% in 1997.
VARIABILITY OF OPERATING RESULTS
The Company's sales and profitability may vary in any given year, and from
quarter to quarter, depending on the number and mix of products sold and
the average selling price of the products. In addition, due to potential
competition, uncertain market acceptance and other factors, the Company may
be required to reduce prices for its products in the future.
The Company's future results will be affected by a number of factors
including the ability to increase the number of units sold, to develop,
introduce and deliver new products on a timely basis, to anticipate
accurately customer demand patterns and to manage future inventory levels
in line with anticipated demand. These results may also be affected by
currency exchange rate fluctuations and economic conditions in the
geographical areas in which the Company operates. There can be no assurance
that the Company's historical growth in sales, gross profit and net income
will continue, or that sales, gross profit and net income in any particular
quarter will not be lower than those of the preceding quarters, including
comparable quarters.
25
LIQUIDITY AND CAPITAL RESOURCES
(In thousands of dollars)
As of December 31,1999, the Company had cash and cash equivalents of
$24,524 compared to $42,950 at the end of 1998, a decrease of $18,426. The
decrease in cash and cash equivalents was mainly attributable to the
following:
1. A decrease of trade receivables of $30,232 due to a decrease in
sales and a substantial increase in collection efforts and
increase in allowance for bad debt.
2. An increase in inventory and in prepaid expenses and other
receivables of $4,825 as a result of inventory and stock
reduction monitoring as well as a reduction in prepayments.
3. An increase in accounts payable and accrued expenses of $8,139
mainly due to the restructuring plan and provision for
settlement of litigations.
4. Maturity of long-term investments and purchasing of fixed assets
of $39,424.
5. Purchases of the Company's 6% subordinated convertible notes in
the amount of $14,264, repayment of a bank loan for $3,512 and
the repurchase of the Company's Ordinary Shares in the amount of
$10,660 pursuant to a share repurchase program implemented in
1999.
As of December 31, 1998 the Company had cash and cash equivalents of
$42,950 compared to $54,616 at the end of 1997, a decrease of $11,666. The
decrease in cash and cash equivalents was mainly attributable to the
following:
1. An increase of trade receivables of $25,521 due to an increase in
sales and longer payment terms for the distributors.
2. An increase in inventory of $21,302 due to a shift in mix of
products and decreased orders from customers.
3. Payments of long term loans in the amount of $15,025.
4. Purchase of $7,290 of the Company's Ordinary Shares pursuant to
a share repurchase program implemented in 1998, offset by
proceeds from the exercises of options of $7,864 and an increase
in short term bank debt of $2,373.
5. Maturity of investments of $39,921 offset by the purchase of
fixed assets of $4,611, investment in patents and know-how
totaling $5,523 and payment for the acquisition of new
technology for $2,450.
The Company does not currently have any plans, arrangements or
understandings with respect to incurring indebtedness in fiscal year 2000.
The Company believes that internally generated funds, together with
available cash, will be sufficient over at least the next 12 months to meet
its presently anticipated day-to-day operating expenses, material,
commitments, working capital and capital expenditure requirements.
26
INVESTING ACTIVITIES
(In thousands of dollars)
For the year ended December 31, 1999, cash provided by investing activities
was approximately $39,424.
The primary changes in the Company's investing activities for the year
ended December 31, 1999, as compared to the year ended December 31, 1998
were: a decrease of long term investments (mainly cash invested for a
period longer than one year) of approximately $43,439 and the purchase of
fixed assets of approximately $4,015.
For the year ended December 31, 1998, cash provided by investing activities
was approximately $27,846.
The primary changes in the Company's investing activities for the year
ended December 31,1998, as compared to the year ended December 31, 1997
were: maturity of investments of $39,921, $2,450 was invested for the
acquisition of Ballard Purchase Corporation, approximately $4,611 was
invested to purchase fixed assets and approximately $5,523 was used to
purchase of investments, patents and know-how.
FINANCING ACTIVITIES
(In thousands of dollars)
For the year ended December 31, 1999, cash used in financing activities was
$27,942.
The financing activities of the Company were primarily the purchase of the
Company's 6% subordinated convertible notes for approximately $14,264,
purchase of treasury shares of approximately $10,660, repayment of notes
payable to banks of approximately $3,531 which were offset by proceeds from
the exercise of warrants and options of approximately $513.
For the year ended December 31,1998, cash used in financing activities was
$12,078.
The financing activities of the Company were primarily the purchase of
treasury stock of approximately $7,290 and loan repayments of approximately
$15,025 mainly by Laser Industries and its subsidiaries. Funds from
financing activities which offset the above were primarily proceeds from
the exercise of warrants and options of approximately $7,864 and an
increase in short-term bank debt of approximately $2,373.
EFFECTIVE CORPORATE TAX RATE
INFLATIONARY ADJUSTMENTS. The Company and Laser Industries are subject to
the Income Tax Law (Inflationary Adjustments), 1985, which provides for an
adjustment to taxable income for the effects of inflation (based on the
Israeli Consumer Price Index) on that portion of shareholders' equity not
invested in inflation resistant assets.
APPROVED ENTERPRISE. The Company and Laser Industries have each received
approval for their investment programs in accordance with the Law for the
Encouragement of Capital Investments, 1959. The Company has chosen to
receive its benefits through the alternative benefits program, and, as
such, is eligible for various benefits. These benefits include accelerated
depreciation of fixed assets used in the investment programs, as well as a
full tax exemption on undistributed income that is derived from the
Approved Enterprise for a period of six years and reduced tax rates for an
additional period of up to four years. Laser Industries is entitled to a
27
full tax exemption for a period of two years and reduced tax rates for an
additional period of up to five years (the rate is dependent on the
percentage of non-Israeli shareholder ownership). The benefits commence
with the date on which taxable income is first earned. Income not derived
from the Approved Enterprise is subject to tax at a rate of 36%. The tax
exemption period for the Company commenced in 1995 and the tax exemption
period for Laser Industries has not yet commenced.
Dividends paid out of income derived from the Approved Enterprise is
subject to a 15% withholding tax. Should dividends be paid out of income
earned during the period of the tax holiday, such income will be subject to
tax at the rate of 25%. The Company does not anticipate paying dividends
from income derived from the Approved Enterprise and any such earnings
distributed upon dissolution will not subject the Company to income taxes.
The Company and Laser Industries have not received final income tax
assessments for years subsequent to 1991.
FORWARD LOOKING STATEMENTS
Certain statements made in this Report or made in press releases or in oral
presentations made by the Company's employees or agents reflect the
Company's estimates and beliefs and are intended to be, and are hereby
identified as, "forward looking statements" for the purposes of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
The Company cautions readers that such forward looking statements involve
risks and uncertainties that could cause actual results to differ
materially from those expected by the Company or expressed in the Company's
forward looking statements. These factors include, but are not limited to,
the following: (1) uncertainty of market acceptance of the Company's
products; (2) uncertainties with respect to obtaining regulatory approvals
for new products or for the sale of existing products in new markets; (3)
uncertainties associated with the enforcement of intellectual property
rights by the Company and others; (4) limited number of customers for the
Company's products; (5) risks of downturns in economic conditions
generally, and in the health care industry specifically; (6) risks
associated with competition and competitive pricing pressures; and (7)
other risks described in the Company's filings with the Securities and
Exchange Commission.
Readers are cautioned not to place undue reliance on forward-looking
statements made in this Annual Report, or made in press releases or in oral
presentations. Such forward-looking statements reflect management's
analysis only as of the date such statements are made and the Company
undertakes no obligation to revise publicly these forward-looking
statements to reflect events or circumstances that arise subsequently.
Readers should carefully review the risk factors set forth above and
described elsewhere in this document and in other documents the Company
files from time to time with the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company maintains an investment portfolio which consist mainly of
income securities with an average maturity of less than one year. The
portfolio consists of low risk corporate bonds and bank deposits. The
Company's policy is generally to hold its fixed income investments until
maturity and therefore the Company would not expect its operating results
or cash flows to be effected to any significant degree by the effect of a
sudden change in market interest rates on its securities portfolio.
28
The Company has fixed rate long-term debt of approximately $93 million. The
Company believes that a material decrease in interest rates would not have
a material impact on the fair value of this debt.
The Company has foreign subsidiaries, which sell and manufacture its
products in various markets. As a result, the Company's earnings and cash
flows are exposed to fluctuation in foreign currency exchange rates. The
company attempts to limit the exposure by selling and linking its products
to the United States dollar.
The Company does not hedge transactions nor does it use derivative
financial instruments for trading purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14(a) for an index to the consolidated financial statements and
supplementary information, which are set forth on the pages indicated
therein.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On February 10, 2000, the client/auditor relationship between the Company
and Luboshitz Kasierer ("LK"), the Company's independent accountants,
ceased. During the years ended December 31, 1998 and 1997, and the
subsequent interim period through February 10, 2000 (the date LK ceased to
be the Company's independent accountants), (i) there were no disagreements
with LK on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements,
if not resolved to the satisfaction of LK, would have caused LK to make a
reference to the subject matter of the disagreements in connection with its
reports in the financial statements for such years and (ii) there were no
"reportable events" as described in Items 304(a)(1)(iv) of Regulation S-K.
The independent accountant's report of LK on the Company's consolidated
financial statements for the years ended December 31, 1998 and 1997
contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting
principles.
The Company requested that LK furnish it with a letter addressed to the
Securities and Exchange Commission stating whether or not it agreed with
the above statements. A copy of such letter, dated February 10, 2000,
setting forth LK's agreement with the above statements, is filed as Exhibit
16 to this Form 10-K. On January 17, 2000, the Company decided to appoint,
with the approval of the Company's Board of Directors, the firm of
Brightman Almagor & Co., a member firm of Deloitte, Touche, Tohmatsu, as
its independent accountants replacing LK.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The required information for this item is incorporated by reference to the
Company's Proxy Statement for the 2000 Annual Meeting of Shareholders.
29
ITEM 11. EXECUTIVE COMPENSATION.
The required information for this item is incorporated by reference to the
Company's Proxy Statement for the 2000 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The required information for this item is incorporated by reference to the
Company's Proxy Statement for the 2000 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS.
The required information for this item is incorporated by reference to the
Company's Proxy Statement for the 2000 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. Financial Statements
Page
----
Independent Auditors' Report..................................... 36-37
Consolidated Financial Statements:
Consolidated Balance Sheets................................ 38
Consolidated Statements of Operations...................... 39
Consolidated Statements of Changes in Shareholders' Equity. 40
Consolidated Statements of Cash Flows...................... 41-42
Notes to Consolidated Financial Statements....................... 43-62
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts.................. 63
30
3. Exhibits
Exhibit
Number Description
- ------- -----------
2.1 Agreement, dated as of November 9, 1997, between ESC Medical
Systems Ltd. ("ESC") and Laser Industries Ltd. ("Laser") *I
(included as Annex A-1 to the Joint Proxy
Statement/Prospectus forming part of such Registration
Statement)
2.2 Form of Agreement among Laser and its shareholders *I
(included as Annex A-2 to the Joint Proxy
Statement/Prospectus forming part of such Registration
Statement)
2.3 (4.2) Agreement and Plan of Merger by and among ESC, ESC
Acquisition Sub, Inc. and Luxar Corporation, dated February
19, 1997 *F
2.4 Agreement and Plan of Merger by and among ESC Medical
Systems Ltd., AOC Acquisition Corp. and Applied Optronics
Corporation, dated November 20, 1997 *O
2.5 Asset Purchase Agreement among Laser Industries Ltd., Orziv
(Z.K.Y.P.) Ltd., Yehiam Prior
and Ziv Karni, dated July 1998 *O
3.1 Memorandum of Association (English translation)*A
3.2 Articles of Association *A
3.3 (4.2) Articles of Association as amended September 5, 1996 *E
4.1 Specimen Certificate for Ordinary Shares *B
4.2 Luxar Corporation 1988 Stock Bonus and Option Plan *G, *N
4.3 Luxar Corporation 1994 Stock Option Plan *G, *N
4.4 Luxar Corporation 1995 Stock Option Plan G,*N
4.5 (4.1) Indenture, dated September 10, 1997, between ESC and
United States Trust Company of New York *H
4.6 (4.2) Registration Rights Agreement, dated September 10,
1997, between ESC, Goldman, Sachs & Co., Donaldson Lufkin &
Jenrette Securities Corporation, Montgomery Securities and
Smith Barney Inc. *H
4.7 (4.3) Specimen of Notes *H (included in Exhibit 4.1 from same filing)
4.8 (4.2) Laser Industries Limited 1988 Share Option Plan *J, *N
4.9 (4.3) Laser Industries Limited 1990 Share Option Plan *J, *N
4.10 (4.4) Laser Industries Limited 1991 Share Option Plan *J, *N
4.11 (4.5) Laser Industries Limited 1994 Share Option Plan *J, *N
4.12 (4.6) Laser Industries Limited 1995 Share Option Plan *J, *N
4.13 (4.7) Laser Industries Limited 1996 Share Option Plan *J, *N
4.14 (4.8) Laser Industries Limited 1997 Share Option Plan *J, *N
10.1 Preferred Shares Purchase Agreement, dated April 16, 1992,
among ESC, the Founders and the Investors *B
10.2 Share Purchase and Warrant Agreement, dated May 24, 1993,
among ESC, the Founders and the Investors *B
10.3 Share Purchase and Warrant Agreement, dated February 20,
1994, among ESC, the Founders, the Investors and Nitzanim *B
10.4 Personal Employment Agreement between ESC and Eli Talmor,
dated August 2, 1995 *B, *N
10.5 1993 Stock Option Plan, as amended *B, *N
10.6 1995 Section 102 Stock Option/Stock Purchase Plan *B, *N
10.7 Form of Stock Option Plan Restricted Stock Option Agreement
*B, *N
31
10.8 Form of Stock Option Plan Incentive Stock Option Agreement
*B, *N
10.9 Form of Section 102 Stock Option/Stock Purchase Plan
Restricted Stock Option Agreement *B, *N
10.10 Share Purchase Agreement, dated August 2, 1995 between ESC
and Technion Entrepreneurial Incubator Company Ltd. ("TEIC")
*B
10.11 Form of Stock Sale Agreement dated August 7, 1995 between
ESC and individual shareholders of Medic Lightech Ltd.
(English translation)*B
10.12 Agreement dated August 2, 1995 between ESC, Eli Talmor and
Medic Lightech Ltd. *B
10.13 Agreement dated August 2, 1995 between ESC, Eli Talmor, TEIC
and Medic Lightech Ltd. *B
10.14 Letter dated February 27, 1994 from the Technion Research
Development Foundation Ltd. ("Technion") to Medic Lightech
Ltd. (English translation) *B
10.15 Assignment of U.S. Patent Application No. 974,619 (Patent
No. 5,344,434) by Technion to Dimotech Ltd. dated March 13,
1994 *B
10.16 Assignment of U.S. Patent Application No. 974,619 (Patent
No. 5,344,434) by Technion to Dimotech Ltd. and Eli Talmor
dated May 9, 1994 *B
10.17 Letter dated August 2, 1995 from Technion (English
translation) *B
10.18 Letter dated November 2, 1995 from Dimotech Ltd. and Eli
Talmor to Dr. Shimon Eckhouse (English translation) *B
10.19 Letter dated December 6, 1995 from Dimotech Ltd. to Dr.
Shimon Eckhouse (English translation) *B
10.20 Letter dated December 6, 1995 from Technion to ESC *B
10.21 Letter dated December 7, 1995 from Eli Talmor to Dr. Shimon
Eckhouse (English translation) *B
10.22 Assignment of PhotoDerm Patent (U.S. Patent No. 5,405,368)
to ESC by Dr. Shimon Eckhouse dated October 16, 1992 *B
10.23 Form of Standard Confidential Disclosure Agreement *B
10.24 Confidentiality Agreement dated November 12, 1992 between
ESC and Andrie Katz *B
10.25 Letter of Intent between ESC and L.B.T. Ltd. dated May 22,
1996 *C
10.26(10.1) Employment Agreement, dated May 1, 1999, between ESC, ESC
Medical Systems Inc. and Louis Scafuri *K, *N
10.27(10.2) Stock Option Agreement, dated June 18, 1999, between
ESC and Louis Scafuri *K, *N
10.28(10.3) Letter of Agreement, dated June 23, 1999, from
Messrs. Genger and Gottstein to ESC *K
10.29(10.1) Employment Agreement, dated as of June 29, 1999,
between ESC and Yacha Sutton *L, *N
10.30 Purchase Agreement concerning the Purchase by ESC Medical
Systems of Certain Assets of Ballard Purchase Corporation,
effective September 10, 1998 *O
10.31 Lease Agreement between Scan Group Yokneam Ltd. and ESC
(English Translation) *O
10.32 Lease Agreement between Mario Laznik Industrial Buildings
Ltd. and ESC *O
10.33 Employment Agreement, dated as of October 1, 1996, between
ESC and Shimon Eckhouse *N, *O
10.34 Employment Agreement, dated as of January 15, 1999, between
ESC Japan Company, Ltd. and Alon Maor *N, *O
10.35 Amendment to Employment Agreement, dated November 12, 1999
between ESC Medizintechnik Vertriehs GmbH and Hans Edel *N,
*O
16(16) Letter, dated February 28, 2000, from Luboshitz
Kasierer to the Securities Exchange Commission *M
21 List of Subsidiaries *O
32
23.1 Consent of Brightman Almagor & Co. *O
23.2 Consent of Luboshitz Kasierer *O
25.1 Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939, as amended, of United
States Trust Company of New York, as Trustee under the
Indenture *H
27 Financial Data Schedule *O
99.1 Form of letter to Laser shareholders for the cover page of
the Joint Proxy Statement *I
Note: Parenthetical references following the Exhibit Number of each
document relate to the exhibit number under which such exhibit was
initially filed.
*A Incorporated by reference to Registration Statement on Form F-1,
File #33-80199; filed on December 8, 1995.
*B Incorporated by reference to Amendment No. 2 to Registration
Statement on Form F-1, File #33- 80199, filed on January 19, 1996.
*C Incorporated by reference to Registration Statement on Form F-1,
File #333-4886, filed on May 28, 1996
*D Incorporated by reference to Registration Statement on Form F-1,
File #333-4886, filed on June 25, 1996
*E Incorporated by reference to Registration Statement on Form S-8,
File #333-5898, filed on October 31, 1996
*F Incorporated by reference to Registration Statement on Form F-3,
File #333-6610, filed on March 12, 1997
*G Incorporated by reference to Registration Statement on Form S-8,
File #333-6774, filed on April 11, 1997
*H Incorporated by reference to Registration Statement on Form F-3,
File #333-8056, filed on December 9, 1997
*I Incorporated by reference to Registration Statement on Form F-4,
File #333-8208, filed on January 14, 1998
*J Incorporated by reference to Registration Statement on Form S-8,
File #333-8352, filed on February 13, 1998
*K Incorporated by reference to Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999, File #0-13012, filed on
August 13, 1999
*L Incorporated by reference to Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999, File #0-13012, filed on
November 15, 1999
*M Incorporated by reference to Current Report on Form 8-K/A, filed on
February 29, 2000
*N Management contract or compensatory plan or arrangement *O Filed
herewith
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the three-month
period ended December 31, 1999.
33
ESC MEDICAL SYSTEMS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
34
ESC MEDICAL SYSTEMS LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITORS' REPORTS 36-37
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
as of December 31, 1999 and 1998 38
Consolidated Statements of Operations
for the years ended December 31, 1999, 1998 and 1997 39
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997 40
Consolidated Statements of Cash Flows
for the years ended December 31, 1999, 1998 and 1997 41-42
Notes to the Consolidated Financial Statements 43-62
# # # # # #
35
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
ESC Medical Systems Ltd.:
We have audited the accompanying consolidated balance sheet of ESC MEDICAL
SYSTEMS LTD. (the "Company") and its subsidiaries as of December 31, 1999,
and the related consolidated statement of operations, changes in
shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's Board of
Directors and management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements
present fairly, in all material respects, the consolidated financial
position of the Company and its subsidiaries as of December 31, 1999, and
the consolidated results of their operations, changes in shareholders'
equity and cash flows for the year then ended, in conformity with generally
accepted accounting principles in the United States.
Brightman Almagor & Co.
Certified Public Accountants
A member of Deloitte Touche Tohmatsu
Tel Aviv, Israel
March 30, 2000
36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
ESC Medical Systems Ltd.
We have audited the consolidated balance sheets of ESC Medical Systems Ltd.
(an Israeli Corporation) as of December 31, 1998, and the related
consolidated statements of operations, changes in shareholders' equity and
cash flows for each of the two years in the period ended December 31, 1998.
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 Laser Industries Ltd. for the year ended December 31, 1997. (Laser
Industries Ltd. was acquired during 1998 in transactions accounted for as a
pooling of interests, as discussed in Note 3). Such statements are included
in the consolidated financial statements of the Company and reflect total
sales constituting 42% in 1997 of the related consolidated totals. These
statements were audited by other auditors whose reports have been furnished
to us and our opinion, insofar as it relates to amounts included for Laser
Industries Ltd., is based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards in Israel and in the United States, including those prescribed
under the Auditors' Regulations (Auditor's Mode of Performance), 1973.
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits and
the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December
31, 1998, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 1998, in conformity with
accounting principles generally accepted in the United States.
LUBOSHITZ KASIERER
Member Firm of Arthur Andersen
Haifa, Israel
February 10, 1999
37
<TABLE>
<CAPTION>
T
ESC MEDICAL SYSTEMS LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
DECEMBER 31
----------------------------
NOTE 1999 1998
---- ----------- ----------
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 24,524 $ 42,950
Short-term investments 43,841 46,867
Trade receivables (net of allowances of $25,432 and
$10,480 in 1999 and 1998, respectively) 43,360 78,392
Prepaid expenses and other receivables 5 5,852 12,824
Inventories 6 39,516 61,200
----------- ----------
157,093 242,233
LONG-TERM INVESTMENTS
Bank deposits and securities 879 41,350
Other 5,566 5,469
FIXED ASSETS 7 6,549 13,877
OTHER ASSETS 8 4,820 24,737
----------- ----------
Total assets $ 174,907 $ 327,666
=========== ==========
CURRENT LIABILITIES
Short-term debt and current maturities of long-term loans $ 21 $ 3,533
Accounts payable and accrued expenses 9 72,252 52,319
----------- ----------
72,273 55,852
----------- ----------
LONG-TERM LIABILITIES
Bank loans 42 61
Restructuring accrual 4 2,472 -
Accrued severance pay 10 1,248 1,245
Convertible subordinated notes 11 92,929 115,000
----------- ----------
96,691 116,306
----------- ----------
Total liabilities 168,964 172,158
----------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES 12
SHAREHOLDERS' EQUITY 13
Ordinary shares of NIS 0.1 par value:
Authorized - 50,000,000 shares;
Issued and outstanding - 27,579,020 shares and
27,314,601 Shares as of December 31, 1999 and 1998, 577 553
respectively
Paid-in capital 137,732 136,001
Unearned compensation (117) (245)
Retained earnings (accumulated deficit) (113,975) 26,813
Treasury stock, at cost 2,644,813 shares and 1,054,813
Shares as of December 31, 1999 and 1998,
respectively
(18,274) (7,614)
----------- ----------
Total shareholders' equity 5,943 155,508
----------- ----------
Total liabilities and shareholders' equity $ 174,907 $ 327,666
=========== ==========
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
38
<TABLE>
<CAPTION>
ESC MEDICAL SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
YEAR ENDED DECEMBER 31
--------------------------------------------
1999 1998 1997
NOTE (RESTATED)
---- ------------- -------------- -------------
REVENUES
<S> <C> <C> <C> <C>
Net sales 14 $ 142,151 $ 225,206 $ 193,983
Other revenues - - 2,100
------------- -------------- -------------
142,151 225,206 196,083
COST OF SALES 4 96,474 78,585 65,068
------------- -------------- -------------
Gross profit 45,677 146,621 131,015
------------- -------------- -------------
OPERATING EXPENSES
Research and development, net 15 15,351 18,680 17,371
Marketing and selling 4 78,432 76,882 55,877
General and administrative 25,799 14,667 16,091
Restructuring costs 4 20,530 - -
Settlement of litigations 12 23,780 - -
Impairment of intangible and tangible assets 3,7 17,616 - -
Acquired research and development 16 - 2,451 11,912
Other 17 4,987 - -
------------- -------------- -------------
Total operating expenses 186,495 112,680 101,251
------------- -------------- -------------
Operating income (loss) (140,818) 33,941 29,764
FINANCING INCOME (EXPENSES), NET 18 (3,865) 1,211 1,409
------------- -------------- -------------
(144,683) 35,152 31,173
NONRECURRING EXPENSES 3 - 28,951 4,650
------------- -------------- -------------
Income (loss) before income taxes (144,683) 6,201 26,523
TAXES ON INCOME 19 4,079 2,201 4,429
------------- -------------- -------------
Net income (loss) before extraordinary items (148,762) 4,000 22,094
EXTRAORDINARY GAIN ON PURCHASE OF
COMPANY'S CONVERTIBLE NOTES - -
11 7,974
------------- -------------- -------------
Net income (loss) for the year $(140,788) $ 4,000 $ 22,094
============= ============== =============
EARNINGS (LOSS) PER SHARE 20
Basic
Income (loss) before extraordinary item $ (5.79) $ 0.15 $ 0.86
Extraordinary gain 0.31 - -
------------- -------------- -------------
Net earnings (loss) per share $ (5.48) $ 0.15 $ 0.86
============= ============== =============
Diluted
Income (loss) before extraordinary item $ (5.79) $ 0.15 $ 0.81
Extraordinary gain 0.31 - -
------------- -------------- -------------
Net earnings (loss) per share $ (5.48) $ 0.15 $ 0.81
============= ============== =============
WEIGHTED AVERAGE NUMBER
OF SHARES
Basic 25,674 26,027 25,604
============= ============== =============
Diluted 25,674 27,381 27,194
============= ============== =============
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
39
<TABLE>
<CAPTION>
ESC MEDICAL SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(in thousands)
NOTE
RECEIVABLE
FROM RETAINED
SHAREHOLDERS AND EARNINGS
SHARE PAID IN UNEARNED (ACCUMULATED TREASURY
CAPITAL CAPITAL COMPENSATION DEFICIT) STOCK TOTAL
--------- ---------- ---------------- ------------ ------------ ----------
Balance as of
<S> <C> <C> <C> <C> <C> <C>
January 1, 1997 (restated) $ 520 $ 111,796 $ (1,234) $ (144) $ (104) $110,834
Purchase of treasury stock (220) (220)
Shares issued in connection
with acquisition of AOC 4 7,245 7,249
Tax benefit of options exercised
by employees 3,695 3,695
Exercise of options and warrants 1 4,740 4,741
Amortization of unearned
compensation 529 529
Net income of Luxar for the
three months ended
December 31, 1996 863 863
Collection of note receivable 140 140
Translation adjustments 79 79
Net income for the year 22,094 22,094
--------- ---------- ---------------- ------------ ------------ ----------
Balance as of
525 127,555 (565) 22,813 (324) 150,004
December 31, 1997 (restated)
Purchase of treasury stock (7,290) (7,290)
Exercise of options 28 7,836 7,864
Amortization of unearned
compensation 320 320
Tax benefit of options
exercised by employees 610 610
Net income for the year 4,000 4,000
--------- ---------- ---------------- ------------ ------------ ----------
Balance as of
553 136,001 (245) 26,813 (7,614) 155,508
December 31, 1998
Purchase of treasury stock (10,660) (10,660)
Gain from decrease in holding in
an affiliate 1,025 1,025
Exercise of options 24 489 513
Grant of options 217 217
Amortization of unearned
compensation 128 128
Net loss for the year (140,788) (140,788)
Balance as of
December 31, 1999 $ 577 $ 137,732 $ (117) $ (113,975) $ (18,274) $ 5,943
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
40
<TABLE>
<CAPTION>
ESC MEDICAL SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED DECEMBER 31
1 9 9 9 1 9 9 8 1 9 9 7
------------- -------------- -------------
(RESTATED)
CASH FLOWS - OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ (140,788) $ 4,000 $ 22,094
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities -
Expenses (income) not affecting operating cash flows:
Deferred income taxes 4,093 (1,174) (2,264)
Amortization of deferred compensation 128 320 529
Nonrecurring expenses in connection with purchases - 8,938 11,912
Depreciation and amortization 8,457 8,922 4,959
Gain on purchase of Company's convertible notes (7,974) - -
Restructuring costs 45,068 - -
Impairment of intangible and tangible assets 17,616 - -
Other 296 543 (26)
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables 30,232 (25,521) (25,899)
Decrease in prepaid expenses and other receivables 2,879 852 2,621
Decrease (increase) in inventories 1,946 (21,302) (19,811)
Increase (decrease) in accounts payable and accrued expenses 8,139 (3,012) 22,183
------------- -------------- -------------
Net cash provided by (used in) operating activities (29,908) (27,434) 16,298
------------- -------------- -------------
CASH FLOWS - INVESTING ACTIVITIES
Payment for purchase of businesses, net of cash acquired - (2,450) (17,158)
Sale of investment - 368 -
Purchase of fixed assets (4,015) (4,611) (7,507)
Investments in patents and know-how - (5,523) (4,270)
Maturity of (additions to) investments 43,439 39,921 (107,164)
Proceeds from disposal of fixed assets - 141 82
------------- -------------- -------------
Net cash provided by (used in) investing activities 39,424 27,846 (136,017)
------------- -------------- -------------
CASH FLOWS - FINANCING ACTIVITIES
Proceeds from issuance of convertible notes, net of expenses - - 110,500
Purchase of convertible notes (14,264) - -
Proceeds from exercise of warrants and options 513 7,864 4,086
Proceeds from long-term debt - - 10,260
Repayment of long-term loans (19) (15,025) (1,216)
Increase (decrease) in short-term bank debt, net (3,512) 2,373 728
Purchase of treasury stock (10,660) (7,290) (220)
Collection of note receivable from shareholders - - 140
------------- -------------- -------------
Net cash provided by (used in) financing activities (27,942) (12,078) 124,278
------------- -------------- -------------
NET INCREASE IN CASH OF LUXAR FOR THE
THREE MONTHS ENDED DECEMBER 31, 1996 - - 777
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (18,426) (11,666) 5,336
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 42,950 54,616 49,280
------------- -------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 24,524 $ 42,950 $ 54,616
============= ============== =============
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
41
<TABLE>
<CAPTION>
ESC MEDICAL SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
(in thousands)
YEAR ENDED DECEMBER 31
--------------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
------------- -------------- -------------
(RESTATED)
<S> <C> <C> <C>
NONCASH ACTIVITIES
Conversion of subordinated debentures and interest payable to
common stock $ - $ - $ 481
------------- -------------- -------------
Tax benefit of options exercised by employees $ - $ 610 $ 3,695
------------- -------------- -------------
CASH PAID DURING THE PERIOD IN RESPECT OF:
Income taxes $ 649 $ 670 $ 272
------------- -------------- -------------
Interest $ 6,654 $ 7,510 $ 750
------------- -------------- -------------
PURCHASE OF BUSINESSES
Assets and liabilities at date of purchase:
Working capital (excluding cash) $ 556 $ (1,632)
Fixed assets (19) (1,453)
Intangibles and other assets (3,987) (12,763)
Research and development projects in process - (10,114)
Long-term liabilities - 1,555
-------------- -------------
(3,450) (24,407)
Short-term liabilities incurred in connection with purchase 1,000 -
Shares and warrants issued in connection with purchase - 7,249
-------------- -------------
Cash paid, net $ (2,450) $ (17,158)
============== =============
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
42
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 1 - GENERAL
A. ESC Medical Systems Ltd. (the "Company" or "ESC") is an
Israeli company engaged directly and through its
subsidiaries (together "the Group") in research,
development, production and sale of medical devices
based on proprietary intense pulsed light source and
laser technology. The market for the Group's devices
are principally cosmetic medical professionals
worldwide.
B. In 1997 and 1998, the Group entered into various
merger and acquisition agreements, the most
significant of which were with Luxar Corporation
("Luxar") and Laser Industries Limited ("Laser"),
which were recorded as pooling-of-interests and the
acquisition of Spectron (U.K.) Limited accounted for
by the purchase accounting method. See Note 3 for a
description of the merger and acquisition activity and
the accounting treatment applied thereto.
C. In 1999, the Group initiated a restructuring program
of its business operations (see Note 4). In the
framework of this program, the U.S.-based
marketing activity is to be consolidated, the
Israel-based manufacturing activity is to be
consolidated, and certain products are to be
eliminated. Management expects the restructuring
program to be fully implemented in 2000.
D. The Group's products use proprietary technology and
accordingly the Group holds numerous patents and
licenses. In addition, the industry in which the Group
operates is characterized by rapid technological
change and competition. Loss or invalidation of a
patent or a license or inability to remain competitive
in a rapidly changing economic environment could have
an adverse effect on the Group.
E. The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
NOTE 2 - ACCOUNTING POLICIES
The financial statements have been prepared in conformity
with accounting principles generally accepted in the United
States. The significant accounting policies followed in the
preparation of the financial statements, on a consistent
basis, are:
A. The accompanying financial statements have been
prepared in U.S. dollars, as the currency of the
primary economic environment in which the operations
of the Group are conducted is the U.S. dollar. The
majority of the Group's sales are denominated in U.S.
dollars, as are the majority of purchases of materials
and components. Thus, the functional currency of the
Group is the U.S. dollar.
Transactions and balances originally denominated in
U.S. dollars are presented at their original amounts.
Transactions and balances in other currencies are
remeasured into U.S. dollars in accordance with
Statement No. 52 of the Financial Accounting Standards
Board of the United States (FASB). Accordingly, items
have been remeasured as follows:
o Monetary items - at the current exchange rate at
the balance sheet date.
43
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 2 - ACCOUNTING POLICIES (CONT.)
o Nonmonetary items - at historical exchange rates.
o Income and expense items (excluding items
deriving from nonmonetary items) - at exchange
rates current as of the date of recognition of
those items.
o Depreciation and other items deriving from
nonmonetary items - at historical exchange
rates.
o Exchange gains and losses from the
aforementioned remeasurement are reflected in
the statement of operations.
B. PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the
accounts of the Company and its subsidiaries. Material
intercompany balances and transactions have been
eliminated.
As a result of the business combinations with Luxar
and Laser in 1997 and 1998, all prior period financial
statements were restated to include the accounts of
Luxar and Laser (see Note 3).
C. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
-------------------------------------------
All highly liquid investments are considered as cash
equivalents if the investments mature within three
months from the date of investment. Investments in
bank deposits and in commercial paper with original
maturities longer than three months but less than a
year are reflected as short-term investments.
D. ALLOWANCE FOR DOUBTFUL ACCOUNTS
-------------------------------
The allowance for doubtful accounts is recorded on the
basis of specific accounts receivable whose
collectibility, based on management's estimate, is
uncertain.
E. INVENTORIES
-----------
Inventories are presented at the lower of cost or
market. Cost being determined as follows:
Raw materials - "First-in, first-out" method
Finished products and - Materials as above, labor and
work in process overhead costs on an average
basis.
F. LONG-TERM INVESTMENTS
---------------------
Investments in long-term bank deposits and in debt
securities in respect of which the Company has the
positive intent and ability to hold to maturity are
stated at amortized cost. Investments in nonmarketable
equity securities are stated at cost, unless the
Company has significant influence as defined in
Accounting Principles Board Opinion ("APB") No. 18 in
which case the investment is presented on the equity
method.
44
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 2 - ACCOUNTING POLICIES (CONT.)
G. FIXED ASSETS
------------
Fixed assets are presented at cost (see also I below),
net of accumulated depreciation.
Annual depreciation is calculated based on the
straight-line method over the estimated useful lives
of the related assets or terms of the related leases.
Annual depreciation rates are as follows:
%
------
Computers and equipment 10-33
Office furniture and equipment 7-20
Leasehold improvements Over the period of the lease
Vehicles 15
H. OTHER ASSETS
------------
Intangible assets (patents, know-how and goodwill) are
amortized by the straight-line method over periods of
principally between five and ten years (see also I
below). Debt issuance costs are amortized over the
term of the related debt by the straight-line method.
I. IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
In accordance with SFAS No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," management reviews
long-lived assets for impairment periodically and
whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be
recoverable based on estimated future cash flows.
J. RESEARCH AND DEVELOPMENT COSTS
------------------------------
Research and development costs are charged to
operations as incurred. Amounts received or receivable
from the Government of Israel (through the Office of
the Chief Scientist) as its participation in certain
research and development are offset against the
Group's research and development costs.
K. REVENUE RECOGNITION
-------------------
Revenue is recognized upon shipment of products
provided that there are no significant uncertainties
regarding the customer's acceptance and the
collectibility is probable. The costs of insignificant
related obligations (initial installations) are
accrued when the related revenue is recognized.
Deferred revenues from service contracts are
recognized on a straight-line basis over the life of
the related service contracts. An allowance has been
recorded for estimated returns based on Group's
experience and management's estimates.
L. PRODUCT WARRANTIES
------------------
Accrued warranty costs are recorded at the time of
sale based on the Group's experience and management
estimates.
45
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 2 - ACCOUNTING POLICIES (CONT.)
M. STOCK-BASED COMPENSATION
------------------------
The Group accounts for employee stock-based
compensation in accordance with APB No. 25,
"Accounting for Stock Issued to Employees". Pursuant
to this accounting standard, the Group records
compensation for share options granted to employees at
the date of grant based on the difference between the
exercise price of the options and the market value of
the underlying shares at that date. Deferred
compensation is amortized to compensation expense over
the vesting period of the underlying options. See Note
13 for pro forma disclosures required in accordance
with SFAS No.123, "Accounting for Stock-Based
Compensation," ("SFAS 123") of the FASB. The Group
accounts for stock-based compensation to consultants
in accordance with SFAS 123.
N. DEFERRED TAXES
--------------
Deferred tax assets and liabilities are determined
based on differences between financial reporting and
tax bases of assets and liabilities measured using
enacted tax rates and laws expected to be in effect
when the differences are expected to reverse. A
valuation allowance is recorded to the extent that
realization is not considered more likely than not.
O. EARNINGS PER SHARE
------------------
Basic earnings per share is computed based on the
weighted average number of ordinary shares outstanding
and excludes any potential dilution. Diluted earnings
per share reflects potential dilution from exercise of
options and warrants or conversion of convertible
securities into ordinary shares.
P. RECLASSIFICATIONS
-----------------
Certain reclassification have been made to prior
years' financial statements to conform to the current
year's presentation.
Q. NEW ACCOUNTING PRONOUNCEMENT
----------------------------
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"). The Statement establishes
accounting and reporting standards requiring that
every derivative instrument be recorded in the balance
sheet at its fair value. The Statement requires that
changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying
hedges allows a derivative's gains and losses to offset
related results on the hedged item in the income
statement.
SFAS 133, as amended, is effective for fiscal years
beginning after June 15, 2000. The Company believes
that the adoption of SFAS 133 will not have a material
effect on its financial statements.
46
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 3 - MERGERS AND ACQUISITIONS
A. LUXAR
-----
In March 1997, Luxar was merged with and into the
Company, which merger was accounted for as a pooling
of interests. Accordingly, all prior period financial
statements have been restated to include the accounts
of Luxar.
The statement of operations for the year ended
December 31, 1997, reflects nonrecurring expenses of
approximately $4,650 related to costs associated with
the merger.
B. LASER ACQUISITION
-----------------
In February 1998, Laser was acquired by ESC through
the issuance of 6,181,013 ordinary shares of ESC and
warrants and options exercisable for the purchase of
865,089 additional shares. The exchange with Laser was
accounted for as a pooling of interests, and
accordingly, all prior period financial statements
were restated to include the accounts of Laser and
reflect the issuance of the shares, warrants and
options by ESC.
The statement of operations for the year ended
December 31, 1998, reflects nonrecurring expenses of
approximately $28,951 related to costs associated with
the acquisition. Such amount includes principally
$7,226 for underwriters, legal and accounting
expenses, $7,149 for non-compete payments, bonuses and
severance, and $6,638 for inventory writedowns.
C. Combined and separate results of ESC and Laser during
1997 were as follows:
--------------------------------------------------------
ESC LASER COMBINED
Year ended December 31, 1997:
Revenues $114,854 $81,229 $196,083
Net income $ 21,824 $ 270 $ 22,094
D. SPECTRON ACQUISITION
--------------------
In April 1997, Laser acquired for cash consideration
all of the outstanding shares of Spectron (U.K.)
Limited, a U.K. based developer and manufacturer of
laser systems for the medical, industrial and
scientific markets, in a transaction accounted for
under the purchase of accounting method. The total
cost of the acquisition was $18,734, of which $4,900
was allocated to Spectron's tangible net assets,
$8,000 was allocated to acquired technology, and
$5,834 was written off as in-process research and
development projects. Spectron has been included in
the consolidated results of operations since April
1997. The results of operations of Spectron for the
periods prior to April 1997 are immaterial to the
consolidated results of operations.
Due to a determination by management regarding the
unrecoverability of the acquired technology, the Group
wrote off in 1999 an amount of $5,933 representing the
entire net book value of the acquired technology
recorded as a result of the 1997 acquisition.
47
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 3 - MERGERS AND ACQUISITIONS (CONT.)
E. AOC ACQUISITION
---------------
On December 18, 1997, the Company acquired Applied
Optronics Corp. ("AOC") for a total consideration of
$7,500. The consideration was comprised of
approximately $200 in cash, 164,356 ordinary shares
and 84,435 warrants to purchase shares of the Company
(see Note 13). AOC is a U.S. company engaged in
research, development, manufacturing and marketing of
laser diode optoelectronic components and systems.
The acquisition was accounted for under the purchase
of accounting method. Of the total purchase price,
$4,280 was allocated to AOC's research and development
projects in process. As these projects had no
alternative future use, they were written off as a
nonrecurring expense at the date of purchase.
Approximately $3,500 of the purchase price was
allocated to intangible assets. The balance of
approximately $300 represents the net liabilities
(deficit) of AOC assumed by the Company.
Due to a determination by management regarding the
unrecoverability of the intangible assets, the Group
wrote off in 1999 an amount of $3,040 representing the
entire net book value of the intangible assets
recorded as a result of the 1997 acquisition.
The operating results of AOC for the year 1997 were
immaterial in relation to the Company's consolidated
results of operations.
NOTE 4 - RESTRUCTURING COSTS AND OTHER CHARGES
- ------ -------------------------------------
In 1999 the Group recorded a $45,068 charge for comprehensive
restructuring plans approved on September 14, 1999 by the
Board of Directors. The plans include, among other things,
closing locations and reducing staff. The charge includes
$9,797 for lease terminations and related fixed asset
disposals, $19,738 for writedowns of inventories, $4,800 for
writedowns of receivables, $8,758 for severance, and $1,975
for other costs.
The writedowns of inventories, pertaining to the Group's
decision to eliminate the marketing of a number of products,
amounting to $19,738 were included in cost of goods sold. The
writedowns of receivables amounting to $4,800 were included
in the marketing and selling expenses.
The majority of the restructuring charges relate to the
Group's operations in the U.S. As of December 31, 1999, the
unutilized accrual amounted to $7,998, relating to $4,514 for
severance and $3,484 for lease terminations.
48
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 5 - PREPAID EXPENSES AND OTHER RECEIVABLES
- ------ --------------------------------------
DECEMBER 31
----------------------------
1 9 9 9 1 9 9 8
----------- -----------
Deferred income taxes $ 653 $ 4,732
Government agencies 2,278 4,081
Prepaid expenses 1,966 2,411
Other 955 1,600
----------- -----------
$ 5,852 $ 12,824
=========== ===========
NOTE 6 - INVENTORIES
DECEMBER 31
----------------------------
1 9 9 9 1 9 9 8
----------- -----------
Raw materials $ 15,998 $ 20,309
Work in process 8,052 10,106
Finished products 15,466 30,785
----------- -----------
$ 39,516 $ 61,200
=========== ===========
NOTE 7 - FIXED ASSETS
DECEMBER 31
----------------------------
1 9 9 9 1 9 9 8
----------- -----------
Computers and equipment $ 5,298 $ 23,480
Office furniture and equipment 1,851 8,456
Leasehold improvements 2,154 4,206
Vehicles 2,884 2,332
----------- -----------
12,187 38,474
Less - accumulated depreciation 5,638 24,597
----------- -----------
$ 6,549 $ 13,877
=========== ===========
Depreciation expense amounted to $3,116, $4,013 and $4,044
for the years 1997, 1998 and 1999, respectively.
In connection with the restructuring plans (see Note 4) and
in connection with the periodic review of long-lived assets (see
Note 2.I.), fixed assets with a net book value of $5,733 and
$1,567, respectively, were written off in 1999.
49
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 8 - OTHER ASSETS
DECEMBER 31
----------------------------
1 9 9 9 1 9 9 8
----------- -----------
Intangible assets (*) $ 1,928 $ 30,494
Debt issuance costs (**) 3,636 4,500
Other 793 1,961
----------- -----------
6,357 36,955
Less - accumulated amortization 1,537 12,218
----------- -----------
$ 4,820 $ 24,737
=========== ============
(*) In connection with the periodic review of long-lived
assets (see Note 2.I. and Note 3), intangible assets
with a net book value of $16,049 were written off in
1999.
(**) In respect of convertible subordinated notes - see Note
11.
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1 9 9 9 1 9 9 8
------------ ------------
<S> <C> <C>
Trade payables $ 8,722 $ 15,490
Deferred income 3,324 2,322
Government agencies 744 1,637
Accruals:
Payroll and related expenses 6,462 7,127
Commissions 5,591 5,020
Income taxes 4,543 4,975
Settlement of litigations (Note 12) 20,213 -
Restructuring (Note 4) 5,526 -
Interest 1,874 2,362
Warranty 3,913 3,093
Other expenses 11,340 10,293
------------ ------------
$ 72,252 $ 52,319
============ ============
</TABLE>
50
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 10 - ACCRUED SEVERANCE PAY
The Company's obligation to make severance payments to its
employees is fully covered by the payment of insurance
premiums in respect thereof and by the accrual in the balance
sheet. The insurance policies, which are in the form of an
annuity and/or life insurance, are owned by the Company. The
amounts funded with insurance companies are not under the
management or control of the Company, and accordingly,
neither those amounts nor the corresponding accrual for
severance pay are reflected in the balance sheet. The
Company's obligation by law and labor agreements in respect
of severance pay for those employees not covered by managers'
insurance policies is presented as an accrued liability.
Severance pay expenses amounted to $747, $1,019 and $734 for
the years 1997, 1998 and 1999, respectively. The calculation
is based on the employee's latest salary and the period of
employment.
The subsidiaries in the United States ("U.S. subsidiaries")
have 401(k) savings plans covering substantially all of the
employees in the United States who have completed at least three
months of service. Each employee may contribute up to 15% of
his or her compensation per year, subject to maximum limits
imposed by U.S. tax law. The U.S. subsidiaries may make
discretionary matching contributions based on a formula as
defined in the plans. To date, the U.S. subsidiaries have
made no contributions to the plans.
NOTE 11 - CONVERTIBLE SUBORDINATED NOTES
In September 1997, the Company issued $115,000 in principal
amount of 6% convertible subordinated notes due September 1,
2002, with interest payable semiannually commencing March 1,
1998. The notes are convertible into approximately 2,470,461
ordinary shares of the Company at a conversion price of
$46.55 per share, subject to adjustments in certain events.
The notes are redeemable at the option of the Company, in
whole or in part, at 102.4% of their principal amount
beginning September 2000, and thereafter at prices declining
annually to 100% on September 1, 2002, plus accrued interest
to the date of redemption.
In 1999 the Company purchased $22,071 in principal amount of
the 6% convertible subordinated notes at a price of $14,264.
As a result of the purchase the Company recorded a gain of
$7,974. As of December 31, 1999, the outstanding liability
with regard to the convertible subordinated notes amounted to
$92,929.
51
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES
A. LEASE COMMITMENTS
-----------------
The Group leases its principal facilities in Yokneam
and Tel-Aviv in Israel, and also operates sales
offices and manufacturing facilities in the U.S.,
U.K., Italy, Germany, Japan and France. Rental expense
for the years 1997, 1998 and 1999, amounted to $2,626,
$3,423 and $3,729, respectively. Future minimum annual
lease payments for operating leases are as follows:
2000 $3,676
2001 $2,856
2002 $2,555
2003 $2,134
2004 $1,774
In connection with the Group's restructuring and the
consolidation of its facilities, $3,484 of the above
amounts have been accrued and included in restructuring
costs for the year ended December 31, 1999.
B. ROYALTIES
---------
The Group is a party to various licensing agreements
which require it to pay royalties on certain product
sales at various rates - up to 5% of the net selling
price of these products.
The Group is also obligated to pay to the State of
Israel and the BIRD Foundation royalties of 3-5% on
the sales of products for which participations were
received up to 100% of the amount of the
participations. As of December 31, 1999, the balance
of the royalty-bearing participations amounted to
approximately $6,234.
The Group paid royalties of $1,261, $824 and $534 in
1997, 1998 and 1999, respectively.
C. CONTINGENT LIABILITIES
----------------------
(1) In late 1998 the Company was named in a number
of purported class action securities lawsuits
that have been consolidated in the United
States District Court for the Southern District
of New York. In July 1999, a consolidated
amended complaint was filed naming among
others, the Company and several additional
current and former directors and officers of
the Company and Laser as defendants. The
consolidated amended complaint seeks damages
and attorneys' fees under the United States
securities laws for alleged "tipping" of
non-public information to an investment banker
in September 1998 and for alleged
irregularities in the way in which the Company
reported its financial results and disclosed
certain facts throughout 1997 and 1998. The
Company's insurance carrier has agreed to
assume the defense of the action under a
reservation of rights. Laser's insurance
carrier's decision as to coverage is currently
pending. No accrual has been recorded in the
financial statements for this matter.
52
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
C. CONTINGENT LIABILITIES (CONT.)
(2) On September 20, 1999, Dr. Richard Urso filed
what purports to be a class action lawsuit
against the Company in the State District Court
in Harris County, Texas. Dr. Urso alleges a
number of causes of action including breach of
contract, breach of warranty, product
liability, misrepresentation and violations of
the Texas Deceptive Trade Practices Act. The
complaint purports to be filed on behalf of a
national class. The Company has taken steps to
remove the case to Federal court and intends to
vigorously deny all allegations and challenge
plaintiff's class certification motion when it
is filed. No accrual has been recorded in the
financial statements for this matter.
(3) On May 10, 1999, the Company and a former
director and officer were named as defendants
in an action filed in Tel-Aviv Court by H.K.
Hashalom Ltd. in connection with the sale of
the Company's EpiLight systems. H.K. Hashalom
is seeking monetary damages in the amount of
$2,500 but has reserved the right to increase
such amount as well as a declaratory judgment
that, inter alia, the Company indemnify it for
certain costs and expenses arising out of the
transaction between the parties. On July 15,
1999, the defendants filed a Statement of
Defense. The case has not yet been set for a
first hearing. No accrual has been recorded in
the financial statements for this matter.
(4) On November 5, 1998, Light Age, Inc.
("Light Age") instituted an ex-parte
application in the Tel-Aviv District Court (the
"Tel-Aviv Court") against the Company and
others, seeking a temporary injunction against
the development, production and sale of the
Company's Alexandrite laser for dermatological or
hair removal treatments. On January 25, 1999, the
Company, along with three subsidiaries, brought
an action in the Superior Court of New Jersey,
Somerset County (the "US Court"), against Light
Age. The litigation relates to disputes arising
out of an agreement between Light Age and Laser
pursuant to which Light Age supplied certain
medical laser devices to Laser. On July 1,
1999, the U.S. Court granted defendant Light
Age's motion to compel the Company and the
three affiliated entities to arbitrate. On
August 13, 1999, Light Age filed a demand for
arbitration on its counterclaim with the
American Arbitration Association. On November
22, 1999, the Company and three affiliated
entities filed a response to Light Age's
demand. Pending the outcome of the U.S.
arbitration, Light Age and the Company agreed
to file a motion to stay the proceedings in
Tel-Aviv. On October 14, 1999, the Tel-Aviv
Court confirmed the motion as requested and
stayed the proceedings. No accrual has been
recorded in the financial statements for this
matter.
(5) As mentioned above, the Company and its
subsidiaries are involved in several legal
proceedings, claims and litigation in which no
accrual has been recorded in the financial
statements. Management of the Company is unable
to predict the outcome of such matters, the
likelihood of an unfavorable outcome or the
amount or range of potential loss, if any.
(6) The Company and its subsidiaries are involved
in further legal proceedings, claims and
litigation arising in the ordinary course of
business. In the opinion of management, the
outcome of such current legal proceedings,
claims and litigation could have a material
effect on quarterly or annual operating results
or cash flows when resolved in a future period.
However, in the opinion of management, each of
these matters individually is not likely to
materially affect the Group's consolidated
financial position.
53
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
D. SETTLEMENT OF LITIGATIONS
-------------------------
In 2000, the Group reached settlement agreements with
respect to litigation with Reliant Technologies, Inc.
and LPG USA, Inc., relating to alleged patent
infringement and violations of the Lanham Act and
related state laws, respectively. Under the various
settlements agreements the Company agreed to pay cash
in an aggregate amount of $9,500, to pay consulting
fees under a three-year consulting agreement in an
amount of $1,500, to purchase products in the amount
of $5,000 and to grant 300,000 stock options at
exercise prices of $5 to $9.75 (with fair value of
$381 as of the dates of the grants under the
Black-Scholes model).
NOTE 13 - SHARE CAPITAL
A. ORDINARY SHARES
---------------
In March 1997, the Company completed a merger with Luxar
and issued 1,976,473 shares under the terms of the
agreement - see Note 3. Convertible and redeemable
preferred stock of Luxar were converted into ordinary
shares of the Company in connection with the merger.
In December 1997, the Company issued 164,356 shares in
connection with the acquisition of AOC - see Note 3.
In February 1998, the Company completed a merger with
Laser and issued 6,181,013 ordinary shares and warrants
and options exercisable for the purchase of 865,089
additional shares.
B. SHARES SUBJECT TO OPTIONS
-------------------------
Until 1997, the Company issued ordinary shares to an
independent trustee. The use of these shares is
restricted to the granting of options to founding
shareholders, employees and consultants to acquire
such shares. No shares can be returned to the Company
and such shares have voting and dividend rights.
Shares issued to the trustee are deemed outstanding,
using the treasury stock method, for purposes of
earnings per share computations. As of December 31,
1999, 315,037 shares were held by the trustee.
54
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 13 - SHARE CAPITAL (CONT.)
B. SHARES SUBJECT TO OPTIONS (CONT.)
Transactions during the three years ended December 31,
1999, are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE
NO. OF SHARES U.S.$
------------- --------------
<S> <C> <C> <C>
Outstanding January 1, 1997 2,466,443
Granted 1,143,084 21.80
Exercised (1,156,380) 2.58
Forfeitures (32,713) 3.57
-----------------
Outstanding December 31, 1997 2,420,434
Granted 233,000 23.35
Exercised (663,753) 15.40
Forfeitures (80,839) 25.00
-----------------
Outstanding December 31, 1998 1,908,842
Granted 4,639,000 5.25
Exercised (364,522) 1.41
Forfeitures (1,084,176) 7.48
-----------------
Outstanding December 31, 1999 5,099,144
=================
The weighted average fair values of options
granted in 1997, 1998 and 1999 were $11.94,
$19.00 and $3.11, respectively.
The following table summarizes information about
options outstanding at December 31, 1999:
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ -----------------------------------
RANGE OF NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
EXERCISE OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AT AVERAGE
PRICES DECEMBER 31 REMAINING EXERCISE PRICE DECEMBER 31 EXERCISE PRICE
U.S.$ 1 9 9 9 CONTRACTUAL LIFE U.S.$ 1 9 9 9 U.S.$
----------- --------------- ---------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
0.02-2.90 185,799 5-7.5 0.70 172,097 0.69
5.03-6.00 4,133,600 5-9.5 5.25 2,100 5.12
7.94-8.67 534,650 6-9 8.00 151,810 8.12
13.80-18.87 68,845 2.5 16.15 68,845 16.15
25.50-27.00 176,250 6.5-7.5 25.85 100,375 26.40
-------------- --------------
5,099,144 495,227
============== ==============
</TABLE>
55
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 13 - SHARE CAPITAL (CONT.)
B. SHARES SUBJECT TO OPTIONS (Cont.)
-------------------------
The Company has received approval from the Israeli
Income Tax Authority for a share option plan under
Section 102 of the Income Tax Ordinance. This plan
provides certain tax benefits to employee participants
and restricts the disposal of the shares under option
for a period of not less than two years.
The option exercise price is determined by the Board
of Directors and, if granted below fair market value,
compensation expense is recorded over the vesting
period of the option in accordance with APB 25. Under
APB 25, the compensation cost charged to operations
for the years ended December 31, 1997, 1998 and 1999
amounted to $529, $320 and $128, respectively.
Had compensation cost been determined under the
alternative fair value accounting method provided for
under FASB Statement No. 123, "Accounting for
Stock-Based Compensation", the Company's net income
and earnings per share for the years 1997, 1998 and
1999 would have been reduced to the following pro
forma amounts:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net income As reported $ (140,788) $ 4,000 $ 22,094
Pro forma $ (147,250) $ (446) $ 18,326
Basic
earnings (loss) As reported $ (5.48) $ 0.15 $ 0.86
per share
Pro forma $ (5.74) $ (0.02) $ 0.72
Diluted
earnings (loss)
per share As reported $ (5.48) $ 0.15 $ 0.81
Pro forma $ (5.74) $ (0.02) $ 0.67
</TABLE>
Under Statement No. 123 the fair value of each option
grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997,
1998 and 1999: (1) expected life of 3 years; (2)
dividend yield of 0%; (3) expected volatility of 62%
in 1997, 150% in 1998 and 87% in 1999; and (4)
risk-free interest rate of 6% in 1997, 5% in 1998, and
6% in 1999.
C. WARRANTS
--------
Pursuant to the agreement for the acquisition of AOC
entered into in December 1997, warrants to purchase
84,435 ordinary shares at a price of $47.25 per share
were issued. These warrants are exercisable until
December 2002.
56
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 13 - SHARE CAPITAL (CONT.)
D. TREASURY STOCK
--------------
During 1998 and 1999, the Board of Directors of the
Company authorized the purchase of up to 3,000,000
ordinary shares, to facilitate the exercise of
employee share options under the various plans. As of
December 31, 1999, 2,644,813 shares had been
repurchased and held as treasury shares in trust.
57
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 14 - NET SALES
A. GEOGRAPHICAL BREAKDOWN OF SALES
-------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
---------- ------------ -----------
<S> <C> <C> <C>
Export and international $ 140,097 $ 220,633 $ 192,348
Domestic - Israel 2,054 4,573 1,635
---------- ------------ -----------
$ 142,151 $ 225,206 $ 193,983
========== ============ ===========
B. COMPOSITION OF SALES BY GEOGRAPHIC AREAS
YEAR ENDED DECEMBER 31
---------------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
---------- ------------ -----------
North America $ 51,223 $ 117,377 $ 109,687
Europe 40,774 69,968 43,167
Asia 33,662 9,375 16,051
Central and South America 4,079 13,655 17,671
Other 12,413 14,831 7,407
---------- ------------ -----------
$ 142,151 $ 225,206 $ 193,983
========== ============ ===========
</TABLE>
NOTE 14 - NET SALES (CONT.)
C. GEOGRAPHICAL SEGMENTS OF PRODUCTION
The Company's activities fall within two reporting
segments: the U.S.A. segment and the rest of the world
(ROW). The following table sets forth segments
information for the years ended December 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
---------- ------------ -----------
Revenues
<S> <C> <C> <C>
U.S.A. $ 51,223 $ 117,376 $ 109,687
ROW 90,928 107,830 84,296
----------- ------------- -----------
Consolidated 142,151 225,206 193,983
=========== ============= ===========
Operating income (loss):
U.S.A. (91,738) (19,905) 4,159
ROW (4,264) 53,846 25,605
Expenses not allocated to a
particular segment (44,816) - -
----------- ------------- -----------
Consolidated (140,818) 33,941 29,764
----------- ------------- -----------
Financing income (expenses),
net (3,865) 1,211 1,409
Nonrecurring expenses - (28,951) (4,650)
----------- ------------- -----------
Income (loss) before income
taxes $(144,683) $ 6,201 $ 26,523
=========== ============= ===========
Identifiable assets
U.S.A. $ 47,847 $ 100,762 $ 90,653
ROW 116,399 211,776 231,804
Assets not allocated to a
particular segment 10,661 15,128 13,189
----------- ------------- -----------
Consolidated $ 174,907 $ 327,666 $ 335,646
=========== ============= ===========
Depreciation and amortization
U.S.A. $ 2,061 $ 2,577 $ 876
ROW 4,352 3,953 2,787
Depreciation and amortization
not allocated to a particular
segment 2,044 2,392 1,296
----------- ------------- -----------
Consolidated $ 8,457 $ 8,922 $ 4,959
=========== ============= ===========
</TABLE>
58
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 15 - RESEARCH AND DEVELOPMENT COSTS, NET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
---------- ---------- ----------
<S> <C> <C> <C>
Total costs $ 15,626 $ 19,283 $ 18,889
Less - participation primarily by
the Government of Israel 275 603 1,518
---------- ---------- ----------
$ 15,351 $ 18,680 $ 17,371
========== ========== ==========
</TABLE>
NOTE 16 - ACQUIRED RESEARCH AND DEVELOPMENT
Nonrecurring expenses in connection with mergers and
acquisitions of businesses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
DECEMBER 31
1 9 9 8 1 9 9 7
------------ -----------
<S> <C> <C>
Purchase of Spectron - 5,834
Purchase of AOC - 4,280
Other acquisitions 2,451 1,798
----------- -----------
$ 2,451 $ 11,912
=========== ===========
</TABLE>
NOTE 17 - OTHER EXPENSES
A. Other expenses were as follows:
YEAR ENDED DECEMBER 31
-----------------------
1 9 9 9
----------
Proxy expenses (see B below) $ 3,575
Other 1,412
---------
$ 4,987
=========
B. In connection with the director election contest, the
Company incurred expenses of $2,065. In addition, in
accordance with the resolution of the Board of Directors
of the Company in a meeting held on June 23, 1999, all
costs and expenses of two major shareholders and their
affiliates in connection with the director election
contest were reimbursed by the Company.
59
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 18 - FINANCING INCOME (EXPENSES), NET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
--------- ---------- ----------
<S> <C> <C> <C>
Interest income $ 5,483 $ 8,921 $ 5,722
--------- ---------- ----------
Less - Financing expenses
Interest and amortization in
respect of convertible notes 7,626 7,832 2,417
Other interest 136 871 1,146
Exchange rates, net 1,586 (993) 750
--------- ---------- ----------
9,348 7,710 4,313
--------- ---------- ----------
$ (3,865) $ 1,211 $ 1,409
========= ========== ==========
</TABLE>
NOTE 19 - TAXES ON INCOME
Inflationary adjustments - The Company and Laser are subject
to the Income Tax Law (Inflationary Adjustments), 1985, which
provides for an adjustment to taxable income for the effects
of inflation (based on the Israeli Consumer Price Index) on
that portion of shareholders' equity not invested in
inflation resistant assets.
"Approved enterprise" - The Company and Laser have received
approval for their investment programs in accordance with the
Law for the Encouragement of Capital Investments, 1959. The
Company has chosen to receive its benefits through the
alternative benefits program, and, as such, including
accelerated depreciation of fixed assets used in the
investment programs, as well as a full tax exemption on
undistributed income that is derived from the approved
enterprise for a period of six years and reduced tax rates
for an additional period of up to four years. Laser is
entitled to a full tax exemption for a period of two years
and reduced tax rates for an additional period of up to five
years (the rate and the length of the benefit period are
dependent on the percentage of non-Israeli shareholder
ownership). The benefits commence with the date on which
taxable income is first earned. Income not derived from the
approved enterprise is subject to tax at a rate of 36%. The
tax exemption period for the Company commenced in 1995 and
the tax exemption period for Laser has not yet commenced.
Dividends paid out of income derived from the approved
enterprise is subject to 15% withholding. Should dividends be
paid out of income earned during the period of the tax
holiday, such income will be subject to tax at the rate of up
to 25%. The Company and Laser do not anticipate paying
dividends from income derived from the approved enterprise
and any such earnings distributed upon dissolution will not
subject the Company and Laser to income taxes.
60
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 19 - TAXES ON INCOME (CONT.)
The Company and Laser have not received final income tax
assessments for years subsequent to 1991.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
------------- ----------- ------------
<S> <C> <C> <C>
Current taxes $ - $ 3,375 $ 7,693
Deferred taxes (4,079) (1,174) (3,264)
------------- ----------- ------------
$ (4,079) $ 2,201 $ 4,429
============= =========== ============
</TABLE>
As most of the income in Israel is exempt from income taxes,
the Israeli statutory tax rate for the purposes of the
reconciliation of the reported tax expense is approximately
zero. Income tax expense in the financial statements relates
primarily to the income taxes of subsidiaries.
The current tax provisions are recorded net of the benefit of
utilizing net operating loss carryforwards and tax credit
carryforwards of subsidiaries. Significant components of
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1 9 9 9 1 9 9 8
------------- -----------
Deferred tax assets:
<S> <C> <C>
Accrued liabilities - 1,521
Inventory adjustments - 657
Allowance for doubtful accounts - 449
Net operating loss carryforwards 653 2,300
------------- -----------
653 4,927
------------- -----------
Deferred tax liabilities:
Accelerated depreciation - (164)
Other - (31)
------------- -----------
- (195)
------------- -----------
Net deferred tax assets - included in
other receivables 653 4,732
============= ===========
</TABLE>
61
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 20 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1 9 9 9 DECEMBER 31, 1 9 9 8 DECEMBER 31, 1 9 9 7
--------------------------------- ----------------------------- ----------------------------
PER SHARE PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) (140,788) 4,000 22,094
========== ====== ========
Basic earnings per share
Income (loss) before (148,762) 25,674 (5.79) 4,000 26,027 0.15 22,094 25,604 0.86
extraordinary items
Extraordinary gain 7,974 25,674 0.31 - 26,027 - - 25,604 -
--------- ------ ------ ------ ------- -------
Income available to
ordinary shareholders $(140,388) 25,674 (5.48) $4,000 26,027 0.15 $22,094 25,604 0.86
====== ====== =======
Effect of dilutive securities
Options - 741 961
Warrants - 613 629
Debentures - - -
-------- ------- ------
Diluted earnings per Share
Income (loss) before
extraordinary items (148,762) 25,674 (5.79) 4,000 27,381 0.15 22,094 27,194 0.81
Extraordinary gain 7,974 25,674 0.31 - 27,381 - - 27,194 -
--------- ------ ------ ------ ------- -------
Income (loss) available to
ordinary shareholders (140,388) 25,674 (5.48) 4,000 27,381 0.15 22,094 27,194 0.81
====== ====== =======
</TABLE>
The diluted EPS calculation did not take into account subordinated notes
convertible into weighted average of 2,289,590, 2,470,469 and 1,646,974
ordinary shares, in 1999, 1998 and 1997 respectively, because their effect
is antidilutive.
NOTE 21 - FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
- ------- ------------------------------------------------------
Financial instruments which potentially subject the Group to
a concentration of credit risk consist principally of cash,
short-term and long-term investments and trade receivables.
Short-term cash investments are placed with high credit-quality
financial institutions. Other investments are in securities
of various banks, in U.S. Government securities and in
commercial paper of industrial companies with high credit
ratings. The Group performs ongoing credit evaluations of
its customers and generally does not require collateral. The
Group maintains allowances for estimated credit losses.
The carrying amounts of cash, investments, receivables and
accounts payable approximate fair value. The market value of
its convertible notes is approximately 75% of the book value.
62
ESC MEDICAL SYSTEMS LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
<TABLE>
<CAPTION>
ESC MEDICAL SYSTEMS LTD.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGE CHARGE BALANCE AT
BEGINNING TO COSTS AND TO OTHER END OF
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for Doubtful accounts $10,480 $14,952 ----- ----- $25,432
Reserve for Warranty $3,029 $884 ----- ----- $3,913
Year ended December 31, 1998:
Allowance for Doubtful accounts $2,235 $8,245 ----- ----- $10,480
Reserve for Warranty $1,172 $1,857 ----- ----- $3,029
Year ended December 31, 1997:
Allowance for Doubtful accounts $804 $1,431 ----- ----- $2,235
Reserve for Warranty $0 $1,172 ----- ----- $1,172
</TABLE>
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ESC MEDICAL SYSTEMS LTD.
By:/S/ Yacha Sutton
_____________________________
Yacha Sutton,
Chief Executive Officer
Dated: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Yacha Sutton
- ------------------ Chief Executive Officer March 30, 2000
Mr. Yacha Sutton (Principal Executive Officer)
/s/Sagi Genger
- ------------------ Chief Financial Officer March 30, 2000
Mr. Sagi Genger (Principal Financial Officer)
/s/Raanan Yehiely
- ------------------ Corporate Controller March 30, 2000
Mr. Raanan Yehiely
/s/Jacob A. Frenkel
- ------------------ Chairman of the March 30, 2000
Prof. Jacob A. Frenkel Board of Directors
/s/Aharon Dovrat
- ------------------ Director March 30, 2000
Mr. Aharon Dovrat
/s/Philip Friedman
- ------------------ Director March 30, 2000
Mr. Philip Friedman
/s/Thomas G. Hardy
- ------------------ Director March 30, 2000
Mr. Thomas G. Hardy
/s/Darrell S. Rigel
- ------------------ Director March 30, 2000
Prof. Darrell S. Rigel
/s/S.A. Spencer
- ------------------ Director March 30, 2000
Mr. S.A. Spencer
/s/Mark H. Tabak
- ------------------ Director March 30, 2000
Mr. Mark H. Tabak
/s/Zehev Tadmor
- ------------------ Director March 30, 2000
Prof. Zehev Tadmor
</TABLE>
64
Exhibit 2.4
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ESC MEDICAL SYSTEMS LTD.,
AOC ACQUISITION CORP.
AND
APPLIED OPTRONICS CORPORATION
======================
NOVEMBER 20, 1997
THE SURVIVING CORPORATION SHALL BE A WHOLLY-OWNED SUBSIDIARY OF ESC.
======================
A. EFFECTIVE TIME OF THE MERGER. THE MERGER SHALL BECOME EFFECTIVE
WHEN PROPERLY EXECUTED ARTICLES OF MERGER ARE ULY FILED WITH THE SECRETARY
OF STATE OF THE STATE OF DELAWARE, HICH FILING SHALL BE MADE AS SOON AS
PRACTICABLE AFTER THE CLOSING F THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT IN CCORDANCE WITH SECTION 3.5 HEREOF UPON SATISFACTION OR WAIVER
OF HE CONDITIONS SET FORTH IN SECTION 8. WHEN USED IN THIS GREEMENT, THE
TERM "EFFECTIVE TIME" SHALL MEAN THE DATE AND
DRAFT - NOVEMBER 12, 1997
TABLE OF CONTENTS
ARTICLE I
THE MERGER........................................................... 1
1.1. The Merger..................................................... 1
1.2. Effective Time of the Merger................................... 1
1.3. Reservation of Shares.......................................... 1
ARTICLE II
THE SURVIVING CORPORATION............................................ 2
2.1. Articles of Incorporation...................................... 2
2.2. Bylaws......................................................... 2
2.3. Directors and Officers of Surviving Corporation................ 2
ARTICLE III
CONVERSION OF SHARES................................................. 2
3.1. Conversion of Securities....................................... 2
3.2. Allotment of Ordinary Shares and Warrants...................... 3
3.3. Surrender of Certificates...................................... 3
3.4. No Fractional Shares........................................... 5
3.5. Closing........................................................ 5
3.6. Appraisal Rights............................................... 5
3.7. Applied Optronics Options Terminated........................... 5
3.8. Applied Optronics Warrants..................................... 5
3.9. Escrow Agreement............................................... 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ESC AND
ACQUISITION SUB.................................................... 6
4.1. Organization................................................... 6
4.2. Capitalization................................................. 6
4.3. Authority Relative to this Agreement........................... 6
4.4. Consents and Approvals; No Violations.......................... 7
4.5. Reports and Financial Statements............................... 7
4.6. ESC Ordinary Shares and Warrants............................... 7
4.7. Representations Complete....................................... 7
4.8. No Default..................................................... 8
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLIED
OPTRONICS.......................................................... 8
5.1. Organization................................................... 8
5.2. Capitalization................................................. 8
5.3. Authority Relative to this Agreement........................... 8
5.4. Consents and Approvals; No Violations.......................... 9
5.5. Financial Statements........................................... 9
5.6. No Material Adverse Change..................................... 9
5.7. Absence of Undisclosed Liabilities............................. 10
5.8. Litigation..................................................... 10
5.9. Contracts...................................................... 10
5.10. Employee Benefit Plans......................................... 11
5.11. Tax Matters.................................................... 13
5.12. Compliance with Laws........................................... 13
5.13. Subsidiaries................................................... 13
5.14. Labor and Employment Matters................................... 14
5.15. Insurance Policies............................................. 14
5.16. Environmental Laws and Regulations............................. 14
5.17. Intellectual Property Rights................................... 15
5.18. Real Property.................................................. 16
5.19. Title as to Properties; Liens.................................. 16
5.20. Permits, Licenses, Etc......................................... 16
5.21. Product Liability Claims....................................... 16
5.22. Minute Books................................................... 17
5.23. Officers, Directors and Employees.............................. 17
5.24. Receivables.................................................... 17
5.25. Disclosure..................................................... 17
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE CLOSING.............................. 17
6.1. Conduct of Business by Applied Optronics....................... 17
6.2. Compensation Plans............................................. 18
6.3. Legal Conditions to Merger..................................... 18
6.4. Investment Letter.............................................. 18
6.5. Advice of Changes; Governmental Filings........................ 19
6.6. Risk of Loss................................................... 19
ARTICLE VII
ADDITIONAL AGREEMENTS................................................ 19
7.1. Access and Information......................................... 19
7.2. No Solicitation of Transactions................................ 19
7.3. Registration Rights Agreements................................. 20
7.4. Employment Agreement........................................... 20
7.5. Public Announcements........................................... 20
7.6. Expenses....................................................... 21
7.7. Additional Agreements.......................................... 21
7.8. Noncompetition and Confidentiality Agreements.................. 21
7.9. Indemnification................................................ 21
7.10. Tax Treatment.................................................. 22
ARTICLE VIII
CONDITIONS TO CLOSING................................................ 22
8.1. Conditions to Each Party's Obligation to Effect the
Merger......................................................... 22
8.2. Conditions to Obligation of Applied Optronics to
Effect the Merger.............................................. 23
8.3. Conditions to Obligations of ESC and Acquisition
Sub to Effect the Merger....................................... 24
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER.................................... 24
9.1. Termination.................................................... 24
9.2. Effect of Termination.......................................... 25
9.3. Amendment; Extension; Waiver................................... 25
ARTICLE X
GENERAL PROVISIONS................................................... 25
10.1. Survival of Representations and Warranties..................... 25
10.2. Brokers........................................................ 25
10.3. Notices........................................................ 26
10.4. Descriptive Headings........................................... 26
10.5. Entire Agreement; Assignment................................... 27
10.6. Governing Law; Procedural Matters.............................. 27
10.7. Parties in Interest............................................ 27
10.8. Counterparts................................................... 27
10.9. Validity....................................................... 27
10.10.Investigation.................................................. 27
10.11.Remedies....................................................... 27
10.12.Consents....................................................... 28
10.13.Knowledge; No Personal Liability............................... 28
EXHIBITS:
Exhibit 1 September 30 Balance Sheet
Exhibit 2.1 Articles of Incorporation of Acquisition Sub
Exhibit 3.1 Form of Warrant
Exhibit 3.2 Form of Escrow Agreement
Exhibit 6.4 Form of Investment Letter
Exhibit 7.3(a) Form of Registration Rights Agreement
Exhibit 7.3(b) Form of Warrant Registration Rights Agreement
Exhibit 7.4 Form of Employment Agreement
Exhibit 8.2(a) Form of Opinion of ESC's Counsel
Exhibit 8.3(b) Form of Opinion of Applied Optronics' Counsel
SCHEDULES:
Schedule 4.4 ESC Consents and Approvals
Schedule 5.2 Applied Optronics Capitalization
Schedule 5.4 Applied Optronics Consents and Approvals
Schedule 5.6 Applied Optronics Material Adverse Changes
Schedule 5.7 Applied Optronics Undisclosed Liabilities
Schedule 5.9 Applied Optronics Contracts
Schedule 5.10 Applied Optronics Employee Benefit Plans
Schedule 5.15 Applied Optronics Insurance Policies
Schedule 5.17 Applied Optronics Intellectual Property Rights
Schedule 5.18 Applied Optronics Real Property
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 20, 1997 (the
"Agreement"), by and among ESC Medical Systems Ltd., a corporation
organized under the laws of the State of Israel ("ESC"), AOC Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of ESC
("Acquisition Sub"), and Applied Optronics Corp., a Delaware corporation
("Applied Optronics").
WHEREAS, each of the Boards of Directors of ESC and Applied Optronics
have determined that a strategic business combination between ESC and
Applied Optronics is in the best interests of their respective companies
and security holders and presents an opportunity for their respective
companies to achieve long-term strategic and financial benefits, and
accordingly have agreed to effect the merger provided for herein upon the
terms and subject to the conditions set forth herein, whereby each issued
and outstanding share of common stock, without par value, of Applied
Optronics (the "Applied Optronics Common Stock") will be converted into the
right to receive a certain number of Ordinary Shares, par value NIS 0.10
each, of ESC (the "Ordinary Shares") and Warrants to acquire Ordinary
Shares;
WHEREAS, the transaction contemplated hereby shall be effected by the
terms of this Agreement through a transaction in which Applied Optronics
will merge with and into Acquisition Sub, Acquisition Sub will survive as a
wholly-owned subsidiary of ESC and the stockholders of Applied Optronics
will become holders of Ordinary Shares of ESC (the "Merger"); and
WHEREAS, for federal income tax purposes, it is intended that the
merger contemplated herein shall qualify as a reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, each intending
to be legally bound, hereby agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.2 hereof),
Applied Optronics shall be merged with and into Acquisition Sub,
Acquisition Sub shall be the surviving corporation and the separate
existence of Applied Optronics shall thereupon cease. The Merger shall have
the effects set forth in Section 251 of the Delaware General Corporation
Law (the "DGCL"). From and after the Effective Time, ime at which such
Articles of Merger are so filed.
1.3. Reservation of Shares. ESC will make available a
sufficient number of its Ordinary Shares to effect the Merger.
ARTICLE II
THE SURVIVING CORPORATION
2.1. Articles of Incorporation. The Articles of Incorporation of
Acquisition Sub shall be the Articles of Incorporation of the Surviving
Corporation, except that such Articles of Incorporation shall be amended
and restated as of the Effective Time in the form set forth in Exhibit 2.1
hereto.
2.2. Bylaws. The Bylaws of Acquisition Sub as in effect at the
Effective Time shall be the Bylaws of the Surviving Corporation.
2.3. Directors and Officers of Surviving Corporation.
(a) The directors of Acquisition Sub shall be the initial
directors of the Surviving Corporation and shall hold office from the
Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the Articles of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise
provided by law.
(b) The officers of Applied Optronics at the Effective Time
shall be the initial officers of the Surviving Corporation and shall hold
office from the Effective Time until removed or until their respective
successors are duly elected or appointed and qualified in the manner
provided in the Articles of Incorporation and Bylaws of the Surviving
Corporation, or as otherwise provided by law.
ARTICLE III
CONVERSION OF SHARES
3.1. Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any
shares of Applied Optronics Common Stock or ESC:
(a) Capital Stock of Acquisition Sub. Each share of capital
stock of Acquisition Sub then issued and outstanding shall become one fully
paid and nonassessable share of common stock, without par value, of the
Surviving Corporation which shares shall be issued to ESC and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation.
(b) Cancellation of Treasury Stock. Any shares of Applied
Optronics Common Stock that are owned by Applied Optronics as treasury
stock shall be canceled and retired and shall cease to exist and no share
capital of ESC or other consideration shall be delivered in exchange
therefor.
(c) Exchange of Merger Consideration for Applied
Optronics Outstanding Stock. Each issued and outstanding share of
Applied Optronics Common Stock and Applied Optronics Series A
Preferred Stock (other than shares to be canceled in accordance with
Section 3.1(b)) (collectively, the "Applied Optronics Outstanding Stock")
shall be converted into and shall be canceled in exchange for the right to
receive a number of Ordinary Shares and Warrants (as hereinafter defined)
to be calculated as follows: (i) of the Ordinary Shares and Warrants to be
issued by ESC pursuant to Section 3.1(d) hereof, a number of Ordinary
Shares equal to $2,000,000 divided by the Closing Market Value (as
hereinafter defined) and one-third (1/3) of the Warrants shall be issued to
the holders of Applied Optronics Series A Preferred Stock, pro rata in
accordance with the number of shares of such stock held by them; and (ii)
the remainder of the Ordinary Shares and Warrants to be issued by ESC
pursuant to Section 3.1(d) hereof shall be issued to the holders of Applied
Optronics Common Stock and Applied Optronics Series A Preferred Stock, pro
rata as if all such stock constituted a single class, in accordance with
the number of shares of such stock held by them.
(d) Merger Consideration. The total Merger consideration to be
issued by ESC in respect of all Applied Optronics Outstanding Stock shall
be (a) subject to Section 3.9 below, a number of Ordinary Shares equal to
(x) $6,000,000 less the Loan Balance and the Expense Provision (each, as
hereinafter defined), divided by (y) the average closing price of ESC
Ordinary Shares on the Nasdaq National Market for the last 20 trading days
ending two trading days prior to the Closing Date (such average closing
price being hereinafter referred to as the "Closing Market Value"); and (b)
warrants, substantially in the form attached hereto as Exhibit 3.1 and
having a term of five (5) years, to purchase an aggregate number of ESC
Ordinary Shares equal to $3,000,000 divided by the Closing Market Value, at
an exercise price of 133% of the Closing Market Value (the "Warrants"). All
of the merger consideration referred to in this paragraph (d) is
collectively referred to herein as the "Merger Consideration". If between
the date of this Agreement and the Effective Time the outstanding Ordinary
Shares of ESC shall be changed into a different number of shares by reason
of any stock dividend, subdivision, reclassification, split-up, combination
or the like, the Merger Consideration shall be appropriately adjusted. As
used herein, the term "Loan Balance" shall mean the outstanding principal
amount, plus any accrued and unpaid interest, and any other amounts due and
payable through and including the Closing Date in respect of the Promissory
Note, dated October 15, 1997, made by Applied Optronics and payable to the
order of ESC, in the original principal amount of $134,000.00. As used
herein, the term "Expense Provision" shall mean the sum of $25,000 in
respect of legal fees and expenses incurred and paid or payable by Applied
Optronics in connection with the Transactions contemplated hereby.
(e) Cancellation of Applied Optronics Common Stock. All shares
of Applied Optronics Outstanding Stock converted into the right to receive
Ordinary Shares and Warrants pursuant to this Section 3.1 shall no longer
be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive Ordinary Shares and Warrants to be issued in consideration
therefor upon the surrender of such certificate in accordance with Section
3.3, without interest.
3.2. Allotment of Ordinary Shares and Warrants. In consideration of
the issue to ESC by the Surviving Corporation of shares of common stock of
the Surviving Corporation and the cancellation of shares of Applied
Optronics Outstanding Stock, ESC shall allot Ordinary Shares and Warrants
to be issued to the Exchange Agent (as defined in Section 3.3) for the
purpose of giving effect to the conversion and exchange referred to in
Section 3.1 of this Agreement.
3.3. Surrender of Certificates.
(a) Concurrently with or prior to the Effective Time, the
parties hereto shall designate American Stock Transfer & Trust Company to
act as agent (the "Exchange Agent") for purposes of exchanging certificates
representing shares of Applied Optronics Outstanding Stock as provided in
Section 3.1. As soon as practicable after the Effective Time, ESC shall
cause the Exchange Agent to mail or make available to each holder of record
of a certificate or certificates which immediately prior to the Effective
Time represented outstanding shares of Applied Optronics Outstanding Stock
a notice and letter of transmittal advising such holder of the
effectiveness of the Merger and the procedure for surrendering to the
Exchange Agent such certificate or certificates in exchange for the Merger
Consideration deliverable in respect thereof pursuant to this Article III.
At the Effective Time, the Surviving Corporation shall issue to ESC the
shares of common stock of the Surviving Corporation referred to in Section
3.1(a). ESC shall, prior to the Effective Time, conditionally allot
Ordinary Shares and Warrants referred to in Sections 3.1(c) and 3.2 subject
to the terms and conditions of this Agreement and deliver to the Exchange
Agent certificates representing the Ordinary Shares and Warrants.
(b) Each holder of shares of Applied Optronics Outstanding
Stock that have been converted into a right to receive the Merger
Consideration, upon surrender to the Exchange Agent of a certificate or
certificates representing such Applied Optronics Outstanding Stock,
together with a properly completed letter of transmittal covering such
shares of Applied Optronics Outstanding Stock, will be entitled to receive
Ordinary Shares and Warrants in respect of each share of Applied Optronics
Outstanding Stock surrendered. Until so surrendered, each share of Applied
Optronics Outstanding Stock shall, after the Effective Time, represent for
all purposes, only the right to receive the Merger Consideration.
(c) If any Ordinary Shares and Warrants are to be issued to a
person other than the registered holder of the Applied Optronics
Outstanding Stock represented by the certificate or certificates
surrendered with respect thereto, it shall be a condition to such issuance
that the certificate or certificates so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such issuance shall pay to the Exchange Agent any transfer or
other taxes required as a result of such issuance to a person other than
the registered holder of such Applied Optronics Outstanding Stock or
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not payable.
(d) As of the Effective Time, there shall be no further
registration of transfers of shares of Applied Optronics Outstanding Stock
that were outstanding prior to the Merger. After the Effective Time,
certificates representing shares of Applied Optronics Outstanding Stock
presented to the Surviving Corporation for transfer shall be canceled and
exchanged for the consideration provided for, and in accordance with the
procedures set forth in this Article III.
(e) At the close of business on the Effective Time, the stock
ledger of Applied Optronics with respect to the issuance of Applied
Optronics Outstanding Stock shall be closed. Six months after the Effective
Time, any Ordinary Shares or Warrants made available to the Exchange Agent
pursuant to Section 3.2 that remain unclaimed by the holders of shares of
Applied Optronics Outstanding Stock shall be returned to ESC, or delivered
to such person or entity as ESC shall designate, upon demand. Any such
holder who has not delivered his shares of Applied Optronics Outstanding
Stock to the Exchange Agent in accordance with this Section 3.3 prior to
that time shall thereafter look only to ESC and the Surviving Corporation
for issuance of Ordinary Shares and Warrants in respect of shares of
Applied Optronics Outstanding Stock. Notwithstanding the foregoing, neither
ESC nor the Surviving Corporation shall be liable to any holder of shares
of Applied Optronics Outstanding Stock for any securities delivered or any
amount paid to a public official pursuant to applicable abandoned property
laws. Any Ordinary Shares or Warrants remaining unclaimed by holders of
shares of Applied Optronics Outstanding Stock three years after the
Effective Time (or such earlier date immediately prior to such time as such
securities would otherwise escheat to or become property of any
governmental entity or as is otherwise provided by applicable law) shall,
to the extent permitted by applicable law, be free and clear of any claims
or interest of any person previously entitled thereto.
(f) No dividends, interest or other distributions with respect
to securities of ESC or the Surviving Corporation issuable with respect to
Applied Optronics Outstanding Stock shall be paid to the holder of any
unsurrendered certificates representing Applied Optronics Outstanding Stock
until such certificates are surrendered as provided in this Section. Upon
such surrender, there shall be paid, without interest, to the person in
whose name the Ordinary Shares representing such securities are registered,
all dividends and other distributions payable in respect of such securities
on a date subsequent to, and in respect of a record date after, the
Effective Time.
3.4. No Fractional Shares. No fractional Ordinary Shares of
ESC shall be issued pursuant to the Merger. In lieu of the issuance of
any such fractional Ordinary Share of ESC pursuant to Section 3.1,
cash adjustments will be paid to holders in respect of any fractional
Ordinary Share of ESC that would otherwise be issuable. The amount of such
adjustment shall be the product of such fraction of an Ordinary Share of
ESC multiplied by the Closing Market Value.
3.5. Closing. The closing of the Merger (the "Closing") shall take
place at the offices of Arnold & Porter, 399 Park Avenue, New York, New
York, as soon as practicable after the satisfaction of the conditions
described in Article VIII, on such date not later than December 31, 1997 as
ESC and Applied Optronics shall mutually agree (the "Closing Date").
3.6. Appraisal Rights. If holders of shares of Applied Optronics
Outstanding Stock are entitled to dissent from the Merger and demand
appraisal of any such shares in accordance with the provisions of the DGCL
concerning the right of such holders to dissent from the Merger and demand
appraisal of their Applied Optronics Outstanding Stock ("Dissenting
Holders"), any Applied Optronics Outstanding Stock held by a Dissenting
Holder as to which appraisal has been so demanded ("Excluded Shares") shall
not be converted as described in Section 3.1, but shall, from and after the
Effective Time, represent only the right to receive such consideration as
may be determined to be due to such Dissenting Holder pursuant to the DGCL;
provided, however, that each share of Applied Optronics Outstanding Stock
held by a Dissenting Holder who shall, after the Effective Time, withdraw
his demand for appraisal or lose his right of appraisal with respect to
such shares of Applied Optronics Outstanding Stock, in either case pursuant
to the DGCL, shall not be deemed Excluded Shares but shall be deemed to be
converted, as of the Effective Time, into the right to receive the Merger
Consideration.
3.7. Applied Optronics Options Terminated. Immediately prior to the
Effective Time, each of the Outstanding and unexercised Applied Optronics
Stock Options shall have been terminated and cancelled by their own terms,
without any payment of cash, stock or other property, or any obligation for
any such payment, on the part of ESC, Applied Optronics or the Surviving
Corporation.
3.8. Applied Optronics Warrants. Effective as of the Effective
Time, the Applied Optronics warrant in favor of Aberlyn Capital
Management Limited Partnership, exercisable for 131,733 shares of common
stock of Applied Optronics (the "Aberlyn Warrant"), will be surrendered at
the Closing, in consideration of a cash payment of not more than $15,000 by
Applied Optronics. All other outstanding warrants to acquire capital stock
of Applied Optronics (including, without limitation, the Class A,B,C,D and
E Warrants of Applied Optronics) shall have been, prior to the Effective
Time, terminated and cancelled, without any payment of cash, stock or other
property, or any obligation for any such payment, on the part of ESC,
Applied Optronics or the Surviving Corporation.
3.9. Escrow Agreement. Notwithstanding the provisions of Section 3.1
above, at the Closing one-sixth (1/6) of the ESC Ordinary Shares required
to be delivered to Applied Optronics pursuant to clause (c) of Section 3.1
shall be placed in escrow for a period of nine (9) months in accordance
with an escrow agreement, of even date herewith, in the form attached
hereto as Exhibit 3.2 (the "Escrow Agreement") to secure the
representations and warranties of Applied Optronics provided in this
Agreement including, but not limited to, the representation of the absence
of undisclosed liabilities. The liability of shareholders of AOC, except in
the case of fraud, shall be limited to those Ordinary Shares deposited in
escrow pursuant to the Escrow Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ESC AND
ACQUISITION SUB
ESC and Acquisition Sub, jointly and severally, represent and warrant
to Applied Optronics as follows:
4.1. Organization. Each of ESC and its subsidiaries is a
corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and each such corporation
has all the requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted. Each of ESC and its subsidiaries is duly qualified or
licensed to carry on its business as it is now being conducted, and is
qualified to do business in each jurisdiction where the character of its
properties owned or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified will not in the
aggregate have a Material Adverse Effect.
Neither ESC nor any of its subsidiaries is in violation of any
provision of its Certificate of Incorporation or By-laws which would have a
Material Adverse Effect. Acquisition Sub has not engaged in any business
nor has it incurred any liabilities or obligations since it was
incorporated other than relating to this Agreement and the transactions
contemplated thereby.
As used in this Agreement, the term "Material Adverse Effect" means,
with respect to ESC, Acquisition Sub or Applied Optronics, as the case may
be, a material adverse effect on the business, assets, prospects, results
of operations or financial condition of such corporation and its
subsidiaries taken as a whole, or in such corporation's ability to conduct
its business as currently being conducted or as proposed to be conducted or
to perform its obligations hereunder.
4.2. Capitalization.
(a) As of the date hereof, the authorized capital stock of ESC
consists, in its entirety, of 50,000,000 Ordinary Shares, of which there
are 19,555,474 Ordinary Shares issued and outstanding, including Ordinary
Shares issued to a trustee under ESC's stock option plans. As of the date
hereof, 1,229,101 Ordinary Shares are reserved for issuance upon exercise
of outstanding options pursuant to ESC's employee stock option plans,
2,470,462 Ordinary Shares are reserved for issuance upon conversion of
ESC's 6% Convertible Subordinated Notes due September 1, 2002, and 639,812
Ordinary Shares are reserved for issuance upon exercise of outstanding
warrants. In addition, ESC has agreed to issue, subject to certain
conditions, up to 7,046,101 Ordinary Shares pursuant to an Agreement, dated
November 9, 1997, between ESC and Laser Industries Limited. All of the
issued and outstanding Ordinary Shares of ESC are validly issued, fully
paid, nonassessable and free of preemptive rights or similar rights created
by statute, the Articles of Association or Memorandum of Association of ESC
or any agreement to which ESC or any of its subsidiaries is a party or by
which ESC or any of its subsidiaries is bound.
(b) The authorized capital stock of Acquisition Sub consists of
100 shares of Common Stock, $1.00 par value per share, all of which are
validly issued and outstanding, fully paid and nonassessable and are owned
by ESC, free and clear of all liens, charges and encumbrances.
4.3. Authority Relative to this Agreement. Each of ESC and
Acquisition Sub has the requisite corporate power and authority to enter
into this Agreement, the Articles of Merger, the Escrow Agreement, the
Registration Rights Agreement, the Ordinary Share Purchase Warrant, the
Warrant Registration Rights Agreement and the Employment Agreement
(collectively, the "Transaction Documents") and to carry out its
obligations and hereunder. The execution and delivery of the Transaction
Documents by ESC and Acquisition Sub and the consummation by ESC and
Acquisition Sub of the transactions contemplated and hereby have been duly
authorized by the respective Boards of Directors of ESC and Acquisition
Sub, and no other corporate proceedings on the part of ESC or Acquisition
Sub are necessary to approve the Transaction Documents or the transactions
contemplated and hereby. The Transaction Documents have been duly and
validly executed and delivered by each of ESC and Acquisition Sub and
constitutes a valid and binding agreement of each of ESC and Acquisition
Sub, enforceable against ESC and Acquisition Sub in accordance with its
terms.
4.4. Consents and Approvals; No Violations. Except as disclosed
on Schedule 4.4, and except for the applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act" or "1933
Act") and state securities or blue sky laws, no filing with, and no
permit, authorization, consent or approval of, any public or
governmental body or authority is necessary for the consummation by
ESC and Acquisition Sub of the transactions contemplated by the
Transaction Documents, except where a failure to make such filing or
to obtain such permit, registration, authorization, consent or approval
will not in the aggregate have a Material Adverse Effect. Except as
disclosed on Schedule 4.4, neither the execution and delivery of the
Transaction Documents by ESC or Acquisition Sub, nor the consummation by
ESC or Acquisition Sub of the transactions contemplated and hereby, nor
compliance by ESC or Acquisition Sub with any of the provisions and hereof,
will (a) conflict with or result in any breach of any provision of the
Articles of Association or Memorandum of Association of ESC or the
Certificate of Incorporation of Acquisition Sub, or (b) violate any order,
writ, injunction, decree, statute, rule or regulation of any court or
federal, state, local or foreign body or authority, or any nongovernmental
self-regulatory organization or agency to which ESC, its subsidiaries, or
any of their properties or assets may be subject except for violations or
breaches which would not in the aggregate have a Material Adverse Effect.
4.5. Reports and Financial Statements. ESC has filed all forms,
reports, registration statements and documents required to be filed by it
with the Securities and Exchange Commission ("SEC") since January 24, 1996,
the effective date of the Registration Statement relating to ESC's initial
public offering of securities (such forms, reports, registration statements
and documents, together with any amendments thereto, are referred to as the
"ESC SEC Filings"). As of their respective dates, the ESC SEC Filings (i)
complied as to form in all material respects with the applicable
requirements of the 1933 Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act" or "1934 Act") as the case may be, and (ii) did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they
were made, not misleading.
4.6. ESC Ordinary Shares and Warrants. The ESC Ordinary Shares to be
issued hereunder, when issued and delivered to Applied Optronics pursuant
to this Agreement, will be duly authorized, validly issued and outstanding,
fully paid and non-assessable, and free of preemptive rights with no
personal liability attaching to the ownership thereof. The Warrants have
been duly authorized, and when issued will be effective to convey the right
to purchase ESC Ordinary Shares in accordance with their terms. The ESC
Ordinary Shares issuable upon exercise of the Warrants will be, when
purchased pursuant to the terms of the Warrants, duly authorized, validly
issued, fully paid and non- assessable and free at preemptive rights with
no personal liability attaching to the ownership thereof.
4.7. Representations Complete. None of the representations or
warranties made by ESC or Acquisition Sub herein, or in any schedule or
certificate hereto or in any ESC SEC filings, when all such documents are
read together in their entirety contain, or will contain at the Closing,
any untrue statements of material facts or omit, or will omit at the
closing, to state any material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which made, not misleading.
4.8. No Default. Neither ESC nor any of its subsidiaries is in
default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of (i) ESC's Articles of Association or Memorandum
of Association or Acquisition Sub's Certificate of Incorporation or
By-Laws; (ii) any note, bond, mortgage, indenture, license, agreement,
contract, lease, commitment or other obligation to which ESC or any of its
subsidiaries are a party or by which ESC or any of its subsidiaries'
properties or assets may be bound; or (iii) any order, writ, injunction,
decree, statute, rule or regulation applicable to ESC or any of its
subsidiaries, except in the case of clauses (ii) and (iii) above for
defaults or violations which would not have a Material Adverse Effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APPLIED
OPTRONICS
Applied Optronics represents and warrants to ESC and Acquisition Sub
as follows:
5.1. Organization. Applied Optronics is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has all the requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as it is now being conducted. Applied Optronics is duly qualified
or licensed to carry on its business as it is now being conducted, and is
qualified to do business in each jurisdiction where the character of its
properties owned or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified will not in the
aggregate have a Material Adverse Effect.
5.2. Capitalization. As of the date hereof, the authorized capital
stock of Applied Optronics consists of 30,000,000 shares of Common Stock,
of which 10,435,450 shares are issued and outstanding. 585,480 shares of
Series A Preferred Stock and 4,903,436 Warrants are outstanding. All of the
issued and outstanding shares of Applied Optronics Common Stock are validly
issued, fully paid, nonassessable and free of preemptive rights or similar
rights created by statute, the Articles of Incorporation or Bylaws of
Applied Optronics or any agreement to which Applied Optronics is a party or
by which Applied Optronics is bound. Schedule 5.2 lists all the holders of
Applied Optronics Outstanding Stock and any options, warrants,
subscriptions, calls, claims, rights, convertible securities or other
agreements or commitments obligating Applied Optronics to issue, sell or
transfer any securities (collectively, "Stock Equivalents"), outstanding as
of the date hereof and the amount of shares of Applied Optronics Common
Stock and Stock Equivalents held by each. Except for the Series A Preferred
Stock, and except for the Aberlyn Warrant, which will be surrendered and
cancelled as provided in Section 3.8 hereof, all outstanding Stock
Equivalents will be terminated and cancelled, without payment of cash,
stock or other property, at or prior to the Effective Time.
5.3. Authority Relative to this Agreement. Subject to the
shareholder approval as referred to below, Applied Optronics has the
requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement by Applied Optronics and the consummation by Applied Optronics of
the transactions contemplated hereby have been duly authorized by Applied
Optronics' Board of Directors and, except for the favorable vote or consent
of the requisite number of shares of the outstanding classes and/or series
of the capital stock of Applied Optronics entitled to vote thereon in
accordance with the Delaware General Corporations Law, no other corporate
proceedings on the part of Applied Optronics are necessary to approve this
Agreement or the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Applied Optronics and
constitutes a valid and binding agreement of Applied Optronics, enforceable
against Applied Optronics in accordance with its terms.
5.4. Consents and Approvals; No Violations. Except as disclosed
on Schedule 5.4, and except for any applicable requirements of the
Securities Act, state securities or blue sky laws, no filing with, and no
permit, authorization, consent or approval of, any public or governmental
body or authority is necessary for the consummation by Applied Optronics of
the transactions contemplated by this Agreement. Except as disclosed in
Schedule 5.4, neither the execution and delivery of this Agreement by
Applied Optronics, nor the consummation by Applied Optronics of the
transactions contemplated hereby, nor compliance by Applied Optronics with
any of the provisions hereof, will (a) conflict with or result in any
breach of any provisions of the Certificate of Incorporation or Bylaws of
Applied Optronics, (b) subject to obtaining necessary third-party consents
or other approvals set forth on Schedule 5.4, result in a violation or
breach of, or constitute (with or without due notice or lapse of time or
both) a default under, result in the loss of any material benefit under, or
give rise to any right of termination, cancellation, acceleration or change
in the award, grant, vesting or determination under, or result in the
creation of any lien, charge, security interest or encumbrance upon any of
the respective properties or assets of Applied Optronics under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, contract, lease, agreement, arrangement or other
instrument or obligation to which Applied Optronics is a party or by which
it or any of its properties or assets may be bound or affected or (c)
violate any order, writ, injunction, decree, statute, rule or regulation of
any court or federal, state, local or foreign body or authority, including,
but not limited to, the Food and Drug Administration (the "FDA") or any
nongovernmental self-regulatory organization or agency to which Applied
Optronics, or any of its properties or assets may be subject, except in the
case of clauses (b) and (c) for violations, breaches, defaults (or rights
of termination, cancellation, acceleration or change), liens, charges,
security interests or encumbrances which would not in the aggregate have a
Material Adverse Effect.
5.5. Financial Statements. Applied Optronics has previously delivered
to ESC (i) the audited financial statements of Applied Optronics at
December 31, 1996 and for the five prior years (including the footnotes
thereto) (the "Audited Financial Statements"), (ii) the unaudited balance
sheets of Applied Optronics at September 30, 1997 and related statements of
operations and cash flows for the period then ended (the "Interim Financial
Statements"). All of such financial statements referred to in this section
are collectively referred to herein as the "Applied Optronics Financial
Statements." The Applied Optronics Financial Statements have been prepared
from, and are in accordance with, the books and records of Applied
Optronics and present fairly, in all material respects, the financial
position and the results of operations of Applied Optronics as of the dates
and for the periods indicated, in each case in accordance with GAAP
consistently applied throughout the periods involved except as otherwise
stated therein, and subject, in the case of the Interim Financial
Statements, to normal year end audit adjustments which are not, in the
aggregate, material and to the absence of notes as may be required by GAAP.
As used in this Agreement, "GAAP" shall mean the accounting principles
generally accepted in the United States applied on a consistent basis.
5.6. No Material Adverse Change. Except as disclosed on
Schedule 5.6, since September 30, 1997 there has not been:
(a) any material adverse change in the business of Applied
Optronics, or any event or condition that has had or is likely to
have a Material Adverse Effect on the business of Applied Optronics;
or
(b) except as disclosed on Schedule 5.6, any transaction,
commitment, contract or agreement entered into by Applied Optronics
or any relinquishment by Applied Optronics of any contract or other
right having a value of or involving aggregate payments in excess of
$50,000.
5.7. Absence of Undisclosed Liabilities. Except to the extent
specifically disclosed on Schedule 5.7, Applied Optronics has no
liabilities or obligations of any nature (whether absolute, accrued,
contingent or otherwise) except (a) liabilities or obligations that are
accrued or reserved against in the audited balance sheet of Applied
Optronics as of December 31, 1996 contained in the Audited Financial
Statements or in the Interim Financial Statements, and (b) liabilities or
obligations arising since December 31, 1996, except as set forth in the
Interim Financial Statements, in the ordinary course of business and
consistent with past practice that would not have a Material Adverse
Effect.
5.8. Litigation. As of the date of this Agreement; (i) there is no
action, suit, judicial or administrative proceeding, arbitration or
investigation pending or, to the best knowledge of Applied Optronics,
threatened against or involving Applied Optronics, or any of its properties
or rights, before any court, arbitrator, or administrative or governmental
body; (ii) there is no judgment, decree, injunction, rule or order of any
court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against Applied Optronics; and (iii) Applied
Optronics is not in violation of any term of any judgment, decree,
injunction or order outstanding against it.
5.9. Contracts. Schedule 5.9 lists, and Applied Optronics has
heretofore furnished or made available to ESC complete and accurate copies
of (or, if oral, Schedule 5.9 states all material provisions of), (a) every
loan, credit, escrow, security, mortgage, guaranty, pledge, buy- sell,
letter of credit, supply, distribution, manufacturer's representative,
dealer, agency, lease, licensing, franchise, development, joint
development, joint venture, noncompetition, research and development, or
similar contract, agreement or understanding to which Applied Optronics is
a party or may be bound, (b) every employment or consulting agreement or
arrangement with or for the benefit of any director, officer, employee,
other person or shareholder of Applied Optronics or any affiliate thereof,
(c) every contract, agreement or understanding to which Applied Optronics
is a party that could reasonably be expected to involve payments by or to
Applied Optronics in excess of $50,000, or could have a Material Adverse
Effect, or that was not made in the ordinary course of business, (d) every
agreement or contract between Applied Optronics and any of Applied
Optronics' officers, directors or more than 5% shareholders or any entity
in which any of Applied Optronics' officers, directors or more than 5%
shareholders has a greater than 2% equity interest, and every agreement of
which Applied Optronics is aware between or among shareholders of Applied
Optronics and relating to the acquisition, ownership, voting or disposition
of securities of Applied Optronics and (e) every other contract, plan,
agreement or understanding to which Applied Optronics is a party or may be
bound and which would be required to be filed with the SEC in a filing to
which paragraph (b)(10) of Item 601 of Regulation S-K of the Rules and
Regulations of the SEC would be applicable. Applied Optronics has performed
all obligations required to be performed by it under any listed or
otherwise material contract, plan, agreement, understanding or arrangement
made or obligation owed by or to Applied Optronics, except where the
failure would not have a Material Adverse Effect; there has not been any
event of default (or any event or condition which with notice or the lapse
of time, both or otherwise, would constitute an event of default)
thereunder on the part of Applied Optronics, or, to Applied Optronics'
knowledge, any other party thereof that would have a Material Adverse
Effect; the same are in full force and effect and are valid and enforceable
by Applied Optronics in accordance with their respective terms, except to
the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws now or hereafter in
effect relating to creditors' rights generally, by general principles of
equity (regardless of whether enforceability is considered in a proceeding
at law or in equity); and the performance of any such contracts, plans,
agreements, understandings, arrangements or obligations would not have a
Material Adverse Effect.
5.10. Employee Benefit Plans.
(a) Schedule 5.10 sets forth a true and complete list of each
material written or oral employee benefit plan (including, without
limitation, any "employee benefit plan" as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended, ("ERISA"),
policy or agreement (including, without limitation, any employment
agreement or severance agreement) that is maintained by Applied Optronics
or for the benefit of Applied Optronics' employees of the foregoing, the
"Applied Optronics Plans"), or is or was contributed to by Applied
Optronics or pursuant to which Applied Optronics is still potentially
liable for payments, benefits or claims. A copy of each Applied Optronics
Plan as currently in effect and, if applicable, the most recent Annual
Report, Actuarial Report of Valuation, Summary Plan Description, Trust
Agreement and a Determination Letter issued by the Internal Revenue Service
("IRS") for each Applied Optronics Plan have heretofore been delivered, or
shall be delivered prior to the Closing Date, to ESC or its counsel.
Neither Applied Optronics nor any ERISA affiliate, which together with
Applied Optronics would be deemed a "single employer" within the meaning of
Section 4001 of ERISA, has maintained or contributed to any plan subject to
Title IV of ERISA or Section 412 of the Code (including any Multiemployer
Plan) during the six calendar years preceding the date of this Agreement.
(b) Each Applied Optronics Plan which is an "employee benefit
plan", as defined in Section 3(3) of ERISA, complies by its terms and in
operation with the requirements provided by any and all statutes, orders or
governmental rules or regulations currently in effect and applicable to the
Applied Optronics Plan, including but not limited to ERISA, the Code and
the respective regulations thereunder, except for instances of
noncompliance that would not in the aggregate have a Material Adverse
Effect.
(c) All reports, forms and other documents required to be filed
with any government entity with respect to any Applied Optronics Plan
(including without limitations, summary plan descriptions, forms 5500 and
summary annual reports) have been timely filed and are accurate, except for
instances of noncompliance that would not in the aggregate have a Material
Adverse Effect.
(d) Each Applied Optronics Plan intended to qualify under
Section 401(a) of the Code has been determined by the IRS to so qualify
after January 1, 1985, and each trust maintained pursuant thereto has been
determined by the IRS to be exempt from taxation under Section 501 of the
Code. Except as disclosed in Schedule 5.10, nothing has occurred since the
date of the Internal Revenue Service's favorable determination letter that
could adversely affect the qualification of the Applied Optronics Plan and
its related trust, except such adverse effects as would not in the
aggregate constitute a Material Adverse Effect. Applied Optronics and each
ERISA affiliate of Applied Optronics have timely and properly applied for a
written determination by the IRS on the qualification of each such Applied
Optronics Plan and its related trust under Section 401(a) of the Code, as
amended by the Tax Reform Act of 1986 and subsequent legislation enacted
through the date hereof, and Section 501 of the Code.
(e) Except as disclosed on Schedule 5.10, all contributions or
other amounts payable by Applied Optronics as of the Effective Time with
respect to each Applied Optronics Plan and in respect of current or prior
plan years have been or will be prior to the Effective Time either paid or
accrued on the financial statements of Applied Optronics in accordance with
past practice and the recommended contribution in any actuarial report.
(f) No Applied Optronics Plan provides benefits, including
without limitation death or medical benefits (whether or not insured), with
respect to current or former employees for periods extending beyond their
retirement or other termination of service (other than (i) continuation
group health coverage pursuant to Section 4980B of the Code or applicable
state law, (ii) deferred compensation benefits with respect to which there
is an accrual of liability on the books of Applied Optronics or its ERISA
affiliates, (iii) benefits the full cost of which is borne by the current
or former employee (or his or her beneficiary), (iv) benefits set forth in
Schedule 5.10, or (v) benefits which in the aggregate are not material to
Applied Optronics' business).
(g) All insurance premiums have been paid in full, subject only
to normal retrospective adjustments in the ordinary course, with regard to
Applied Optronics Plans for plan years ending on or before the date hereof.
(h) As of the date hereof, no Applied Optronics Plan subject to
Title IV of ERISA, and no employee benefit plan maintained by an ERISA
affiliate of Applied Optronics and subject to Title IV of ERISA, has
benefit liabilities (as defined in Section 4001(a)(16) of ERISA) exceeding
the assets of such plan or has been completely or partially terminated.
(i) Except as disclosed in Schedule 5.10, with respect to each
Applied Optronics Plan:
(1) no prohibited transactions (as defined in Section 406
or 407 of ERISA or Section 4975 of the Code) have occurred for which
a statutory exemption is not available;
(2) no reportable event (as defined in Section 4043 of
ERISA) has occurred as to which a notice would be required to be
filed with the Pension Benefit Guaranty Corporation; and
(3) no action or claims (other than routine claims for
benefits made in the ordinary course of Plan administration for which
Plan administrative review procedures have not been exhausted or
actions seeking qualified domestic relations orders) are pending or,
to the knowledge of Applied Optronics, threatened or imminent against
or with respect to any Applied Optronics Plan, any employer who is
participating (or who has participated) in any Plan or any fiduciary
(as defined in Section 3(21) of ERISA), of the Applied Optronics
Plan.
(j) Neither Applied Optronics nor any ERISA affiliate of
Applied Optronics has any liability or is threatened with any liability
(whether joint or several (i) for the termination of any single employer
plan under Section 4062 or 4064 of ERISA or any multiple employer plan
under Section 4063 of ERISA, (ii) for any lien imposed under Section 302(f)
of ERISA or Section 412(n) of the Code, (iii) for any interest payments
required under Section 302(e) of ERISA or Section 412(m) of the Code, (iv)
for any excise tax imposed by Sections 4971, 4975, 4976, 4977 or 4979 of
the Code, (v) for any minimum funding contributions under Sections
302(c)(11) of ERISA or Section 412(c)(ii) of the Code, (vi) to a fine under
Section 502 of ERISA, or (vii) for any transaction within the meaning of
Section 4069 of ERISA.
(k) Applied Optronics has not incurred any withdrawal liability
with respect to any Multiemployer Plan within the meaning of Sections 4201
and 4204 of ERISA which has not been paid and which would in the aggregate
have a Material Adverse Effect, and no liabilities exist with respect to
withdrawals from any Multiemployer Plans which could subject Applied
Optronics to any controlled group liability under Section 4001(b) of ERISA
which would in the aggregate have a Material Adverse Effect.
(l) All of the Applied Optronics Plans, to the extent
applicable, are in substantial compliance with the continuation of group
health coverage provisions contained in Section 4980B of the Code and
Sections 601 through 608 of ERISA, except for such instances of
noncompliance which would not in the aggregate have a Material Adverse
Effect.
5.11. Tax Matters. Applied Optronics has previously furnished or made
available to ESC complete and accurate copies of all tax or assessment
reports and tax returns (including any applicable information returns)
required by any law or regulation (whether United States, foreign, state,
local or other jurisdiction) filed by Applied Optronics for each of the
three fiscal years ended September 30, 1994, 1995, and 1996. Applied
Optronics has filed, or has obtained extensions to file (which extensions
have not expired without filing), all material United States, state, local,
foreign or other tax reports and returns required to be filed by it.
Applied Optronics has duly paid all taxes (including estimated taxes) shown
as due on such reports and returns (or such extension requests), or
assessed against it, or that it is obligated to withhold from amounts owed
by it to any person, except for those contested in good faith and for which
adequate reserves have been taken. There are no Liens (as defined in
Section 5.19) for taxes upon any property or asset of Applied Optronics,
except Liens for taxes not yet due. Applied Optronics is not delinquent in
the payment of any tax assessment (including, but not limited to, any
applicable withholding taxes).
For the purposes of this Section 5.11, "tax" shall mean and
include taxes, additions to tax, penalties, interest, fines, duties,
withholdings, assessments, and charges assessed or imposed by any
governmental authority, including but not limited to all federal, state,
county, local and foreign income, profits, gross receipts, import, ad
valorem, real and personal property, franchise, license, sales, use, value
added, stamp, transfer, withholding, payroll, employment, excise, custom,
duty, and any other taxes, obligations and assessments of any kind
whatsoever; "tax" shall also include any liability arising as a result of
being (or ceasing to be) a member of any affiliated, consolidated,
combined, or unitary group as well as any liability under any tax
allocation, tax sharing, tax indemnity or similar agreement.
5.12. Compliance with Laws. To the knowledge of Applied Optronics,
all activities of Applied Optronics have been, and are currently being,
conducted in compliance with all applicable federal, state, local or
foreign laws, ordinances, regulations, interpretations, judgments, decrees,
injunctions, permits, licenses, certificates, governmental requirements,
orders and other similar items of any court or other governmental entity
(including, but not limited to, those of the FDA or any nongovernmental
self-regulatory agency), the failure to comply with which would have a
Material Adverse Effect. Applied Optronics has timely filed or otherwise
provided all registrations, reports, data, and other information and
applications with respect to its medical device, pharmaceutical, consumer,
health-care and other governmentally regulated products (the "Regulated
Products") required to be filed with or otherwise provided to the FDA or
any federal, state, local or foreign governmental authorities with
jurisdiction over the manufacture, use or sale of the Regulated Products,
and all regulatory licenses or approvals in respect thereof are in full
force and effect, except where the failure to file timely such
registrations, reports, data, information and applications or the failure
to have such licenses and approvals in full force and effect would not have
a Material Adverse Effect.
5.13. Subsidiaries. As of the date hereof, Applied Optronics
has no subsidiaries. Applied Optronics will not have any subsidiaries
as of the Effective Time.
5.14. Labor and Employment Matters.
(a) Except for such matters that would not in the aggregate
have a Material Adverse Effect, (i) Applied Optronics is and has been in
compliance with all applicable federal, state, local or foreign laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including, without limitation, such laws
respecting employment discrimination, equal opportunity, affirmative
action, worker's compensation, occupational safety and health requirements
and unemployment insurance and related matters, and are not engaged in and
have not engaged in any unfair labor practice; (ii) no investigation or
review by or before any governmental entity concerning any violations of
any such applicable laws is pending or, to the knowledge of Applied
Optronics, threatened, nor has any such investigation occurred during the
last three years, and no governmental entity has provided any notice to
Applied Optronics asserting an intention to conduct any such
investigations; (iii) there is no labor strike, dispute, slowdown or
stoppage actually pending or, to the knowledge of Applied Optronics,
threatened against Applied Optronics; (iv) to the knowledge of Applied
Optronics, no union representation question or union organizational
activity exists respecting the employees of Applied Optronics; and (v)
Applied Optronics has not experienced any work stoppage or other labor
difficulty.
No collective bargaining agreement exists which is binding on Applied
Optronics.
(b) Except for benefits provided under agreements and plans
disclosed in Schedule 5.10, in the event of termination of the employment
of any officers, directors, employees or agents of Applied Optronics,
neither Applied Optronics, ESC, Acquisition Sub, nor any other subsidiaries
of ESC, will, pursuant to any agreement or by reason of anything done prior
to the Effective Time by Applied Optronics, be liable to any of said
officers, directors, employees or agents for so- called "severance pay" or
any other similar payments or benefits, including, without limitation,
post-employment health care (other than pursuant to COBRA) or insurance
benefits.
5.15. Insurance Policies. Schedule 5.15 sets forth a complete
and accurate list of all policies of insurance maintained by Applied
Optronics with respect to any of its officers, directors, employees,
shareholders, agents, properties, buildings, machinery, equipment,
furniture, fixtures or operations and a description of each claim made by
Applied Optronics during the three-year period preceding the date hereof
under any such policy of insurance. Applied Optronics has previously
delivered to ESC or made available for ESC's inspection complete and
accurate copies of all such policies of insurance and complete and accurate
copies of all documentation regarding claims made thereunder. All such
policies of insurance are in full force and effect, have been issued for
the benefit of Applied Optronics by properly licensed insurance carriers,
and to the knowledge of Applied Optronics are adequate and customary for
the assets, business and operations of Applied Optronics and its subsidiary
in all material respects. Applied Optronics has promptly and properly
notified its insurance carriers of any and all claims known to it with
respect to its operations or products for which it is insured.
5.16. Environmental Laws and Regulations. Applied Optronics has
heretofore delivered to ESC complete and accurate copies of all reports,
studies or tests in the possession of Applied Optronics or initiated by
Applied Optronics pertaining to the existence of Hazardous Materials on,
above or below any Real Property or any property adjoining or which could
reasonably be expected to affect Real Property, or concerning compliance
with or liability under the Regulations (as defined below).
Except as required by ISRA (as hereinafter defined) with respect to
the transactions contemplated by this Agreement, Applied Optronics has
obtained, and maintains in full force and effect, all required
environmental permits and other governmental approvals and is in compliance
with all applicable Regulations (as defined below), except where the
failure to so obtain and maintain or to be in compliance would not have a
Material Adverse Effect. Applied Optronics (i) has not received a written
notice or Claim (as defined below) alleging its potential liability under
any of the Regulations or alleging a violation of the Regulations and (ii)
has no knowledge that such a notice or Claim may be issued in the future.
Applied Optronics has no knowledge of any notices to or Claims against any
persons alleging potential liability under any of the Regulations with
respect to the Real Property or any adjoining properties or which could
reasonably be expected to affect the Real Property. Applied Optronics has
not been nor is presently subject to nor, to the knowledge of Applied
Optronics, threatened with any administrative or judicial proceedings
pursuant to the Regulations. Applied Optronics has no knowledge of any
conditions or circumstances that could reasonably be expected to result in
the determination of liability against Applied Optronics relating to
environmental matters that would have a Material Adverse Effect, including,
but not limited to, any Claim arising from past or present environmental
practices with respect to Hazardous Materials, the Real Property or to any
disposal sites. No Hazardous Materials have been or are threatened to be
discharged, omitted or released into the air, water, soil, or subsurface at
or from any Real Property by Applied Optronics or, to Applied Optronics'
knowledge, by any other person.
Applied Optronics will provide such notifications, and take such
further actions, as may be required under the New Jersey Industrial Site
Recovery Act, N.J.S.A. 13: 1K-6 et seq. ("ISRA"), all of which shall be
completed prior to the Closing Date. Applied Optronics will provide ESC
with copies of all notifications, filings, reports and declarations made or
obtained pursuant to or in connection with the requirements of ISRA.
For purposes of this Section 5.16, the following terms shall have the
following meanings: (i) "Hazardous Materials" means asbestos, urea
formaldehyde, polychlorinated biphenyls, nuclear fuel or materials,
chemical waste, radioactive materials, explosives, petroleum products or
other substances or materials listed, identified or designated as toxic or
hazardous or as a pollutant or contaminant in, or the use, release or
disposal of which is regulated by, the Regulations; (ii) "Regulations"
means the Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA") as amended by the Superfund Amendments and Reauthorization
Act of 1986 ("SARA"), 42 U.S.C. ss.ss. 6901 et seq.; the Federal Resource
Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C. ss.ss. 6901 et
seq.; the Clean Water Act, 33 U.S.C. ss.ss. 1321 et seq.; the Clean Air
Act, 42 U.S.C. ss.ss. 7401 et seq.; ISRA; and any other federal, state,
county, local, foreign or other governmental statute, regulation, or
ordinance, as now in existence, that relates to or deals with employee
safety and human health, pollution, health or the environment including,
but not limited to, the use, generation, discharge, transportation,
disposal, record-keeping, notification and reporting of Hazardous
Materials; and (iii) "Claim" means any and all claims, demands, causes of
actions, suits, proceedings, administrative proceedings, losses, judgments,
decrees, debts, damages, liabilities, court costs, penalties, attorneys'
fees and any other expenses incurred, assessed, sustained or alleged by or
against Applied Optronics or its subsidiary.
5.17. Intellectual Property Rights. Schedule 5.17 contains a complete
and accurate list of all patents, trademarks, trade names, services marks,
copyrights and applications for or registrations of any of the foregoing as
to which Applied Optronics is the owner or a licensee (indicating whether
such license is exclusive or nonexclusive). Applied Optronics exclusively
owns, free and clear of any Lien (as defined in Section 5.19), or is
exclusively (unless otherwise indicated in Schedule 5.17) licensed to use,
all patents, trademarks, trade names, service marks, copyrights,
applications for or registrations of any of the foregoing, processes,
inventions, designs, technology, formulas, computer software programs,
know-how and trade secrets used in or necessary for the conduct of its
respective business as currently conducted or proposed to be conducted (the
"Applied Optronics Intellectual Property"). Except to the extent
specifically disclosed on Schedule 5.17, no claim has been asserted or, to
the knowledge of Applied Optronics, threatened by any person, and, to
Applied Optronics' knowledge, no basis for any claim exists, with respect
to the use of Applied Optronics Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement with
respect thereto. To the knowledge of Applied Optronics, neither the use of
Applied Optronics Intellectual Property by Applied Optronics in the present
or planned conduct of its business nor any product or service of Applied
Optronics infringes on the intellectual property rights of any person.
Except to the extent specifically disclosed on Schedule 5.17, no current or
former shareholder, employee, officer, director or consultant of Applied
Optronics has any rights in or to any of the Applied Optronics Intellectual
Property. All Applied Optronics Intellectual Property listed on Schedule
5.17 has the status indicated therein and all applications are still
pending in good standing and have not been abandoned. Except to the extent
specifically disclosed on Schedule 5.17: (i) the Applied Optronics
Intellectual Property is valid and has not been challenged in any judicial
or administrative proceeding; (ii) Applied Optronics has made all
statutorily required filings, if any, to record its interests, and taken
reasonable actions to protect its rights, in the Applied Optronics
Intellectual Property; (iii) to the knowledge of Applied Optronics, no
person or entity nor such person's or entity's business or products has
infringed, misused or misappropriated the Applied Optronics Intellectual
Property or currently is infringing, misusing or misappropriating the
Applied Optronics Intellectual Property; and (iv) to the knowledge of
Applied Optronics, no other person or entity has any right to receive or
any obligation to pay a royalty with respect to any of the Applied
Optronics Intellectual Property or any product or service of Applied
Optronics.
5.18. Real Property. Applied Optronics owns no real property.
Schedule 5.18 sets forth a brief description of all real property which is
leased by Applied Optronics, including offices or facilities leased
thereby. To the knowledge of Applied Optronics, none of the properties
occupied by Applied Optronics is in material violation of any law or in
violation of any building, zoning, or other ordinance, code or regulation
which would have a Material Adverse Effect or materially interfere with the
use and occupancy thereof in the ordinary course of Applied Optronics'
business.
5.19. Title as to Properties; Liens. Applied Optronics has good and
marketable title to all properties and assets reflected on Applied
Optronics' Audited Financial Statements or acquired after the dates thereof
(except for properties and assets sold or otherwise disposed of in the
ordinary course of business since the dates thereof), which includes each
asset the absence or unavailability of which would have a Material Adverse
Effect, free and clear of any Liens. The term "Lien" as used in this
Agreement means any mortgage, pledge, security interest, encumbrance, lien,
claim or charge of any kind. All properties and assets purported to be
leased by Applied Optronics are subject to valid and effective leases that
are in full force and effect, and there does not exist, and the
transactions contemplated herein will not result in, any default or event
that with notice or lapse of time, or both or otherwise, would constitute a
default under any such leases. The properties and assets of Applied
Optronics and its subsidiary have been kept in good condition and repair in
the ordinary course of business.
5.20. Permits, Licenses, Etc. Applied Optronics has all
rights, permits, certificates, licenses, consents, franchises approvals,
registrations, and other authorizations necessary to sell its products and
services and otherwise carry on and conduct its businesses and to own,
lease, use and operate its properties and assets at the places and in the
manner now conducted and operated, except those the absence of which would
not be reasonably expected to (so far as can be foreseen at the time) have
a Material Adverse Effect. Applied Optronics has not received any notice or
claim pertaining to the failure to obtain any permit, certificate, license,
franchise, approval, registration or other authorization required by any
federal, state, local or foreign body or authority (including, but not
limited to, the FDA or any nongovernmental self-regulatory organization or
agency).
5.21. Product Liability Claims. Applied Optronics has never received
a claim, or incurred any uninsured or insured liability, for or based upon
breach of product warranty (other than warranty service and repair claims
in the ordinary course of business not material in amount or significance),
strict liability in tort, negligent manufacture of product, negligent
provision of services or any other allegation of liability, including or
resulting in, but not limited to, product recalls, arising from the
materials, design, testing, manufacture, packaging, labeling (including
instructions for use) or sale of its products or from the provision of
services (hereafter collectively referred to as "Product Liability").
5.22. Minute Books. The minute books of Applied Optronics, as
previously made available to ESC and its representatives, contain, in all
material respects, complete and accurate records of all meetings of and
corporate actions or written consents by the shareholders, Board of
Directors, and committees of the Board of Directors of Applied Optronics
through the date of such minutes.
5.23. Officers, Directors and Employees. Prior to the date hereof,
Applied Optronics has provided to ESC a list that completely and accurately
sets forth the name and current annual salary rate of each officer or
employee of Applied Optronics whose total remuneration for the last fiscal
year was, or for the current fiscal year has been set at, in excess of
$50,000, together with a summary of the bonuses, commissions, additional
compensation and other like benefits, if any, paid or payable to such
persons for the last fiscal year and proposed for the current year.
5.24. Receivables. Applied Optronics has no notice and is
not otherwise aware that any of its accounts receivable is subject to any
offset, claim, deduction, refund or is otherwise uncollectible for any
reason.
5.25. Disclosure. No representation or warranty by Applied Optronics
in this Agreement, and no information disclosed in the Schedules supplied
by Applied Optronics (taken as a whole), contains any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE CLOSING
6.1. Conduct of Business by Applied Optronics. During the
period from the date of this Agreement and continuing until the
Effective Time:
(a) the business of Applied Optronics shall be conducted only
in the ordinary and usual course of business and consistent with past
practices;
(b) Applied Optronics shall not (i) amend its Certificate of
Incorporation or Bylaws; or (ii) split, combine or reclassify any
shares of its outstanding capital stock or declare, set aside or pay
any dividend or other distribution payable in cash, stock or property
in respect of its capital stock, or directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock.
(c) Applied Optronics shall not (i) acquire, dispose of,
transfer, lease, license, mortgage, pledge or encumber any
material fixed or other assets, enter into any material contract or
make any material capital expenditure, other than in the ordinary
course of business and consistent with past practices; (ii) incur,
assume or prepay any material indebtedness, liability or obligation
or any other material liabilities or issue any debt securities; (iii)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of
any other person in a material amount; (iv) make any material loans,
advances or capital contributions to, or investments in, any other
person; (v) fail to maintain adequate insurance consistent with past
practices for its businesses and properties; (vi) commence any
litigation; or (vii) enter into any contract, agreement, commitment
or arrangement with respect to any of the foregoing;
(d) Applied Optronics shall use its best efforts to preserve
intact the business organization of Applied Optronics, to keep
available the services of its present officers and key employees, and
to preserve the goodwill of those having business relationships with
it, in accordance with past practices; and
(e) Applied Optronics shall use its best efforts not to take
any action and not to omit to take any action (and not to agree in
writing or otherwise to take any such action or make any such
omission) the effect of which action or omission would be to make any
representation or warranty of Applied Optronics herein untrue or
incorrect in any material respect.
6.2. Compensation Plans. During the period from the date of this
Agreement and continuing until the Effective Time, Applied Optronics agrees
that it will not, without the prior written consent of ESC (except as
required by applicable law or pursuant to existing contractual arrangements
or solely to the extent necessary to make compensation increases in the
ordinary course of business consistent with past practices or make
available existing benefit arrangements to new or promoted employees in the
ordinary course of business in accordance with past practice): (a) enter
into, adopt or amend any bonus, profit sharing, compensation, stock option,
pension, retirement, deferred compensation, employment, severance or other
employee benefit plan, agreement, trust, plan, fund or other arrangement
between Applied Optronics, as applicable, and one or more of its officers,
directors or employees, in each case so as to materially increase benefits
thereunder (collectively, the "Compensation Plans"), (b) grant or become
obligated to grant any increase in the compensation or fringe benefits of
directors, officers or employees (including any such increase pursuant to
any Compensation Plan) or any increase in the compensation payable or to
become payable to any officer, except, with respect to employees other than
officers, for increases in compensation in the ordinary course of business
consistent with past practice, or enter into any contract, commitment or
arrangement to do any of the foregoing, (c) institute any new employee
benefit, welfare program or Compensation Plan, (d) make any change in any
Compensation Plan or other employee welfare or benefit arrangement or enter
into any employment or similar agreement or arrangement with any employee,
or (e) enter into or renew any contract, agreement, commitment or
arrangement providing for the payment to any director, officer or employee
of compensation or benefits contingent, or the terms of which are
materially altered in favor of such individual, upon the occurrence of any
of the transactions contemplated by this Agreement.
6.3. Legal Conditions to Merger. Each of Applied Optronics and ESC
shall, use all reasonable efforts (a) to take, or cause to be taken, all
actions necessary to comply promptly with all legal requirements which may
be imposed on such party with respect to the consummation of the
transactions contemplated by this Agreement, and (b) to obtain (and to
cooperate with the other party to obtain) any consent, authorization, order
or approval of, or any exemption by, any governmental entity or any other
public or private third party which is required to be obtained or made by
such party or any of its subsidiaries in connection with the Merger and the
transactions contemplated by this Agreement.
6.4. Investment Letter. Applied Optronics shall use its best
efforts to cause each holder of Applied Optronics Common Stock to
execute and deliver an investment letter in the form attached as Exhibit
6.4.
6.5. Advice of Changes; Governmental Filings. ESC and Applied
Optronics shall confer on a regular basis with the other, report on
operational matters and shall promptly advise the other party both orally
and in writing of any change or event having, or which, insofar as can
reasonably be foreseen, could have, a Material Adverse Effect on that party
or which would cause or constitute a material breach of any of the
representations, warranties or covenants of that party contained in this
Agreement. Except where prohibited by applicable statutes and regulations,
each party shall promptly provide the other (or its counsel) with copies of
all other filings made by such party with any state or federal government
entity in connection with this Agreement or the transactions contemplated
hereby.
6.6. Risk of Loss. In the event any material asset of Applied
Optronics is damaged or destroyed prior to the Closing Date (any such event
being herein referred to as an "Event of Loss"), Applied Optronics, at its
expense, shall use its best efforts to replace or repair the property with
comparable property of like value and quality as soon as possible before
the Closing Date. If any Event of Loss shall materially affect the
operation of Applied Optronics' business and repair or replacement cannot
be accomplished by the Closing Date, ESC and Acquisition Sub may elect, as
their sole remedy:
(a) To postpone the Closing Date, but not beyond the time
specified in Section 3.5 hereof, until such time as such property has
been restored to substantially its condition immediately prior to the
Event of Loss;
(b) To close the transaction on the Closing Date, and accept
the property as is, together with all of Applied Optronics' rights
under any insurance policies and all insurance proceeds, covering
that Event of Loss including property damage, loss of income and
continuing expenses; or
(c) To terminate this Agreement without liability to either
party by written notice to Applied Optronics within thirty days after the
Event of Loss has occurred.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. Access and Information.
(a) Applied Optronics shall afford ESC and its financial
advisors, legal counsel, accountants, consultants and other representatives
upon reasonable notice, access during normal business hours throughout the
period from the date hereof to the Closing Date to all of its books,
records, properties, facilities, personnel commitments and records and,
during such period, Applied Optronics shall furnish promptly to ESC all
information concerning its business, properties and personnel as ESC may
reasonably request.
(b) All information furnished by Applied Optronics to ESC
pursuant hereto shall be treated as the sole property of Applied Optronics,
until consummation of the Merger contemplated hereby.
7.2. No Solicitation of Transactions. From the date hereof until the
earlier of termination of this Agreement or consummation of the Merger,
Applied Optronics will not, directly or indirectly, whether through any
director, officer, employee, financial advisor, legal counsel, accountant,
other agent or representative (as used in this Section 7.2,
"representatives") or otherwise, (A) initiate, solicit or encourage, or
take any other action to facilitate any inquiries or the making of any
proposal with respect to, or (B) except to the extent required in the
exercise of the fiduciary duties of the Board of Directors of Applied
Optronics, under applicable law as advised by independent counsel in
connection with an unsolicited proposal, engage or participate in
negotiations concerning, provide any nonpublic information or data to, or
have any discussions with, any person other than a party hereto or their
representatives relating to, any (i) acquisition, (ii) tender offer
(including a self-tender offer), (iii) exchange offer, (iv) merger, (v)
consolidation, (vi) acquisition of beneficial ownership of (or the right to
vote securities representing) 10% or more of the total voting power of such
entity or any of its subsidiaries, (vii) dissolution, (viii) business
combination, (ix) purchase of all or any significant portion of the assets
or any division of (or any equity interest in) such entity, or (x) any
similar transaction other than the Merger (such proposals, announcements,
or transactions being referred to as "Acquisition Proposals").
Notwithstanding the foregoing, this Section shall not prohibit the Board of
Directors of Applied Optronics from (i) furnishing information to or
entering into discussions or negotiations with, any person or entity that
makes an unsolicited bona fide Acquisition Proposal, if, and only to the
extent that, (a) the Board of Directors of Applied Optronics determines in
good faith that such action is so required for the Board of Directors to
comply with its fiduciary duties to shareholders imposed by law and the
Board has been so advised in writing (with a copy furnished to ESC) by
independent, outside counsel, in its judgment and opinion, as being so
required, (b) prior to furnishing information to, or entering into
discussions and negotiations with, such person or entity, Applied Optronics
provides written notice to ESC to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such
person or entity, and (c) Applied Optronics keeps ESC informed of the
status and all material information with respect to any such discussions or
negotiations. Nothing in this Section shall (x) permit Applied Optronics to
terminate this Agreement (except as specifically provided in Article IX
hereof), (y) permit Applied Optronics to enter into any Agreement with
respect to an Acquisition Proposal for as long as this Agreement remains in
effect (it being agreed that for as long as this Agreement remains in
effect, Applied Optronics shall not enter into any Agreement with any
person that provides for, or in any way facilities, an Acquisition
Proposal), or (z) affect any other obligation of Applied Optronics under
this Agreement.
7.3. Registration Rights Agreements. On or prior to the Closing Date,
ESC and Applied Optronics shall enter into a Registration Rights Agreement
and a Warrant Registration Rights Agreement in the forms attached as
Exhibits 7.3 (a) and 7.3(b) hereto, respectively, under which ESC shall
grant to Applied Optronics shareholders the registration rights contained
therein, with respect to the ESC Ordinary Shares and Warrants to be
delivered pursuant hereto.
7.4. Employment Agreement. On or prior to the Closing Date,
ESC and Mr. Thomas Cekoric, Jr. shall enter into an Employment
Agreement in the form attached as Exhibit 7.4.
7.5. Public Announcements. The initial press release or other public
announcement relating to this Agreement shall be issued jointly and, prior
to the Closing, ESC and Acquisition Sub, on the one hand, and Applied
Optronics, on the other hand, agree that they will each obtain the approval
of the other party prior to issuing any press release or any other written
communication regarding the transactions contemplated by this Agreement
(including any written communication to employees) and that they will use
their best efforts to consult with one another before otherwise making any
public statement or responding to any press inquiry with respect to this
Agreement or the transactions contemplated hereby, except as may be
required by law or any governmental agency if required by such agency or
the rules of the Nasdaq National Market.
7.6. Expenses. Except as provided in Section 9.2, all costs and
expenses incurred in connection with this Agreement and the
transactions contemplated hereby (whether or not the Merger is
consummated) shall be paid by the party incurring such expenses.
7.7. Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using all reasonable efforts to
obtain all necessary waivers, consents and approvals, and to effect all
necessary registrations and filings. In case at any time after the
Effective Time any further action is necessary or desirable to carry out
the purpose of this Agreement, the proper officers and/or directors of ESC,
Acquisition Sub and Applied Optronics shall take all such necessary action.
7.8. Noncompetition and Confidentiality Agreements. Applied Optronics
agrees not to terminate, amend or waive any of the confidentiality and
noncompetition agreements entered into by its employees and consultants
with Applied Optronics. Applied Optronics has heretofore furnished or made
available to ESC complete and accurate copies of the confidentiality and
noncompetition agreements executed by its employees and consultants.
7.9. Indemnification.
(a) Subject to the terms and conditions of this Section 7.9,
Applied Optronics hereby agrees to indemnify and save harmless ESC and
Acquisition Sub, their respective successors and assigns and each of their
respective officers, directors, employees and affiliates from, against, for
and in respect of any and all damages, losses, obligations, liabilities,
claims, actions or causes of action, encumbrances, cost and expenses
(including, without limitation, reasonable attorneys' fees, interest and
penalties) suffered, sustained, incurred or required to be paid by ESC or
Acquisition Sub or any of their respective officers, directors, employees
or affiliates because of the untruth, inaccuracy or breach of any
representation, warranty, covenant or agreement of Applied Optronics
contained in or made pursuant to this Agreement.
(b) Subject to the terms and conditions of this Section 7.9,
ESC and Acquisition Sub hereby agree, jointly and severally, to indemnify
and save harmless Applied Optronics, its successors and assigns, and its
officers, directors, shareholders, employees and affiliates from, against,
for and in respect of any and all damages, losses, obligations,
liabilities, claims, actions or causes of action, encumbrances, cost and
expenses (including, without limitation, reasonable attorneys' fees,
interest and penalties) suffered, sustained, incurred or required to be
paid by Applied Optronics or any of its respective officers, directors,
employees or affiliates because of the untruth, inaccuracy or breach of any
misrepresentation, warranty, covenant or agreement of ESC contained in or
made pursuant to this Agreement.
(c) Any party seeking indemnification hereunder ("Indemnified
Party") agrees to give prompt written notice to any Indemnifying Party of
any claim by a third party which might give rise to a claim based on the
indemnity agreements contained in Sections 7.9 (a) or (b) hereof, stating
the nature and basis of said claim and the amount thereof, to the extent
known. The Indemnifying Party shall satisfy its obligation to indemnify the
Indemnified Party under this Section 7.9 within 30 days after receipt of
the foregoing notice unless the Indemnifying Party shall have elected to
defend in good faith such claim as provided in subsection (d) hereof.
(d) In the event the Indemnified Party shall notify the
Indemnifying Party of any third-party claim pursuant to subsection (c)
hereof, the Indemnifying Party shall have the right to elect to defend such
claim (including all actions, suits or proceedings and all proceedings on
appeal or for review which counsel deem appropriate) with counsel
reasonably satisfactory to the Indemnified Party by written notice to the
Indemnified Party within 30 days after receipt of such notice. The
Indemnified Party shall make available to the Indemnifying Party and its
attorneys and accountants all books and records of the Indemnified Party
relating to such proceedings or litigation, and the parties hereto agree to
render to each other such assistance as they may reasonably require of each
other in order to ensure the proper and adequate defense of any such
action, suit or proceeding. So long as the Indemnifying Party is defending
in good faith any such claim, the Indemnified Party shall not compromise
such claim, without the written consent of the Indemnifying Party.
(e) In the event that an Indemnified Party shall seek
indemnification hereunder with respect to any claims (other than by third
parties), the Indemnified Party shall give the Indemnifying Party prompt
written notice of such claim, stating the nature and basis of said claim
and the amount thereof with specificity, to the extent known. Within 30
days after receipt of such notice, the Indemnifying Party shall either pay
the amount of such claim or set forth in writing any dispute with respect
to such claim. If such party shall dispute such claim, no amounts shall be
payable with respect to such claim until such dispute shall be resolved.
7.10. Tax Treatment. Each party hereto shall use its respective best
efforts to cause the Merger to qualify as a "reorganization" under the
provisions of section 368 of the Code, and no party shall take or cause to
be taken, whether before or after the Effective Time, any action that would
disqualify the Merger from being so qualified.
7.11. Nasdaq Listing. ESC shall use its reasonable best
efforts to cause the Ordinary Shares to be issued in connection with the
Merger to be approved for listing on the Nasdaq National Market,
subject to official notice of issuance, as promptly as practicable after
the date hereof, and in any event prior to the Closing Date. ESC shall also
use its reasonable best efforts to cause the Ordinary Shares issuable upon
exercise of the Warrants to be approved for listing on the Nasdaq National
Market as soon as practicable after the time of such exercise.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject
to the satisfaction, at or prior to the Closing Date, of the following
conditions, any one of which may be waived by a writing signed by each of
Applied Optronics and ESC:
(a) No preliminary or permanent injunction or other order by
any federal, state or foreign court of competent jurisdiction which
prohibits the consummation of the Merger shall have been issued and remain
in effect. No statute, rule, regulation, executive order, stay, decree, or
judgment shall have been enacted, entered, issued, promulgated or enforced
by any court or governmental authority which prohibits or restricts the
consummation of the Merger. All authorizations, consents, orders or
approvals of, or declarations or filings with, and all expirations of
waiting periods imposed by, any governmental entity (all of the foregoing,
"Consents") which are necessary for the consummation of the Merger, other
than Consents the failure to obtain which would not materially, adversely
affect the consummation of the Merger or in the aggregate have a Material
Adverse Effect shall have been filed, occurred or been obtained (all such
permits, approvals, filings and consents and the lapse of all such waiting
periods being referred to as the "Requisite Regulatory Approvals") and all
such Requisite Regulatory Approvals shall be in full force and effect.
(b) There shall be no action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, by any federal, or state governmental entity which, in
connection with the grant of a Requisite Regulatory Approval, imposes any
condition or restriction upon any of the parties hereto, which in any such
case would materially adversely impact the economic or business benefits of
the transactions contemplated by this Agreement.
(c) The Escrow Agreement referred to in Section 3.9 hereof
shall have been executed and delivered.
(d) The Employment Agreement referred to in Section 7.4 hereof
shall have been executed and delivered.
(e) The Registration Rights Agreement and Warrant Registration
Rights Agreement referred to in Section 7.3 hereof shall have been executed
and delivered.
(f) The Merger shall have been duly approved by the requisite
vote of Applied Optronics shareholders.
(g) All of Applied Optronics Class A,B,C,D and E Warrants and
all outstanding stock options shall have been cancelled.
8.2. Conditions to Obligation of Applied Optronics to Effect the
Merger. The obligation of Applied Optronics to effect the Merger shall be
further subject to the satisfaction at or prior to the Closing Date of the
following additional conditions, any of which may be waived by Applied
Optronics in writing pursuant to Section 9.3:
(a) Each of ESC and Acquisition Sub shall have performed in all
material respects its obligations under this Agreement required to be
performed by it at or prior to the Closing Date and the representations and
warranties of ESC and Acquisition Sub contained in this Agreement shall be
true and correct in all material respects at and as of the Closing Date as
if made at and as of such time, except as contemplated by this Agreement,
and Applied Optronics shall have received a certificate signed by the
President, any Vice President or the Chief Financial Officer of ESC as to
the satisfaction of this condition.
(b) Applied Optronics shall have received opinions, dated
as of the Closing, of Arnold & Porter and Kleinhendler & Halevy,
counsel for ESC, substantially in the forms attached hereto as Exhibit
8.2(b), and an opinion of Kleinhendler & Halevy, Israeli counsel for ESC,
in form and substance reasonably satisfactory to Applied Optronics, to the
effect that under current Israeli law, no shareholder of Applied Optronics,
unless he is otherwise subject to Israeli taxes, will become so subject by
virtue of the acquisition or disposition of the Ordinary Shares or Warrants
(or Ordinary Shares underlying the Warrants) received in connection with
the transactions contemplated by this Agreement.
(c) Applied Optronics shall have received the consents and
approvals referred to in Section 5.4.
8.3. Conditions to Obligations of ESC and Acquisition Sub to Effect
the Merger. The obligations of ESC and Acquisition Sub to effect the Merger
shall be further subject to the satisfaction at or prior to the Closing
Date of the following additional conditions, any of which may be waived by
ESC in writing pursuant to Section 9.3:
(a) Applied Optronics shall have performed in all material
respects its obligations under this Agreement required to be performed and
complied with by it at or prior to the Closing Date and the representations
and warranties of Applied Optronics contained in this Agreement shall be
true and correct in all material respects at and as of the Closing Date as
if made at and as of such time, except as contemplated by this Agreement,
and ESC and Acquisition Sub shall have received a certificate signed by the
President or any Vice President of Applied Optronics as to the satisfaction
of this condition.
(b) Applied Optronics shall have obtained and delivered to ESC
the consent or approval of each person whose consent or approval shall be
required in order to permit the consummation of the Merger.
(c) ESC and Acquisition Sub shall have received an opinion,
dated as of the Closing, of Meltzer, Lippe, Goldstein, Wolf & Schlissel,
P.C., counsel for Applied Optronics, substantially in the form attached
hereto as Exhibit 8.3(c).
(d) There shall not have occurred following the date of this
Agreement and prior to the Closing Date any change, or any event involving
a prospective change, in Applied Optronics' business, assets, financial
condition or results of operations which has had, or is reasonably likely
to have, a Material Adverse Effect.
(e) ESC and ESC's financial advisors, legal counsel,
accountants, consultants and other representatives shall have been afforded
access to information concerning Applied Optronics' business pursuant to
Section 7.1, shall have had an opportunity to conduct a thorough due
diligence review, and shall not discover any matter not disclosed or made
available to ESC as of the date hereof, which matter could have a Material
Adverse Effect on AOC.
(f) ESC and its counsel shall have reasonably concluded, based
on the representations and warranties of Applied Optronics set forth
herein, the investment letters referred to in Section 6.4 hereof, and such
other information as they deem relevant, that the Merger Consideration may
be issued, under the circumstances contemplated by this Agreement, without
registration under the Securities Act of 1933, as amended.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1. Termination. This Agreement may be terminated and the
Merger contemplated hereby abandoned at any time prior to the Closing
Date:
(a) by mutual written consent of ESC, Acquisition Sub and
Applied Optronics;
(b) by either ESC and Acquisition Sub, on the one hand, or
Applied Optronics, on the other hand, if the Merger shall not have
been consummated on or before December 31, 1997;
(c) by Applied Optronics if there shall have been any material
breach of a representation and warranty or material obligation of ESC
or Acquisition Sub hereunder and, if such breach is curable, such
default shall have not been remedied within ten days after receipt by
ESC of notice in writing from Applied Optronics specifying such
breach and requesting that it be remedied;
(d) by ESC and Acquisition Sub if there shall have been any
material breach of a representation and warranty or material
obligation of Applied Optronics hereunder and, if such breach is
curable, such default shall not have been remedied within ten days
after receipt by Applied Optronics of notice in writing from ESC or
Acquisition Sub specifying such breach and requesting that it be
remedied; or
(e) by either ESC or Applied Optronics if any court of
competent jurisdiction in the United States or other United States
governmental body shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or any other
action shall have become final and non-appealable; provided, that the
party seeking to terminate this Agreement pursuant to this clause (e)
shall have used all reasonable efforts to remove such order, decree
or ruling.
9.2. Effect of Termination. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become of no
further effect and, except for a termination resulting from a breach by a
party of this Agreement, there shall be no liability or obligation on the
part of either ESC, Acquisition Sub or Applied Optronics or their
respective officers or directors. Moreover, in the event of termination of
this Agreement pursuant to Section 9.1(c) or (d), nothing herein shall
prejudice the ability of the non-breaching party from seeking damages from
the other party for any breach of this Agreement, including, without
limitation, attorneys' fees and the right to pursue any remedy at law or in
equity.
9.3. Amendment; Extension; Waiver. At any time prior to the Closing
Date, the parties hereto may, consistent with the provisions of the DGCL,
(a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document
delivered pursuant hereto, (c) waive compliance with any of the agreements
or conditions contained herein, and (d) amend this Agreement in any
respect. Any agreement on the part of a party hereto to any such extension,
waiver or amendment shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Such waiver shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE X
GENERAL PROVISIONS
10.1. Survival of Representations and Warranties. The
representations and warranties contained herein shall survive the
Closing and continue in effect for a period of one year after the Closing
Date.
10.2. Brokers.
(a) Applied Optronics represents and warrants to ESC and
Acquisition Sub that no broker, finder or financial advisor is entitled to
any brokerage, finder's or other fee or commission in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Applied Optronics.
(b) ESC represents and warrants to Applied Optronics that no
broker, finder or financial advisor is entitled to any brokerage, finder's
or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of ESC.
10.3. Notices. All notices, claims, demands and other
communications hereunder shall be in writing and shall be deemed
given if delivered personally or by telex or telecopy or mailed by
registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) If to ESC or Acquisition Sub, to:
ESC Medical Systems Ltd.
P.O. Box 240
Yokneam Industrial Park
Yokneam, Israel 20692
Attention: Dr. Shimon Eckhouse
President and Chief Executive Officer
with a copy to:
Arnold & Porter
399 Park Avenue
New York, New York 10022-4690
Attention: Steven G. Tepper, Esq.
(b) If to Applied Optronics, to:
Applied Optronics Corporation
111 Corporate Boulevard
Building 5
South Plainfield, NJ 07080
Attention: Thomas Cekoric, Jr.
President and Chief Executive Officer
with a copy to:
Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C.
The Chancery
190 Willis Avenue
Mineola, New York 11501
Attention: David I. Schaffer, Esq.
10.4. Descriptive Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
10.5. Entire Agreement; Assignment. This Agreement (including the
Exhibits, Schedules and other documents and instruments referred to herein)
(a) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties or
any of them, with respect to the subject matter hereof; (b) is not intended
to confer upon any other person any rights or remedies hereunder; and (c)
shall not be assigned by operation of law or otherwise, provided that ESC
or Acquisition Sub may assign its rights and obligations hereunder to a
direct or indirect United States subsidiary of ESC, but no such assignment
shall relieve ESC or Acquisition Sub, as the case may be, of its
obligations hereunder. Any information disclosed under any section number
in the disclosure schedules attached to this Agreement shall be deemed
disclosed under and incorporated into any other section number where such
information would be appropriate. Terms defined in this Agreement shall
have the same meanings when used in the disclosure schedules unless the
context requires otherwise.
10.6. Governing Law; Procedural Matters. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York without giving effect to the provisions thereof relating to conflicts
of law. Any suit, action or proceeding arising out of or relating to the
enforcement of this Agreement and any action or proceeding to execute or
otherwise enforce any judgment obtained in connection herewith or therewith
shall be instituted in any state or federal court situated in the State of
New York having jurisdiction, and by execution and delivery of this
Agreement, each of the parties hereto irrevocably submits to the
jurisdiction of each such court for the purpose of any such suit, action or
proceeding. Each of the parties hereto hereby further irrevocably consents
to the service of process in any such suit, action or proceeding in said
courts by the mailing thereof by any other party by registered or certified
mail, postage prepaid, to such party at its address for notice specified in
Section 10.3 above. Each of the parties hereto hereby irrevocably waives
any objection which it may now or hereafter have to laying of venue of any
suit, action or proceeding arising out of or relating to the enforcement of
this Agreement brought in state or federal court situated in the State of
New York, and hereby further irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.
10.7. Parties in Interest. Nothing in this Agreement, express
or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever or by reason of
this Agreement.
10.8. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original
but all of which shall constitute one and the same agreement.
10.9. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which shall
remain in full force and effect.
10.10.Investigation. The respective representations and warranties of
ESC, Acquisition Sub and Applied Optronics contained herein or in the
certificates or other documents delivered at or prior to the Closing shall
not be deemed waived or otherwise affected by any investigation made by any
party hereto.
10.11.Remedies. The parties agree that irreparable damage would
result if any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of New York or in New York state court,
this being in addition to any other remedy to which the parties are
entitled at law or in equity.
10.12.Consents. For purposes of any provision of this
Agreement requiring, permitting or providing for consent of ESC or
Applied Optronics, the written consent of the Chief Executive Officer
or Chief Financial Officer of ESC or Applied Optronics, as the case may be,
shall be sufficient to evidence such consent.
10.13.Knowledge; No Personal Liability. As used in this Agreement or
the instruments, certificates or other documents required hereunder, the
term "knowledge" shall mean actual knowledge of a fact or the knowledge
that such person or, if such person is a corporation, its directors,
officers or other key employees having responsibility for principal
business functions of the corporation could reasonably be expected to have
based on reasonable investigation and inquiry; provided, that such
directors, officers and employees shall have no personal liability (except
for fraud) for any representations, warranties or covenants made herein or
pursuant hereto. The knowledge of an entity shall be deemed to include the
knowledge of its subsidiaries. Nothing contained in this Agreement shall be
deemed to impose any personal liability on any shareholders of Applied
Optronics, except in the event of fraud and except as provided in the
Escrow Agreement.
IN WITNESS WHEREOF, each of ESC, Acquisition Sub and Applied
Optronics has caused this Agreement to be executed on its behalf by its
officers thereunto duly authorized, all as of the date first above written.
ESC MEDICAL SYSTEMS LTD.
By: _______________________________
Name: Hillel Bachrach
Title: Executive Vice President
AOC ACQUISITION CORP.
By:_______________________________
Name: Hillel Bachrach
APPLIED OPTRONICS CORPORATION
By:_______________________________
Name: Thomas Cekoric, Jr.
Title: President and
Chief Executive Officer
EXHIBIT 6.4
INVESTOR REPRESENTATION
This representation letter is being provided in connection with the
proposed merger (the "Merger") of Applied Optronics Corporation ("Applied
Optronics") with and into AOC Acquisition Corp., a wholly-owned subsidiary
of ESC Medical Systems Ltd. ("ESC"). If the Merger is approved each
stockholder of Applied Optronics will be entitled to receive Ordinary
Shares of ESC (the "Ordinary Shares") and warrants (the "Warrants") to
purchase Ordinary Shares of ESC (collectively, the "Shares") in exchange
for the shares of Applied Optronics that they currently hold.
ESC intends to issue Shares in connection with the Merger without
registration under the Securities Act of 1933, as amended ("Securities
Act"), in reliance on certain provisions of the Securities Act and
Regulation D promulgated thereunder that provide exemption from
registration. The purpose of this Investor Representation is to permit ESC
to determine whether you meet the "accredited investor" standards imposed
by Regulation D. ESC's reliance upon the exemption provided by Regulation D
will be based in part on the information herein supplied. In addition, by
your signature below, you are asked to designate Shelley A Harrison as your
representative, agent and attorney-in-fact in connection with the Escrow
Agreement referred to in Section 3 below.
Please complete fully, sign, date and return this Investor
Representation to Allan Grauberd, Esq., Meltzer, Lippe, Goldstein,
Wolf & Schissel, P.C., 190 Willis Avenue, Mineola, New York
11501.
Section 1. Investment Representations.
The undersigned certifies that the undersigned qualifies as an
"accredited investor" within the meaning of Rule 501(a) of Regulation D
promulgated under the Securities Act, for the reason(s) set forth in the
checklist below.
(a) The undersigned is (check each applicable condition):
____ a natural person whose individual net worth, or joint net worth
together with such person's spouse, exceeds $1,000,000 at the
time of purchase;
____ a natural person with individual income in excess of $200,000 in
each of the two most recent years or joint income with such
person's spouse in excess of $300,000 in each such year and with
a reasonable expectation of reaching the same level of income in
the current year;
____ a bank;
____ a savings and loan association;
____ a broker-dealer registered under the Securities
Exchange Act of 1934;
____ an insurance company;
____ an investment company registered under the
Investment Company Act of 1940 (the "1940
Act");
____ a business development company, as defined in
section 2(a) (48) of the 1940 Act, each of whose
equity owners has a net worth in excess of
$1,000,000;
____ a Small Business Investment Company;
____ an employee benefit plan with total assets in excess of
$5,000,000 which is established or maintained by a state,
political subdivision or their agencies or instrumentalities;
____ a private business development company, as
defined in section 202(a) (22) of the Investment
Advisors Act of 1940;
____ an organization as described in Section 501(c) (3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific
purpose of acquiring the Shares, with total assets in excess of
$5,000,000;
____ a director or executive officer of ESC;
____ a trust with assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Shares, whose purchase is
directed by a person who has such knowledge and experience in
financial and business matters that he is capable of evaluating
the merits and risks of an investment in the Shares;
_____ an entity in which all of the equity owners meet
one or more of the above criteria.
(b) The undersigned is acquiring the Shares for investment purposes
only, solely for the account of the undersigned and not with a
view to, or for resale in connection with, the distribution or
other disposition thereof;
(c) The knowledge and experience of the undersigned in financial and
business matters are such that the undersigned is capable of
evaluating the merits and risks of its investment in the Shares,
and has made its own independent valuation with respect to the
value of the Shares; the undersigned understands that the Shares
are a speculative investment which involves a high degree of risk
of loss of the investment therein, the undersigned's financial
situation is such that the undersigned can afford to bear the
economic risk of holding the Shares acquired by the undersigned
hereunder for an indefinite period of time, has adequate means
for providing for the current needs and contingencies of the
undersigned and can afford to suffer the complete loss of the
investment in the Shares;
(d) The undersigned and the representatives of the undersigned,
including the financial, tax, legal and other advisers, have
carefully reviewed all documents furnished to them in connection
with the investment in the Shares, and the undersigned
understands and has taken cognizance of all the risk factors
related to such investment, and no representations or warranties
have been made to the undersigned or the representatives of the
undersigned concerning such investment or ESC, its prospects or
other matters;
(e) The undersigned and the representatives of the undersigned have
been given the opportunity to examine all documents and to ask
questions of, and to receive answers from, ESC and its
representatives concerning the terms and conditions of the
acquisition of the Shares and the business of ESC and to obtain
any additional information which the undersigned or the
representatives of the undersigned deem necessary to verify the
accuracy of the information that has been provided to the
undersigned in order for the undersigned to evaluate the merits
and risk of the investment in the Shares;
(f) The undersigned understands that no federal agency (including the
Securities and Exchange Commission), state agency or foreign
agency has made or will make any finding or determination as to
the fairness of an investment in the Shares (including as to the
purchase price).
Section 2. Transfer Restrictions.
(a) The undersigned understands that the offer and sale of the Shares
have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), by virtue of Section 4(2) of the
Securities Act, or under the securities laws of any state of the
United States or of any foreign jurisdiction;
(b) The undersigned understands that no resales of the Shares may be
effected unless the resale of such Shares is registered under the
Securities Act or an exemption therefrom is available and all
applicable state and foreign securities laws are complied with;
(c) The undersigned understands that the Shares are subject to
Registration Rights Agreement under which ESC will not be
required to provide an effective registration statement for the
resale of the Shares until nine (9) months after the closing of
the Merger;
(d) The undersigned understands that Rule 144 promulgated under the
Securities Act is not available until one year after consummation
of the Merger with respect to the Ordinary Shares and until one
year after exercise of the Warrants with respect to the Ordinary
Shares covered thereby.
(e) The undersigned understands that the following restrictive legend
shall be placed on the certificates representing the Shares
acquired by the undersigned hereunder:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
OTHER SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION FROM SAID ACT OR SUCH OTHER LAWS AND, IF REQUESTED
BY THE ISSUER, AN OPINION OF COUNSEL SELECTED BY THE HOLDER AND
REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS
NOT REQUIRED, OR IS EXEMPT FROM SAID ACT OR SUCH OTHER LAWS; and
(f) The undersigned understands that a notation shall be made in the
appropriate records of ESC, indicating that the Shares are
subject to restrictions on transfer and appropriate stop-transfer
instructions will be issued to the transfer agent with respect to
the Shares.
Section 3. Escrow Representative.
By signing this Investor Representation, you hereby agree to appoint
Shelley A. Harrison as your representative, agent, and attorney-in-fact
(the "Representative") to represent you, exercise your rights, and perform
your obligations for all purposes under the Escrow Agreement which has been
provided to you herewith.
(SIGNATURE PAGE FOLLOWS)
Name of Stockholder: _______________________
Signatory Name: _______________________
Address: _______________________
_______________________
_______________________
Telephone number: _______________________
Facsimile: _______________________
Authorized Signature: _______________________
PLEASE INDICATE ANY SPECIAL STOCK ISSUANCE INSTRUCTIONS BELOW. UNLESS
OTHERWISE INDICATED, THE SHARES WILL BE ISSUED IN THE NAME SET FORTH ABOVE.
EXHIBIT 8.2(B)
[Form of Arnold & Porter Opinion]
December __, 1997
Applied Optronics Corporation
111 Corporate Boulevard, Building J
South Plainfield, New Jersey 07080
Ladies and Gentlemen:
We have served as United States counsel to ESC Medical Systems Ltd.,
an Israeli corporation ("ESC") and as counsel to AOC Acquisition Corp., a
Delaware corporation ("Acquisition Sub") in connection with the merger (the
"Merger") of Applied Optronics Corporation ("Applied Optronics") with and
into Acquisition Sub. The Merger is being effected pursuant to an Agreement
and Plan of Merger, dated as of November 20, 1997, by and among ESC,
Acquisition Sub and Applied Optronics (the "Merger Agreement"). This letter
is provided to you pursuant to Section 8.2(b) of the Merger Agreement.
Capitalized terms used herein without definition shall have the meanings
attributed to such terms in the Merger Agreement.
In connection with rendering the opinions set forth in this letter,
we have examined and/or relied upon the following documents (the
"Documents"):
1. A fully executed copy of the Merger Agreement (including the
schedules and exhibits attached thereto);
2. The Articles of Merger (the "Articles of Merger"), dated December
__, 1997, executed by Acquisition Sub and Applied Optronics;
3. The Ordinary Shares Purchase Warrant, dated as of the Closing
Date, executed by ESC (the "Ordinary Shares Purchase Warrant");
4 The Registration Rights Agreement, dated as of the Closing Date,
by and among ESC and Applied Optronics (the "Registration Rights
Agreement");
5. The Warrant Registration Rights Agreement, dated as of the Closing
Date, by and among ESC and Applied Optronics (the "Warrant Registration
Rights Agreement");
6. The Escrow Agreement, dated as of the Closing Date, by and among
ESC, Applied Optronics, the Representative of the stockholders of Applied
Optronics and the Escrow Agent (the "Escrow Agreement");
7. A copy of the Articles of Incorporation of Acquisition Sub, dated
November 17, 1997 (the "Articles of Incorporation") and Bylaws of
Acquisition Sub (the "Bylaws"), each certified by an officer of Acquisition
Sub as being in full force and effect as of the Closing Date;
8. A Certificate of Existence/Authorization dated
November 17, 1997, issued by the Secretary of State of the State
of Delaware with respect to Acquisition Sub;
9. Resolutions adopted by the Board of Directors of Acquisition Sub
on November 20, 1997, certified by an officer of Acquisition Sub as being
in full force and effect as of the Closing Date;
10. Resolutions adopted by the Board of Directors of ESC on November
__, 1997, certified by an officer of ESC as being in full force and effect
as of the Closing Date;
11. Copies of all other certificates and documents delivered by ESC
and Acquisition Sub to Applied Optronics in connection with the closing of
the Merger.
Items 1 through 6 are referred to as the "Transaction Documents." We
express no opinion with respect to any document other than the Transaction
Documents, the Articles of Incorporation and the Bylaws, and we have not
reviewed any documents for the purposes of this opinion other than the
documents identified as items 1 through 11 and certificates of public
officials, including, without limitation, those described in item 8 above.
We have assumed without verification the genuineness of all
signatures on all documents, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as copies and the
authenticity of the originals of such copies, as well as the due and valid
authorization, execution and delivery of these documents (other than the
authorization, execution and delivery of the Transaction Documents by ESC
and Acquisition Sub).
The term "actual knowledge" or "our actual knowledge" means such
current, conscious knowledge as we have obtained from our examination of
the documents described above and of attorneys presently in our office who
have been involved in substantive legal representation of ESC during the
six months prior to the date of this letter.
In connection with the opinions set forth below, we have examined and
relied exclusively as to certain factual matters upon the items referred to
in Items 1 through 11 above, including without limitation the accuracy and
completeness of the representations and warranties of the parties to the
Merger Agreement. We have not verified any factual matters in connection
with or apart from our review of the documents and matters listed above,
and accordingly, we do not express any opinion or belief as to matters that
might have been disclosed by such verification.
Members of our firm are admitted to the bar in the State of New York,
and we do not express any opinion as to matters arising under the laws of
any jurisdiction other than the federal laws of the United States of
America, the State of New York and the Delaware General Corporation Law.
To the extent that the opinions set forth below relate to matters of
Israeli law, we have relied, with your consent, solely on the opinion of
Kleinhendler & Halevy, Advocates, a copy of which is attached hereto. We
believe we and Applied Optronics are justified in relying on such opinion.
Based solely on the foregoing, and subject to the assumptions and
qualifications set forth herein, we are of the opinion that:
1. Acquisition Sub is duly incorporated, validly existing
and in good standing under the laws of the State of Delaware.
2. Acquisition Sub has all necessary corporate power and corporate
authority to execute and deliver the Transaction Documents to which it is a
party and to perform its obligations under such Transaction Documents. The
execution, delivery and performance of the Transaction Documents have been
duly authorized by all necessary corporate and shareholder action on the
part of Acquisition Sub.
3. The Transaction Documents have been duly executed and delivered by
Acquisition Sub, and the Transaction Documents constitute the legal, valid
and binding obligations of Acquisition Sub, enforceable against it in
accordance with their respective terms, except (A) to the extent that
enforcement thereof may be limited by (x) bankruptcy, insolvency,
reorganization, moratorium and similar laws now or hereafter in effect
relating to creditors' rights generally and (y) general principles of
equity (regardless of whether enforceability is considered in a proceeding
at law or in equity) and (B) the enforceability of any rights to indemnity
and contribution thereunder may be limited by United States federal or
state securities laws or the public policy underlying such laws.
4. The consummation of the Merger of Applied Optronics with and into
Acquisition Sub does not (a) result in a violation of the Articles of
Incorporation or Bylaws of Acquisition Sub, or (b) to our actual knowledge,
violate, breach or result in a default under any law, regulation or decree
of any governmental authority or any judgment, decree or order of a court
or agency of competent jurisdiction by which Acquisition Sub or ESC is
bound. The execution, delivery and performance of the Merger Agreement will
not constitute a breach of or default under any mortgage, deed of trust,
lease, loan or credit agreement, or any other agreement, document or
instrument of which we have actual knowledge to which Acquisition Sub or
ESC may be subject or by which Acquisition Sub or ESC may be bound.
5. Upon filing of the Articles of Merger with the Secretary of State
of the State of Delaware, the Merger contemplated by the Articles of Merger
will become effective as of the date set forth in the Plan of Merger in
accordance with its terms.
6. Except as disclosed in the Merger Agreement, delivery and
performance of the Transaction Documents by ESC or the Acquisition Sub does
not require the consent, approval or other authorization of, or filing or
registration with, any court or governmental agency, commission or other
authority.
7. To our actual knowledge, there are no pending or overtly
threatened actions, suits, claims or other proceedings before or by any
court, governmental agency or arbitrator which would have a material
adverse effect on the business of ESC or Acquisition Sub that have not been
disclosed in ESC's public filings. To our actual knowledge, ESC and
Acquisition Sub are not in default with respect to any order, writ,
injunction or decree of any court, governmental agency or arbitrator.
This letter is given for the sole benefit of Applied Optronics and
its counsel pursuant to Section 8.2(b) of the Merger Agreement, and may not
be relied upon by any other person or entity, other than Kleinhendler &
Halevy, and may not be used, circulated, quoted or otherwise referred to
for any purpose without our express written consent. The opinions expressed
herein are limited to present statutes and regulations and judicial
interpretations thereof and to the facts as they presently exist.
Neither you nor any other person to whom we may grant our consent to
rely upon this opinion may rely upon any portion of this opinion which such
person knows to be false or has information which would make reliance upon
such portion of the opinion unreasonable in the circumstances. We expressly
disclaim any obligation to advise you of any changes or developments in
matters of law or fact covered by this opinion that occur after the date
hereof.
Exhibit 2.5
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement, made as of this ___ day of July, 1998, by
and among LASER INDUSTRIES LTD., an Israeli company ("Purchaser"), ORZIV
(Z.K.Y.P.) LTD., an Israeli company (the "Seller"), YEHIAM PRIOR ("Prior")
and ZIV KARNI ("Karni"), individuals residing in the State of Israel and
shareholders of the Company. Prior and Karni shall sometimes collectively
be referred to herein as (the "Shareholders").
WITNESSETH
WHEREAS, the parties hereto desire to enter into this Asset Purchase
Agreement pursuant to which Purchaser will purchase from the Seller all of
the assets of Seller and assume all of the obligations of the Seller
identified herein, upon the terms and subject to the conditions set forth
herein;
NOW THEREFORE, in consideration of the premises and the mutual promises,
representations, warranties and covenants hereinafter set forth, the
parties hereto agree as follows:
1. DEFINITIONS
As used herein, the following terms shall have the following meanings
unless the context otherwise requires:
1.1 "Agreement" shall mean this Asset Purchase Agreement.
1.2 "Business" shall mean the production of laser processing
systems for industrial purposes.
1.3 "Closing Date" shall mean _______________, 1998.
1.4 "1995, 1996 and 1997 Financial Statements" shall have the
meaning set forth in Section 4.2.1.
1.5 "Financial Statement Date" shall mean March 31, 1997.
1.6 "Indemnified Party" shall have the meaning set forth in
Section 9.3.1.
1.7 "Indemnifying Party" shall have the meaning set forth in
Section 9.3.1.
1.8 "Proprietary Information" shall have the meaning set forth in
Section 4.7.2.
1.9 "Net Assets" shall mean the assets and liabilities set forth in
Section 2.1.
1.10 "Purchase Price" shall have the meaning set forth in Section 3.
1.11 "Non-Assumed Liabilities" shall mean the assets and liabilities
of the Seller which are neither (i) set forth in Schedule 2.1
and/or the 1997 Financial Statements or the Interim Financial
Statements (as defined in Article 4.2.1) nor (ii) Non-Material
Liabilities, nor (iii) liabilities relating to the premises of
the Seller at 7 Hayetzira Street, Raanana (the "Seller
Premises"), including any mortgages or liens in respect
thereof.
1.12 "Non-Material Liabilities" shall mean liabilities of the
Company which, individually or in the aggregate, (i) are not
material to the business or financial condition of the Company
and (ii) do not exceed the amount of US$25,000.
2. PURCHASE OF NET ASSETS
2.1 Purchase and Sale of Net Assets. Seller shall sell, assign, and
transfer to Purchaser and Purchaser shall purchase, as of the
Closing Date, free and clear of all liens, pledges, or
encumbrances of any kind, nature, or description all of
Seller's assets and properties, including, but not limited to
cash, notes, accounts receivable, including but not limited to
VAT refunds, security interests, inventories, intangible and
tangible assets including Proprietary Information, technology,
ongoing research and development, all know-how relevant to the
manufacture and/or sale of Seller's products, equipment,
furniture and fixtures, automobiles, trademarks, trade names
including Seller's corporate name, accrued interest, prepaid
insurance, other prepaid expense, and deposits which Seller
owns or to which it was entitled on the Closing Date (including
but not limited to all such assets reflected on Seller's
balance sheet as of the date of this Agreement).
Notwithstanding anything to the contrary in this Agreement, it
is expressly agreed that the Seller Premises, including any
mortgages or obligations relating thereto, are expressly
excluded from this Transaction, and shall remain with the
Seller. Purchaser shall assume those obligations of Seller, and
royalties payable that are (i) set forth in SCHEDULE 2.1 and/or
in the 1997 Financial Statements or the Interim Financial
Statements and (ii) Non Material Liabilities, other than
Non-Assumed Liabilities. All operations in the ordinary and
regular course of business carried on by Seller after the
Closing Date, shall be deemed to have been carried on for the
account of Buyer, which shall be entitled to all proceeds
derived therefrom and bear all expenses and losses incurred
thereby. Seller shall, following Closing, change its corporate
name. Seller represents that since April 1, 1998, it has not
assumed any liability except as disclosed in SCHEDULE 2.1 or
Non- Material Liabilities (to the extent such Non-Material
Liabilities, when aggregated with any other Non-Material
Liabilities, do not exceed the amount of $25,000).
2.2 Non-Assumed Liabilities. Non-Assumed Liabilities, if any, shall
remain the property and liability of the Seller and the
Shareholders. Seller and the Shareholders warrant and represent
that any Non-Assumed Liabilities shall be paid in full.
3. PURCHASE PRICE
3.1 Net Asset Purchase Price.
3.1.1 Purchaser, in full payment for the Net Assets, shall pay
to Seller an amount equal to US$3,450,000 (Three Million
Four Hundred Fifty Thousand U.S. Dollars), subject to
adjustment as hereafter set forth (the "Total Purchase
Price), which shall be payable in accordance with the
provisions of 3.1.2 below.
3.1.2 The Total Purchase Price shall be payable in the following
manner:
(a) $2,450,000, subject to adjustment as hereafter set
forth shall be paid to the Company on the Closing
Date (which amount will not be deemed to be an
asset of the Company for purposes of this
Agreement).
(b) On the date which is 12 months after the Closing
Date, provided that the tasks specified in clauses
(c)(1), (2) and (3) below have been achieved on or
before the date indicated, the Purchaser shall pay:
(i) US $500,000 to Prior or to a company controlled
by Prior, in accordance with written instructions
from Prior; and
(ii) US$500,000 to K.H. Trustees Ltd. (the "Escrow
Agent"), as escrow agent, on behalf of and
for the account of Karni, in accordance with
an escrow agreement (the "Escrow Agreement")
to be entered into between the Escrow Agent,
Karni and the Purchaser. The form of the
Escrow Agreement shall be mutually agreed to
by the signatories thereto and payment under
this clause (ii) shall be conditional upon
signature thereon by all of the parties
thereto.
(c) The aforementioned payments in clause (b) shall be
subject to the achievement of the following:
(1) Within 3 months after the Closing, the
development of the "reduced weight loss" improvement to
the Seller's diamond processing laser systems (Orziv 2001
and 2100), and the submission of a full technical report
on this development to the Purchaser shall have been
completed. The Purchaser will provide the support
required for this technical development.
(2) Within 9 months after the Closing, the
relocation of the Seller's activities from their present
address in Raanana to the plants of Laser Industries in
Atidim shall have been completed, provided the Purchaser
has decided to carry out such a relocation. The expenses
of such relocation shall be borne by Purchaser. Until
such time as the relocation is completed, Seller hereby
agrees to permit the Purchaser to occupy the Seller
Premises; and
(3) During the 12 month period immediately
following the Closing, Prior shall have cooperated with
and provided technical support to the Purchaser in
accordance with provisions of SCHEDULE 3.1.2 hereto. The
Purchaser agrees to pay to Prior a reasonable
compensation for his activities as described in SCHEDULE
3.1.2.
3.2 Payments shall be made in New Israeli Shekels at the representative
rate of exchange for the U.S. dollar last published by the
Bank of Israel at the time of payment.
3.3 The parties agree that the Total Purchase Price is based on a
value of $ US 190,000 for the Seller's Premises which are
excluded from the transaction. If an appraisal of the Seller's
Premises, to be commissioned by Purchaser, reflects a value in
excess of $190,000, the Total Purchase Price and the payment
under 3.1.2(a) will be reduced by the excess amount.
4. SELLER'S REPRESENTATIONS AND WARRANTIES
The Seller and each of the Shareholders, jointly and severally,
represent and warrant to Purchaser as follows:
4.1 Organization, Standing and Authority
4.1.1 Seller is a company duly organized, validly existing and
in good standing under the laws of Israel, and has the
full power and authority to carry on its business in the
places and as it is now being conducted and to own and
lease the properties and assets which it now owns or
leases.
4.1.2 Seller is now, and will be at Closing, duly qualified
and/or licensed to transact business and in good standing
in the jurisdictions it carries out business. The
character of the property owned or leased by the Seller
and the nature of the business conducted by Seller does
not require qualification and/or licensing in any other
jurisdiction.
4.1.3 Seller represents that, subject to receipt of the
approvals and permits specified in Section 4.8, it has
the capacity and authority to execute and deliver this
Agreement, to perform hereunder and to consummate the
transactions contemplated hereby without the necessity of
any act or consent of any other person whomsoever.
4.1.4 The execution, delivery and performance by the Seller of
this Agreement and each and every agreement, document and
instrument provided for herein have been duly authorized
and approved by Seller's Board of Directors and, if
required by law or the Seller's Articles of
Association, the shareholders of the Seller. This
Agreement and each and every agreement, document and
instrument to be executed, delivered and performed by
the Seller or any Shareholder in connection herewith
constitute or will, when executed and delivered,
constitute the valid and legally binding obligations of
the Seller and the Shareholders, as the case may be,
enforceable against each of them in accordance with
their respective terms, except as enforceability may be
limited by applicable equitable principals or by
bankruptcy, insolvency, reorganization, moratorium, or
similar laws from time to time in effect, affecting the
enforcement of creditors' rights generally. Attached
hereto as EXHIBIT 4.1.4 are true, correct and complete
copies of the Memorandum and Articles of Association of
the Seller.
4.2 Liabilities and Obligations of the Seller
4.2.1 Attached hereto as EXHIBIT 4.2.1 are true, correct and
complete copies of Seller's audited year end financial
statements and reviewed quarterly statements as of
December 31, 1995, December 31, 1996, and December 31,
1997 (respectively, the "1995, 1996 and 1997 Financial
Statements"). Also attached hereto as EXHIBIT 4.2.2 are
true and complete copies of the unaudited reviewed
financial statements of Seller as of March 31, 1998 (the
"Financial Statement Date") (the "Interim Financial
Statements"). The 1995, 1996, and 1997 Financial
Statements and the Interim Financial Statements are
complete, have been prepared in accordance with generally
accepted accounting principles of Israel and the
provisions of Section 2.3, consistently applied, fairly
present the financial condition of the Seller as of the
respective dates thereof and disclose all liabilities of
the Seller, whether absolute, contingent, accrued or
otherwise, existing as of the date thereof which are of a
nature required to be reflected in financial statements
prepared in accordance with generally accepted accounting
principles of Israel.
4.2.2 The Seller has no liability or obligation (whether
accrued, absolute, contingent or otherwise) which is of a
nature required to be reflected in financial statements
prepared in accordance with generally accepted accounting
principles of Israel, consistently applied, including
without limitation, any liability which might result
from an audit of its Tax Returns by any appropriate
authority, except for (a) the liabilities and
obligations of the Seller which are disclosed or
reserved against in the Interim Financial Statements or
EXHIBIT 4.2.2 hereto, to the extent and in the amounts
so disclosed or reserved against, and (b) liabilities
incurred or accrued in the ordinary course of business,
assets or operations of the Seller.
4.2.3 Except as disclosed in the Interim Financial Statements
or EXHIBIT 4.2.2, the Seller is not in default with
respect to any material liabilities or obligations, and
all such liabilities or obligations shown or reflected in
the Interim Financial Statement or EXHIBIT 4.2.2 and such
liabilities incurred or accrued subsequent to the
Financial Statement Date, have been, or are being, paid
and discharged as they become due, and all such
liabilities and obligations were incurred in the ordinary
course of business except as indicated in EXHIBIT 4.2.2.
4.2.4 There are no outstanding loans or advances that have been
made by the Seller or any entity controlled by it other
than as set forth in the Financial Statements and no
outstanding amounts due to the Seller from any
Shareholder, employee or any such controlled entity.
4.3 Tax Returns and Tax Status. Unless otherwise specified in the
Financial Statements, the Seller will within 30 days of the
Closing, timely and accurately file all Tax Returns required to
be filed by Seller prior to such dates and will by such time
pay all taxes shown on such returns as owed for the periods of
such returns, including (without limitation) all withholding or
other payroll related taxes shown on such returns. Seller
further undertakes to file 1997 tax returns on a timely basis.
The tax basis of all assets of the Seller as reflected on its
books and records is correct and accurate for use in tax
periods ending after the Closing Date, (such tax basis shall be
set forth on EXHIBIT 4.3 which shall include the value of all
assets for tax purposes at the Closing Date, and detail the
date of purchase, cost and accumulated depreciation for tax
purposes), assuming that no change in applicable tax laws
occurs subsequent to Closing. The Seller is not, nor will it
become, subject to any additional taxes, interest, penalties or
other similar charges as a result of the failure to file timely
or accurately, as required by applicable law, any such Tax
Return prior to the Closing Date or to pay timely any amount
shown to be due thereon, including, without limitation, any
such taxes, interest, penalties or charges resulting from
the obtaining of an extension of time to file any return or
to pay any tax. No assessments or notices of deficiency or
other communications have been received by the Seller with
respect to any such tax return which has not been paid,
discharged or fully reserved in the Interim Financial
Statements or EXHIBIT 4.3 hereto, and no amendments or
applications for refund have been filed or are planned with
respect to any such return.
4.4 Ownership of Assets and Leases. EXHIBIT 4.4 attached hereto is
a complete and correct list and brief description as of the
date of this Agreement of all material items of personal
property, owned, leased or licensed by the Seller as of March
31, 1998 included in Net Assets (such list identifying which of
such properties are owned by the Seller and all of the leases,
licenses or agreements under which the Seller is lessee or
licensee or hold or operate any property, real or personal).
The Seller has good and marketable title to all of those
properties listed and described in EXHIBIT 4.4 as owned
property and assets, in each case free and clear of any liens,
security interests, claims, charges, options, rights of tenants
or other encumbrances, except as disclosed or reserved against
in EXHIBIT 4.4 (to the extent and in the amounts so disclosed
or reserved against) and except for liens arising from current
taxes not yet due and payable. Each of the leases, licenses and
agreements described in EXHIBIT 4.4 is in full force and effect
and constitutes a legal, valid and binding obligation of (i)
the Seller and (ii) to the best of Seller's and the
Shareholders' knowledge, the other respective parties thereto;
and is enforceable in accordance with its terms, except as
enforceability may be limited by applicable equitable
principles or by bankruptcy, insolvency, reorganization,
moratorium, or similar laws from time to time in effect
effecting the enforcement of creditors' rights generally. There
is not under any of such leases, licenses or agreements
existing any material default (i) of the Seller, or (ii) to the
best of Seller's and the Shareholders' knowledge, of any other
parties thereto (or, with respect to (i) and (ii) above, event
or condition which, with notice or lapse of time, or both,
would constitute a default). The inventories of the Seller
consist of items of a quality and quantity readily usable or
readily salable, at prices equal to the values at which such
items are reflected in the Seller 's books, in the normal
course of its business and are valued so as to reflect the
normal valuation policy of the Seller, all in accordance with
generally accepted accounting principles, applied on a basis
consistent with prior years, but not in excess of the lower of
cost or net realizable market value. All of the accounts
receivable of the Seller as of the Closing Date will reflect
actual transactions, will have arisen in the ordinary course
of business and will not be subject to offset or deduction.
All of such accounts receivable will be collectible (without
recourse to any judicial proceedings) within six (6) months
of the Closing Date at the aggregate recorded amounts
thereof, net of reserves for estimated doubtful accounts
disclosed on the Interim Financial Statements. Except
pursuant to this Agreement, neither the Seller nor any
Shareholder is a party to any contract or obligation whereby
there has been granted to anyone an absolute or contingent
right to purchase, obtain or acquire any rights in any of
the assets, properties or operations which are owned by the
Seller or which are used in connection with the business of
the Seller and are being acquired hereby, except as
indicated in EXHIBIT 4.4.
4.5 Agreement Does Not Violate Other Instruments. Except as listed
in EXHIBIT 4.5 (i) the execution and delivery of this Agreement
by the Seller and the Shareholders do not, and the consummation
of the transactions contemplated hereby will not, violate any
provision of the Memorandum and Articles of Association of the
Seller or violate or constitute an occurrence of default under
any provision of, or conflict with, or result in acceleration
of any obligation under, or give rise to a right by any party
to terminate its obligations under any mortgage, deed of trust,
conveyance to secure debt, note, loan, lien, lease, agreement,
instrument, or any order, judgment, decree or other arrangement
to which the Seller or any Shareholder is a party or is bound
or by which the Seller's assets are affected; and (ii) no
consent, approval, order or authorization of, or registration,
declaration or filing with any governmental entity is required
to be obtained or made by or with respect to the Seller, any
Shareholder or any assets, properties or operations of the
Seller or any Shareholder, in connection with the execution and
delivery by the Seller and the Shareholders of this Agreement
or the consummation of the transactions contemplated hereby.
4.6 Conduct of the Business of the Seller Prior to the Closing
4.6.1 Except (i) with the prior consent in writing of the
Purchaser, (ii) as may be required to effect the
transactions contemplated by this Agreement, or (iii) as
provided otherwise in this Agreement, the Seller shall
conduct, between the date of this Agreement and the
Closing Date, its business in the ordinary course, and
shall (a) use its best efforts to preserve the
organization of the Seller intact and to preserve the
goodwill of customers and others having business
relations with the Seller; (b) maintain the properties of
the Seller in the same working order and condition as
such properties are in as of the date of this Agreement,
reasonable wear and tear excepted; (c) keep in force at
no less than their present limits all existing bonds and
policies of insurance insuring the Seller and its
property; (d) not enter into any contract, commitment,
arrangement or transaction not in the ordinary course of
business that cannot be terminated by the Seller within
30 days without payment of any amount for any reason
whatsoever, or suffer, permit or incur any of the
transactions or events described in Section 4.5 hereof to
the extent such events or transaction are within the
control of the Seller or; (e) not make or permit any
change in the Memorandum and Articles of Association of
the Seller, or in the Seller's authorized, issued or
outstanding securities; (f) not issue any securities, not
grant any stock option or right to purchase any security
of the Seller, issue any security convertible into such
securities, purchase redeem, retire or otherwise acquire
any of such securities, or agree to do any of the
foregoing or declare, set aside or pay any dividend or
other distribution in respect of such securities; (g) not
make any contribution to or distribution from any
employee benefit plan, pension plan, stock bonus plan or
profit sharing plan or similar employee benefit plan
recognized by the laws of Israel or any political
subdivision thereof (except for the payment of any
health, disability and life insurance premiums which may
become due and except for contributions or distribution
required to be made); (h) not pay or retire from the
assets of the Seller any loans, advances, or other like
amounts, including any interest due thereon, from any
Shareholder or any affiliate of any Shareholder to the
Seller; (i) promptly advise Purchaser in writing of any
matters arising or discovered after the date of this
Agreement which, if existing or known at the date hereof,
would be required to be set forth or described in this
Agreement or the Exhibits hereto; and (j) maintain
adequate insurance consistent with past practices for its
businesses and properties.
4.6.2 Except after prior notification to, and with the prior
written consent of, Purchaser, the Seller will not make,
between the date of this Agreement and the Closing Date,
any change in their banking arrangements. A list of all
bank accounts of the Seller and of all persons authorized
to act with respect thereto is attached hereto as EXHIBIT
4.6.2.
4.6.3 Except with the prior consent in writing of Purchaser,
the Seller will not make between the date of this
Agreement and the Closing Date, any material changes in
their accounting methods or practices.
4.7 Examination of Property and Records
4.7.1 Between the date of this Agreement and the Closing Date,
the Seller will allow Purchaser, its counsel and other
representatives full access to all books, records, files,
documents, assets, properties, contracts and agreements
of the Seller which may be reasonably requested, and
shall furnish Purchaser, its officers and representatives
during such period with all information concerning the
affairs of the Seller. Purchaser will conduct any
investigation in a manner which will not unreasonably
interfere with the business of the Seller. In the event
the Closing does not occur, Purchaser will as soon as is
practicable, return or destroy all material of the Seller
then in its possession and hereby covenants to keep
confidential all Proprietary Information (as defined in
Section 4.7.2 below); provided, however, that the
foregoing agreement to keep information confidential
shall not apply to any information (a) in the public
domain not as a result of the violation of Purchaser's
undertakings herein, (b) available to Purchaser on a
nonconfidential basis without regard to the disclosure by
the Seller to Purchaser, (c) available to Purchaser from
a source other than the Seller, provided that such source
in so acting is not, to Seller's or the Shareholders'
knowledge, violating any duty or agreement of
confidentiality or (d) required to be disclosed by any
law, rule or regulation.
4.7.2 Purchaser acknowledges that in accordance with this
Section 4.7.2, the Seller may disclose to Purchaser
certain commercially valuable, proprietary and
confidential information and trade secrets with respect
to the Seller's business, including without limitation,
information which may relate to their proprietary
products, technology, processes, drawings,
specifications, programs, models, financial information
and projections, formulae, data, know-how, methods,
developments, designs, improvements, inventions,
software programs, products, marketing plans and
strategies, customer and supplier lists and other
valuable business information and opportunities
(collectively, "Proprietary Information").
4.8 Consents and Approvals. Prior to the Closing, the Seller shall
obtain those waivers, consents and approvals set forth on
EXHIBIT 4.8 and shall use their best efforts to obtain the
waiver, consent and approval of all persons whose waiver,
consent or approval (i) is required in order to consummate the
transactions contemplated by this Agreement or (ii) is required
by any agreement, lease, instrument, arrangement, judgment,
decree, order or license to which the Seller is a party or
subject on the Closing Date and (a) which would prohibit, or
require the waiver, consent or approval of any person to such
transactions or (b) under which, without such waiver, consent
or approval, such transactions would constitute an occurrence
of default under the provisions thereof, result in the
acceleration of any obligation thereunder or give result in the
acceleration of any obligation thereunder or give rise to a
right of any party thereto to terminate its obligations
thereunder.
4.9 Absence of Changes. Since March 31, 1998, the Seller has not
(except as disclosed on EXHIBIT 4.9 attached hereto or except
as required or contemplated by this Agreement):
4.9.1 Transferred, assigned, conveyed or liquidated into
current assets or any of the Purchased Assets or business
or entered into any transaction or incurred any liability
or obligation, other than in the ordinary course of its
business;
4.9.2 Suffered any adverse change in its business, operations,
or financial condition or become aware of any event or
state of facts which may result in any such adverse
change;
4.9.3 Suffered any destruction, damage or loss, whether or not
covered by insurance;
4.9.4 Suffered, permitted or incurred the imposition of any
lien, charge, encumbrance (which as used herein includes,
without limitation, any mortgage, deed of trust,
conveyance to secure debt or security interest) or claim
upon any of the Net Assets.
4.9.5 Committed, suffered, permitted or incurred any default in any
liability or obligation;
4.9.6 Made or agreed to any material adverse change in the terms of
any contract or instrument to which it is a party;
4.9.7 Waived, canceled, sold or otherwise disposed of, for less
than the face amount thereof, any claim or right which it
has against others;
4.9.8 Paid, agreed to pay or incurred any obligation for any
payment of any indebtedness except current liabilities
incurred in the ordinary course of business.
4.9.9 Delayed or postponed the payment of any liabilities,
whether current or long term, or failed to pay in the
ordinary course of business any liability on a timely
basis consistent with prior practice.
4.10 Litigation. There is no suit, action, proceeding, claim or
investigation pending, threatened against or affecting the
Seller and, to the best of Seller's and the Shareholders'
knowledge, there exists no basis or grounds for any such suit,
action, proceeding, claim or investigation.
4.11 Licenses and Permits; Compliance with Law. The Seller hereby
transfers and assigns, effective upon the Closing Date, free of
liens or any interests of third parties, all contracts,
licenses, certificates, permits, franchises and rights from all
appropriate public authorities of Israel or other nation
necessary for the sale and utilization by Purchaser of the Net
Assets. Except as noted in EXHIBIT 4.11, the Seller, to the
best of its and the Shareholders' knowledge, is presently
conducting its business so as to comply in all respects with
all applicable statutes, ordinances, rules, regulations and
orders of any governmental authority. Further, the Seller has
not been presently charged with, or under governmental
investigation with respect to, any actual or alleged violation
of any statute, ordinance, rule or regulation, nor presently
the subject of any pending or threatened adverse proceeding
by any regulatory authority having jurisdiction over any of
its business, properties or operations. Neither the
execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will,
to the best of Seller's and the Shareholders' knowledge,
result in the termination of any license, certificate,
permit, franchise or right held by the Seller, and all such
licenses, certificates, permits, franchises and rights will
inure to the benefit of the Purchaser upon consummation of
the transactions contemplated by this Agreement.
4.12 Contracts, Etc. EXHIBIT 4.12 hereto consists of a true and
complete list of all contracts, agreements and other
instruments which relate to or in any way affect the Net Assets
and which are assigned pursuant to Section 4.11 above. All of
the contracts, agreements, policies of insurance or instruments
described in EXHIBIT 4.12 immediately prior to the Closing Date
hereto are valid and binding upon (i) the Seller, and (ii) to
the best of Seller's and the Shareholders' knowledge, the other
parties thereto; said contracts, agreements, policies of
insurance and instruments are in full force and effect and
enforceable in accordance with their terms, and neither the
Seller nor any other party to any such contract, commitment or
arrangement has breached any material provision of, or is in
default under, the terms thereof; and there are no existing
facts or circumstances known to the Seller or Shareholders,
which would prevent the work in process of the Seller or its
contracts and agreements from maturing in due course into fully
collectible accounts receivable.
4.13 Intellectual Property
4.13.1 Licenses, Patents, Trademarks. For purposes of this
Agreement, "Intellectual Property" means the following
items of intangible and tangible property:
(i) patents, whether in the form of utility patents or
design patents and all pending applications for
such patents ("Patents");
(ii) trademarks, trade names, service marks,
designs, logos, trade dress and trade styles,
whether or not registered, and all pending
applications for registration of the same
("Trademarks");
(iii) copyrights, whether or not registered, and all
pending applications for registration thereof
("Copyrights");
(iv) inventions, research records, trade secrets,
confidential information, product designs,
engineering specifications and drawings,
technical information, formulae, customer
lists, supplier lists and market analyses
("Technical Information");
(v) computer programs, including, without
limitation, computer programs embodied in
semiconductor chips ("Firmware") or otherwise
embodied, and related flow-charts, programmer
notes, updates and data, whether in object or
source code form ("Software").
4.13.2 EXHIBIT 4.13.2 hereto sets forth a complete and correct
list and summary description of all Patents,
Trademarks, Copyrights, Technical Information, Firmware
and Software, registrations thereof and applications
therefor, applicable to the Net Assets, together with a
complete list of all licenses granted by or to the
Seller with respect to any of the above.
4.13.3 The Seller, to the best of its and the Shareholders'
knowledge, possesses all of the necessary Intellectual
Property necessary to enable the operation of the
business of the Seller as now being conducted.
4.13.4 The Seller will together with the sale of the Net
Assets grant to Purchaser good, valid, subsisting,
unexpired and enforceable title to, free and clear of
all Security Interests, and exclusive rights to use,
all of the Intellectual Property necessary to enable
operation of the Net Assets by the Purchaser and to the
best of the Seller's knowledge, information and belief,
except as set forth in EXHIBIT 4.13.4. no other
Intellectual Property is necessary to permit the
Purchaser to utilize the Net Assets as currently
utilized by Seller without the payment of any fee or
royalty. No employee, director or Shareholder of the
Seller or employer of any such employee of the Seller
has any rights to processes, systems and techniques
used or contemplated to be used by the Seller.
4.13.5 To the best of the Seller's knowledge, information and
belief, no Intellectual Property related to the Net
Assets, has infringed, is infringing or will infringe
upon any intellectual property rights of others and the
use of such Intellectual Property, will not constitute
an infringement, misappropriation or misuse of any
third party's intellectual property. To the best of the
Seller's knowledge, information and belief, no person
(including Shareholders, officers and employees) has
asserted or has the right to assert any claim regarding
the use of, or challenging or questioning the Seller's
right or title in, any of the Intellectual Property.
4.13.6 The Seller and, to the best knowledge of Seller and the
Shareholders, all other parties to any licensing,
leasing or similar arrangements under which either the
Seller is the licenser, lessor or has otherwise granted
the right to use Seller's Intellectual Property are in
full material compliance therewith and are not in
breach of their obligations with respect thereto. The
Seller is not a party to any license, installation
agreement, maintenance agreement, data processing
agreement, service agreement or other agreement
pursuant to which either of them is committed to
perform installation, modifications, enhancements or
services without payment or for payments which, in the
aggregate, are less than the cost to perform such
installation, modifications, enhancements or services
other than pursuant to warranty obligations incurred in
the ordinary course of business. Except for licenses
listed on EXHIBIT 4.13.6, the Seller has not granted
any licenses, leases or other rights and has no
obligations to grant licenses, leases or other rights
with respect to the Seller's Intellectual Property. The
Seller has complied in all respects with its
obligations to its customers, licensees and lessees in
respect of the Seller's Intellectual Property.
4.14 Labor Matters. Except as disclosed in the Financial Statements,
Seller has made all deductions required to be made by law
from the salaries of its employees in respect of tax,
National Insurance contributions or otherwise, and has paid
all such amounts so deducted to the appropriate authorities.
To secure the severance pay due to all employees of Seller,
sufficient provision has been made in accordance with
generally accepted accounting practice among Israel's major
accounting firms, to recognized provident funds, pension
funds, severance pay funds and/or insurance companies under
"Managers Insurance Policies."
4.15 Exhibits. All Exhibits attached hereto are true, correct and
complete as of the date of this Agreement and will be true,
correct and complete as of the Closing.
4.16 Disclosure and Absence of Undisclosed Liabilities. This
Agreement and the Exhibits hereto disclose all facts material
to the assets, business or operations of the Seller. No
statement contained herein or in any certificate, schedule,
list, exhibit or other instrument furnished to Purchaser
pursuant to the provisions hereof contains or will contain any
untrue statement of any material fact or omits or will omit to
state a material fact necessary in order to make the statements
contained herein or therein not misleading.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Seller and the Shareholders
as follows:
5.1 Organization and Standing. Purchaser is a duly organized and
validly existing corporation in good standing under the laws of
the State of Israel.
5.2 Corporate Power and Authority. Purchaser has the capacity and
authority to execute and deliver this Agreement, to perform
hereunder and to consummate the transactions contemplated
hereby without the necessity of any act or consent of any other
person whomsoever. The execution, delivery and performance by
Purchaser of this Agreement and each and every agreement,
document and instrument provided for herein have been duly
authorized and approved by its Board of Directors. This
Agreement, and each and every other agreement, document and
instrument to be executed, delivered and performed by Purchaser
in connection herewith, constitute or will, when executed and
delivered, constitute the valid and legally binding obligation
of Purchaser enforceable against it in accordance with their
respective terms, except as enforceability may be limited by
applicable equitable principles, or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws from time to time in
effect affecting the enforcement of creditors' rights generally.
5.3 Agreement Does Not Violate Other Instruments. The execution and
delivery of this Agreement by Purchaser do not, and the
consummation of the transaction contemplated hereby will not,
violate any provisions of the Memorandum and Articles of
Association of Purchaser.
5.4 Sophisticated Investor
Purchaser is a sophisticated investor, with knowledge and
experience in business and financial matters, including the
transaction and matter at hand.
5.5 Due Diligence
Purchaser has conducted a due diligence investigation of the
business of the Company, including the Net Assets. Purchaser
believes it has received all materials, information and
documentation that it requested. Furthermore, Purchaser
represents that it has relied solely on its own evaluation of
the materials, information and documentation received from the
Company.
5.6 High Technology Risk
Purchaser acknowledges that the Seller's products are based on
high-risk technology and no assurance may be given as to the
commercial success of the Seller's products into the market.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
All of the obligations of Purchaser to consummate the transaction
contemplated by this Agreement shall be contingent upon and subject
to the satisfaction, on or before the Closing Date, of each and every
one of the following conditions, all or any of which may be waived,
in whole or in part, by Purchaser for purposes of consummating such
transactions, but without prejudice (except as provided in the next
sentence) to any other right or remedy which Purchaser may have
hereunder as a result of any misrepresentation by, or breach of any
covenant or warranty of, the Seller or the Shareholders contained in
this Agreement or any other certificate or instrument furnished by
the Seller or any Shareholder hereunder. Notwithstanding the
foregoing, in the event that the Seller notify Purchaser in writing at
least two (2) business days prior to the Closing Date of a
misrepresentation or breach of a covenant that will not be cured by
Closing, and such notice contains sufficient detail to enable
Purchaser to make an informed decision (which detail shall include,
without limitation, a good faith estimate of the maximum dollar amount
of damages that the Purchaser would suffer as a result of such
misrepresentation or breach), closing of the transactions by Purchaser
shall be deemed a waiver solely of such matter, but only to the extent
of the dollar amount of damages described in such notice.
6.1 Representations True at Closing. The representations and
warranties made by the Seller and the Shareholders to Purchaser
in this Agreement, the Exhibits hereto or any document or
instrument delivered to Purchaser or its representatives
hereunder shall be materially true and correct on the Closing
Date with the same force and effect as though such
representations and warranties had been made on and as of such
time, except for changes contemplated by this Agreement.
6.2 Covenants of the Seller and the Shareholders. The Seller and
the Shareholders shall have duly performed all of the
covenants, acts and undertakings to be performed by them on or
prior to the Closing Date, and the President of the Seller and
the Shareholders shall each deliver to Purchaser a certificate
dated as of the Closing Date certifying the fulfillment of this
condition and the condition set forth in Section 6.1 hereof.
6.3 No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted,
threatened or proposed before any court, governmental agency or
legislative body to enjoin, restrain, prohibit or obtain
substantial damages in respect of, or which is related to, or
arises out of, this agreement or the consummation of the
transactions contemplated hereby, or which is related to or
arises out of the business of the Seller, if such action,
proceeding, investigation, regulation or legislation, in the
reasonable judgment of Purchaser would make it inadvisable to
consummate such transactions.
6.4 Opinions of Counsel. A favorable opinion of Cohen - Khayat Law
Offices, counsel for the Seller and the Shareholders, shall
have been delivered to Purchaser dated as of the Closing Date,
substantially in form and substance of the opinions attached
hereto as EXHIBIT 6.4.
6.5 Consents, Approvals and Waivers. Purchaser shall have received
a true and correct copy of each and every consent, approval and
waiver (a) referred to in SCHEDULE 4.8 hereof. Seller shall use
its best efforts to obtain all consents, approvals and waivers
otherwise required for the execution of this Agreement and the
consummation of the transactions contemplated hereby.
6.6 Legal Approvals. The execution and the delivery of this
Agreement and the consummation of the transactions contemplated
hereby shall have been approved by all regulatory authorities
whose approvals are required by law or necessary to preserve
the rights and benefits currently enjoyed by the Seller after
the Closing. Without limiting the generality of the foregoing,
such approvals shall include the obtaining of the approval from
the Chief Scientist.
6.7 Execution by Third Parties. All agreements and documents
attached as Exhibits hereto shall have been executed by all the
parties thereto.
6.8 Amendment of Employment Agreement. On or prior to the Closing,
the Company and Karni shall have executed an extension of the
term of Karni's employment agreement with the Company through
June 30, 2002.
6.9 Removal of Floating Charge on Company Asset. On or prior to the
Closing, the Purchaser shall have received written confirmation
from Bank Discount (the "Bank") that, upon the deposit by
Purchaser of an amount not to exceed US$____________ in an
account of Purchaser at a local branch of the Bank, as security
for the obligations of the Company to the Bank, the Bank shall
take all necessary steps to remove the floating charge on the
Company's assets and releasing any other liens or charges the
Bank may have on the Company or the Company's assets and
releasing any other liens the bank may have on the Company or
the Company's assets. The form and content of such confirmation
shall be reasonably acceptable to the Purchaser. The Purchaser
undertakes to deposit such amount with the Bank not later than
the Closing.
6.10 Signature Rights. All existing signature rights over the
Company's bank account at the Rehovot branch of Discount Bank
shall be terminated and exclusive signature rights over such
account shall be granted to a designee of the Purchaser.
6.11 Transfer of Assets. At the Closing, the Company shall deliver
to the Purchaser the documents specified in SCHEDULE 6.11 and
the Purchaser shall deliver a commitment to pay rental fees due
on the premises of the Company up to Relocation Date. Following
the Closing, the Company and the Shareholders will use their
best efforts to provide such other documentation as Purchaser
may reasonably request to effect the transfer of the Company's
assets to the Purchaser.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
SELLER AND THE SHAREHOLDERS TO CLOSE
All of the obligations of the Seller and the Shareholders to
consummate the transactions contemplated by this Agreement shall be
contingent upon and subject to the satisfaction, on or before the
Closing Date, of each and every one of the following conditions, all
or any of which may be waived on whole or in part, by the Seller and
the Shareholders for purposes of consummating such transactions, but
without prejudice (except as provided in the next sentence) to any
other right or remedy which they may have hereunder as a result of
any misrepresentation by, or breach of any covenant or warranty of
Purchaser contained in this Agreement, or any certificate or
instrument furnished by it hereunder. Notwithstanding the foregoing,
in the event that the Purchaser notifies the Seller in writing at
least two (2) business days prior to the Closing Date of a
misrepresentation or breach of covenant that will not be cured by
Closing, and such notice contains sufficient detail to enable the
Seller to make an informed decision (which detail shall include,
without limitation, a good faith estimate of the maximum dollar
amount of damages that the Seller would suffer as a result of such
misrepresentation or breach), closing of the transactions by the
Seller shall be deemed a waiver solely of such matter, but only to
the extent of the dollar amount of damages described in such notice.
7.1 Representations True at Closing. The representations and
warranties made by Purchaser in this Agreement to the Seller or
any document or instrument delivered to the Seller, shall be
materially true and correct on the Closing Date with the same
force and effect as though such representations and warranties
had been made on and as of such date, except for changes
contemplated by this Agreement.
7.2 Covenants of Purchaser. Purchaser shall have duly performed all
of the covenants, acts and undertakings to be performed by
it on or prior to the Closing Date, and a duly authorized
officer of Purchaser shall deliver a certificate dated as of
the Closing Date certifying to the fulfillment of this
condition and the condition set forth under Section 7.1
above.
7.3 No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted,
threatened or proposed before any court, governmental agency or
legislative body to enjoin, restrain, prohibit or obtain
substantial damages in respect of, or which is related to or
arises out of, this Agreement or the consummation of the
transactions contemplated hereby, or which is related to or
arises out of, the business of Purchaser, if such action,
proceedings, investigation, regulation or legislation, in the
reasonable judgment of the Seller or the Shareholders would
make it inadvisable to consummate same.
7.4 Approvals. The execution and the delivery of this Agreement and
the consummation of the transactions contemplated hereby shall
have been approved by all regulatory authorities whose
approvals are required by law.
8. CLOSING
8.1 Time and Place of Closing. Subject to the satisfaction of the
conditions set forth in Section 6 and 7 hereof, the Closing
shall occur at a mutually acceptable location on _____________,
1998, or as soon thereafter as practicable when such conditions
have been met, unless another place or date is agreed to in
writing by the Seller, and Purchaser, but in no event will the
Closing be held later than _____________, 1998. If for any
reason the Closing has not occurred by such date, Purchaser may
at any time thereafter terminate this Agreement without
obligation to the Seller by delivery of written notice of
termination to Seller.
8.2 Transactions at Closing. At the Closing, each of the following
transactions shall occur:
8.2.1 At the Closing, the Seller and the Shareholders shall
deliver to Purchaser the following:
(a) the certificates of the Shareholders and of the
President of the Seller described in Section 6.2;
(b) copies of the consents and waivers described in Section
4.8 and Section 6.6;
(c) opinion of counsel described in Section 6.4;
(d) satisfactory evidences of the approvals described in
Section 6.5 and 6.6;
(e) copies of resolutions of the Board of Directors, and
the Shareholders of the Seller;
(f) the documents specified in SCHEDULE 6.11; and
(g) such other evidence of the performance of all
covenants and satisfaction of all conditions
required of the Seller and the Shareholders by this
Agreement, at or prior to the Closing, as Purchaser
or its counsel may reasonably require.
8.2.2 At the Closing, Purchaser shall deliver to the Seller
the following:
(a) Payment of the amount of US$2,450,000, as set forth in
Section 3.1(a), subject to the adjustments set forth in
section 3.3;
(b) the certificate of the authorized officer described in
Section 7.2;
(c) satisfactory evidence of the approvals described in
Section 7.4;
(d) copy of resolutions of the Board of Directors of
Purchaser approving the transactions set forth in this
Agreement; and
(e) such other evidence of the performance of all the
covenants and satisfaction of all of the conditions
required of Purchaser by this Agreement at or
before the Closing as the Seller, the Shareholders
or their counsel may reasonably require.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION
9.1 Survival of Representations and Warranties of the Seller and
the Shareholders. All representations, warranties, agreements,
covenants and obligations made or undertaken by the Seller and
any of the Shareholders in this Agreement or in any document or
instrument executed and delivered pursuant hereto are material,
have been relied upon by Purchaser, shall survive the Closing
hereunder and shall not merge in the performance of any
obligation by any party hereto. The Seller and the Shareholders
agree to indemnify and hold Purchaser harmless from and against
all liability, loss, damage or injury and all reasonable costs
and expenses, including reasonable counsel fees and costs of
any suit related thereto ("Losses") suffered or incurred by
Purchaser arising from (i) any misrepresentation by, or breach
of any covenant or warranty of, either of the Seller or any
Shareholder contained in this Agreement or any certificate or
other instrument furnished or to be furnished by the Seller or
any Shareholder hereunder, or any claim by a third party
(regardless of whether the claimant is ultimately successful)
which if true would be such a misrepresentation or breach or
(ii) any suit, action, proceeding, claim or investigation
(whether or not currently pending or threatened) against
Purchaser, its officers, directors or shareholders arising from
or related to this Agreement and/or the acquisition utilization
or ownership of the Net Assets. Any examination, inspection or
audit of the properties, financial condition or other matters
of the Seller and their businesses conducted by Purchaser
pursuant to this Agreement shall in no way limit, affect or
impair the ability of Purchaser to rely upon the
representations, warranties, covenants and obligations of the
Seller and Shareholders set forth herein.
9.2 Survival of Representations and Warranties of Purchaser. All
representations, warranties, agreements, covenants and
obligations made or undertaken by Purchaser in this Agreement
or in any document or instrument executed and delivered
pursuant hereto are material, have been relied upon by the
Seller, shall survive the Closing hereunder and shall not merge
in the performance of any obligation by any party hereto.
Purchaser agrees to indemnify and hold the Seller harmless from
and against all liability, loss, damage or injury and all
reasonable costs and expenses (including reasonable counsel
fees and costs of any suit related thereto) suffered or
incurred by the Seller or the Shareholders arising
from any misrepresentation by, or breach of any covenant or
warranty of, Purchaser contained in this Agreement or any
certificate or instrument furnished or to be furnished by
Purchaser hereunder, or any claim by a third party (regardless
of whether the claimant is ultimately successful) which if true
would be such a misrepresentation or breach.
9.3 Notification of Claim.
9.3.1 Whenever any claim shall arise for indemnification
hereunder, the party seeking indemnification hereunder
(the "Indemnified Party") shall promptly notify the party
or parties from whom indemnification is sought
(collectively, the "Indemnifying Party") of the claim
and, when known, the facts constituting the basis for
such claim. In the event of any such claim for
indemnification hereunder resulting from or in connection
with any claim or legal proceeding by a third party, the
notice to the Indemnifying Party shall specify, if known,
the amount of damages asserted by such third party.
9.3.2 Upon receipt of any such notice from the Indemnified
Party, the Indemnifying Party shall be entitled to
participate in the defense of such claim, and may assume
the defense of such claim if and only if: (i) the
Indemnifying Party confirms in writing its obligations to
indemnify the Indemnified Party with respect to such
claim and the Indemnifying Party posts a bond reasonably
acceptable to the Indemnified Party in all respects
sufficient to insure payment of all amounts which are
indemnifiable hereunder (ii) the Indemnified Party in its
good faith discretion does not notify the Indemnifying
Party that it has determined a conflict of interest makes
separate representation by the Indemnified Party's own
counsel advisable, (iii) the claim does not involve a
claim for injunctive or other similar equitable relief
against the Indemnified Party, and (iv) the claim does
not involve any criminal law claim against the
Indemnified Party or its directors, officers, employees
or agents. The parties acknowledge and agree that in the
event the Indemnifying Party has properly assumed the
defense of such claim as provided herein, the Indemnified
Party shall be entitled to retain its own counsel to
participate in the defense of such claim at its own cost
and expense. No claim shall be settled or compromised
without the written consent of the other party if such
settlement or compromise requires such other party to make
any payment or to take or refrain from taking any action or
enjoins such other party or subjects it to other equitable
relief or subjects it to any potential criminal law claim or
liability.
9.4 Survival Period for Claims. A claim for indemnification
hereunder Purchaser shall be forever barred unless made by
notifying the Indemnifying Party in writing in reasonable
detail within three (3) years from the Closing Date with
respect to a breach of the representations and warranties set
forth in Article 4.13 ("Intellectual Property"), and twelve
months following the Closing Date with respect to any other
representations and warranties.
9.5 Limitations on Liability.
Notwithstanding any other provision of this Section 9 to the
contrary, (a) no claim for indemnification under Section 9.1 or
9.2 shall be made unless and until the Indemnified Party shall
have incurred losses in excess of $100,000 in the aggregate and
(b) the maximum aggregate liability of either party to the
other under this Section 9 shall be an amount equal to the
aggregate payment by Purchaser prior to the date of
indemnification, plus interest at a rate of 8% per annum from
the date of payment until the date of indemnification.
10. TERMINATION
10.1 Method of Termination. This Agreement constitutes the binding
and irrevocable agreement of the parties to consummate the
transactions contemplated hereby, the consideration for which
is (a) the covenants set forth in Section 6.2 hereof, and (b)
expenditures and obligations incurred and to be incurred by
Purchaser, on the one hand, and by the Seller and the
Shareholders, on the other hand, in respect of this Agreement,
and this Agreement may be terminated or abandoned only as
follows:
10.1.1 by the mutual consent of the Seller, the Purchaser and
the Shareholders;
10.1.2 by the Seller if (i) any of the conditions set forth in
7 hereof, to which their obligations are subject, have
not been fulfilled or waived, unless such fulfillment
has been frustrated or made impossible by any act or
failure to act of any of them; or (ii) any of the
representations or warrants set forth in Section 5 are
proven to be materially inaccurate: or
10.1.3 by Purchaser if (i) any of the conditions set forth in
6 hereof, to which the obligations of Purchaser are
subject, have not been fulfilled or waived, unless such
fulfillment has been frustrated or made impossible by
any act or failure to act as Purchaser; or (ii) any of
the representations or warrants set forth in Section 4
are proven to be materially inaccurate .
11. GENERAL PROVISIONS
11.1 Notices. All notices, request, demands and other communications
hereunder shall be in writing and shall be delivered by hand or
mailed by certified mail, return receipt requested, first class
postage prepaid, or overnight delivery service with receipt
acknowledged or by facsimile addressed as follows:
11.1.1 If to the Seller or the Shareholders:
Orziv (Z.K.Y.P.) Ltd.
8 Vulkany Avenue
Rehovot, Israel
Fax: (08) 947-2507
and in each case with a copy to:
Avi Cohen, Adv.
38 David Hamelech Street
Herzliya, Israel
Fax: (03) 613-1088
11.1.2 If to Purchaser:
c/o E.S.C. Medical Systems Ltd.
P.O. Box 240
Yokneam 20692
Attention: Karen Sarid
Fax: (04) 959-9050
and to:
Kleinhendler & Halevy
Law Offices
30 Kalisher Street
Tel Aviv 65257
Israel
Fax: (03) 510-7528
11.1.3 If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be
the date on which such delivery is made and, if
delivered by mail or by overnight delivery service, the
date on which such notice, request, instruction or
document is received shall be the date of delivery. In
the event any such notice, request, instruction or
document is mailed or shipped by overnight delivery
service to a party in accordance with this Section
11.1.3 and is returned to the sender as nondeliverable,
then such notice, request, instruction or document
shall be deemed to have been delivered or received on
the fifth day following the deposit of such notice,
request, instruction or document in the United States
mails or the delivery to the overnight delivery
service.
11.1.4 Any party hereto may change its address specified for
notices herein by designating a new address by notice
in accordance with this Section 10.1
11.2 Further Assurances. Each party covenants that at any time, and
from time to time, after the Closing Date, it will execute such
additional instruments and take such actions as may be
reasonably requested by the other parties to confirm or perfect
or otherwise to carry out the intent and purposes of this
Agreement.
11.3 Waiver. Any failure on the part of any party hereto to comply
with any of its obligations, agreements or conditions hereunder
may be waived by any other party to whom such compliance is
owed. No waiver of any provision of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a
continuing waiver.
11.4 Expenses. All expenses incurred by the parties hereto in
connection with or related to the authorization, preparation
and execution of this Agreement and the Closing of the
transactions contemplated hereby, including, without limitation
of the generality of the foregoing, all fees and expenses of
agents, representatives, counsel and accountants employed by
any such party, shall be borne solely and entirely by the party
which has incurred the same. All such fees and expenses of the
Seller shall be borne by the Shareholders. In no event shall
any assets of the Seller be utilized for or reduced by the
payment of any such fees or expenses. The Seller and the
Shareholders hereby, jointly and severally, represent and
warrant that no such fees or expenses have been paid by the
Seller from their assets prior to the date of this Agreement,
and hereby, jointly and severally, covenant that the Seller
will not so pay any such fees or expenses prior to the Closing.
11.5 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
heirs, legal representatives, executors, administrators,
successors and assigns, including, without limitation, any
corporation with which the Purchaser may be merged or by which
it may be acquired.
11.6 Headings. This section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference,
and are not a part of this Agreement.
11.7 Entire Agreement; Amendments. This Agreement constitutes the
entire agreement among the parties hereto and supersedes and
cancels any prior agreements, representations, warranties,
or communications, whether oral or written, among the
parties hereto relating to the transactions contemplated
hereby or the subject matter herein. Neither this Agreement
nor any provision hereof may be changed, waived, discharged
or terminated orally, but only by an agreement in writing
signed by the party against whom or which the enforcement of
such change, waiver, discharge or termination is sought.
11.8 Knowledge. "To the extent of," "aware of," and similar phrases
shall mean such level of knowledge or awareness as would be
obtained by a reasonably prudent business person under the
circumstances then existing of the matter with respect to which
such phrase is used (which circumstances shall be deemed to
include the position of the person with Seller who is charged
with such knowledge or awareness), and shall include, without
limitation, such knowledge or awareness as would be obtained
from appropriate discussions with such personnel of Seller who
may reasonably be believed to have actual knowledge of the
relevant matter. Whenever the Seller is charged with knowledge
or awareness herein, such knowledge or awareness shall be
deemed to be that of the officers of such company.
11.9 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Israel.
11.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
11.11 Exhibits Incorporated. All Exhibits attached hereto are
incorporated herein by reference, and all blanks in such
Exhibits, if any, will be filled in as required in order to
consummate the transactions contemplated herein and in
accordance with this Agreement.
11.12 Time of Essence. Time is of the essence in this Agreement.
LASER INDUSTRIES LTD. ORZIV (Z.K.Y.P.) LTD.
By: _________________________ By: ________________________
/title /title
- ---------------------------- --------------------------------
YEHIAM PRI-OR ZIV KARNI
SCHEDULE 3.1.2
(a) Prior shall cooperate with the Purchaser and provide technical and
other support, as reasonably requested, to help the Purchaser in
understanding and integrating the Seller's activities into the
Purchaser's business.
(b) Prior shall continue to be reasonably available for active involvement
(should the Purchaser so desire) in the activities of the Purchaser
relating to assets of the Seller in a manner similar to his
involvement before Closing, including all technical, commercial and
financial aspects. In particular, (i) he will be reasonably available
for active involvement in the world-wide marketing of the diamond
processing machines (including but not limited to marketing and sales
activities in India) and the orderly transfer of these activities to
people appointed to this function by the Purchaser, (ii) he will be
reasonably available to the Purchaser for consultation relating to
other activities of the Purchaser (should the Purchaser so desire),
whether these relate to industrial or medical laser developments,
(iii) he will be reasonably available for participation (should the
Purchaser so desire) in other activities of Purchaser including the
planning of the new "Industrial Division", assessment of various
activities within the Purchaser's organization, participation in the
preparation and writing of research programs (internal or to be
submitted to external organizations), participation in meetings on
behalf of the Purchaser, and similar activities.
LIST OF SCHEDULES AND EXHIBITS
EXHIBITS
4.1.4 Memorandum and Articles of Association of Orziv Ltd.
4.2.1 Audited Year End Financial Statements
4.2.2 Interim Financial Statements.
4.3 Tax basis of all of Orziv's assets.
4.4 List of material Personal Property as of March 31, 1998.
4.5 Violation of instruments.
4.6.2 Bank Accounts and Authorized Personnel with respect thereto.
4.8 Consents and Waivers.
4.9 Material changes since March 31, 1998.
4.11 Non-compliance with law.
4.12 Contracts, Agreements and other Instruments relating to or affecting
Assets.
4.13.2 Intellectual Property.
4.13.4 Intellectual Property for the use of which payment or royalty is
required.
4.13.6 Software licenses, leases and other rights or obligations related
thereto.
6.4 Opinion of Counsel for Orziv Ltd.
SCHEDULES
2.1 Liabilities of Seller.
3.1.2 Consulting Services to be rendered by Prior
6.11 Transfer Documents
Exhibit 10.30
PURCHASE AGREEMENT
CONCERNING THE PURCHASE BY
ESC MEDICAL SYSTEMS LTD. OF CERTAIN ASSETS OF
BALLARD PURCHASE CORPORATION
EFFECTIVE SEPTEMBER 10, 1998
TABLE OF CONTENTS
Page
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ARTICLE I DEFINED TERMS.....................................1
1.1 Assets............................................1
1.2 BPC...............................................2
1.3 BMP...............................................2
1.4 Closing...........................................2
1.5 Closing Date......................................2
1.6 ESC...............................................2
1.7 FDA...............................................2
1.8 Intellectual Property Assets......................2
ARTICLE II PURCHASE AND SALE OF ASSETS.......................2
2.1 Assets............................................2
2.2 Excluded Assets...................................2
2.3 Purchase Price for Assets.........................3
2.4 Allocation of Purchase Price......................3
ARTICLE III CLOSING...........................................4
3.1 Date and Place....................................4
3.2 Deliveries by BPC.................................4
3.3 Deliveries by ESC.................................5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BMP
AND BPC...........................................5
4.1 Organization......................................5
4.2 Subsidiaries......................................5
4.3 Capitalization....................................5
4.4 Authority.........................................5
4.5 Title to Assets...................................6
4.6 Conflicts of Interest.............................7
4.7 Legal Proceedings.................................7
4.8 Compliance with Laws, Etc.........................7
4.9 Fees and Commissions..............................7
4.10 Disclosure........................................7
4.11 Intellectual Property Assets......................8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ESC.............8
5.1 Organization......................................8
5.2 Authority.........................................9
5.3 Fees or Commissions...............................9
ARTICLE VI COVENANTS OF BMP AND BPC PRIOR TO CLOSING.........9
6.1 Maintain Representations and Warranties...........9
6.2 Conduct of Business Prior to Closing.............10
6.3 Assignment and Agreements Affecting Assets.......10
6.4 Access to Records and Properties.................10
6.5 Notification of Litigation, Changes..............11
6.6 Satisfaction of Conditions Precedent.............11
ARTICLE VII COVENANTS OF ESC PRIOR TO CLOSING................11
7.1 Maintain Representations and Warranties..........11
7.2 Satisfaction of Conditions Precedent.............11
ARTICLE VIII CONDITIONS PRECEDENT TO BMP'S AND
BPC'S OBLIGATIONS................................11
8.1 Representations and Warranties...................12
8.2 Compliance with Terms............................12
8.3 Receipt of Instruments...........................12
8.4 Legal Proceedings................................12
8.5 ESC's Certificate................................12
ARTICLE IX CONDITIONS PRECEDENT TO ESC'S
OBLIGATIONS......................................12
9.1 Accuracy of Representations and Warranties.......13
9.2 Compliance with Terms............................13
9.3 Receipt of Instruments...........................13
9.4 Consulting Services..............................13
9.5 Legal Proceedings................................13
9.6 BPC's Certificate................................13
ARTICLE X MISCELLANEOUS COVENANTS..........................14
10.1 Consultants......................................14
10.2 Publicity........................................14
ARTICLE XI INDEMNIFICATION..................................14
11.1 Indemnification by BMP and BPC...................14
11.2 Assertion of Claims..............................14
11.3 Indemnification by ESC...........................15
11.4 Limitations......................................15
ARTICLE XII GENERAL PROVISIONS...............................16
12.1 No Merger........................................16
12.2 Amendment or Supplement..........................16
12.3 Expenses.........................................16
12.4 Entire Agreement.................................16
12.5 Assignment.......................................16
12.6 Notices..........................................17
12.7 Captions.........................................17
12.8 Execution by Counterpart/Signatures..............17
12.9 Governing Law....................................18
12.10 Remedies.........................................18
12.11 Validity.........................................18
12.12 Investigation....................................18
SCHEDULE 1 List of Assets.........................................21
SCHEDULE 2.........................................................24
SCHEDULE 3.........................................................25
EXHIBIT A Bill of Sale.....................................26
EXHIBIT B Assignment.......................................27
EXHIBIT C Title Search.....................................33
PURCHASE AGREEMENT
AGREEMENT (the "Agreement") made effective the 10th day of September,
1998, by and among BALLARD PURCHASE CORPORATION, a Utah corporation
("BPC"), BALLARD MEDICAL PRODUCTS, a Utah corporation ("BMP") and ESC
MEDICAL SYSTEMS LTD., a corporation organized under the laws of Israel
("ESC").
RECITALS:
A. On or about March 20, 1997 BPC acquired the assets listed and
described in Schedule I hereto (the "Assets") from Neuro Navigational
Corporation, a Delaware corporation ("NNC");
B. BPC now desires to sell the Assets it purchased from NNC to ESC;
and
C. ESC desires to purchase the Assets from BPC;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
representations contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINED TERMS
For all purposes of this Agreement, the following terms shall
have the meanings indicated:
1.1 "Assets" shall mean the assets and properties of BPC listed
in Schedule 1, attached to and made a part of this Agreement by reference,
together with (a) all intellectual property rights associated therewith,
(b) all regulatory approvals, determinations, classifications, clearances,
orders, submissions or exemptions pertaining to such assets issued by the
FDA or any other regulatory body and owned by BPC including, but not
limited to, investigational device exemptions, premarket notification
submissions or 510(k) orders, and (c) all records, papers, documentation
and other materials connected with such assets. The 510(k)s included in the
Assets are those listed in Schedule 3, attached to and made a part of this
Agreement by reference.
1.2 "BPC" shall mean Ballard Purchase Corporation, a Utah
corporation and wholly owned subsidiary of BMP.
1.3 "BMP" shall mean Ballard Medical Products, a Utah
corporation.
1.4 "Closing" shall mean the consummation of the purchase and
sale transaction contemplated by this Agreement.
1.5 "Closing Date" shall mean the date of the Closing.
1.6 "ESC" shall mean ESC Medical Systems Ltd., a corporation
organized under the laws of Israel, or any subsidiary designated by it
prior to the Closing. However, such designation of a subsidiary shall not
relieve ESC Medical Systems Ltd. of obligations, covenants, and liabilities
under this Agreement.
1.7 "FDA" shall mean the United States Food and Drug
Administration.
1.8 "Intellectual Property Assets" shall mean all right, title,
and interest in and to the issued and pending patents and applications
listed in Schedule 1.
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 Assets. Subject to the terms and conditions set forth in
this Agreement, BPC agrees to sell, transfer, and convey, and ESC agrees to
purchase and receive, all of the Assets. However, ESC is not assuming any
liabilities of BPC.
2.2 Excluded Assets. Any provision to the contrary herein
notwithstanding, no interest in the following assets is being sold by BPC
to ESC under this Agreement:
(a) BPC's franchise to be a corporation; or
(b) BPC's stock transfer books and records, the record books
containing the minutes of meetings of directors and shareholders of Ballard
and such other of Ballard's records as have exclusively to do with its
organization, existence, or stock capitalization; or
(c) Cash or cash equivalents of BPC.
2.3 Purchase Price for Assets.
-------------------------
(a) The purchase price to be paid by ESC to BPC for the Assets
shall be Two Million Four Hundred Fifty Thousand Dollars ($2,450,000), Two
Million Dollars ($2,000,000) of which shall be paid to BPC by cashier's
check or wire transfer of immediately available funds at Closing, and Four
Hundred Fifty Thousand Dollars ($450,000) of which shall similarly be paid
to BPC immediately in the event that BPC shall provide ESC with a title
search (the "Second Title Search") performed by BPC's patent counsel from
an independent data base at any time after three months from the
recordation of the Assignment (as defined in Section 3.2(b) below), which
Second Title Search does not list any ownership claims or encumbrances (a
"Title Encumbrance") executed and filed at the U.S. Patent Office relative
to the patents listed on Schedule 2 (attached to and made a part of this
Agreement by reference), subsequent to the date of recordation of the
Assignment in addition to those shown in the title search attached hereto
as Exhibit C and made a part hereof by reference. $450,000 is the agreed
upon purchase price for the patents listed in Schedule 2.
(b) In the event such a Title Encumbrance does appear on the
Second Title Search, if BPC can resolve or remove the claim or encumbrance
evidenced by the Title Encumbrance within twelve (12) months after the date
of the Second Title Search, then upon providing ESC with reasonably
satisfactory proof of the resolution or removal of the Title Encumbrance,
ESC shall promptly pay to BPC the $450,000 held back under paragraph (a)
above. Proof of resolution or removal must be in the form of a settlement
agreement or release of interest signed by the party claiming a right,
interest, or encumbrance as set forth in the Title Encumbrance, or a final
order or judgment (nonappealable) by a court of competent jurisdiction.
2.4 Allocation of Purchase Price. The parties intend that the
purchase price for the Assets be allocated as follows, and no party hereto
will take any position inconsistent with such allocation in preparing
financial statements, tax returns, or otherwise:
Tangible assets listed in Schedule 1 $10,000
Intangible assets listed in Schedule 1 2,440,000
---------
Total purchase price $2,450,000
==========
ARTICLE III
CLOSING
3.1 Date and Place. The Closing will take place within seven
(7) days after the effective date of this Agreement, at a place mutually
agreed to by the parties.
3.2 Deliveries by BPC. At this Closing, BPC will deliver or make
-----------------
available to ESC:
(a) A bill of sale, substantially in the form of Exhibit A,
attached to and made a part of this Agreement by reference (the "Bill of
Sale"), transferring and conveying to ESC title to those of the Assets
which are tangible.
(b) An assignment of all patents and patent applications
included in the Assets (the "Assignment") substantially in the form of
Exhibit B, attached to and made a part of this Agreement by reference,
which Assignment ESC will cause to be recorded in the U.S. Patent Office
within two (2) days after the Closing Date (and ESC will promptly provide
to BPC copies of correspondence or other documentation showing the date of
recordation);
(c) Possession of and title to all of the Assets, and ESC shall
be entitled to full use and possession of the Assets as of the date hereof,
(d) A copy of the Articles of Incorporation of BPC, with all
amendments thereto and restatements thereof, and a certificate of good
standing from the State of Utah, each of which shall be certified as of a
date within a reasonable time prior to the Closing Date by the Utah
Secretary of State;
(e) A certified resolution of the directors and sole
shareholder of BPC, approving this Agreement, the Bill of Sale, the
Assignment, and authorizing the taking of such other action as shall be
advisable or necessary on the part of BPC to complete the transactions
contemplated by this Agreement; and
(f) The certificate called for in Section 9.6 below.
3.3 Deliveries by ESC. At the Closing, ESC will make the
-----------------
following deliveries to BPC:
(a) ESC will deliver to BPC the purchase moneys in the amount
set forth in Section 2.3;
(b) ESC will deliver to BPC a certified resolution of the
directors of ESC approving this Agreement, the Bill of Sale, the
Assignment, and authorizing the taking of such other action as shall be
advisable or necessary on the part of BPC to complete the transactions
contemplated by this Agreement; and
(c) The certificate called for in Section 8.5 below.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BMP AND BPC
Each of BMP and BPC represents and warrants to ESC as follows:
4.1 Organization. BPC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Utah. BPC has
all requisite power and authority to own the Assets and to carry on its
business as it is now being conducted.
4.2 Subsidiaries. BPC is a wholly owned subsidiary of BMP.
------------
4.3 Capitalization. The authorized capital stock of BPC
consists solely of 1,000,000 common shares, of which 1,000 shares are
issued and outstanding. No shares are held in the treasury.
4.4 Authority. Each of BMP and BPC has full power and authority
to enter into this Agreement. All shareholder and director actions and
authorizations required for the approval of this Agreement and the
consummation of the transactions contemplated hereby by BMP and BPC have
been taken and no other corporate proceedings on the part of either BMP or
BPC are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of BMP and BPC. This Agreement is a valid
and binding obligation of BPC, enforceable in accordance with its terms,
except as may be affected by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights
generally or by equitable principles. The execution, delivery and
performance of this Agreement by each of BMP and BPC does not, and the
consummation by each of BMP and BPC of the transaction contemplated hereby
shall not, and the compliance by each of BMP and BPC with the provisions
hereof shall not, (i) conflict with or violate any provision of the
respective charter documents of BMP or BPC, (ii) with or without notice or
the passage of time or both, constitute, give rise or result in the breach,
default or event of default under, or violation of any obligation under, or
in the termination or acceleration of or entitle any party to terminate or
accelerate, or result in the imposition of any lien upon or the creation of
a security interest or encumbrance in or upon any of the respective
properties of BMP or BPC (including, but not limited to, the Assets)
pursuant to, any note, bond, mortgage, indenture, deed, license, franchise,
permit, lease, contract, agreement or other instrument, commitment or
obligation to which BMP or BPC is a party or by which BMP or BPC or any of
the properties of BMP or BPC (including, but not limited to, the Assets)
are bound or subject, and shall not violate or conflict with any other
material restriction of any kind or character to which BMP or BPC, or any
of the respective properties of BMP or BPC (including, but not limited to,
the Assets), are bound or subject, and shall not violate or conflict with
any other material restriction of any kind or character to which BMP or
BPC, or any of the respective properties of BMP or BPC (including, but not
limited to, the Assets), are subject, (iii) violate any order, writ,
injunction, decree, judgment or ruling of any court or governmental
authority applicable to BMP or BPC, or (iv) violate any statute, law, rule
or regulation applicable to BMP or BPC. No consent or approval by, notice
to or registration with any governmental or administrative authority or
board or third party is required in connection with the execution and
delivery by each of BMP and BPC of this Agreement or the performance by
each of BMP and BPC of any of the transactions contemplated hereby.
4.5 Title to Assets. BPC has good, clear, and marketable title
to each and every one of the Assets, free and clear of mortgages, liens,
pledges, charges, security interests, claims, encumbrances or restrictions
of any kind whatsoever (whether accrued, absolute, contingent, or
otherwise), except liens for current property takes not yet due and
payable. Neither BMP nor BPC makes any warranty as to the physical
condition of the tangible items included in the Assets. Such items of
tangible property are sold AS IS.
4.6 Conflicts of Interest. No present or former officer or
director, and no shareholder, subsidiary, affiliate or related entity
thereof, has or claims to have (a) any interest in the Assets, or (b) any
contract, commitment, arrangement or understanding regarding any of the
foregoing.
4.7 Legal Proceedings. Neither BMP nor BPC has received any
actual notice of any action, dispute, claim (including any counterclaim or
cross claim), litigation, or other proceeding, at law or in equity, pending
or threatened (which shall include any investigations against BPC or BMP
relating to the business, operations, agreements or policies of BPC or to
any or all of the Assets), against or affecting BPC or the Assets or the
transactions contemplated by this Agreement. BPC is not subject to or in
default under any judicial, governmental or administrative judgment,
decree, order, writ or injunction of which BPC is aware. However, BPC has
received a final Office Action in regards to Application No. 08/646,776,
rejecting claims 30-59 pending in that application.
4.8 Compliance with Laws, Etc. Neither BMP nor BPC is in
violation of and neither BMP nor BPC has been charged with or given any
notice of any violation of, any applicable law, statute, order, rule,
regulation, policy, or judgment of any federal, state, local or foreign
court or governmental or administrative body or agency relating to BPC, its
business, operations, agreements or policies or the Assets.
4.9 Fees or Commissions. Neither BMP nor BPC (including their
respective officers, directors and employees) has employed any broker,
agent or finder (other than Vector Securities International, Inc.), in
connection with the transactions contemplated hereby.
4.10 Disclosure. No representation or warranty made by BMP or
BPC in this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein or therein not misleading. Copies of all executed agreements,
contracts, licenses and other information furnished by BMP or BPC pursuant
to this Agreement or in connection with the transactions contemplated
hereby to ESC or any of its accountants, attorneys, or other
representatives are complete, true and correct copies of the respective
originals.
4.11 Intellectual Property Assets. Without limitation by any
other provision hereof, other than as disclosed in Section 4.7 hereto, no
claim has been asserted or threatened by any person, and, to the knowledge
of BMP and BPC, no basis for any claim exists with respect to the use of
any of the Intellectual Property Assets or challenging or questioning the
validity or effectiveness of any license or agreement with respect thereto.
Neither BMP nor BPC has received actual notice and neither BMP nor BPC is
otherwise aware of any infringement of or conflict with asserted rights of
others (except as shown in the documents listed in Exhibit C hereto as to
the patents listed in Schedule 2) with respect to any of the Intellectual
Property Assets, or of any facts, or assertion of any facts that would
render any of the Intellectual Property Assets invalid or inadequate to
protect the interests of BPC therein. No current or former stockholder,
employee, officer, director or consultant of either BMP or BPC has any
rights in or to any of the Intellectual Property Assets. All Intellectual
Property Assets listed on Schedule 1 have the status indicated therein and
all applications are still pending in good standing and have not been
abandoned. To the knowledge of BPC, each of the Intellectual Property
Assets is valid and has not been challenged in any judicial or
administrative proceeding; BPC has made all statutorily required filings,
if any, to record its interests, and taken reasonable actions to protect
its rights, in the Intellectual Property Assets. To the knowledge of BMP
and BPC, no person or entity nor such person's or entity's business or
products has infringed, misused or misappropriated the Intellectual
Property Assets or currently is infringing, misusing or misappropriating
the Intellectual Property Assets; and to the knowledge of BMP and BPC, no
other person or entity has any right to receive or any obligation to pay a
royalty with respect to any of the Intellectual Property Assets. BPC has
filed a Notice of Appeal (prepared by patent counsel for ESC) with respect
to the final Office Action referred to in Section 4.7 above.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ESC
ESC hereby represents and warrants to BMP and BPC that:
5.1 Organization. ESC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Israel, with
all requisite power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted.
5.2 Authority. The execution, delivery and performance of this
Agreement has been duly and effectively authorized by all necessary
corporate action, and this Agreement has been duly executed and delivered
by ESC. No other corporate proceedings on the part of ESC are necessary to
authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement is a valid and binding obligation of ESC enforceable
against ESC in accordance with its terms, except as may be affected by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or affecting creditors' rights generally or by rules of law governing
specific performance, injunctive relief or other equitable principles
(regardless of whether such principles are considered in a proceeding at
law or in equity). Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (a) violate,
or conflict with, or require any consent under, or result in a breach of
any provisions of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under any of the
terms, conditions or provisions of the Articles of Association or
Memorandum of Association or Bylaws of ESC, or (b) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to ESC or any of
its properties. No consent or approval by, notice to or registration with
any governmental or administrative authority or board is required on the
part of ESC in connection with the execution and delivery by ESC of this
Agreement or the performance by ESC of any of the transactions contemplated
hereby.
5.3 Fees or Commissions. ESC (including its officers, directors
and employees) has not employed any broker, agent or finder or incurred any
liability for any brokerage fees, agent's commissions or finder's fee or
similar obligation in connection with the transactions contemplated hereby.
ARTICLE VI
COVENANTS OF BMP AND BPC PRIOR TO CLOSING
From and after the effective date of this Agreement and
continuing until the Closing Date, each of BMP and BPC covenants and agrees
as follows:
6.1 Maintain Representations and Warranties. Without the prior
written consent of ESC, neither BMP nor BPC shall take any action which
would cause any of the representations and warranties of BMP and BPC
contained in Article IV to be untrue or incomplete in any material respect
at and as of the Closing Date.
6.2 Conduct of Business Prior to Closing. Except as otherwise
------------------------------------
provided herein or agreed to in writing by ESC:
(a) BPC will carry on its research and development activities
in substantially the same manner as heretofore and will not make any
purchases or sales, or agreements therefor, or introduce any new method of
management or operation in respect of the Assets;
(b) BMP and BPC each will use its best efforts to preserve and
protect the Assets from any diminishment of their value;
(c) BMP and BPC each will take all necessary actions to
continue the processing of any applications associated with any of the
Intellectual Property Assets, including, without limitation, applications
to the United States Patent and Trademark Office; however, BPC does not
intend to respond to the final Office Action referred to in Section 4.7;
and
(d) BPC will not enter into any new contracts respecting the
Assets except in the ordinary course of business and in an amount not
exceeding $10,000 in the aggregate.
6.3 Assignment and Agreements Affecting Assets. Without the
prior written consent of ESC, BPC shall not, sell, assign, transfer,
mortgage, pledge, hypothecate, encumber, grant any security interest in,
abandon or otherwise dispose of any part of the Assets or enter into any
new contract or license relating to any part of the Assets.
6.4 Access to Records and Properties. BPC shall permit ESC to
make a thorough investigation of the Assets and title thereto and BPC shall
give to ESC, its agents and representatives, full and free access at all
reasonable hours, to the Assets, properties, books, records, and files of
BPC relating to the Assets; and BPC shall furnish ESC during such period
with all information concerning the Assets, and copies of such documents as
ESC may reasonably request. All such information revealed to ESC shall be
treated by it, its agents and employees, as confidential to the extent that
such information has not been made public by BPC or is not already in the
public domain or already in ESC's possession.
6.5 Notification of Litigation, Changes. BPC shall promptly
notify ESC in writing of:
(a) the filing of any litigation, arbitration, or similar
proceeding or the commencement of any dispute which could materially affect
BPC or the Assets, or
(b) the existence or happening of any fact, event, or
occurrence that may tend to alter, in any material respect, the accuracy or
completeness of any representation or warranty contained in this Agreement,
or affect the ability of BPC to perform its obligations hereunder.
6.6 Satisfaction of Conditions Precedent. Each of BMP and BPC
shall use its best efforts to satisfy or cause to be satisfied all of the
conditions precedent which are set forth in Article IX.
ARTICLE VII
COVENANTS OF ESC PRIOR TO CLOSING
From and after the effective date of this Agreement and
continuing until the Closing Date, ESC covenants and agrees as follows:
7.1 Maintain Representations and Warranties. Without the prior
written consent of BPC, ESC shall not take any action which would cause any
of the representations and warranties by ESC contained in Article V to be
untrue or incomplete in any material respects at and as of the Closing.
7.2 Satisfaction of Conditions Precedent. ESC shall use its
best efforts to satisfy or cause to be satisfied all of the conditions
precedent which are set forth in Article VIII.
ARTICLE VIII
CONDITIONS PRECEDENT TO BMP'S AND BPC'S OBLIGATIONS
The obligations of BMP and BPC to consummate the transactions
contemplated by this Agreement are subject to satisfaction of each of the
following conditions; and should any of the same not be satisfied as
hereafter provided, BMP and BPC shall be entitled either to waive the same
in writing and proceed to consummate the transactions contemplated in this
Agreement, or to terminate this Agreement:
8.1 Representations and Warranties. The representations and
warranties made by ESC herein shall be true and correct on and as of the
Closing with the same force and effect as if those representations and
warranties had been made as of the Closing.
8.2 Compliance with Terms. On the Closing, all the terms,
conditions and covenants of this Agreement to be complied with, performed
or observed by ESC on or before the Closing shall have been complied with,
performed and observed in all material respects.
8.3 Receipt of Instruments. BPC shall have received the Closing
documents, funds, and instruments required herein to be delivered by ESC.
8.4 Legal Proceedings. The transactions contemplated herein to
be effected on the Closing shall not be restrained or prohibited by any
injunction or order or judgment rendered by any court or other governmental
agency or competent jurisdiction;
8.5 ESC's Certificate. ESC shall have delivered to BPC a
certificate dated as of the Closing signed by the President, Vice
President, or Secretary of ESC stating that, to the best of his or her
knowledge, the conditions precedent to BMP's and BPC's obligations set
forth in this Article have been satisfied and fulfilled.
ARTICLE IX
CONDITIONS PRECEDENT TO ESC'S OBLIGATIONS
The obligations of ESC to consummate the transactions
contemplated by this Agreement are subject to satisfaction of each of the
following conditions; and should any of the same not be satisfied as
hereafter provided, ESC shall be entitled to waive the same in writing and
proceed to consummate the transactions contemplated in this Agreement, or
to terminate this Agreement:
9.1 Accuracy of Representations and Warranties. All of the
representations and warranties made by BMP and BPC in this Agreement or
otherwise in writing in connection with this Agreement, or orally, shall be
correct and complete in all material respects at and as of the Closing with
the same force and effect as if those representations and warranties had
been made as of the Closing Date;
9.2 Compliance with Terms. On the Closing, all the terms,
conditions and covenants of this Agreement to be complied with, performed
or observed by BPC on or before the Closing shall have been complied with,
performed and observed in all material respects.
9.3 Receipt of Instruments. ESC shall have received all of the
Closing instruments of transfer and other documents required herein and
possession of all of the Assets.
9.4 Consulting Services. BPC shall have made arrangements
satisfactory to ESC with Karen Salinas and Derek Daw to provide, at BPC's
expense (not to exceed $100,000 in the aggregate), consulting services to
ESC for a period not to exceed 180 days after Closing.
9.5 Legal Proceedings. The transactions contemplated herein to
be effected on the Closing shall not be restrained or prohibited by any
injunction or order or judgment rendered by any court or other governmental
agency or competent jurisdiction;
9.6 BPC's Certificate. BPC shall have delivered to ESC a
certificate dated as of the Closing signed by the President, Vice
President, or General Counsel of BPC stating that, to the best of his
knowledge, the conditions precedent to ESC's obligations set forth in this
Article have been satisfied and fulfilled.
ARTICLE X
MISCELLANEOUS COVENANTS
10.1 Consultants. Upon and subject to completion of the Closing
of the transactions contemplated in this Agreement, BPC agrees to reimburse
ESC for up to $100,000 in actual consulting fees paid by ESC (including
payment by ESC of expenses incurred by it) to Karen Salinas and Derek Daw,
with whom ESC desires to establish consulting arrangements. BPC will
reimburse only such fees and expenses incurred during the 180-day period
following the Closing Date and only up to a maximum, aggregate
reimbursement of $100,000. ESC will submit periodic invoices to BPC for
such consulting fees and expenses on net payment 30 terms.
10.2 Publicity. Each of the parties agrees that it will not
issue any announcements, releases, statements or reports, or confirm any
statements by third parties, pertaining to this Agreement or the
transactions contemplated hereby, except as may be required by law or
mutually agreed upon.
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification by BMP and BPC. BMP and BPC shall be
jointly and severally liable to ESC to indemnify, defend, and hold harmless
ESC and each of its subsidiaries, officers, directors and stockholders from
and against and in respect of any and all demands, claims, actions, causes
of action, assessments, fines, losses, damages, liabilities, interest,
penalties, costs, and expenses (including, without limitation, reasonable
legal fees and disbursements incurred in connection therewith) resulting
from, arising out of, or incurred by ESC in connection with each and all of
the following: (i) any material misrepresentation or breach of any warranty
made by BMP or BPC in this Agreement or any agreement, certificate or
document executed and delivered by BMP or BPC pursuant hereto; (ii) the
material breach of any covenant, agreement or obligation of BMP or BPC
contained in this Agreement; and (iii) any liability or obligation of, or
claim against either BMP or BPC of any kind or nature which arises out of
or relates to an incident occurring prior to the Closing Date.
11.2 Assertion of Claims. If ESC shall have any claim for
indemnification pursuant to Section 11.1 above, it shall promptly give
written notice thereof to BMP and BPC (a "Claim Notice"), including in such
notice the dollar amount (if known) of the claim and a brief description of
the facts upon which such claim is based. BMP and BPC shall have thirty
(30) days following receipt of such Claim Notice to cure the situation
giving rise to such claim. If the situation is of such a nature that it
cannot reasonably be cured within said 30-day period, then BMP and BPC
shall have a reasonable, extended period of time (not to exceed six (6)
months) in which to cure such situation so long as BMP and BPC are
diligently proceeding with such cure. ESC shall promptly tender to BMP and
BPC the defense of any claim or action by a third party against ESC, as a
condition to BMP's and BPC's obligation to indemnify ESC under the
provisions of Section 11.1 above.
11.3 Indemnification by ESC. ESC shall indemnify, defend, and
hold harmless BPC and BMP and each of their respective subsidiaries,
officers., directors, and stockholders from and against and in respect of
any and all demands, claims, actions, causes of action, assessments, fines,
losses, damages, liabilities, interest, penalties, costs, and expenses
(including without limitation, reasonable legal fees and disbursements
incurred in connection therewith) resulting from, arising out of or imposed
upon or incurred by BPC or BMP in connection with each of the following:
(i) any material misrepresentation or breach of any warranty made by ESC in
this Agreement or any agreement, certificate or document executed and
delivered by ESC pursuant hereto; (ii) the material breach of any covenant,
agreement or obligation of ESC contained in this Agreement; and (iii) any
liability or obligation of, or claim against, either BMP or BPC of any kind
or nature that arises out of or relates to an incident occurring subsequent
to the Closing Date. Claims by BPC for indemnification hereunder shall be
asserted in the same procedural manner as outlined in Section 11.2 above.
11.4 Limitations. Notwithstanding any other provision herein to
the contrary:
(a) Any legal action to be brought by either party hereto
founded upon an alleged breach of any representation, warranty, or covenant
herein must be commenced within three (3) years from the Closing Date
(except for actions based upon a breach of Section 4.5 or 4.11, which such
actions may be commenced up to five (5) years from the Closing Date),
notwithstanding any statutory limitations period to the contrary.
(b) The aggregate liability of BPC and BMP to ESC and ESC to
BPC and BW hereunder for losses or damages shall not exceed the amount of
the purchase price stated in Section 2.3 above.
(c) No party shall be entitled to seek reimbursement for losses
or damages for the other party unless, until, and only to the extent that
the aggregate amount of such losses and damages (including attorneys fees
and costs) exceed $10,000.
ARTICLE XII
GENERAL PROVISIONS
12.1 No Merger. Subject to the limitations of Section 11.4 above,
the covenants, terms, and provisions of this Agreement shall survive the
Closing.
12.2 Amendment or Supplement. This Agreement may be
amended or supplemented at any time by mutual agreement of ESC and BPC. Any
amendment or supplement must be in writing.
12.3 Expenses. Each party hereto shall bear and pay all costs
and expenses incurred by it in connection with the transactions
contemplated in this Agreement, including fees and expenses of its own
brokers, financial consultants, accountants and counsel.
12.4 Entire Agreement. This Agreement, the Bill of Sale, the
Patent Assignments, and the Patents Pending Assignments contain the entire
agreement among the parties with respect to the transactions contemplated
hereunder and supersede all prior arrangements or understandings with
respect thereto, written or oral, other than documents referred to herein.
The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors.
Nothing in this Agreement, expressed or implied, is intended to confer upon
any party, other than the parties hereto and their respective successors,
any rights, remedies, obligations or liabilities.
12.5 Assignment. Neither of the parties hereto may assign any of
its rights or obligations under this Agreement to any other person, without
the other party's consent, which consent shall not be unreasonably
withheld, provided that ESC may assign its rights and obligations hereunder
to a direct or indirect subsidiary of ESC, but no such assignment shall
relieve ESC of its obligations or liabilities hereunder.
12.6 Notices. All notices and other communications which are
required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by overnight express or by registered or
certified mail, postage prepaid, addressed as follows:
If to ESC: ESC Medical Systems Ltd.
P.O. Box 240
Yokneam Industrial Park
Yokneam, Israel 20692
Attention: Dr. Shimon Eckhouse,
President and Chief Executive Officer
with a copy to: Arnold & Porter
399 Park Avenue
New York, New York 10022-4690
Attention: Steven G. Tepper, Esq.
If to BPC: Ballard Purchase Corporation
12050 Lone Peak Parkway
Draper, Utah 84020
Attention: Paul W. Hess, General Counsel
If to BMP: Ballard Medical Products
12050 Lone Peak Parkway
Draper, Utah 84020
Attention: Paul W. Hess, General Counsel
12.7 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
12.8 Execution by Counterpart/Signatures. This Agreement may be
executed separately or independently in any number of counterparts, each
and all of which together shall be deemed to have been executed
simultaneously and for all purposes to be one Agreement. Faxed signatures
shall constitute original, binding signatures.
12.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable
to agreements made and entirely to be performed within such jurisdiction
except to the extent federal law may be applicable. Any action under this
Agreement or any instrument delivered in connection with this Agreement may
be filed and maintained only in state or federal courts located within the
State of New York, and all parties hereby submit themselves to the
jurisdiction of such courts.
12.10 Remedies. The parties agree that irreparable damage would
result if any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in
addition to any other remedy to which the parties are entitled at law or in
equity.
12.11 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement, which shall remain in full force
and effect.
12.12 Investigation. The respective representations and
warranties of BMP, BPC and ESC contained herein or in the certificates or
other documents delivered at or prior to the Closing shall not be deemed
waived or otherwise affected by any investigation made by any party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
BALLARD MEDICAL PRODUCTS
Dated: ______________ By: ________________________________
Title:
BALLARD PURCHASE CORPORATION
Dated: ______________ By: ________________________________
Title:
ESC MEDICAL SYSTEMS
Dated: ______________ By: ________________________________
Title:
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
BALLARD MEDICAL PRODUCTS
Dated: ______________ By: ________________________________
Title: President
BALLARD PURCHASE CORPORATION
Dated: ______________ By: ________________________________
Title:
ESC MEDICAL SYSTEMS LTD.
Dated: ______________ By: ________________________________
Title:
SCHEDULE 1
(Attached to and forming part of Purchase Agreement)
LIST OF ASSETS
Products in Development or Completed:
o Seven versions of the electrode catheter with internal
thermocouple. Varicose vein electrodes available in widths
ranging from 2mm to 8 mm. In-situ electrodes available in 2 mm.
to 4 mm.
o Controller and RF generator in prototype form.
o 2.3 mm deflecting angioscope, 50 cm long. FDA clearance for range
of configurations and widths (1 mm to over 3 mm).
o Video coupling accessories for angioscope to any existing video
system. (Drawings not in BPC's possession.)
o Video cart.
o Optical Valvulotome - design completed and FDA clearance
received. Product not being marketed. (No prototypes available.)
Inventory of Tangible Personal Property
3 VNX Controllers
3 RF Generators (25 Watt)
1 150 Watt/25 Watt Combo RF Generator
I Vein Eraser System
34 Varicose vein electrodes of various sizes
62 in-situ electrodes (longer)
Angioscopes - about 10
Intellectual Property:
o DETACHABLE TIP OPTICAL VALVULOTOME
Patent No.: 5,284,478
Filed: June 8, 1992
Issued: February 8, 1994
o METHOD FOR USING DETACHABLE TIP VALVULOTOME
Patent No.: 5,352,232
Filed: September 10, 1993
Issued: October 4, 1994
o APPARATUS FOR IN-SITU CUTTING OF VALVES WITHIN
VEINS AND METHODS THEREOF
Patent No.: 5,026,383
Filed: June 14, 1989
Issued: June 25, 1991
o APPARATUS AND METHOD FOR VENOUS LIGATION
Patent No.: 5,437,664
Filed: January 18, 1994
o APPARATUS AND METHOD FOR VENOUS LIGATION
Patent No.: 5,643,257
Filed: March 28, 1995
Issued: July 1, 1997
App. Serial No.: 412,170
o EPO APPARATUS AND METHOD FOR VENOUS LIGATION
EPO App. No. 95908069.8
o APPARATUS AND METHOD FOR VENOUS LIGATION JAPAN
App. No. 519195/1995
Filed: January 18, 1995
o APPARATUS AND METHOD FOR VENOUS LIGATION
Canada 2,181,453
o METHOD FOR TUBAL ELECTRO-LIGATION
Patent No.: 5,556,396
Filed: March 28, 1995
o APPARATUS FOR IN-SITU SAPHENOUS VEIN BYPASS
Patent No.: 5,658,282
Filed: June 7, 1995
App. Serial No. 484,187
o IN-SITU SAPHENOUS VEIN BYPASS APPARATUS
W/CAUTERIZING ELECTRODE
Serial No.: 646,776
Filed: May 8, 1996
o APPARATUS FOR IN-SITU SAPHENOUS VEIN BYPASS
CONTINUATION
Serial No.: 789,266
Filed: January, 1997
SCHEDULE 2
(Attached to and forming part of Purchase Agreement)
1. APPARATUS FOR IN-SITU CUTTING OF VALVES WITHIN VEINS
AND METHODS THEREOF
o United States Patent No. 5,026,383 (Nobles)
o SN 07/366,427
o Filed June 14, 1989
o Issued June 25, 1991
2. DETACHABLE TIP OPTICAL VALVULOTOME
o United States Patent No. 5,284,478 (Nobles, et al.)
o SN 07/895,090
o Filed June 8, 1992
o Issued February 8, 1994
SCHEDULE 3
(Attached to and forming part of Purchase Agreement)
510(k) Product Date
- ------ ------- ----
K914457 Optical Valvulotome
K914457A Optical Valvulotome 2/5/92
K922662 Optical Valvulotome 4/9/92
K922662A Optical Valvulotome pending
K914570 Vascular Angioscopes 4/1/92
K914570A Vascular Angioscopes 1/27/92
K914570B Vascular Angioscopes 4/9/92
K922664 Vascular Angioscopes
K922664A Vascular Angioscopes
K923874 2.2 mm Vascular Deflecting
Angioscope
K923874A 2.2 mm Vascular Deflecting
Angioscope
K923874B 2.2 mm Vascular Deflecting Withdrawn
Angioscope
K931421 2.2 mm Vascular Deflecting 6/19/93
Angioscope
K924075 2.8 mm Optical Valvulotome
K924075A 2.8 mm Optical Valvulotome 2/8/93
K923996 2.3 mm Vascular Angioscope
K920026 (and A-D) Integrated Visualization System
EXHIBIT A
(Attached to and forming part of Purchase Agreement)
BILL OF SALE
FOR VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH IS
ACKNOWLEDGED, BALLARD PURCHASE CORPORATION, a Utah corporation ("BPC"),
hereby sells, assigns, transfers, and conveys to ESC MEDICAL SYSTEMS LTD.,
a ____________ corporation ("ESC"), and ESC's successors and assigns the
Assets described in Schedule 1 (attached to and made a part of this Bill of
Sale).
IN WITNESS WHEREOF, BPC has caused this instrument to be duly
executed this ___________ day of _____________, 19__.
BALLARD PURCHASE CORPORATION
By: _________________________________
Title: ________________________________
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
On ______________, 19__ before me, a Notary Public, personally
appeared ______________________as ______________ of Ballard Purchase
Corporation, personally known to me or proved to me on the basis of
satisfactory evidence to be the person whose name is subscribed to the
within instrument and acknowledge to me that he executed the same in his
authorized capacity, and that by his signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
Witness my hand and official seal.
--------------------------------
Signature of Notary
EXHIBIT B
(Attached to and forming part of Purchase Agreement)
WHEN RECORDED RETURN TO: PATENT
=================================
- ---------------------------------
A S S I G N M E N T
WHEREAS, BALLARD PURCHASE CORPORATION, a corporation of the State of
Utah, having a place of business at 12050 Lone Peak Parkway, Draper, Utah
84020, is the record owner of the entire right, title and interest in and
to the United States Letters Patent and patent applications, and the
inventions claimed therein, listed in Schedule A, attached to and made a
part of this Assignment by reference; and
WHEREAS, ESC MEDICAL SYSTEMS LTD., a corporation organized under the
laws of Israel, having a principal place of business at P.O. Box 240,
Yokneam Industrial Park, Yokneam, Israel 61131, is desirous of acquiring
the entire right, title and interest in and to said Letters Patent and
patent applications, and the inventions claimed therein, within the United
States of America and its territorial possessions and within the countries
foreign to the United States of America and any United States or foreign
Letters Patent that are presently granted or that may be granted therefor,
and in and to said Letters Patent and patent applications, and the
inventions claimed therein, listed in Schedule A;
NOW, THEREFORE, for and in consideration of payment by ESC
MEDICAL SYSTEMS LTD. to BALLARD PURCHASE CORPORATION of the
sum of One Dollar ($1.00) and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, BALLARD
PURCHASE CORPORATION has sold, assigned, and transferred and by these
presents does hereby sell, assign and transfer to ESC MEDICAL SYSTEMS LTD.
the entire right, title and interest for the United States of America, its
territories and possessions, and in all foreign countries, in and to the
said Letters Patent and patent applications, and the inventions claimed
therein, and all foreign counterparts or legal equivalents of the said
Letters Patent and patent applications, and the inventions claimed therein,
in any and all foreign countries, including the right to claim priority
under any International Convention and the right to sue for any past
infringement, and in and to any and all Letters Patent to be obtained for
any of said inventions on the above identified applications for Letters
Patent and/or any continuation, division, reissue, reexamination, renewal
and/or substitute of said Letters Patent and/or applications therefore, in
the United States of America and/or any and all foreign countries, all said
rights to be held and enjoyed by ESC MEDICAL SYSTEMS LTD. for its own use
and enjoyment and for the use and enjoyment of its successors and assigns
to the full end of the term or terms for which said Letters Patent may be
granted as fully and entirely as the same would have been held and enjoyed
by BALLARD PURCHASE CORPORATION if this assignment, transfer and sale had
not been made.
BALLARD PURCHASE CORPORATION hereby covenants that no assignment,
sale agreement, license of encumbrance has been or will be made or entered
into that would conflict with, or limit the rights granted under, this
Assignment.
BALLARD PURCHASE CORPORATION further covenants that Assignor will
promptly provide to Assignee, upon Assignee's request, all pertinent facts
and documents relating to said inventions and said Assigned Patent Rights,
foreign counterparts and legal equivalents as may be known and accessible
to Assignor and Assignor will testify as to the same in any interference,
litigation or proceeding related thereto and will promptly execute and
deliver to Assignee or its legal representatives any and all papers,
instruments or affidavits necessary or desirable to vest and/or record
title in Assignee or for Assignee to apply for, perfect, obtain, maintain,
issue and/or enforce any of said Assigned Patent Rights, counterparts
and/or legal equivalents thereof and/or any Letters Patent granted thereon.
IN WITNESS WHEREOF, BALLARD PURCHASE CORPORATION, personally or by a
duly authorized officer, has executed this Assignment effective this ___
day of _____________, 1998.
BALLARD PURCHASE CORPORATION
By: ________________________________________
Title: _______________________________________
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
On this ____day of _____________ 1998, before me personally appeared
__________________, ______________ of Ballard Purchase Corporation, whose
identity is personally known to me and who by me duly sworn, did say that
he is the _____________ of Ballard Purchase Corporation and that said
document was signed by him in behalf of said corporation by authority of
its bylaws, and acknowledged to me that said corporation executed the same.
--------------------------------------------
Notary Public
Schedule A
(Attached to and forming part of Assignment)
Patents and Patent Applications
1. DETACHABLE TIP OPTICAL VALVULOTOME
Patent No.: 5,284,478
Filed: June 8, 1992
Issued: February 8, 1994
2. METHOD FOR USING DETACHABLE TIP VALVULOTOME
Patent No.: 5,352,232
Filed: September 10, 1993
Issued: October 4, 1994
3. APPARATUS FOR IN-SITU CUTTING OF VALVES WITHIN VEINS
AND METHODS THEREOF
Patent No.: 5,026,383
Filed: June 14, 1989
Issued: June 25, 1991
4. APPARATUS AND METHOD FOR VENOUS LIGATION
Patent No.: 5,437,664
Filed: January 18, 1994
5. APPARATUS AND METHOD FOR VENOUS LIGATION
Patent No.: 5,643,257
Filed: March 28, 1995
Issued: July 1, 1997
App. Serial No.: 412,170
6. EPO APPARATUS AND METHOD FOR VENOUS LIGATION
EPO App. No. 95908069.8
7. APPARATUS AND METHOD FOR VENOUS LIGATION
JAPAN App. No. 519195/1995
Filed: January 18, 1995
8. APPARATUS AND METHOD FOR VENOUS LIGATION
Canada 2,181,453
9. METHOD FOR TUBAL ELECTRO-LIGATION
Patent No.: 5,556,396
Filed: March 28, 1995
10. APPARATUS FOR IN-SITU SAPHENOUS VEIN BYPASS
Patent No.: 5,658,282
Filed: June 7, 1995
App. Serial No. 484,187
11. IN-SITU SAPHENOUS VEIN BYPASS APPARATUS W/CAUTERIZING
ELECTRODE
Serial No.: 646,776
Filed: May 8, 1996
12. APPARATUS FOR IN-SITU SAPHENOUS VEIN BYPASS
CONTINUATION
Serial No.: 789,266
Filed: January, 1997
EXHIBIT C
(Attached to and forming part of Purchase Agreement)
Title Search
File 123.:CLAIMS(R)/REASS.& REEXAM. 1998/Aug 11
(c) 1998 IFI/PLENUM DATA CORP.
*File 123: Reassignment data now current through 05/14/98. Reexamination,
extension, expiration, reinstatement updated weekly.
Set Items Description
?s pn=5284478
S1 1 PN=5284478
?s pn=5026383
S2 1 PN=5026383
?t 1/2/1
1/2/1
DIALOG(R)File 123:CLAIMS(R)/REASS.& REEXAM.
(c) 1998 IFI/PLENUM DATA CORP. All rts. reserv.
2442761 Status Changes: REASSIGNED
Assignee: Cohen, Donald; Nobles, Anthony A (REASSIGNED)
Patent Issue
Number Date
------ ----
Patent: US 5284478 940208
Reassignment:
Recorded: 940118
Action: ASSIGNMENT OF ASSIGNOR'S INTEREST
Assignor: COHEN, DONALD DATE SIGNED: 10/01/1993
Assignee: ENDOVASCULAR, INC. 3180 PULLMAN STREET COSTA
MESA, CA 92626
Reel: 6834
Frame: 0645
Contact: ROGITZ & ASSOCIATES JOHN L. ROGITZ 501 WEST
BROADWAY, SUITE 1600 SAN DIEGO, CA 92101-3536
Recorded: 960719
Action: SECURITY AGREEMENT
Assignor: NEURO NAVIGATIONAL CORPORATION ENDOVASCULAR,
INC. DATE SIGNED: 03/01/1996
Assignee: BALLARD MEDICAL PRODUCTS 12050 LONE PEAK
PARKWAY DRAPER, UTAH 84020
Reel: 8048
Frame: 0686
Contact: PAUL W. HESS 12050 LONE PEAK PARKWAY DRAPER, UT
84020
Recorded: 970401
Action: ASSIGNMENT OF ASSIGNOR'S INTEREST
Assignor: ENDOVASCULAR, INC. DATE SIGNED: 03/20/1997
Assignee: BALLARD PURCHASE CORPORATION 12050 LONE PEAK
PARKWAY DRAPER, UTAH 84020
Reel: 8423
Frame: 0442
Contact: RICK D. NYDEGGER 1000 EAGLE GATE TOWER 60 EAST
SOUTH TEMPLE
SALT LAKE CITY, UT 84111
?t 2/2/1
2/2/1
DIALOG(R)File 123:CLAIMS(R)/REASS.& REEXAM.
(c) 1998 IFI/PLENUM DATA CORP. All rts. reserv.
2156815
Status Changes:
REASSIGNED
Assignee: Nobles, Anthony A (REASSIGNED)
Patent Issue
Number Date
Patent: US 5026383 910625
Reassignment:
Recorded: 890614
Action: ASSIGNMENT OF ASSIGNORS INTEREST.
Assignor: NOBLES, ANTHONY A. DATE SIGNED: 06/14/1989
Assignee: NOBLES-LAI ENGINEERING, INC., SANTA ANA, CA. A CORP.
OF CA
Reel: 5090
Frame: 0257
Contact: LAURENCE H. PRETTY PRETTY, SCHROEDER, ET AL 444 S.
FLOWER STREET, STE. 2000 LOS ANGELES, CA 90071
Recorded: 951121
Action: CHANGE OF NAME
Assignor: VISIONEERING, INC. DATE SIGNED: 10/16/1995
Assignee: NOBLES-LAI ENGINEERING, INC. 17080 NEWHOPE STREET
FOUNTAIN VALLEY, CALIFORNIA 92708
Reel: 7715
Frame: 0843
Contact: VINCENT M. DELUCA ROTHWELL, FIGG, ERNST & KURZ,
P.C. SUITE 701 EAST TOWER 555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004
Recorded: 951121
Action: SECURITY INTEREST
Assignor: NOBLES-LAI ENGINEERING, INC. DATE SIGNED: 11/02/1995
Assignee: CORDIS INNOVASIVE SYSTEMS, INC. 14201 N. W. 60TH
AVENUE MIAMI LAKES, FLORIDA 33014
Reel: 7715
Frame: 0759
Contact: ROTHWELL, FIGG, ERNST & KURZ, P.C. VINCENT M.
DELUCA 555 THIRTEENTH STREET, N.W. STE. 701 EAST
TOWER WASHINGTON, D.C. 20004
[Copy of Release Attached.]
Recorded: 960719
Action: SECURITY AGREEMENT
Assignor: NEURO NAVIGATIONAL CORPORATION ENDOVASCULAR,
INC. DATE SIGNED: 03/01/1996
Assignee: BALLARD MEDICAL PRODUCTS 12050 LONE PEAK
PARKWAY DRAPER, UTAH 84020
Reel: 8048
Frame: 0686
Contact: PAUL W. HESS 12050 LONE PEAK PARKWAY DRAPER, UT
84020
Recorded: 970401
Action: ASSIGNMENT OF ASSIGNOR'S INTEREST
Assignor: ENDOVASCULAR, INC. DATE SIGNED: 03/20/1997
Assignee: BALLARD PURCHASE CORPORATION 12050 LONE PEAK
PARKWAY DRAPER, UTAH 84020
Reel: 8423
Frame: 0442
Contact: RICK D. NYDEGGER 1000 EAGLE GATE TOWER 60 EAST
SOUTH TEMPLE SALT LAKE CITY, UT 84111
Exhibit 10.31
UNPROTECTED LEASE AGREEMENT
Made and entered into at Haifa on the 19th day of March 1998
BETWEEN: SCAN GROUP YOKNEAM LTD.
of 66 Hahistadrut Street, Haifa Bay
(hereinafter: "THE LESSOR") of the one part
AND: E.S.C. MEDICAL SYSTEMS LTD.
P.O. Box 240 Yokneam 20692
of Industrial Park Yokneam,
(hereinafter: "THE LESSEE") of the other part
WHEREAS The Lessor has a capitalized Development Contract with the Israel
Lands Administration, which permits it to construct a building on
a parcel of land located in Yokneam, which is known, pursuant to
Detailed Plan 163/BT/C, as Plot 3 in Parcel/portion of Parcels
12, 13 Block 11495 (hereinafter: "THE LAND"); and
WHEREAS Photocopies of the Development Contract and the regulations of
the Town Planning Scheme are attached to this Contract as an
integral part hereof, marked "A" and "B" respectively.
WHEREAS The Lessor intends to exercise and effectuate the Development
Contract and to construct a building on the Land in accordance
with a sketch and the alterations plan attached hereto
(hereinafter: "THE BUILDING") which the Lessor designates for the
high-tech industry; and
A copy of the sketch and the alterations plan is attached hereto
as an integral part of this Contract and is marked "C".
WHEREAS The Lessee wishes to take the leased premises, as hereinafter
defined, on hire from the Lessor and the Lessor wishes to let
same to the Lessee, without the Tenants Protection Law
(Consolidated Version) 5732-1972 applying to the lease of the
leased premises created pursuant to this Contract, and without
the Lessee being a protected tenant within the meaning of the
aforesaid law and/or any legislation likely to confer on it such
status, and subject to the conditions of this Agreement below;
and
WHEREAS The Lessor agrees to let the leased premises to the Lessee as
aforesaid and there is no bar or impediment to either party
contracting under this Agreement;
NOW THEREFORE IT IS AGREED, DECLARED AND STIPULATED BY
THE PARTIES AS FOLLOWS:
1. PREAMBLE
The preamble to this Contract and the appendices attached hereto
constitute an integral part hereof.
2. INTERPRETATION
2.1 The headings to clauses in this Contract have been inserted for
the convenience of reading only. They do not form part of the
Contract and shall not be used for purposes of the interpretation
hereof.
2.2 Everything stated in the singular also includes the plural, and
vice versa, and everything in the masculine gender includes the
feminine, unless a different meaning is to be inferred from the
context.
2.3 Unless the context otherwise dictates, the words set forth below
shall, in this Contract, have the meanings set opposite them:
"THE LEASED PREMISES" -- the entire area of the Building and
everything that may be built by the Lessor on the Land.
3. PERIOD OF LEASE, PURPOSE THEREOF AND NON-APPLICABILITY OF TENANTS
PROTECTION LAWS
3.1 PERIOD OF LEASE
3.1.1 The Lessor hereby lets the Leased Premises to the
Lessee and the Lessee hereby takes the Leased Premises
on hire from the Lessor for a period of 9 years and 11
months, commencing from April 1, 1999 and terminating
on February 28, 2009 (hereinafter: "THE PERIOD OF
LEASE").
It is agreed that at such time the Leased Premises
will be in a state of delivery to the Lessee only as
an envelope in accordance with the technical
specification (hereinafter: "THE SPECIFICATION") which
is attached as an appendix to this Contract.
The Specification is attached as an integral part of
this Contract, marked "D".
If for any reason, which is not the result of delays
connected with the Lessee and/or arising from acts
and/or omissions of the Lessee, the aforesaid date of
delivery should be postponed, so that the date of
termination of the Period of Lease will be at the end
of 9 years and 11 months from the date the Leased
Premises are ready for delivery in the condition of an
envelope, as aforesaid, or will be postponed for the
duration of the period of delay which was caused
(hereinafter: "THE EXTENDED DATE"). [Translator's
note: this is how the clause reads in the original.]
3.1.2 The Lessee hereby undertakes to use the Leased Premises
for current business activity and will, throughout the
entire Period of Lease conduct a business in the Leased
Premises the purpose of which is as described below.
3.1.3 Should the Lessee cease the use of the Leased Premises,
or vacate the Leased Premises prior to the end of the
Period of Lease, this will not have the effect of
releasing the Lessee from fulfilling its full
obligations, including payment of rentals and the
remaining payments it is obliged to pay pursuant to
this Contract, up to the end of the Period of Lease.
Should the Lessee request to bring a substitute tenant
in its place, it will be obliged to obtain the
Lessor's consent to the identity of the substitute
tenant. In the event that the substitute tenant is a
subsidiary under the control of the Lessee and/or an
affiliated company according to its definition at law,
the consent of the Lessor as aforesaid will not be
required.
The substitute tenant will be obliged to assume all
the Lessee's full obligations pursuant to this
Agreement and will be obliged to provide collateral
security for the due fulfillment of such obligations,
upon the Lessor's demand. In such event the Lessee
will be discharged from its obligations and its rights
pro rata to the portion of the property and the
collateral security the substitute tenant has
furnished to the Lessor.
The Lessor will not object to a sub-tenant moving into
the Leased Premises, provided that the Lessee remains
responsible for all its obligations pursuant to this
Contract.
3.1.4 It is hereby agreed that the right is reserved to the
Lessor to be late in delivery of occupation and in the
start of the Period of Lease by 45 days, without any
compensation of any sort, in the event that the
Building and/or the Leased Premises are not ready in
accordance with the provisions of this Contract for
purposes of delivery to the Lessee.
3.1.5 If the Lessor should be late in delivering occupation
by a period in excess of 45 days as mentioned above,
the Lessor will pay the Lessee agreed pre-estimated
absolute damages in an amount of 15,000 US dollars in
respect of each month of delay after such 45 days and a
proportionate payment in respect of a delay of part of
a month.
The parties regard the aforesaid amount of agreed
damages as the probable result of such delay, and they
undertake not to demand a change therein, upwards or
downwards, for any reasons and/or circumstances.
3.1.6 Should the Lessor be late in delivering occupation for
a period which exceeds 7.5 months from the date of
delivery of occupation or from the Extended Date, the
Lessee will be entitled to cancel this Contract.
3.2 PURPOSE OF THE LEASE
The Lessee hereby takes the Leased Premises on hire for purposes
of using it as a building for high-tech industry, and it shall be
forbidden for the Lessee to use the Leased Premises for any other
use.
3.3 NON-APPLICABILITY OF TENANTS PROTECTION LAWS
3.3.1 On the date of commencement of the Tenants Protection
Law (Miscellaneous Provisions), 5728-1968, there was no
tenant entitled to occupy the Building.
3.3.2 The Lessee hereby declares that it has not been called
upon to pay and has not paid key money or payments
likely to be construed as key money, and that all the
works, alterations, improvements and elaborations which
are made in the Leased Premises, if made, are not and
will not be fundamental changes and that the provisions
of Part C of the Tenants Protection Law (Consolidated
Version) 5732-1972, which relates to key money, shall
not apply to the Contract.
3.3.3 The lease, the Lessee and the Leased Premises are not
protected pursuant to provisions of the Tenants
Protection Law (Consolidated Version) 5732-1972, nor
pursuant to the provisions of any other law which
protects a tenant or lessee in any manner whatsoever,
and the aforesaid laws and amendments thereto and the
regulations made, or which may in the future be made,
in accordance therewith, do not apply and will not
apply to the Building and/or the lease and/or Lessee
and/or the Leased Premises and/or the Contract.
3.3.4 At the time of vacation of the Leased Premises, the
Lessee will not be entitled to any payment, either as
key money or in any other form.
3.3.5 For the avoidance of doubt and without derogating from
the foregoing, the Lessee hereby declares and
undertakes that if any allegation should be raised in
the future that the contractual arrangement pursuant to
this Contract is protected by the Tenants Protection
Law, or any other law whatsoever, then and in that
event the Lessee will indemnify and compensate the
Lessor in respect of any damage which may be sustained
by the Lessor, including the difference between the
value of the property at the end of the Period of Lease
as an occupied property, and its value on the free
market as a vacant property.
4. RENTALS
4.1 The monthly rentals in respect of the Leased Premises will be an
amount of 5.75 (five dollars and seventy-five cents) US dollars,
at their value in shekels according to the representative rate
which will be published by the Bank of Israel on the date of
signing of the Contract, plus V.A.T. as prescribed by law, in
respect of each square meter of the area of the Leased Premises,
which will be measured according to a plan of the final state of
the Leased Premises.
Should the Lessee dispute the correctness of the final state plan
and its liability for rentals as deriving therefrom, it will be
entitled to produce a plan signed by a chartered surveyor on its
behalf, and the parties will calculate the rentals in accordance
with that plan.
The rentals will be linked to the Cost of Living Index (including
fruit and vegetables) which is published each month by the
Central Bureau of Statistics (or any other body which may replace
it, if it should replace it), with the basic index being the
last-known index prior to the signing of this Contract, and the
determining index being the index known on the 1st day of each of
the months of payment.
Linkage differentials to the index will be added to each and
every payment pursuant to this Agreement according to the
percentage difference between the determining index and the basic
index, where this difference is divided by the basic index and
multiplied by the payment.
The aforesaid rentals, including the linkage differentials, will
henceforth be referred to as "THE BASIC RENTALS".
4.2 The rentals will be payable in advance, once every three months
on the 1st day of the month in which the payment is made.
4.3 It is hereby agreed that in respect of the area of the parking
basement of the Building, no rentals will be payable, unless any
use is made of the parking basement which differs from its
designation as a parking basement, in which case an amount
equivalent to a multiple of 4 dollars x number of square meters
in which such different use is made, will be added to the
rentals.
5. RECEIPT OF THE LEASED PREMISES
5.1 The Leased Premises will be delivered to the Lessee on the date
of commencement of the Period of Lease, where same are complete
in accordance with the Specification and with the matters set
forth in this Contract, and are connected to the electricity,
water and telephone networks.
The Leased Premises will be delivered in the state of an
"envelope" only, which contains an air-conditioning system, on a
basis that the Building is constructed according to the plans and
Specification and pursuant to the general inter-ministry
specification (the Blue Book) and with the air-conditioning
system being checked and inspected seven days prior to delivery.
The Lessor declares that the air-conditioning equipment will
comply with the Israeli standards mark and that the system will
be designed and will operate in accordance with any standard, to
the extent that one exists. It is recorded that the amount of
the investment is $150,000 at the expense of the Lessor, and the
Lessee shall approve the equipment prior to installation.
Should there be any constructional defect which prevents
reasonable use of the Leased Premises, the date of delivery will
be postponed until after repair of such constructional defect.
The Lessor will repair the aforesaid constructional defects
immediately.
5.2 The Lessor will allow the execution of finishing and adaptation
works in the Leased Premises during the course of construction of
the Building, even if these are performed prior to the date of
delivery.
These works will be performed by the Lessor, or by a contractor
to be selected by the Lessee, provided that same shall be
performed through the Lessor in accordance with the rules
practiced by the prime contractor (supervision, management,
coordination, auxiliary materials, etc.) and under all
circumstances at the Lessee's expense.
5.3 The right is reserved to the Lessee to request from the Lessor
the execution of any of the finishing and completion works inside
the Leased Premises, in which case such work shall be performed
against payment by the Lessee to the Lessor of the full value
thereof, by way of a one-time payment in advance or against an
autonomous bank guarantee for immediate payment, and in the
alternative -- by way of evaluating their value to be spread over
the entire Period of Lease and against suitable collateral
security.
5.4 Prior to execution of the facades of the Building, the toilet
assemblies, an elevator and staircases, it shall be obligatory
for the Lessor to exhibit the plan for execution to the Lessee in
order to receive the Lessee's comments. It is clarified that
receipt of the aforesaid comments shall not oblige the Lessor to
make changes in accordance with the comments, and that in every
case the decision as to whether to implement any of the comments
shall be that of the Lessor alone.
5.5 The Lessor undertakes to do its best in order to achieve the
obtaining of an approval and permits for the erection of an
enclosed bridge between the Building and the adjacent building
which is used by the company E.S.C., and a gallery on the first
floor of the Building.
Execution of the works mentioned in this sub-clause shall be
carried out by the Lessor and/or by someone on its behalf and at
the Lessee's expense.
6. ADDITIONAL PAYMENTS FOR WHICH THE LESSEE WILL BE LIABLE
6.1 In addition to the Basic Rentals and Value Added Tax, the Lessee
undertakes to pay all the taxes, fees, levies and the compulsory
payments which are imposed and/or may in the future be imposed on
the Leased Premises and/or on the use thereof, during the Period
of Lease, including general municipal rates and business tax, as
well as expenses for the consumption of electricity, gas,
telephone, house committee dues and any other expenses for the
maintenance of the Leased Premises.
6.2 Deleted.
6.3 Also after the Period of Lease has ended, the Lessee will be
liable for the payments mentioned above in this clause if the
debt was created as a result of the use and/or consumption made
during the course of the Period of Lease, even if the charge or
the demand for payment should arrive after the end of the Period
of Lease.
6.4 The Lessee will pay the payments mentioned above in this clause
immediately the due date for payment thereof arrives.
6.5 Should the Lessor make any payment which, pursuant to the
provisions of this Contract, is imposed on the Lessee, the Lessee
will be obliged to pay such payment to the Lessor immediately
upon the Lessor's first demand, together with linkage
differentials to the index and plus penalty interest in
accordance with Clause 9.2 below, reckoned from the date each
such payment was made by the Lessor and up to the time of full
actual refund thereof to the Lessor.
The Lessor will give the Lessee one week's prior notice with
regard to payment in accordance with this clause.
6.6 A contribution towards the Company's legal expenses in respect of
the drawing of this Agreement in a sum equivalent in shekels to
5,000 (five thousand) US dollars, plus V.A.T., shall be borne and
paid by the Lessee at the time of signing of this Agreement, and
shall be paid directly to Adv. Hershkovitz, who it is clarified
represents only the Lessor in all matters connected with this
Contract.
7. MAINTENANCE OF THE LEASED PREMISES DURING THE PERIOD OF LEASE
7.1 The Lessee shall keep the Leased Premises in good order and
condition, shall maintain order and cleanliness of the Leased
Premises and its surrounds, the installations and accessories
thereof, and shall make use thereof in careful and meticulous
manner and shall comply with the directives of any competent
authority, as may apply from time to time, in connection with
cleaning arrangements, the manner of removal of waste remnants,
and preserving the proper working order of the drainage system
and all the remaining systems in the Leased Premises.
The Lessor undertakes to bring to the notice of the Lessee all
directives of a competent authority, as aforesaid, if and to the
extent that such directives are brought to its notice.
7.2 During the first two years of the lease only, the Lessor will, at
its expense, repair any defect, fault or flaw which may be caused
or created or discovered in the Leased Premises in any part
thereof, including plumbing repairs and various other repairs,
and shall do so upon same manifesting themselves and/or being
caused and/or at the time of discovery thereof, save and except
for repairs or damage caused as a result of unreasonable use of
the Leased Premises.
7.3 Should a necessity arise for any repair which the Lessee is
responsible to repair in accordance with Clause 7.2 above, the
Lessee will be obliged to repair it at its expense within a
reasonable time from the date such necessity was discovered.
Should the Lessee fail to perform the repair as aforesaid, the
Lessor will be entitled, but not obliged, to perform such repair
after having given the Lessee 60 days prior notice, and all the
costs of the repair shall be borne by the Lessee, who will be
obliged to refund same to the Lessor immediately upon first
demand, plus linkage differentials and penalty interest in
accordance with Clause 9.2 below, reckoned from the date of
payment by the Lessor for the repair and up to the time of full
actual payment to the Lessor. The Lessor will be obliged to
found its demand for a monetary refund, as referred to in this
sub-clause, on documents such as receipts, invoices, etc.
Repairs which are under the responsibility of the Lessor as set
forth in Clause 7.2 above, shall be repaired by it, and if it
fails to do so, the Lessee may, after having delivered notices as
mentioned in this clause and mutatis mutandis as the case may be,
perform such repairs itself.
7.4 The Lessee undertakes to comply with the provisions of any law,
including a statute, regulation, order, bylaw or directive of any
competent authority which relates to the conduct of the Lessee's
business in the Leased Premises and in connection with the
maintenance of the Leased Premises and the use thereof. The
Lessee will also be responsible for the payment of any fine which
may be imposed as a result of the non-compliance with such
provisions.
7.5 The Lessee undertakes not to perform any external alteration to
the Leased Premises and/or any alteration which according to law
requires a permit from the authorities and/or any alteration
which would be likely to change and/or to adversely affect the
basic structure of the Building, unless it has attained the
Lessor's prior written consent.
Further and in addition it is hereby agreed that any alteration
in the Building which may create additional floor space (such as:
a gallery) will make it obligatory for the Lessee to arrange with
the Lessor additional rentals which will be payable to the Lessor
in respect of such added area, and this must be done prior to the
alteration being made and as a pre-condition for making it.
7.6 The warranties which the Lessor will receive in respect of
systems in the Building and the installations therein will, as
far as possible, also be endorsed into the name of the Lessee.
7.7 Should the Lessor agree to the Lessee's request to introduce
alterations into the Leased Premises, the Lessee will be obliged,
at the end of the Period of Lease, to restore the Leased Premises
to their former condition, to the state in which they were prior
to execution of the alterations, or to leave it in its altered
condition, all in accordance with a decision of the parties.
It is clarified that nothing in the foregoing shall oblige the
Lessee to return the Leased Premises to envelope condition.
Notwithstanding the contents of this clause, the Lessee will be
entitled at any time, up to the end of the Period of Lease, to
dismantle any addition it has installed in the Leased Premises
with the Lessor's consent, and to act in respect thereof, after
it has been dismantled, as an owner would act, provided that the
Lessee shall not cause damage to the Leased Premises after
dismantling of the addition.
7.8 The Lessor and any of its managers will be entitled to enter the
Leased Premises, by prior arrangement with the Lessee, and at any
reasonable time in order to inspect the state of the Leased
Premises and also for purposes of performing repairs, work,
technical or other arrangements for the Leased Premises. Nothing
contained in this sub-clause shall impose any obligation on the
Lessor to perform any of the matters mentioned in this Contract.
7.9 The Lessee shall comply with all directives of the Lessor and
directives of any other competent authority connected with fire
extinguishing arrangements and procedures, prevention of fires,
civil guard and safety measures.
8. ASSIGNMENT OF RIGHTS
8.1 The Lessee undertakes to use the Leased Premises solely itself or
through its employees and it shall be prohibited for the Lessee
to allow another or others to make use of the Leased Premises, or
part thereof, whether for consideration or otherwise, directly or
indirectly.
8.2 The Lessee undertakes not to transfer and/or to assign and/or to
endorse and/or to pledge and/or otherwise to encumber this
Contract and/or any right pursuant hereto, in favor of another or
others, and not to lease out the Leased Premises, or part
thereof, under a sub-lease, and not to deliver occupation or the
use thereof, or any part thereof, to another or others, for
consideration or otherwise, in any manner whatsoever. Any
transfer and/or assignment and/or endorsement and/or pledge
and/or encumbrance the Lessee may make contrary to the foregoing
will be null and void ab initio and devoid of any validity.
The contents of this sub-clause are subject to the provisions of
Clause 3.1.3 above. A subsidiary of the Lessee will be deemed to
be the Lessee itself.
9. BREACHES AND REMEDIES
9.1 The provisions of the Contracts Law (Remedies for Breach of
Contract), 5731-1970 and the provisions of the Contracts Law
(General Provisions), 5733-1973, shall apply to this Contract.
9.2 It is agreed between the parties that in the event that the
Lessee should default in any of the payments it is obliged to pay
pursuant to this Contract by more than 7 days, the Lessor will be
entitled to interest at a rate equivalent to the maximum rate of
interest prevailing at that time at Bank Leumi B.M. in respect of
credit excesses which go beyond a normal credit framework, on the
amounts which the Lessee defaults in effecting the payment
thereof, with this being in addition to and without derogating
from any other right which may be available to the Lessor
pursuant to this Contract and/or according to any law.
10. LICENSING AND LICENSES
10.1 The Lessee hereby undertakes to obtain any license required by it
and to see to it that the business is conducted in accordance
with any license that is required, according to any law,
including by any municipal, governmental, local or other
authority, for purposes of operating and conducting the Lessee's
business in the Leased Premises.
10.2 Throughout the entire Period of Lease the Lessee shall attend to
the renewal of the licenses and approvals required for the
conduct and operation of its business as aforesaid.
10.3 For the avoidance of doubt, the Lessor is not responsible to the
Lessee for obtaining licenses or approvals from any authority,
provided that the reason for the failure to obtain such approval
is not due to an act and/or omission on the part of the Lessor.
11. INSURANCE
11.1 The Lessee hereby undertakes that at its expense it will,
throughout the Period of Lease, insure the building of the Leased
Premises and the contents thereof against:
11.1.1 Risks of fire, explosion, earthquake.
11.1.2 Flood, water damage of any sort.
11.2 The Lessee hereby undertakes that at its expense it will,
throughout the Period of Lease, insure its operations in the
Leased Premises by way of the following forms of insurance:
11.2.1 Third party liability insurance with limits of
liability of not less than an amount equivalent to
1,000,000 US dollars per event and in total for each 12
months.
11.2.2 Employers liability insurance.
11.2.3 In addition, the Lessee undertakes that during the
entire Period of Lease it will, at its expense,
maintain loss of rentals insurance resulting from the
Leased Premises becoming unusable due to damage caused
to the Leased Premises, or the contents thereof, by the
risks mentioned in Clause 11.1 above, for a period of
indemnity of 12 months. This insurance may be effected
by extending the fire insurance policy so that it will
cover loss of rentals.
11.3 The Lessee hereby undertakes to add the Lessor's name as an
additional beneficiary under the policies mentioned above, save
and except the employers liability policy.
11.4 The Lessee shall, at the Lessor's request, exhibit all the
insurance policies which have been taken out as required pursuant
to this Contract, and shall also regularly present the Lessor
with every new policy issued to it, or any amendment to a policy.
Upon reasonable request by the Lessor, the Lessee will be obliged
to add and/or update and/or amend the insurance policies to the
satisfaction of the Lessee (sic!) in order that the policies
comply with the criteria laid down in this Clause 11, and under
all circumstances the amounts will be linked to the index each
year.
11.5 The Lessee will cause a situation that an express condition will
be added to the insurance policy to the effect that the insurer
expressly waives any right of subrogation or other right under
any law to have recourse against the Lessor in a subrogation
claim or a claim for refund or indemnity in respect of direct or
indirect damage which may be caused by virtue of fault on the
part of the Lessor, if such damage is caused.
11.6 The Lessor's right of inspection and its exercise or failure to
exercise its right to see the policies and to demand an update,
addition or alteration, as referred to in Clause 11.4 above,
shall not impose on the Lessor any liability with regard to the
policies, the nature and scope thereof, or with regard to the
absence thereof.
11.7 The Lessee undertakes to comply with all the conditions of the
policies mentioned above in this clause, to pay the insurance
fees on due date, to see to it that the policies will be renewed
and will be in full force throughout the entire Period of Lease.
Failure to renew the policies at their full value, including
linkage to the index, for any reason will constitute a material
breach of this Contract.
11.8 The policy shall contain a clause stating that the policy will
not be amended, canceled or not renewed unless prior notice to
that effect of at least 30 days is given to the Lessor.
12. THE LESSEE'S RESPONSIBILITY
12.1 The Lessor, its agents and anyone acting in its name or on its
behalf, will not be responsible in any manner with respect to any
damage or harm which may be caused to the Lessee or to its
property.
It is hereby expressly agreed and declared that no liability of
whatsoever nature will be imposed on the Lessor vis-a-vis the
Lessee in respect of any damage which may be caused to the Leased
Premises, or to the contents thereof, or to a third party, for
any reason, whether the reason for the damage or the fault is
known or unknown.
12.2 The Lessor will not bear any responsibility or any liability in
regard to any bodily damage and/or loss and/or damage to property
of whatsoever nature (direct or indirect) which may be caused to
the Lessee and/or its employees and/or persons engaged by it
and/or its agents and/or its customers and/or its visitors and/or
its invitees and/or any other person who may be in the Leased
Premises, or in another area occupied by the Lessee with the
Lessor's permission and/or to any property of the Lessee, and the
Lessee assumes full responsibility in respect of any such damage
and undertakes to indemnify the Lessor and to hold the Lessor
harmless against any damages it may be likely to be ordered to
pay and/or compelled to pay as a result of damage of this sort,
and in respect of any expense the Lessor may incur in connection
with any such damage.
It is clarified that should any demand and/or claim be lodged or
instituted against the Lessor which the Lessee is obliged to
bear, as aforesaid, and the expenses attaching thereto, the
Lessor shall not compromise and/or make payment of any amount
without obtaining the Lessee's prior written consent.
13. GROUNDS FOR EVICTION
13.1 Without prejudice to and/or without derogating from any other
provision in this Contract, in each of the following cases the
Lessor will be entitled, after having given a warning notice of 7
days, to terminate the contractual arrangement and the lease
which is the subject matter of this Contract, and to demand the
immediate vacation by the Lessor of the Leased Premises.
13.1.1 If the Lessee is late by more than 14 days in the
payment of any amount which is due to the Lessor
pursuant to the provisions of this Agreement and
according to any law.
13.1.2 If a receiver (provisional or permanent) or a receiver
and manager (provisional or permanent) or a liquidator
(provisional or permanent) should be appointed in
respect of the business and/or the property of the
Lessee, or portion thereof.
13.1.3 If the Lessee passes a resolution for winding-up or if
a liquidation order is issued against it, or if the
Lessee makes a compromise and/or arrangement (within
the meaning thereof under the Companies Ordinance) with
its creditors or some of its creditors, and/or if it
becomes insolvent.
13.1.4 If a provisional attachment or final attachment is
imposed on all the Lessee's assets, or if Execution
Office action is taken in respect of any of the
Lessee's assets.
13.1.5 If the Lessee commits a breach of the provisions of
Clause 8 above and grants another person a right of use
or any other right in and to the Leased Premises, or
any part thereof.
(The foregoing is subject to Clause 3.1.3 above).
13.2 VACATION OF THE LEASED PREMISES
13.2.1 At the end of the Period of Lease and/or the
termination of the lease and/or cancellation of this
Contract for any reason, the Lessee undertakes to
vacate the Leased Premises and to deliver occupation
thereof to the Lessor in circumstances where the Leased
Premises are free and vacant of any person and object
belonging to the Lessee, clean and tidy, and in the
same condition as the Lessee received the Leased
Premises from the Lessor, subject to reasonable wear
and tear.
It is clarified that nothing contained in this clause
shall oblige the Lessor (sic!) to restore the Leased
Premises to envelope condition.
13.2.2 Should the Lessee fail to vacate the Leased Premises on
due date and has failed to do so also after a warning
notice of 7 days it has received from the Lessor, then
in addition to the Lessor's right to claim vacation of
the Leased Premises, and in addition to any other right
the Lessor may have in accordance with this Contract,
or according to any law, and without prejudice to any
remedy or right accorded to the Lessor as aforesaid,
the Lessee shall pay the Lessor in respect of the
period from the date on which the Lessee was supposed
to vacate the Leased Premises and up to the date on
which it does vacate the Leased Premises, an amount
equivalent to twice the rentals, plus penalty interest
in accordance with Clause 9.2 above, and together with
Value Added Tax, calculated on a daily basis, from the
date the obligation for payment came about and up to
the time of payment to the Lessor, based on the rentals
which would have been payable pursuant to this Contract
had the lease been extended on the full actual
conditions of this Contract. The aforesaid payment has
been fixed and agreed as fair user fees and/or agreed
pre-estimated liquidated damages, which the parties
have assessed by way of a carefully calculated advance
assessment.
13.2.3 It is hereby expressly stipulated and agreed between
the parties that nothing contained above in this clause
shall confer on the Lessee a right to continue to
occupy the Leased Premises (against payment of the
agreed damages) and/or constitute a waiver by the
Lessor of any of its rights and/or prejudice the right
of the Lessor to obtain any other remedy and relief,
including, but without prejudice to the generality of
the foregoing, eviction and/or ejectment of the Lessee
from the Leased Premises.
14. ENCUMBRANCE OR PLEDGE BY THE LESSOR
14.1 The Lessor shall have the right to pledge and/or to encumber this
Contract, in whole or in part, to endorse its rights herein to
others, to transfer the Contract in whole or in part in any way
and manner as the Lessor may from time to time see fit, whether
with a view to obtaining finance or for any other purpose, all in
the Lessor's sole discretion, but without prejudice to the rights
of the Lessee pursuant to this Contract of lease.
14.2 Without prejudicing the Lessee's rights pursuant to this
Contract, the Lessor may assign its rights in and to the Leased
Premises, in whole or in part, and may transfer ownership
partially or fully, in its sole and absolute discretion, without
requiring the Lessee's consent, and the Lessee accepts, expressly
and in advance, any such action which may be taken by the Lessor
unequivocally, and the Lessee will have no allegation or claim or
demand of any sort as against the Lessor or anyone acting on the
Lessor's behalf.
15. THE LESSOR'S REMEDIES IN RESPECT OF BREACHES
15.1 Without derogating from the contents of Clause 9 above, or from
what is stated further on in this clause and without derogating
from the specific remedies which appear in this Contract, the
provisions of the Contracts Law (Remedies for Breach of
Contract), 5731-1970, and the provisions of the Contracts Law
(General Provisions), 5733-1973, will apply to a breach of this
Contract.
15.2 If the Lessee fails to keep the Leased Premises in good order and
condition and/or does not repair whatever requires repair in the
Leased Premises and/or fails to return the Leased Premises to the
Lessor at the end of the Period of Lease in good order and
condition and/or if any damage should be caused to the Leased
Premises during the Period of Lease which has not been repaired
by the Lessee, then in addition to any other right the Lessor may
have in such event, in accordance with the provisions of this
Contract and/or pursuant to any law, the Lessor will be entitled
to carry out any repair and/or perform any action it may deem fit
with regard to remedying the damage and/or to restore the state
of the Leased Premises to their former condition, all at the
Lessee's expense.
The foregoing is without derogating from the Lessor's obligations
under Clause 7.2 above.
15.3 In every case in which the Lessee abandons the Leased Premises
and/or vacates the Leased Premises without justification for a
period in excess of 180 normal consecutive business days in the
State of Israel, or if for any reason the Lessee fails to
conduct business in the Leased Premises for a period exceeding
180 normal consecutive business days in the State of Israel, the
Lessor shall have the right, without prejudice to its remaining
rights pursuant to this Contract with regard to payments due to
it from the Lessee [translator's note :something missing in
original Hebrew text] with its consent, and to receive occupation
of the Leased Premises unconditionally; in such event the Lessor
shall be entitled to store the Lessee's articles which are in the
Leased Premises at such place as the Lessor shall deem fit, at
the Lessee's expense, and the Lessee shall be obliged to refund
to the Lessor the costs of storage and custody which the Lessor
incurs in connection with the foregoing. The Lessor will not be
responsible for damage of any sort which may be sustained by the
Lessee, if such damage is sustained, due to the Lessor's
aforesaid actions. The foregoing in this clause will not apply
in the event that the Lessee bears and pays all the payments
imposed on it in accordance with the provisions of this
Agreement.
15.4 In every case of a cancellation of the Lessee's rights under this
Contract, due to the breach of this Contract by the Lessee, the
Lessor will be entitled to any additional remedy available to it
at law by virtue of the breach, including the remedy of
compensation, prohibitory injunction and mandatory injunction.
Notwithstanding everything set forth in this Contract and in
addition thereto, in the case of a breach by the Lessee in
consequence of which the Lessee is evicted from the Leased
Premises prior to the end of the Period of Lease, the Lessee will
be obliged to make payment to the Lessor for the period from the
date of eviction and up to the end of the Period of Lease, of
reasonable compensation which will be equivalent to the loss of
rentals the Lessor has suffered due to the cancellation, either
for the full remainder of the Period of Lease or for the period
until the Leased Premises are let to another tenant, and
thereafter until the end of the Period of Lease in respect of a
loss of rentals, if there should be any, due to lower rentals
being payable by the other tenant.
16. GUARANTEES -- COLLATERAL SECURITY
16.1 As security for the fulfillment of the Lessee's obligations
pursuant to this Contract, the Lessee shall lodge with the
Lessor's attorney, at the time of signing of the Contract, an
autonomous bank guarantee payable immediately upon demand, in an
amount of 100,000 (one hundred thousand) US dollars, in their
value in shekels on the date of issue of the guarantee.
The guarantee will not be delivered by the aforesaid attorney to
the Lessor until after prior notice of 7 days regarding his
intention to do so has been given.
16.2 It is hereby expressly agreed and declared between the parties
that the giving of the guarantee for performance of the
conditions of this Contract does not constitute any form of
waiver by the Lessor of its rights to other remedies against the
Lessee, whether same are remedies as described in the body of the
Contract or are remedies available to the Lessor by operation of
any law, as in force at the time of signing of the Contract or
which may apply in Israel at the time of the breach.
16.3 The foreclosure upon the guarantee will not affect the Lessor's
right to claim and obtain any other remedy from the Lessee and/or
from the guarantees.
16.4 At the end of the Period of Lease and at the time of delivery of
the Leased Premises to the Lessor, the Lessee will be obliged to
furnish the Lessor with confirmations to the effect that all the
payments and fees for which it was liable have been paid by it up
to the date of return of the Leased Premises.
Subject to the furnishing of all the aforesaid certificates, and
the Lessee's compliance with all the conditions of the Contract
and the absence of claims by the Lessor against the Lessee, the
guarantee will be returned to the Lessee.
16.5 Should the Lessor be obliged to apply to court as a result of a
breach of the Contract by the Lessee, and the court rules that
the Lessee has indeed breached the Agreement, all the Lessor's
expenses which it will be obliged to incur, including attorney's
fees according to the minimum tariff of the Israel Bar, shall be
borne by the Lessee.
16.6 It is expressly agreed that in every case in which the Lessee is
obliged to vacate the Leased Premises, the Lessor will be obliged
to give notice and to demand that the Electric Corporation and
the Municipality disconnect the supply of electricity and water
to the Leased Premises.
17. DELETED.
18. GENERAL
18.1 No procrastination and/or waiting and/or lack of response,
failure to act or failure to take steps by either of the parties
to this Contract, shall be construed under any circumstances as
being a waiver by such party of its rights pursuant to the
Contract in respect of a continuing or additional breach by the
other party, unless it has made an express written waiver of any
of its rights.
18.2 All the payments the Lessee is obliged to pay pursuant to this
Contract shall be paid by the Lessee to the Lessor by way of bank
transfer in accordance with details which will be given by the
Lessor in writing.
18.3 The addresses of the parties for purposes of the Contract are
those appearing at the head of the Contract.
Should the parties and/or either one of them change their
address, they shall give written notice to the other party of the
new address in Israel, and from that time onwards such address
will serve as the address of that party for purposes of the
Contract.
18.4 Any notice sent by one party to the other in accordance with the
Contract shall be sent by registered mail or shall be delivered
by hand and shall be deemed to have been delivered within the
reasonable time in which such notice ought to reach the
addressee.
18.5 The expenses for stamping this Contract shall be borne by the
parties in equal shares.
IN WITNESS WHEREOF THE PARTIES HAVE SIGNED AT THE PLACE AND ON THE DATE
FIRST AFOREWRITTEN:
___________________________ _____________________________
The Lessor The Lessee
Exhibit 10.32
UNPROTECTED LEASE AGREEMENT
Made and entered into at Yokneam on the 1st day of September 1996
BETWEEN
MARIO LAZNIK INDUSTRIAL BUILDINGS LTD.
Publ. Co. 52-003920-7
64 Sokolov Street,
Ramat Hasharon
(hereinafter: "THE LESSOR")
- OF THE ONE PART -
AND
E.S.C. MEDICAL SYSTEMS LTD.
Publ. Co. 52-004255-7
of 9 Ha'etzel Street
Tirat Hacarmel
(hereinafter: "THE LESSEE")
- OF THE OTHER PART -
WHEREAS: The Lessor owns the rights to the land, as hereinafter defined,
pursuant to a Development Contract dated June 30, 1994, and is
entitled to have a leasehold contract in respect of the land
signed with it, which contract is in the process of preparation
and signature with the Israel Lands Administration; and
WHEREAS: The Lessee has requested to take the Leased Premises, as
hereinafter defined, on hire from the Lessor, under an
unprotected lease for the period, the purpose and the conditions
set forth in this Agreement; and
WHEREAS: The Lessee declares that it will conduct in the Leased Premises
an approved industrial enterprise within the definition of the
term under the Law for the Encouragement of Capital Investments,
5719-1959, for the manufacture of electronic products; and
WHEREAS: The Lessor has agreed to let the Leased Premises to the Lessee,
under an unprotected lease for the period, the purposes and on
the conditions set forth above and below;
NOW THEREFORE IT IS DECLARED, AGREED AND STIPULATED
BETWEEN THE PARTIES AS FOLLOWS:
1. PREAMBLE:
The preamble to this Agreement and the declarations of the parties
therein constitute an integral part hereof.
2. APPENDICES:
The appendices attached to this Agreement as well as all appendices
which may be attached hereto in the future, if any will be attached
(provided that they bear the signature of the parties and are marked
as appendices to this Agreement) constitute an integral part hereof.
3. INTERPRETATION:
The headings to clauses in this Agreement have been inserted for
convenience only and they do not constitute part hereof and will not
be used for purposes of interpretation.
4. NULLITY OF PRIOR REPRESENTATIONS AND UNDERTAKINGS:
The parties to this Agreement will not be bound by any declaration,
representation, drafts, memorandums, application/s for letting of the
Leased Premises, agreements and undertakings, verbal or in writing,
which are not included in this Agreement, and which were made prior to
the signing hereof, and same shall not serve as evidence for purposes
of the interpretation of this Agreement.
5. DEFINITIONS:
In this Agreement, provided that this does not conflict with the
context, each term and expression set forth below shall have the
meaning set opposite it:
"THE LAND" An area of approximately 3,000 sq.m. in Block
11495 Parcel 13 (in portion) Plot 5 according
to Detailed Plan 163/DT/C which is in Yokneam
Illit.
"THE BUILDING" A building for industry and trade in an area of
approximately 4,400 sq.m. (external
measurements), which will be constructed on the
Land in accordance with the technical
specification and the drawing which are
attached to this Agreement as Appendices A and
B respectively, and in accordance with plans of
the building which is attached to this
Agreement as Appendix C.
"THE LEASED PREMISES" Part of the building in an area of
approximately 600 sq.m. (external measurements)
which is marked on Appendices B and C in
yellow.
"PURPOSE OF THE LEASE" An approved industrial enterprise according to
the definition thereof in the Law for the
Encouragement of Capital Investments,
5719-1959, for the manufacture of electronic
products.
"PERIOD OF LEASE" As described in Clause 8 of this Agreement.
"RENTALS" As defined in Clauses 9, 10 and 11 and in this
Agreement generally.
"YEAR", "MONTH" Within the meaning thereof according to the
Gregorian calendar.
"THE BASIC INDEX" Means the Consumer Price Index (including fruit
and vegetables) for the month of March 1996,
which will be published by the Central Bureau
of Statistics on April 15, 1996.
"THE NEW INDEX" Means the last Consumer Price Index (including
fruit and vegetables) which will published from
time to time by the Central Bureau of
Statistics prior to the time specified in this
Agreement for the effecting of any of the
payments the Lessee has undertaken to pay. If
the basis of the index is replaced and/or if
the method for the computation and compilation
thereof should be changed or if it should be
published by another entity instead of the
Central Bureau of Statistics, the Lessor will
make a calculation of the increase in the index
for purposes of this clause, in the course of
taking cognizance of the aforesaid changes.
"PROMISSORY NOTES" Promissory notes in shekels which will bear
linkage differentials.
"LINKAGE DIFFERENTIALS" The difference between the New Index and the
Basic Index, divided by the Basic Index, and
multiplied by the basic rentals.
6. NON-APPLICABILITY OF TENANTS PROTECTION LAW
The Lessee declares that:
6.1 The Leased Premises and the lease are not protected pursuant to
provisions of the Tenants Protection Law (Consolidated Version)
5732-1972 (hereinafter: "THE LAW"), nor under provisions of any
other law which deals with the protection of the tenant. This
Agreement and the relationship created hereby shall not confer on
the Lessee any right pursuant to the aforesaid laws.
6.2 The Leased Premises are "a vacant property" as this term is
defined in the Law and the Building is "a new property" the
construction of which was completed after 28th Av 5728 (August
20, 1968) and the provisions of the Law, or any other law which
may come in its stead, shall not apply thereto.
6.3 It has not been requested to pay, has not paid and has not
undertaken to pay the Lessor, or any other person, key money, or
any other payment likely to be construed as key money.
6.4 All the alterations, additions, improvements and enhancements
which may be made in the Leased Premises, if any, are solely for
its needs, and are not and will not be fundamental alterations,
and the provisions of Part C of the Law will not apply to this
Agreement and to the relationship between the parties to the
Agreement.
6.5 It is aware that only on the strength of its above declarations
and its undertaking to refrain from raising any allegation which
conflicts with and/or is inconsistent with the foregoing, has the
Lessor agreed to lease the Leased Premises to it.
7. THE LEASE:
7.1 The Lessor hereby lets the Leased Premises to the Lessee and the
Lessee hereby takes the Leased Premises on hire from the Lessor,
under a lease which is not protected under the Tenants Protection
Law, for the period and for the purpose of the lease only.
Should the Lessor decide to let other parts of the Building, the
Lessor undertakes to give notice to the Lessee to that effect and
to give the Lessee a right of first refusal to take the
additional portion of the Building on hire which the Lessor
wishes to let. The Lessee will notify the Lessor within 14 days
from the date the Lessor's notice is sent with regard to its
intention to let the additional area as to whether or not it, the
Lessee, wishes to take same on hire. Should the Lessee fail to
give notice of its intention to take the additional area on hire
within the aforesaid period of 14 days, the Lessor will be
entitled to let the additional area as it deems fit.
If the Lessee should give notice within the aforesaid period of
its desire to take the additional area on hire, the rentals in
respect of the additional area will be the rentals which are
payable per square meter as stipulated in this Agreement, or the
rentals which are the customary norm for the property at such
time, whichever is the higher.
The remaining terms of the lease will be, mutatis mutandis, as
set forth in this Agreement. The Lessee undertakes to sign a
lease agreement with the Lessor and to furnish the Lessor with
the guarantees and collateral in connection with the additional
area, immediately upon the Lessor's first demand.
The contents of this clause will not apply to an extension or
widening of lease contracts with other tenants who, at the time
the Lessor decides to let the additional area, have taken other
portions of the Building on hire.
7.2 The Lessor declares that it has not undertaken to let the Leased
Premises to any third party and that at the time of signing of
this Agreement it is not aware of any contractual or other bar to
the letting of the Leased Premises to the Lessee.
7.3 The Lessee declares that it has examined the Leased Premises
and/or the plans thereof and/or a specification and/or drawing of
the Leased Premises, and has found same to be suitable for its
purposes, and that upon its signing this Agreement and the
appendices hereto, it thereby precludes for itself any allegation
in connection with the suitability of the Leased Premises for its
needs and/or the quality of the Leased Premises and/or any other
allegation. The contents of this sub-clause are conditional upon
the construction of the Leased Premises and the parts of the
Building mentioned in Appendices A, B and C by the Lessor being
completed in accordance with the matters stipulated in Appendices
A, B and C.
7.4 The Lessee declares that it is an industrial enterprise which has
received approval from the Investment Center attached to the
Ministry of Trade and Industry (hereinafter: "THE INVESTMENT
CENTER APPROVAL") in accordance with the Law for the
Encouragement of Capital Investments, 5719-1959 (hereinafter:
"THE LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS"), the
approved program for which includes the hiring of a property such
as the Leased Premises for the next six years.
The Lessee undertakes, as a basic and fundamental term of this
Agreement, that it will conduct an approved industrial enterprise
in the Leased Premises for a period of not less than six years
from the date of signing of this Agreement, and will make its
best efforts in order to retain and maintain this status for an
additional period of one year, and to keep the Investment Center
Approval in force throughout all the aforesaid periods, and to
take all the steps, to comply with all the conditions and to
perform all the requirements lawfully demanded by any body,
including the Investment Center, and including the providing of
guarantees in accordance with Section 40G of the Law for the
Encouragement of Capital Investments, in order to comply with
this undertaking by it.
Without derogating from the remaining remedies available to the
Lessor pursuant to this Agreement and/or according to law, the
Lessee undertakes to indemnify the Lessor in respect of any
damages the Lessor may suffer in any circumstances in which the
Investment Center Approval is revoked and/or suspended and/or
otherwise prejudiced for any reason whatsoever, including acts or
omissions of the Lessee, within 7 (seven) days from the date of
the Lessor's demand.
7.5 The Lessor declares that the Building has been constructed and
will be constructed in accordance with a valid building permit.
8. PERIOD OF LEASE:
8.1 8.1.1 The Lessee hereby takes the Leased Premises on hire for
a period of nine (9) years and eleven (11) months
commencing from the date of delivery of occupation of
the Leased Premises to the Lessee, as specified in
Clause 17.1.3 below.
8.1.2 The Lessee will be entitled to terminate the Period of
Lease after the elapse of 5 years from the date of
delivery of occupation of the Leased Premises, upon the
fulfillment of all the following conditions:
8.1.2.1 The Lessee has itself made the adjustments and
adaptations to the Leased Premises for
purposes of making them suitable for its
purposes, as stated in Clause 17.5.4 below.
8.1.2.2 Period of Lease in the manner stated at the
beginning of this sub-clause 8.1.2. The date
of termination of the lease will be fixed in
the Lessee's notice, provided that it shall
not be later than 6 months from the date the
notice with regard to termination of the lease
is given to the Lessor.
8.2 In every case that the Lessee fails to present itself to accept
the Leased Premises on the date specified for delivery of
occupation, or if same is delivered to it by the Lessor on the
date of commencement of the Period of Lease, this shall not
constitute a reason for postponing the start of the Period of
Lease, and the provisions of this Agreement shall apply as if the
Lessee has received actual occupation of the Leased Premises.
8.3 In every case that the Lessee accepts occupation of the Leased
Premises the acceptance of occupation shall constitute a
declaration by the Lessee that it has received the Leased
Premises in accordance with the provisions of this Agreement and
it precludes for itself any allegation in connection with the
Leased Premises and/or the performance of this Agreement by the
Lessor, save and except for its allegations in writing which will
be delivered to the Lessor prior to acceptance of occupation of
the Leased Premises, and save and except for repairs during the
check-up period and in the warranty period.
8.4 It is agreed and declared by the parties that in every case in
which the Electric Corporation fails to supply electricity to the
Leased Premises, this will not constitute grounds for postponing
the start of the Period of Lease and/or preventing payment of the
rentals in full, provided that the Lessor shall supply the Leased
Premises with alternative power source and/or a generator having
the capacity specified in the technical specification and
together with a current stabilizer. It is agreed between the
parties that the cost of connection to an alternative power
source and/or the generator shall be borne by the Lessor, and the
cost of the current consumption shall be borne and paid by the
Lessee. The Lessor shall make its best efforts in order that the
supply of electricity be performed by the Israel Electric
Corporation Ltd.
8.5 The Lessor undertakes to obtain a habitation approval for the
Leased Premises by not later than June 15, 1996.
9. RENTALS:
The Lessee undertakes to pay the Lessor rentals in an amount of NIS
17.1 (seven shekels and ten agorot) in respect of each square meter of
the Leased Premises and for each sq.m. of the Lessee's pro rata share
of the common property, as defined in Clause 16.5 below, in each of
the months of the lease during the Period of Lease.
For purposes of payment of the rentals, the Lessee's pro rata share of
the common property will be deemed to be according to the definition
thereof in Clause 16.5 below.
The area of the Leased Premises and the area of the common property
will be determined by a surveyor to be appointed by agreement between
the parties. Should the parties fail to arrive at agreement, the
surveyor shall be appointed by the Lessor.
10. ADDITION OF V.A.T. TO THE RENTALS:
V.A.T. as prescribed by law shall be added to the rentals at the rate
which applies according to law at the time of effecting of each and
every payment. A valid tax invoice will be delivered to the Lessee.
11. ADDITION TO THE RENTALS OF LINKAGE DIFFERENTIALS:
11.1 The rentals as mentioned in Clause 9 above will be linked to the
Basic Index in a manner that in every case that the New Index
should rise as compared with the Basic Index, the rentals will be
increased according to the percentage rise in the New Index as
compared with the Basic Index.
11.2 Notwithstanding the foregoing, if at any time of payment of
rentals a binding legal provision should apply which limits the
percentage increase of the rentals, or freezes the amount
thereof, the parties will act in accordance with the provisions
of the law.
11.3 Should a legal provision which limits the percentage of linked
rentals or which freezes the amount thereof subsequently be
repealed or amended, the rentals will be linked to the index as
specified in Clause 11.1 above, and the Lessee will make payment
to the Lessor, for those months in respect of which it paid the
Lessor frozen rentals, of the differentials due to the Lessor as
a result of the cancellation of the freezing or the changes
therein, in accordance with the matters set forth in the above
clause. The Lessor shall notify the Lessee in writing what the
amount of differentials is that is due to the Lessor from the
Lessee, and the Lessee undertakes to make payment to the Lessor
of the aforesaid differentials, within 6 days after receipt of
the Lessor's notice, and all in accordance with any law.
12. TIME FOR PAYMENT OF RENTALS:
The rentals shall be paid by the Lessee to the Lessor together with
Value Added Tax at the following times: -
12.1 The Lessee shall deposit with the Lessor an autonomous bank
guarantee in a text approved by the Lessor, at the time of
signing of this Agreement, for an amount equivalent to six (6)
months rental. The guarantee will serve as security for the
fulfillment by the Lessee of all the conditions of the Agreement.
The Lessor will send the Lessee notice of 7 days prior to
foreclosing on the guarantee.
12.2 The rentals will be paid by the Lessee to the Lessor each and
every month on the 1st day of each month in respect of the
current month. The first payment shall be made on the date of
commencement of the Period of Lease.
12.3 In every case that the first day of the month is a non-working
day (Saturday, Jewish holiday, etc.) the payment shall be
deferred to the first working day following the non-working day.
13. PAYMENT OF RENTALS ON DUE DATE:
Every payment of rentals for which the Lessee is liable in accordance
with the provisions of this Agreement shall be effected at the time
specified for it and not later than such time. The dates of payment
of the rentals specified in this Agreement, and other payments the
Lessee is obliged to pay pursuant to this Agreement, are basic and
fundamental conditions and a delay in the execution thereof shall
constitute a material breach of the Agreement. Notwithstanding the
foregoing, a default of up to 7 days will not be deemed to be a breach
of this Agreement, but will bear interest at the rate customarily
charged at Bank Leumi le-Israel B.M. in respect of debit balances in
current business accounts.
If no due date for payment has been fixed in this Agreement, the
payment shall be effected at the date prescribed for payment thereof
according to law (if a legal provision exists) or within seven (7)
days after the Lessor's first demand.
14. MANNER OF COLLECTION OF RENTALS:
14.1 For the ease of collection and as security for payment of the
rentals, the Lessee shall, at the time of signing of this
Agreement, and each two years thereafter, deliver to the Lessor
duly stamped non-negotiable promissory notes.
14.2 The number of promissory notes shall be 24, with each note being
for the amount of the monthly rentals, so that on each occasion
promissory notes will be given in respect of rental payments for
a period of two years.
14.3 The promissory notes shall be delivered to the Lessor after all
the details have been completed therein.
14.4 Two months prior to the end of the lease period of two years in
respect of which promissory notes as referred to in this Clause
14 have been given, the Lessor shall deliver to the Lessee 24 new
promissory notes, and so on and so forth until the end of the
Period of Lease.
14.5 The Lessor will be entitled to fill in on each promissory note
any particular which is missing therefrom, and the Lessee waives
any allegation with regard to the completion of such particulars.
14.6 To the extent that the Lessee is requested by the Lessor to do
so, the Lessee undertakes to sign a standing instruction to debit
its bank account in respect of the payment of rentals, and will
do so within 14 days from the date on which the Lessor's request
as aforesaid is delivered to it. In such event the promissory
notes which have not yet been paid will be returned to the Lessee
on the date on which the first payment is effected pursuant to
the standing instruction.
15. DEFAULT IN PAYMENTS, REMEDIES AND RELIEF:
Without this being construed as acquiescence on the part of the Lessor
to the late execution of any payment for which the Lessee is liable under
this Agreement, any payment the Lessee is obliged to pay to the Lessor in
accordance with this Agreement, including payments imposed on the Lessee
which the Lessor has paid in lieu of the Lessee, and which are not paid to
the Lessor on due date, shall be governed by the provisions set forth
below:
15.1 Without derogating from the Lessor's rights to any other and/or
additional remedy pursuant to this Agreement and/or according to
any law, the Lessee will be obliged to pay the Lessor, as an
addition to a refund of the principal payment, interest at a rate
of 150% of the maximum interest which Bank Leumi le-Israel B.M.
would, on the date of actual payment, charge a non-preferred
customer for unauthorized excesses on overdrafts on business
accounts, with this being in respect of the entire delay in the
payment of the rentals, including V.A.T., and any other payment
the Lessee may owe the Lessor pursuant to the provisions of this
Agreement, and on the costs of collection which will be added
thereto, all reckoned from the date of commencement of the
default and up to the date of actual payment.
15.2 If the payment imposed on the Lessee is monetary compensation
(agreed or awarded) in respect of the Lessor's damages resulting
from a breach of any of the conditions of this Agreement, the
interest specified in Clause 15.1 above will be added to the
amount of compensation from the date of demand for the
compensation and up to the date of actual payment.
15.3 Without prejudice to anything stated in this Agreement and
without this constituting any form of permission to the Lessee
and/or a waiver and/or acquiescence on the part of the Lessor, in
the event that the Lessee has not paid any payment of rentals or
other payment pursuant to this Agreement within 14 days from the
due date for settlement thereof, this will be deemed to be a
proposal by the Lessee to the Lessor to terminate this Agreement.
The Lessor shall be entitled, but not obliged, to agree to such
proposal to terminate the validity of this Agreement, and it may
accept the aforesaid proposal at any time within 3 months from
the date of the breach.
The acceptance of the proposal by the Lessor shall not release the
Lessee from any of its obligations pursuant to this Agreement, and the
Lessor's consent shall not legitimize the non-payment or have the
effect of discharging the Lessee from the payment or to constitute a
breach (acceptance) of the Lessee's breach of the Agreement. Non-
payment as aforesaid shall under all circumstances constitute a
material breach of this Agreement.
15.4 Should a party to this Agreement commit a material breach of the
Agreement, then in addition to any other and/or additional remedy
pursuant to this Agreement (including other agreed compensation)
and/or according to any law, which is available to the aggrieved
party, the defaulting party shall pay the aggrieved party agreed
pre-estimated liquidated damages in an amount which has been
assessed in advance by the parties as being reasonable and as
properly reflecting the damages of the aggrieved party which can
be contemplated at present, after the parties have given serious
consideration to the matter, in an amount equivalent to six (6)
months rentals plus linkage differentials and V.A.T. of this
Agreement. The parties hereby waive any allegation regarding the
extent of the agreed damages and hereby waive in advance an
allegation regarding the extent of the agreed damages and any
argument regarding the need to mitigate same.
15.5 Should the Lessee make payments on behalf of the Lessee (sic! u
the Lessor) the obligation for payment of which is imposed
pursuant to this Agreement on the Lessor, and which the Lessor
has not repaid to the Lessee within 14 days from the date of
sending to the Lessor of a reasoned demand for payment,
accompanied by proof with regard to payment of the amounts and
the reason for same, the Lessor shall pay the Lessee in addition
to repayment of the principal amount of the payment, [interest]
at a rate of 150% of the maximum interest which Bank Leumi le-
Israel B.M. charges a non-preferred customer, on the date of
actual payment, in respect of unauthorized overdrafts on a
current business account. Notwithstanding the foregoing, it is
expressly recorded that the Lessee will not be entitled to effect
payment for the Lessor without the Lessor's consent, unless the
payment is made in order to remove an immediate and urgent
obstacle which does not allow the operation of the Lessee's
business in the Leased Premises, or which adversely affects the
Lessee's ability to operate its business in a normal and
reasonable manner. It is further clarified that the Lessee will
under no circumstances be entitled to set off amounts it has paid
on behalf of the Lessor as stated in this clause against the
payments due to the Lessor from the Lessee in accordance with the
provisions of this Agreement.
16. OTHER PAYMENTS FOR WHICH THE LESSEE WILL BE LIABLE:
In addition to all the other payments set forth in this Agreement, the
following payments shall be borne and paid by the Lessee, on due date,
during the Period of Lease:
16.1 All the taxes, fees, municipal rates, levies, municipal and
governmental (if imposed), current or one-time, that are imposed
on the Leased Premises, directly or indirectly, as same apply at
present or as may apply in the future (hereinafter: "COMPULSORY
PAYMENTS"), which by their nature are imposed on an occupier.
For the avoidance of doubt it is clarified that the Lessor shall
bear Compulsory Payments which, by their nature are imposed on
owners, lessors and ownership only, as distinct from an occupier,
tenant or user.
Where such payment is imposed in respect of a whole year only
part of which falls within the scope of the Period of Lease, the
Lessee will pay a pro rata share of the aforesaid payment. The
aforesaid payment shall be paid by the Lessee on the date
according to law at which same requires to be paid to the
authorities.
16.2 All the payments and expenses in respect of the supply of
electricity, water, gas and telephone to the Leased Premises, and
any other payment of such type, which may apply in respect of the
current use of the Leased Premises.
16.3 All the taxes and payments which will be due to the municipality
and/or local authority and/or government and/or industrial zone
administration (and/or any other administrative body) and/or any
other body in respect of the business which the Lessee will
operate and/or conduct in the Leased Premises, including, but
without derogating from the generality of the foregoing, business
tax, signboard tax and license fees for the business and the
conduct thereof.
16.4 All the payments required in order to obtain permits for
signboards and all the taxes and fees which are imposed in
consequence of the hanging of signboards.
16.5 The provisions of Clauses 16.1 - 16.4 above shall also apply to
parts of the Building and/or the Land intended for use of all the
tenants in the Building and/or the majority thereof (even if they
are within the areas of other parts of the Building and/or the
Land which have been let to a third party) including land, roofs,
stairwells, courtyards, elevators, bomb-shelters and so forth
(hereinafter: "THE COMMON PROPERTY"). The Lessee's share in the
payment in respect of the Common Property pursuant to sub-clauses
16.1 u 16.4 will be according to the ratio between the [area of
the] Leased Premises and the total area of the Building.
16.6 All payments and demands which may be due and/or may be lawfully
demanded by the Investment Center attached to the Ministry of
Trade and Industry and/or any entity in connection with the
maintaining by the Lessee of an approved industrial enterprise in
the Leased Premises.
16.7 The Lessee undertakes to exhibit to the Lessor once each year,
upon the Lessor's request, all the receipts or certificate
testifying to the fact that the payments imposed on the Lessee
pursuant to this Agreement have indeed been paid by it on due
date. Non-payment on due date of any payment imposed on the
Lessee, pursuant to this Clause 16, will constitute a breach of
the Agreement.
16.8 Where one party to the Agreement has, for any reason, paid any
payment which, according to the provisions of this Agreement is
imposed on the other party, the other party will be obliged to
refund to the paying party any amount which may be paid by the
paying party as aforesaid, immediately upon the latter's first
demand.
16.9 The Lessee shall, for the Period of Lease and for that period
only and so long as this Agreement is in force, transfer into its
name and for its account, the employers tax account, and the
electricity, telephone, gas and water meters and the municipal
rates.
17. CONSTRUCTION OF THE BUILDING AND ALTERATIONS THERETO:
17.1 17.1.1 For the avoidance of doubt it is hereby clarified that
development works in the Land have not yet been
performed by the authorities and/or any third party.
17.1.2 The Lessor and the Lessee declare that the Building to
be constructed in accordance with the specification
referred to in Clause 17.1.3 below cannot be put into
operation except after receipt of approvals from the
authorities and compliance with their demands.
17.1.3 Without prejudice to the generality of the foregoing,
the Lessor undertakes to complete the construction of
portion of the Leased Premises the construction of
which is imposed on the Lessor and portion of the
Building the construction of which is imposed on it, in
accordance with Appendices A u C to this Agreement,
itself and/or through third parties, subject to any
approval and/or permit and/or other condition required
according to law and to cause a situation that
construction of the Leased Premises the construction of
which is imposed on it and portion of the Building the
construction of which is imposed on it, as described in
Appendices A u C to this Agreement, will be completed
and the actual possession of the Leased Premises will
be delivered to the Lessee by not later than August 1,
1996 (hereinafter: "DATE OF DELIVERY OF OCCUPATION").
Should the Lessee commence operating its production
lines in the Leased Premises on an earlier date
earlier, the Date of Delivery of Occupation will, for
purposes of payment of the rentals and the other
payments imposed on the Lessee under this Agreement, be
brought forward to the date of commencement of
operation of the Lessee's production lines in the
Leased Premises, provided that there is no legal bar
thereto which does not stem from an act or omission on
the part of the Lessor, and subject to Clauses 17.1.4
and 17.4 below.
It is agreed and declared between the parties that
failure to complete items which do not prevent the
reasonable use of the Leased Premises will not be
deemed to be a breach of this clause and will not be
deemed to be grounds for postponing the acceptance of
the Leased Premises by the Lessee.
17.1.4 If one or more of the events mentioned below should
occur, the date of delivery will be postponed for a
period corresponding to the duration of the event
and/or the results thereof which prevent the
continuation of the work (hereinafter: "PERIOD OF
PREVENTION"). The Lessee will not be entitled to any
compensation from the Lessor in respect of a delay in
the delivery of the Leased Premises and this will not
constitute any grounds for the Lessee to cancel this
Agreement. The following are the events:
a. Strike or any nation-wide stoppage of work in the
building industry and/or in the transportation
industry.
b. Stoppage of construction due to an order by any
authority or a court order or the order of a
tribunal, which is not under the control of the
Lessor and which is not due to an act or omission
of the Lessor.
c. A general military call-up which delays the
execution of works for a period exceeding three
months.
d. A state of war and/or hostilities.
e. Earthquake at the building site.
f. Flood which damages the building site.
g. Fire which damages the building site.
h. Any other factor and/or reason over which the
Lessor has no control and which it was unable to
foresee and/or to prevent by reasonable means.
17.1.5 Should the Lessor be late in delivering occupation of
the Leased Premises to the Lessor (sic! u Lessee)
contrary to the contents of this Agreement, or in the
date of giving Lessee permission to enter the Leased
Premises in order to perform adaptation work after July
15, 1996, for a period which shall not exceed 31 days,
the Lessor shall pay the Lessee in respect of each day
of default in delivery, or part thereof, an amount
which will be equivalent to $500 in respect of each day
of default.
The compensation referred to in this sub-clause is
final and absolute compensation and the Lessee will not
be entitled to any other remedy in respect of a default
in the delivery of occupation during the period of 31
days referred to in this clause, except the contents of
sub-clause 17.1.6 below.
Should the Lessor be late in delivery of the Leased
Premises for a period which exceeds 31 days, the Lessee
will be entitled to claim from the Lessor either its
actual damages or the daily compensation in a sum of
500 dollars referred to above in this sub-clause, at
the Lessee's election. For the avoidance of doubt it is
clarified that in the event that the Lessee should
elect the daily compensation specified in this
sub-clause, the daily compensation will also apply
during the period from the 31st day of the default and
up to the date the breach is cured.
17.1.6 Delivery of occupation after August 1, 1996 and the
giving of permission to the Lessee to enter the Leased
Premises to perform the adaptation work therein (in
circumstances where the Leased Premises are ready for
the start of the execution of adjustments and
adaptation) after July 15, 1996, will constitute a
material breach of this Agreement, entitling the Lessee
to cancel the Agreement by way of written notice.
Should the Lessee fail to exercise this right up to the
time the breach is cured, excluding the default, this
will be deemed to be a pardon by the Lessee of such
breach, save and except for the daily compensation
specified in sub-clause 17.1.5.
17.2 In every case in which the Lessee requests the Lessor to effect
alterations and additions to the Leased Premises, over and above
the matters stipulated in Appendices A, B and C, prior to the
start of the Period of Lease, the provisions of Clause 17.2 to
17.4 below will apply:
17.2.1 The Lessee will apply to the Lessor with a written
request for the Lessor to perform alterations for it.
As detailed as possible a specification of alterations
and additions shall be attached to the request
(hereinafter: "THE ALTERATIONS").
17.2.2 The Lessor will be entitled, in its sole and absolute
discretion, to accept the Lessee's request and to
cause, through itself and/or through third parties, the
execution of the Alterations, in whole or in part, at
prices to be fixed by it. The Lessor shall cause the
execution of such Alterations after the Lessee has
confirmed to the Lessor, by its signature, that it
agrees to the prices proposed, and that it agrees to
the estimated time for the performance thereof, which
shall be notified to it by the Lessor.
Without derogating from the generality of the
foregoing, the Lessee declares that it is aware that
the Lessor is likely to restrict its consent to
execution of Alterations in the Leased Premises in a
manner that its total investment in the Building
(including the Alterations) will not exceed the total
grant given to the Lessor by the Investment Center.
17.2.3 The Lessee undertakes to obtain all the approvals and
permits required and/or which may be required from the
competent authorities for purposes of executing the
Alterations.
17.2.4 All the Alterations will, for all intents and purposes,
be deemed to be part of the Leased Premises and will be
the sole property of the Lessor without any
consideration being given by the Lessor, and the fact
that they will be left with the Lessor shall not be
construed and shall not be deemed under any
circumstances to be payment of key money or a
contribution.
17.2.5 The Lessee shall furnish the Lessor with a security
note to secure the payment referred to in Clause 17.3.2
below, together with the application for execution of
the Alterations.
17.2.6 Nothing contained above in this clause shall prevent
the Lessor, in its sole discretion, from stipulating
and demanding additional conditions as a pre-condition
for granting its consent to execute the Alterations.
17.3 17.3.1 Where the Alterations mentioned in Clause 17.2 have
been executed, the rentals (as referred to in Clause 9
above) will be changed and will increase by a rate of
10.0% (ten percent) per annum of the price fixed as the
price for executing the Alterations in accordance with
the provisions of Clause 17.2.2 above. The Lessee
shall furnish the Lessor with updated promissory notes
in accordance with the provisions of Clause 14 above.
17.3.2 At the end of the Period of Lease, the Lessee shall pay
the Lessor the price fixed as the price for executing
the Alterations, together with linkage differentials to
the index from the date of ordering the work and up to
the date of actual payment, less the payments which
have been paid as stated in Clause 17.3.1.
17.4 In the event that execution of the Alterations referred to in
Clause 17.2 above should cause a postponement in the date
specified in this Agreement for delivery to the Lessee of the
Leased Premises, as stated in Clause 17.1 above, the Lessee will
pay the Lessor the rentals and the remaining payments imposed on
it pursuant to this Agreement, commencing from the date which was
intended for delivery of the Leased Premises to the Lessee, as if
the Lessee had actually received occupation of the Leased
Premises. In addition, the Lessee will not be entitled to
compensation in respect of non-delivery of the Leased Premises on
due date.
17.5 17.5.1 The Lessee is not entitled to make any external change
and/or to add any constructional addition to the Leased
Premises or to the yard which belongs to the Leased
Premises or to the Land, nor to demolish parts thereof,
not to install or to remove electrical, water, sewerage
and any other type of installations (hereinafter: "THE
ADDITIONS AND CHANGES").
17.5.2 Should the Lessee wish to perform any of the matters
mentioned in sub-clause 17.5.1 above, it shall apply to
the Lessor to obtain the Lessor's prior written
consent. The greatest possible amount of detail shall
be set forth in the request describing what the
requested Additions and Changes are.
17.5.3 If the Lessor has acceded to the Lessee's request as
mentioned in sub-clause 17.5.2 above, the following
provisions will apply:
a. All the expenses in respect of the Additions and
Changes shall be borne by the Lessee.
b. The Lessee undertakes to obtain all the approvals
and permits which are required and/or which may be
required from the competent authorities, at its
expense.
c. The Lessor is entitled, in its sole discretion, to
instruct the Lessee as to whether the Additions and
Changes will remain, in whole or in part, after the
Lessee has left, or that the Lessee must restore
the Leased Premises to their condition prior to the
effecting of the changes. The Lessee will be
entitled to remove from the Building all the
movables it has brought into the Building.
d. Without prejudice to the contents of Clause
17.5.3(c) above, any Change or Addition to the
Leased Premises, whether to the Building, to the
yard or to the Land, shall for all intents and
purposes be deemed to be part of the Leased
Premises, and will be the sole property of the
Lessor without any consideration from the Lessor,
and the fact that they will be left in the
possession of the Lessor shall not be deemed to be
payment of key money or as a contribution.
e. The Lessor undertakes to indemnify the Lessee in
respect of any damage which may be caused to the
Leased Premises and/or to the Lessee by virtue of
the execution of the changes and alterations by the
Leased Premises (sic! u Lessor).
f. Nothing in the foregoing shall prevent the Lessor
from stipulating additional conditions for giving
its consent pursuant to sub-clause 17.5.2 above.
g. The contents of the sub-clauses of this sub-clause
17.5.4 shall also apply to internal alterations
(the execution of which does not require the issue
of a building permit) in the Leased Premises for
the execution of which the Lessee is not obliged to
obtain the Lessor's permission.
17.5.4 a. The Lessor declares that the Lessee has requested
the execution of Additions and Changes prior to
delivery of occupation of the Leased Premises as
stated in Clause 17.1.3 above, for purposes of
adapting the Leased Premises to the Lessee's needs,
and that the Lessor has agreed and does agree to
the changes which have been conveyed to it by the
Lessee (hereinafter in this sub-clause 17.5.4 u
"THE ADJUSTMENTS"), and that without derogating
from the generality of the contents of Clauses
17.5.2 and 17.5.3 above, the Lessee will be
entitled to enter the Leased Premises commencing
from April 1, 1996, for purposes of performing the
Adjustments by it, in a situation that the Leased
Premises are ready for the commencement of
execution of the Adjustments as described in
Appendix A to this Agreement.
Should the due date for delivery of occupation, as
set forth in sub-clause 17.1.4 above, be postponed,
the date specified above shall be postponed by a
period equivalent to the duration of the
postponement.
b. For the avoidance of doubt it is hereby clarified
that the Lessor's consent to the execution of the
Adjustments by the Lessee shall not confer any
right in the Leased Premises on the Lessee,
including, and without derogating from the
generality of the foregoing, the fact that the
Lessee will not be entitled to operate the Leased
Premises, and the status of the Lessee up until
delivery of occupation of the Leased Premises as
stated in Clause 17.1.3 above, shall be that of a
licensee only.
c. Subject to the condition that the Leased Premises
will be delivered to the Lessee by not later than
April 1, 1996, as prescribed in the appendices to
this Agreement, the Lessee will pay the Lessor the
rentals and the remaining payments imposed on it
pursuant to this Agreement, commencing from the
date of delivery of occupation, as though it has
received the Leased Premises into its actual
possession.
In addition, the Lessee will not be entitled to
receive compensation in respect of the non-delivery
of the Leased Premises on due date.
18. ALTERATIONS WITHOUT THE LESSOR'S CONSENT
18.1 Should the Lessee make changes without the Lessor's consent, then
without this constituting consent on the part of the Lessor to
the execution thereof, and without prejudice to the Lessor's
remaining rights and remedies available to it pursuant to this
Agreement and/or according to law, the Lessor may, in its sole
discretion, instruct the Lessee to remove same, in whole or in
part, within a time to be specified by the Lessor, or may
instruct that the changes and additions shall remain, in whole or
in part, after the Lessee leaves, or may instruct the Lessee to
restore the Leased Premises to the condition in which they were
prior to the execution of the changes, or may hold the Lessee
liable for the cost of restoring the Leased Premises to the
condition in which they were prior to the execution of the
changes.
18.2 Without derogating from the contents of Clause 18.1 above, any
change or addition to the Leased Premises will be the sole
property of the Lessor, without any consideration by the Lessor,
and the fact that they are left in the possession of the Lessor
shall not be construed as payment of key money or as a
contribution.
18.3 Without prejudice to the foregoing, where the Lessee has made
additions and/or changes, without the Lessor's prior written
consent, the Lessor may, in its sole discretion, prevent the
execution of the change or the addition at any time, and may
remove or demolish any change or addition or part thereof, all at
the Lessee's expense.
18.4 The Lessee will be entitled to install a commercial signboard/s
in the Leased Premises, subject to prior coordination and receipt
of the Lessor's prior consent with regard to the size thereof and
the location of the signboard/s, and subject to obtaining all the
requisite permits.
19. NON-RELIANCE ON PROMISES
The Lessee confirms that it has taken the Leased Premises on hire
generally, and for the purposes of the lease in particular, on the
strength of its own inspections, and on its responsibility, and
without having relied on representations and/or promises from the
Lessor, save and except the representations expressly mentioned in
this Agreement. The Lessee hereby releases the Lessor from all
responsibility to the Lessee in connection with the letting of the
Leased Premises and the possibility of operating the Lessee's business
therein, and hereby waives any allegation and claim in connection
therewith as against the Lessor.
20. INSURANCE
20.1 Insurance by the Lessor:
20.1.1 The Lessor shall procure a policy/ies for the insurance
of the Building which will cover the Leased Premises
against all the possible risks, including perils of
fire, explosion, electricity, earthquake, malicious
damage, civil commotion, strikes, storm, tempest, flood
and water damage, breakage and burglary, aircraft,
impact and extensions to third party insurance risks
and insurance of loss of income (loss of rentals), all
in the Lessor's sole discretion. The Lessee hereby
agrees that the policies will contain provisions with
regard to a waiver by the insurance company of a right
of subrogation against the Lessor and/or the Lessee or
any of their employees.
The insured and the beneficiary under the policy will
be the Lessor. The sum insured will be an amount which
is not less than the value of the Building, in the
Lessor's sole discretion, and the same shall apply with
regard to the value of the other risks insured.
20.1.2 The Lessee shall pay the Lessor such amount as the
Lessor will pay as an insurance premium in respect of
the policy mentioned in this clause, within seven (7)
days from the time the Lessor's demand is served on it.
In the event that the Lessee is able to procure an
insurance policy providing identical insurance cover to
the policy chosen by the Lessor, the premium for which
is cheaper by more than 10% than the premium pursuant
to the policy chosen by the Lessor, insurance of the
Building shall be effected under the cheaper policy,
all subject to the condition that there are no doubts
with regard to the solvency of the cheaper insurer.
20.1.3 The policy shall be renewed and/or a new policy shall
be procured by the Lessor, at the end of each year of
lease, and the Lessor shall be entitled to update the
amounts of the policy in its sole discretion, and the
provisions of sub-clause 20.1.2 shall apply each time
the policy is renewed and/or a new policy is taken out.
20.2 Insurance by the Lessee:
Without derogating from the Lessee's responsibility pursuant to
this Agreement and according to any law, the Lessee shall effect
and maintain throughout the entire Period of Lease, the following
insurances with a duly authorized and reputable insurance
company.
20.2.1 Property insurance which covers the contents of the
Leased Premises and the business and operations of the
Lessee in the Leased Premises, at their full value, on
a basis that the insurance values will be updated from
time to time in accordance with the value of the assets
insured, including inventory, furniture, equipment,
installations and systems which serve the Leased
Premises and/or are owned by the Lessee (whether within
the area of the Leased Premises or outside it), as well
as any repair, alteration, improvement, renovation and
addition to the Leased Premises which may be made by
the Lessee, against all the risks, including loss or
damage as a result of fire, smoke, lightning,
explosion, earthquake, storm and tempest, flood, civil
commotion, strikes and malicious damage, damage by
vehicles, damage by aircraft, accidental damage,
breakage of glass, mechanical breakdown, damage by
liquids, and burglary.
20.2.2 Insurance of consequential damage and loss of profits
to the Lessee, at the full value thereof, as a result
of a loss or damage to the property of the Lessee
and/or to the Leased Premises, against all the risks
mentioned in Clause 20.2.1 above.
20.2.3 Third party liability insurance which covers the
Lessee's liability in respect of any bodily damage
and/or injury and/or damage to property of any person
and/or any entity, including to customers, to visitors
and to any other third party, which are caused due to
the occupation of the Leased Premises and the use
thereof by the Lessee, with limits of liability of not
less than $1,000,000 (one million dollars).
The insurance will not be subject to any limitation
with regard to liability arising from fire, explosion,
panic, hoisting, loading and off-loading apparatus,
defective sanitary installations, and claims by the
National Insurance Institute.
20.2.4 Employers liability insurance with the maximum standard
limits of liability as are customary at the time the
insurance is effected or at the time of the renewal
thereof, but not less than $1,000,000 (one million
dollars), which covers the Lessee vis-a-vis its
employees and/or persons engaged by it or on its behalf
in connection with any physical damage or death caused
to them in the course of and as a result of their
employment.
Such insurance shall not be subject to any limitation
with regard to contractors, sub-contractors and their
employees or the employing of juveniles.
20.2.5 Contractors insurance in connection with all the
renovation and adjustment work which will be performed
in the Leased Premises, if same are to be performed by
the Lessee, which shall include third party liability
in limits of liability of not less than $500,000 (five
hundred thousand dollars) per plaintiff, and employers
liability insurance with limits of liability as
mentioned in Clause 20.2.3 above. The insurance shall
expressly contain cover for damage caused to nearby
property and to property on which work is being done.
20.3 The following provisions shall apply to the insurance policies to
be taken out by the Lessee:
20.3.1 In all the policies mentioned in Clause 20.2 above, the
Lessor shall be an insured jointly with the Lessee, and
it shall be expressly mentioned that the insurer waives
any rights of subrogation as against the Lessor and/or
the management company, if any, except in respect of
damage maliciously caused by them.
(8644)
20.3.2 The insurance effected pursuant to Clause 20.2.3 shall
be extended to indemnify the Lessor and/or the
management company in respect of liability for the
Lessee's acts and/or omissions, subject to a cross-
liability clause pursuant to which the insurance will
be deemed to have been effected separately for each of
the individual parties who make up the insured.
20.3.3 The Lessee's insurance policies shall contain an
express provision to the effect that they rank ahead of
any insurance effected by the Lessor and/or by the
management company (if any).
20.3.4 The Lessee's insurance policies shall contain an
express provision to the effect that the insurance
cover pursuant thereto will not be reduced and will not
be canceled during the Period of Lease without the
Lessor being given notice to that effect by registered
mail at least 30 days in advance.
20.3.5 The Lessee undertakes to update the sum insured in the
insurance policies effected pursuant to Clause 20.2.1
above, from time to time, so that it reflects the real
value of the insured property, and to comply
meticulously with all the provisions of the policies
and to pay the premiums on due date.
20.3.6 The Lessee shall furnish a certificate from its insurer
confirming that the Lessee's insurance policies have
been effected prior to opening its business in the
Leased Premises, as well as a certificate regarding the
updating and extension of the insurance policies in
advance of the end of each year of insurance during the
Period of Lease.
20.3.7 The Lessee hereby releases the Lessor and/or anyone on
the Lessor's behalf from any liability for loss and/or
damage in respect of which the Lessee is entitled to
compensation and/or indemnity in accordance with the
insurance policies described above.
21. ABSENCE OF UNDERTAKING FOR REINSTATEMENT OF THE LEASED PREMISES OUT OF
THE INSURANCE COMPENSATION
The Lessee confirms that the Lessor has expressly notified it that
upon the occurrence of an insurance event to the Leased Premises
and/or part thereof, the Lessor does not undertake to reinstate the
Building.
22. LIABILITY FOR DAMAGE:
22.1 The Lessor will not bear any liability, and in particular nothing
contained in this Agreement shall impose liability of any sort on
the Lessor, for bodily damage and/or damage to the property of
the Lessee, its employees, representatives, visitors, invitees
and/or any third party, which may be caused in the Leased
Premises, in the common property (as defined in Clause 16.5
above), in the surrounds thereof, on the way to the Leased
Premises, whether same is caused in connection with the
occupation of the Leased Premises and/or the use and/or non-use
thereof and/or by and/or in connection with the operation or non-
operation of the Lessee's business (partially or completely), or
due to any other reason, except a negligent or willful act or
omission on the part of the Lessor which is not covered by the
insurance policy.
22.2 "The Lessor" in this clause includes the Lessor, its employees,
agents, emissaries and anyone acting on its behalf, and none of
such parties will be responsible for damage of any sort as
mentioned in Clause 22.1 above.
22.3 The Lessee hereby assumes full responsibility in respect of any
form of damage as described in Clause 22.1 above, and it will
bear full liability for all the damages described above, and
without derogating from the generality of the foregoing, for any
damage caused to the Leased Premises, save and except for damage
which may be caused as a result of the Lessor's acts and/or
omissions.
22.4 The Lessee undertakes to indemnify the Lessor and to hold the
Lessor harmless in respect of any claim, obligation, expense,
damage or loss which may be incurred by the Lessor in connection
with or in respect of claims or demands as aforesaid, including
court costs and attorney's fees. The Lessor shall notify the
Lessee within 7 days from the date of receipt of the claim by it
and will allow the Lessee's attorney to represent the Lessor in
the claim.
23. USE OF THE LEASED PREMISES
Without prejudice to the force and effect of the remaining provisions
of the Agreement, the Lessee undertakes:
23.1 To use the Leased Premises solely for the purpose of the lease
and not for any other purpose. Use of the Leased Premises for a
purpose which differs from the aforesaid purpose shall constitute
a material breach of this Agreement.
23.2 To maintain the cleanliness of the Leased Premises and the common
property, as defined in Clause 16.5 above, and not to place food
products, tools, crates, articles, junk and other movables
outside the Leased Premises, and not to cause any nuisance,
disturbance and unpleasantness for persons in or visiting the
region in which the Leased Premises are located, and to be
responsible to the governmental and municipal institutions and
authorities for the payment of any fines as a consequence of the
non-compliance with the provisions of this clause.
23.3 At its expense to comply with all provisions of the law,
regulations or requirements which may be issued by the competent
authorities in connection with the use of the Leased Premises and
the common property as defined in Clause 16.5 above, including
compliance with all the sanitation and hygiene directives and/or
which are connected with the environment and the prevention of
nuisances.
23.4 To conduct the work solely within the confines of the Leased
Premises, in a manner which does not constitute a public nuisance
or disturbance to neighbors and to the environment.
23.5 For purposes of access to the Leased Premises to make use solely
of the proper ways of access that exist at present and will exist
in the future, to park cars and transportation vehicles at the
places designated for that purpose, and not to make use of any
motorized or other vehicle likely to damage ways of access and
parking surfaces.
23.6 To make prompt and exact payment of all the payments due from it
to the Lessor and/or to the competent authorities, on the dates
specified for the payment thereof.
23.7 To allow the Lessor and/or its representative to visit the Leased
Premises at any reasonable time, and to inspect the condition
thereof and the use being made thereof, in order to ascertain the
extent to which the provisions of this Agreement are being
fulfilled and/or in order to perform the operations and take the
steps stipulated in this Agreement or in any law, which
necessitate entry into the Leased Premises.
23.8 To comply with the directives of the Lessor and/or directives of
the competent authorities connected with fire fighting
arrangements and procedures and the prevention of fires, the
Civil Guard, safety and security, and at its expense and in
accordance with the instructions of the above-mentioned entities,
to purchase any preventive equipment and safety equipment
required for the implementation and the maintaining of the
aforesaid directives, save and except for fire hoses and Civil
Guard installations which are demanded from the Lessor at the
time of construction of the Building pursuant to the approved
plans for the Building in accordance with the adaptation thereof
for the Lessee.
24. MAINTENANCE AND REPAIRS
24.1 The Lessee undertakes to make careful and reasonable use of the
Leased Premises and diligently to see to it that, throughout the
entire Period of Lease, the Leased Premises and all the
installations connected thereto, are in good and proper order,
operative, tidy and clean.
24.2 Without prejudice to the foregoing, the Lessee shall promptly and
at its expense repair any damage or fault which may occur during
the time the Lessee is in the Leased Premises and/or to any other
installation connected in any manner with the Leased Premises,
and in particular, but without derogating from the generality of
the foregoing, any impairment to the external sides of the Leased
Premises, which shall be repaired by and at the expense of the
Lessee, within seven (7) days from the date on which it occurs,
unless the repair requires a longer period of time. The
foregoing shall not apply to damage the repair of which is
imposed on the Lessor as stated in sub-clause 24.4 below.
24.3 Should the Lessee fail to comply fully with its obligation
pursuant to Clauses 17.1 and 17.2 above, the Lessor will be
entitled (but not obliged) itself to perform the maintenance and
the repairs imposed on the Lessee, and the Lessee shall refund to
the Lessor all the expenses incurred by the Lessor for such
purpose, immediately upon the Lessor's first demand and in
accordance with the details set forth in such demand. The Lessee
shall allow the Lessor and/or its representatives to enter the
Leased Premises so as to perform the aforesaid repairs, but
nothing contained in this sub-clause shall in any way derogate
from the Lessee's obligation to perform the repairs in the Leased
Premises itself.
24.4 The Lessor shall repair damages which are due to reasonable wear
and tear to parts of the Leased Premises, and the Building which
has been constructed by the Lessor, and only such repairs, within
a reasonable time from the date it was notified thereof by the
Lessee in writing, including check-up period repairs and warranty
repairs. Repairs which are not of an urgent nature during the
check-up period will be carried out at the end of that period.
24.5 Should the Lessor fail to comply fully with its obligation
pursuant to Clause 24.5 (sic! u 24.4) above, the Lessee will be
entitled, but not obliged, itself to perform the repairs imposed
on the Lessor, and the Lessor shall refund to the Lessee all the
expenses incurred by the Lessee for such purpose, immediately
upon the Lessee's first demand, and in accordance with the
matters set forth in such demand.
25. PROHIBITION ON TRANSFER OR ENCUMBRANCE OF RIGHTS OR REGISTRATION
25.1 The Lessee will not be entitled to make over and/or lease out the
Leased Premises, or any portion thereof, and/or to transfer its
right in the Leased Premises or any part thereof and/or to allow
others to make use of the Leased Premises, or any part thereof,
and/or to make any person a party to the occupation of the Leased
Premises and/or the use thereof and/or any benefit therefrom,
without obtaining the Lessor's prior written consent. The Lessor
will be entitled, on any reasonable grounds, to refuse the
transfer or letting or encumbrance of any right conferred on the
Lessor (sic!), in its sole discretion, but in cases in which the
sub-tenant is an approved industrial enterprise the approved
program of which includes the hiring of a property of the same
type as the Leased Premises, and the operation of which will not
cause any environmental or ecological damage or nuisance, the
Lessor will agree to the sub-lease. In such event the Lessee
will remain bound to the Lessor in respect of all its obligations
pursuant to this Agreement.
25.2 The Lessee's rights pursuant to this Agreement, in whole or in
part, may not be encumbered or pledged in any manner whatsoever,
or with any ranking of priority.
26. LICENSING AND LICENSES
26.1 The Lessor is not responsible to the Lessee for obtaining
licenses or approvals from the competent authorities, which are
required for the operation and conduct of the Lessee's business
in the Leased Premises. Under no circumstances shall the letting
of the Leased Premises to the Lessee and/or the execution of
Alterations to the Building be deemed to be a declaration or
representation on the part of the Lessor to the effect that the
Lessee will be granted licenses for operating the Leased Premises
for the purposes of the lease.
The Lessee hereby undertakes to obtain any license it requires
and to see to it that its business is conducted in accordance
with the license required by any municipal, governmental, local
or other authority, all as the case may be. Should an order
prohibiting use be issued against the Lessee's business in the
Leased Premises, the Lessee shall forthwith cease the prohibited
use.
26.2 The Lessee shall, throughout the Period of Lease, attend to the
renewal of the licenses and the approvals which are acquired, so
that the operation of the Leased Premises and the work therein
shall be carried out in accordance with the provisions of any law
pertaining thereto and in accordance with the terms and
conditions of any license and/or directives and/or regulations
which may be issued from time to time by any competent authority
in relation to or in connection with the business conducted in
the Leased Premises.
26.3 Should the Lessee fail to commence its operations at the time of
delivery of occupation, inter alia for the reason that it has not
obtained a license required pursuant to this clause above, all
the provisions contained in this Agreement shall apply to the
Lessee and the failure to obtain such license shall not
constitute a reason for the breach of any of the Lessee's
obligations.
26.4 In the event that any competent authority has made the issue of
the license for the operation of the Lessee's business in the
Leased Premises conditional upon the execution of alterations
within the Leased Premises, the Lessee shall be obliged to
request the Lessor's prior consent to the execution of any such
alteration. The Lessor may agree or not agree to any such
alteration. If the Lessor does agree to the alteration, same
shall be performed by the Lessee at its expense under conditions
stipulated by the Lessor, to the extent that such conditions were
stipulated.
26.5 The Lessee hereby declares that it is conversant with its
business and the conditions for the licensing thereof, and that
prior to its signing this Agreement it was given the opportunity
of examining, and that it did in fact examine, the suitability of
the Leased Premises to the purpose of the lease and the
possibility of obtaining a license or licenses which are required
for operating the purpose of the lease in the Leased Premises as
it stands, and that it found the Leased Premises to be suitable
for the purposes of the lease. The foregoing shall apply
provided that the Lessor has not breached any of the conditions
of the building permit and that for that reason the issue of the
license to the Lessee was prevented.
27. EARLY VACATION
27.1 If the Lessee should leave the Leased Premises prior to the end
of the Period of Lease without the Lessor's express prior written
consent, this will constitute a material breach of this
Agreement. In such event and also in the case of the Lessee
vacating the Leased Premises at the Lessor's request as a result
of the cancellation of the Lease Agreement by the Lessor by
virtue of a breach of the Agreement on the part of the Lessee,
then and in that event the Lessee shall pay the Lessor the
monthly rentals and all the remaining payments for which it is
liable pursuant to this Agreement (hereinafter: "THE PAYMENTS")
until the end of the Period of Lease, as if it had continued to
occupy and to use the Leased Premises.
27.2 If the Lessor has let the Leased Premises to another tenant after
the Lessee's leaving, the Lessee shall be released from paying
the Lessor the Payments referred to in Clause 27.1 above to the
Lessor commencing from the date of commencement of the Period of
Lease of such other tenant, but under no circumstances shall the
period for which the Lessee shall pay rentals, which it would
have been obliged to pay to the Lessor had it continued to occupy
the Leased Premises, be less than an additional six (6) months,
with this being as cover for the Lessor's minimum damages that
can be contemplated at present by virtue of vacation of the
Leased Premises within the scope of a breach of this Agreement,
the non-operation of the Leased Premises and the necessity for
finding a substitute tenant.
Without prejudice to the foregoing, if the Lessor has let the
Leased Premises to another tenant for a period and/or at rentals
which are lower than those specified in this Agreement, the
Lessee will continue to pay the Lessor the difference between the
lower rentals which will be payable to the Lessor by the other
tenant, during the entire remainder of the Period of Lease
pursuant to this Agreement.
27.3 The Payments mentioned in Clause 27.1 and 27.2 will be deemed to
be agreed pre-estimated liquidated damages, which properly
reflect the Lessor's damages that can be foreseen at present, and
they shall in no way derogate from the Lessor's right to claim
from the Lessee any other remedy available to the Lessor
according to law and/or pursuant to the provisions of this
Agreement, and no allegation shall be entertained that the agreed
damages pursuant to this clause derogate from the Lessor's right
to any additional and/or other remedy and/or that the agreed
damages are high and should be reduced.
27.4 In the event of the cancellation of the Agreement by the Lessor,
such cancellation shall not be deemed to apply to the provisions
of this clause, unless otherwise expressly stated in the notice
of cancellation.
28. VACATION OF THE LEASED PREMISES
28.1 On the occurrence of one of the following events, the Lessee
shall vacate the Leased Premises and restore possession thereof
to the Lessor, in circumstances where the Leased Premises are
free and vacant of any person and article (except equipment and
accessories which belong to the Lessor), and where same are in
good order and condition and intact, save and except for normal
wear and tear due to reasonable use.
28.1.1 The Period of Lease has come to an end on the date
specified in this Agreement u on that date.
28.1.2 The Lease Agreement has been lawfully cancelled as
stated in Clause 29.2 below u on the date of vacation
as specified therein.
28.1.3 The Lessee has committed a breach of this Agreement
which is not a material breach and has failed to cure
the breach after having been given an extension of time
in which to do so, and the Lessor has lawfully
cancelled the Agreement u at the time of vacation
pursuant to Clause 29.3
28.1.4 An event has occurred which pursuant to this Agreement
and/or according to any law makes the Agreement void
and time for vacation of the Leased Premises applies u
within 14 days from the date of such event.
28.2 Should the Lessee be late in vacating the Leased Premises and
restoring possession thereof to the Lessor, contrary to the
provisions of this Agreement, the Lessee shall pay an amount
which will be equivalent to $500 (five hundred dollars) per day
in respect of each day of delay in vacation, or part thereof,
without this prejudicing the Lessor's rights to other and
additional remedies pursuant to this Agreement and/or according
to any law.
28.3 The payment pursuant to Clause 28.2 shall be deemed to agreed
pre-estimated liquidated damages, and as properly reflecting the
Lessor's damages that can be foreseen at present, and no argument
shall be entertained that the agreed damages pursuant to the
aforesaid Clause 28.2 derogate from the Lessor's right to any
other and/or additional relief.
28.4 Should the Lessor obtain grounds for eviction, the Lessor shall
be entitled to employ self-relief, to enter the Leased Premises,
to break the Lessee's locks and physically to evict the Lessee
and its effects, without any responsibility and/or obligation for
safe-keeping being imposed on the Lessor in consequence thereof.
28.5 All the expenses the Lessor may incur for purposes of having the
Leased Premises vacated, including, but without prejudice to the
generality of the foregoing, legal expenses and attorney's fees,
in an amount in real terms (against the presentation of receipts)
shall be borne by the Lessee and shall constitute a debt by the
Lessee to the Lessor.
28.6 In the event of a cancellation of the Agreement by the Lessor,
such cancellation shall not be deemed to apply to the provisions
of the sub-clauses of this Clause 28, unless otherwise expressly
stated in the notice of cancellation.
29. BREACH OF THE AGREEMENT, REMEDIES AND RELIEF:
29.1 Any of the following acts or failures to act will be deemed to be
a material breach of the Agreement by the Lessee, with this being
in addition to any other provision in this Agreement in which it
is stipulated that the breach of such provision constitutes a
material breach of this Agreement:
29.1.1 Default in payment of the monthly rentals, including
the dishonor of a promissory note given in accordance
with this Agreement, for more than 7 days.
29.1.2 A breach of the provisions of Clause 25 above.
29.1.3 The execution of additions and/or alterations to the
Leased Premises contrary to the provisions of this
Agreement, provided that an extension of time has been
given to the Lessee of 14 days in order to cure the
breach, and the Lessee has failed to cure the breach
within such time.
29.1.4 An arrangement with creditors in accordance with
Section 233 of the Companies Ordinance (New Version),
5723-1983, made by the Lessee, the grant of a
provisional and/or permanent order of liquidation
against the Lessee and/or its assets and/or the
appointment of a provisional and/or permanent receiver
for the Lessee and/or its assets and/or the appointment
a provisional or permanent trustee in bankruptcy for
the Lessee, and such proceedings have not been set
aside within 30 days.
29.1.5 The Lessee has operated the Leased Premises other than
for the purposes of the lease or has operated same
and/or made use thereof for other purposes.
29.1.6 Attachments have been imposed on the Lessee's rights in
and to the Leased Premises, and the Lessee has not had
such attachments set aside within 45 days from the date
on which they were imposed.
29.2 Should the Lessee commit such material breach, the Lessor will be
entitled, without prejudice to any other and/or additional remedy
available to it according to this Agreement and/or according to
any law, to cancel the Agreement, and the Period of Lease will
terminate on the date of the Lessor's notice of cancellation.
If no date for vacation is specified in the Lessor's notice, the
date for vacation will be within 21 days from the notice of
cancellation, and the Lessor hereby undertakes to vacate the
Leased Premises accordingly.
29.3 If the Lessee has committed a breach of the Agreement which is
not a material breach, the Lessor may notify the Lessee that if
the Lessee does not cure the breach within a time specified in
the notice, then this Agreement will be null and void, or that
the Lessor will cancel the Agreement in consequence thereof.
Should the Lessee fail to cure the breach within the time
specified by the Lessor in the notice to the Lessee, and the
Agreement has been cancelled, the provisions of Clause 29.2 above
shall apply, mutatis mutandis.
30. GUARANTEES AND COLLATERAL SECURITY
30.1 As security for vacation of the Leased Premises, payment of all
the Payments for which the Lessee is liable, and fulfillment of
all the Lessee's remaining obligations as set forth in this
Agreement, including payment of agreed damages and/or
compensation which has not been agreed, the Lessee shall deliver
to the Lessor, at the time of signing of this Agreement, and in
accordance with the Lessor's permission in writing, not later
than within seven days from the date of signing of this
Agreement, as a fundamental and material undertaking by the
Lessee, the following collateral:
30.1.1 An autonomous bank guarantee in favor of the Lessor,
linked to the Consumer Price Index, to be valid for up
to 90 days after the end of the Period of Lease, for
the amount of rentals in respect of six (6) months.
30.1.2 Five (5) promissory notes signed by the Lessee, in an
amount of NIS 60,000 each, plus linkage differentials
and V.A.T. The due date for each promissory note will
be left blank and the Lessor will be entitled to insert
the due date of payment in its discretion, in
accordance with the provisions of this Agreement.
Nothing in the foregoing shall derogate from the
Lessor's right to institute legal proceedings for the
execution of any promissory note as described above.
30.2 The giving of collateral pursuant to this Agreement and/or the
realization thereof shall not constitute any form of waiver by
the Lessor of its right to other remedies against the Lessee, or
its right to obtain payment from the Lessee in any other manner,
whether these be remedies spelled out in the body of the
Agreement or are remedies available to the Lessor by virtue of
any law in force at the time of signing of the Agreement, or
which may be in force in Israel at the time of the breach.
31. PROHIBITION ON LESSEE'S REPRESENTATION
31.1 Nothing contained in this Agreement and/or the conduct of the
parties pursuant to this Agreement shall be construed as
empowering the Lessee to appear in the name of the Lessor, or on
its behalf, or as conferring on the Lessee the status of a
representative of the Lessor in any matter whatsoever.
31.2 The employees of the Lessee shall not be deemed to be employees
of the Lessor under any circumstances and for any purpose.
32. EQUIPMENT AND CHATTELS
Upon its vacating of the Leased Premises, the Lessee will be entitled
to take with it all equipment and chattels it has brought into the
Leased Premises, as well as elements which are capable of being
dismantled. The Lessee will not be entitled to take articles which
are affixed to the Leased Premises and the dismantling of which will
leave a void or defect in the Leased Premises.
33. ASSIGNMENT OF THE LESSOR'S RIGHTS
33.1 The Lessor is entitled to transfer and/or assign and/or let out
and/or encumber its rights pursuant to this Agreement to any
third party, provided that the Lessee's rights under this
Agreement are not adversely affected.
33.2 This Agreement shall inure to the benefit of be binding on the
heirs of the Lessor and/or its successors-in-title.
34. NON-APPLICABILITY OF THE PROVISIONS OF THE HIRE AND LOAN LAW
The provisions of the Hire and Loan Law will not apply to this
Agreement.
35. DEVIATION OR WAIVER
35.1 Should any party fail immediately to exercise its rights stemming
from this Agreement or any part thereof, such non-exercise will
not be deemed to be a waiver, acquiescence or admission by such
party, and it will be entitled to such rights at any time it may
deem fit.
35.2 The agreement by a party to deviate from the terms and conditions
of this Agreement in a particular instance, or series of
instances, shall not constitute a precedent and no like treatment
shall be inferred therefrom in respect of any similar or other
occurrence in the future.
35.3 In every case the Agreement is cancelled or comes to an end, all
those provisions of this Agreement which, by their nature, apply
also after the end of the period of the Agreement or the
cancellation thereof, shall continue to apply, even if not
otherwise expressly stated in the clause itself.
36. EXPENSES FOR DRAWING THE AGREEMENT
The expenses for stamping this Agreement, copies hereof and any other
document connected herewith (including promissory notes) shall be
borne by the Lessee.
37. MANAGEMENT AGREEMENT
37.1 If the Building in which the Leased Premises are located is
managed by a management company, the Lessee shall sign a
management agreement which will be in a usual and reasonable text
for buildings of the same type as the Building.
37.2 A breach of any of the provisions of the management agreement
shall be deemed to be a breach or a material breach, as the case
may be, of this Agreement.
37.3 The Lessor shall be entitled at any time to provide the usual
services and to manage the Building in which the Leased Premises
are located through a management company. In such event the
Lessee undertakes to sign a management agreement which will be
drawn up and to pay the management charges, provided that the
current management charges shall not exceed the actual cost of
the management expenses plus 15%.
37.4 The Lessor undertakes to incorporate the provisions of this
Clause 37 also with other tenants who will sign lease agreements
in the Building at a date subsequent to the date of signing of
this Agreement.
38. GRANT OF EXCLUSIVITY FOR PURPOSES OF USING THE LEASED PREMISES
38.1 The Lessor is entitled to grant various tenants of other leased
areas in the Building an exclusive right to conduct or operate a
particular business in the leased area. Such right, whether
given in writing to other tenants or given in writing to the
Lessee, is a provision in favor of a third party and shall confer
an independent right of action on a person aggrieved on grounds
of the right of exclusivity being violated by the Lessee or by an
unspecified tenant.
38.2 Use of the Leased Premises other than for the purposes of the
lease is likely to constitute an infringement by the Lessee of
the right of exclusivity of another tenant and will constitute a
material breach of this Agreement. Notwithstanding the
foregoing, no obligation shall be imposed on the Lessor with
regard to enforcement of the right of exclusivity of any other
tenant or of the Lessee itself, if the Lessee has been granted a
right of exclusivity.
38.3 Should the Lessee have made use of the Leased Premises other than
for the purposes of the lease and have infringed the right of
exclusivity of another tenant, the Lessee shall compensate the
Lessor in respect of any damage and/or expense of whatsoever
nature incurred by the Lessor as a result of the Lessee's acts.
38.4 A right of exclusivity shall be deemed to have been granted to
the Lessee only if given separately, in an express written
document. Where a right of exclusivity has been granted to the
Lessee in the scope of a signed appendix to this Agreement, the
exclusivity shall be construed in the narrowest possible way so
that it does not impair the freedom of employment or engagement
of others. Definition of the purpose of the lease shall under no
circumstances constitute the grant of a right of exclusivity.
39. AMENDMENTS TO THE AGREEMENT
Any alteration and/or amendment to the Agreement shall be done solely
in an express written document signed by the parties to this
Agreement. No contention that the parties have altered this Agreement
by their conduct shall be entertained, nor shall any evidence to that
effect be adduced or accepted.
40. WAIVER OF RIGHT OF SET-OFF
The Lessee hereby fully and irrevocably waives any right of set-off it
may have as against the Lessor and undertakes not to set off any
amount on any grounds whatsoever against the rentals that are due to
the Lessor and/or against any other payment the Lessee may owe to the
Lessor. The contents of this clause shall in no way prejudice the
Lessee's entitlement to any such amount.
41. NOTICES AND WARNING NOTICES
Any notice or warning notice which is sent by one party to the other
in connection with this Agreement shall be sent by registered post, or
shall be delivered by hand, according to the addresses of the parties
set forth at the head of this Agreement (or any other address in
respect of which suitable written notice is given), and such notice or
warning notice shall be deemed to have been delivered to the addressee
upon the actual delivery thereof if delivered by hand, and within 72
hours from the time of its delivery for posting by registered post,
with advice of receipt confirmation, if sent by post in Israel. The
address of the Lessee shall also be at the Leased Premises themselves.
IN WITNESS WHEREOF THE PARTIES HAVE HEREUNTO SIGNED:
( - ) ( - )
E.S.C Mario Laznik Industrial Buildings Ltd.
------------------------ --------------------------------------
The Lessee The Lessor
(5337)
Exhibit 10.33
EMPLOYMENT AGREEMENT
with
SHIMON ECKHOUSE
AGREEMENT entered into as of October 1, 1996, between Shimon
Eckhouse residing at 27 Esther Rabin Street, Haifa, Israel ("Employee"),
and ESC Medical Systems Ltd., an Israeli company with offices located at
Yokneam, Israel ("ESC" or the "Company").
W I T N E S S E T H:
-------------------
WHEREAS, ESC is in the business of developing, manufacturing and
marketing medical instruments (the "Business"); and
WHEREAS, ESC desires to employ Employee as the President and
Chief Executive Officer, responsible for the operation of the Company.
NOW THEREFORE, in consideration of the premises and mutual
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment.
----------
With effect from the Effective Date (as defined in Section 3),
ESC employs Employee and Employee accepts employment with ESC upon the
terms and conditions set forth herein.
2. Duties.
------
2.1. ESC hereby engages Employee to serve as its President and
Chief Executive Officer, during the term hereof, he shall be the most
senior corporate officer of the Company responsible for the daily
management and operation of the Company.
2.2. Employee shall devote his full business time and attention
to the Business of the Company and shall perform his duties diligently and
promptly for the benefit of ESC. During his employment thereunder, Employee
shall not undertake or accept any other paid or unpaid employment or
occupation or engage in or be associated with, directly or indirectly, any
other business, duties or pursuits except with the prior written consent of
the Board of Directors.
2.3. Employee shall report regularly to the Board of Directors of
the Company.
3. Term.
----
3.1. Employee's employment under this Agreement shall commence
on October 1, 1996 (the "Effective Date") and shall end on the earliest of
(i) the death or disability (as defined herein) of Employee; (ii) the
termination of Employee's employment by ESC for cause (as defined herein)
after providing thirty (30) days advance notice (as defined herein); or
(iii) three (3) years from December 31, 1996. The term will extend for
additional one-year periods at December 31 of each year commencing on
December 31, 1997 unless either party delivers a notice of intention not to
renew no later than October 1 of any year.
3.2. Either party may terminate this agreement without cause,
as hereinafter defined, by six months prior written notice, during which
period Employee shall continue his services unless otherwise instructed by
the Board. In the event of a change in control of the Company, which for
purposes of this provision shall mean an acquisition of all or
substantially all of the assets of the Company or 25% or more of the shares
of the Company by a person or Group as defined by Regulation 13D of the
U.S. Securities & Exchange Act of 1934, the Company may not exercise this
termination provision. In such event, Employee will be employed by the
Company for a minimum period of two years following a termination notice to
Employee by Company. All the terms and conditions will apply during this
two-year period.
3.3. For the purpose of this paragraph 3, "disability" shall
mean any physical or mental illness or injury as a result of which Employee
remains absent from work for a period of two (2) successive months.
Disability shall occur upon the end of such two-month period.
3.4. For the purpose of this paragraph 3, "cause" shall exist
if Employee (i) breaches any of the material terms of conditions hereof
including, without limitation, the material terms of paragraphs 11 or 12;
(ii) substantially fails to perform the Employee's areas of responsibility
set forth herein; (iii) engages in willful misconduct or acts in bad faith
with respect to ESC, in connection with and related to the employment
hereunder, (iv) is convicted of a felony or is held liable by a court of
competent jurisdiction for common law fraud against ESC; or (v) fails to
comply with the instructions of the Company's Board of Directors in a
manner materially detrimental to the Company, provided that, with respect
to clauses (i), (ii) and (v), if Employee has cured any such condition
(that is reasonably susceptible to cure) within 30 days fo the advance
notice (as defined herein) then "cause" shall be deemed not to exist. For
purposes of this paragraph 3, "advance notice" shall constitute a written
notice delivered to Employee that sets forth with particularity the facts and
circumstance relied upon by ESC as the basis for cause.
3.5. During the period following notice of termination by any
party for any reason, the Employee shall cooperate with ESC and use his
best efforts to assist the integration into the ESC organization of the
person or persons who will assume the Employee's responsibilities.
4. Compensation.
------------
4.1. During the term hereof, and subject to the performance of
the services required to be performed hereunder by Employee, ESC shall pay
to Employee for all services rendered by Employee under this Agreement a
salary, payable not less often than monthly and in accordance with ESC's
normal and reasonable payroll practices, in a monthly gross amount of
$20,833 inclusive of amounts payable by the Company for the social benefits
set forth in paragraphs 4.5, 4.6 and 4.7 (other than specified Company
contributions), the provision of an automobile as set forth in paragraph 7,
and life insurance as set forth in paragraph 8 (the "Gross Salary") and
life insurance as set forth in paragraph 8.
4.2. Translations to Israeli currency shall be calculated on
the basis of the last representative rate of exchange published by the Bank
of Israel at the date immediately prior to payment. The linkage of the
Employee's compensation to the U.S. Dollar shall be in lieu of Tosefet
Yoker, Tosefet Shehika and all other similar wage increases required to be
paid under Israel law.
4.3. The Employee shall receive the Gross Salary payable in
respect to periods of the Employee's military reserve duty. The Company
shall be entitled to receive and to retain any amounts payable by the
National Insurance Institute or any other agency or entity in respect of
such periods.
4.4. The Board shall undertake an evaluation of the Employee's
performance from time to time and may increase the Gross Salary or grant a
performance bonus if it should determine in its sole and absolute
discretion that such increase or bonus is justifiable and appropriate.
4.5. The Company and the Employee will obtain and maintain
Managers Insurance (Bituach Menhalim) for the exclusive benefit of the
Employee in the customary form. The Company shall contribute an amount
equal to thirteen and one-third percent (13-1/3%) of the difference between
each monthly Gross Salary payment and any amounts contributable by the
Company under paragraphs 4.5, 4.6, 4.7 and 7, and the Employee shall
contribute five percent (5%) of the difference between each monthly Gross
Salary payment and any amounts contributable by the Company under
paragraphs 4.5, 4.6, 4.7 and 7, toward the premiums payable in respect of
such insurance. It is hereby agreed that, should the Employee be or become
entitled to severance pay under applicable law, his benefits under the said
insurance shall be in lieu thereof and in full and final substitution
therefor.
4.6. The Company and the Employee shall open and maintain a
Keren Hishtalmut Fund. The Company shall contribute to such Fund an amount
equal to seven and one-half percent (7-1/2%) of the difference between each
monthly Gross Salary payment and any amounts contributable by the Company
under paragraphs 4.5, 4.6, 4.7 and 7, and the Employee shall contribute to
such Fund an amount equal to two and one- half percent (2-1/2%) of the
difference between each monthly Gross Salary payment and any amounts
contributable by the Company under paragraphs 4.5, 4.6, 4.7 and 7. Any
amount paid in excess of the maximum allowed by regulation shall be taxable
to the Employee. The Employee hereby instructs the Company to transfer to
such Fund the amount of the Employee's and the Company's contribution from
each monthly Gross Salary payment.
4.7. The Company shall obtain Disability Insurance (Ovdan
Kosher Avoda) for the exclusive benefit of the Employee and shall
contribute therefor an amount equal to two and one-half percent (2-1/2%) of
the difference between each monthly Gross Salary Payment and any amounts
contributable by the Company under paragraphs 4.5, 4.6, 4.7 and 7.
5. Expenses.
--------
Employee is authorized to incur reasonable expenses for
promoting the Business of ESC, including expenses for entertainment,
travel, lodging and similar items, commensurate with his status with the
Company. ESC will reimburse Employee promptly for all such expenses upon
presentation by Employee, from time to time, of an itemized account of
expenditures. Per diem allowances and petty cash advances shall be in
accordance with ESC's standard policy.
6. Vacation.
--------
Employee shall be entitled to three (3) weeks of paid vacation
during each year that this Agreement is in effect, to be taken at times
subject to the reasonable approval of ESC. Vacation time shall not be
accumulated but Employee shall be paid for any unused vacation remaining at
the end of the year in which vacation time is accrued.
7. Automobile.
----------
ESC will make a 2000cc automobile available to Employee and
shall pay all reasonable and necessary expenses thereof for proper
maintenance and use, including insurance costs. The automobile shall be
owned or leased by ESC. All costs attributable to such automobile shall be
included for calculating the Gross Salary, thereby the Gross Salary shall
not be increased to represent car value.
8. Insurance.
---------
ESC shall maintain a life insurance policy for the benefit of
Employee's family in the amount of twice the annual Gross Salary.
9. Bonus.
-----
In addition to the compensation set forth above, Employee shall
be awarded an annual bonus of up to 60% of the annual Gross Salary payment
if the Company meets annual goals set forth in Schedule 9 attached hereto
for the initial 15- month of this Agreement and thereafter as set by the
Company's Board of Directors.
10. Options.
-------
Employee shall be granted options to purchase Ordinary Shares of the
Company in the amount of 57,510 shares at a price of $27 per share which is
equal to 100% of the fair market value at the date of this Agreement for
the first 15-month period of this Agreement ending on December 31, 1997,
and 57,510 shares for each year during the term of this Agreement at an
exercise price equaling the average closing price for the previous
September trading. The options shall be vested equally over a four-year
period.
11. Secrecy and Nondisclosure.
-------------------------
The Employee shall treat as secret and confidential all of the
processes, methods, formulas, procedures, techniques, software, designs,
data, drawings and other information which are not of public knowledge or
record pertaining to ESC's Business (existing, potential and future),
including without limitation, all business information relating to
customers and suppliers and products of which the Employee becomes aware
during and as a result of his employment or association with ESC, and
Employee shall not disclose, use, publish, or in any other manner reveal,
directly or indirectly, at any time during or after the term of this
Agreement, any such processes, methods, formulas, procedures, techniques,
software, designs, data, drawings and other information pertaining to ESC's
existing or future Business or products. The Employee may disclose or use
such information, if at all, only with the prior express written consent of
ESC.
12. Non-Competition.
---------------
12.1. Employee agrees that during the term of this Agreement
and for a period of two (2) years after he ceases to be employed by ESC he
will not, directly or indirectly, for his own account or as an employee,
officer, director, partner, joint venturer, shareholder, investor,
consultant or otherwise (except as an investor in a corporation whose stock
is publicly traded and in which Employee holds less than 5% of the
outstanding shares) interest himself in or engage in any business or
enterprise, anywhere in the world, that directly or indirectly competes
with the Business of ESC, that exists now or in the future during the term
of this Agreement or is proposed in writing by ESC prior to the time of
termination or is based on similar technology to that of ESC, provided that
any such written proposal is provided to Employee within 30 days of the
date of termination.
12.2. Employee agrees that during a period of one year from
termination of this Agreement he shall not employ directly or indirectly
any individual then employed by the Company.
12.3. Employee acknowledges that the restricted period of time
and geographical area specified under paragraph 12.1 hereof are reasonable,
in view of the nature of the business in which ESC is engaged and
Employee's knowledge of ESC's Business and products.
12.4. Notwithstanding anything contained in paragraph 12.2 to
the contrary, if the period of time or the geographical area specified
under paragraph 12.1 hereof should be determined to be unreasonable in any
judicial proceeding, then the period of time and area of the restriction
shall be reduced so that this Agreement may be enforced in such area and
during such period of time as shall be determined to be reasonable by such
judicial proceeding.
13. Development Rights.
------------------
The Employee agrees and declares that all proprietary
information including but not limited to trade secrets and know-how,
patents and other rights in connection therewith developed by or with the
contribution of Employee's efforts during his employment or association
with ESC shall be the sole property of ESC and the Employee shall execute
all documents necessary to assign any patents to ESC and otherwise transfer
such proprietary rights to ESC.
14. Employee Representations.
------------------------
The Employee represents and warrants to ESC that the execution
and delivery of this Agreement and the fulfillment of the terms hereof, (i)
will not constitute a default under or breach of any agreement or other
instrument to which he is a party or by which he is bound, including
without limitation, any confidentiality or non-competition agreement, (ii)
do not require the consent of any person or entity, and (iii) shall not
utilize during the term of his employment any proprietary information of
any third party, including prior employers of the Employee.
15. Benefit.
-------
Except as otherwise herein expressly provided, this Agreement
shall inure to the benefit of and be binding upon ESC, its successors and
assigns, including, without limitation, any subsidiary or affiliated entity
and shall inure to the benefit of, and be binding upon, Employee, his
heirs, executors, administrator and legal representatives.
Notwithstanding the foregoing, the obligations of Employee
hereunder shall not be assignable or delegable.
16. Entire Agreement.
----------------
This Agreement constitutes the entire understanding and
agreement between the parties hereto, supersedes any and all prior
discussions, agreements and correspondence with regard to the subject
matter hereof, and may not be amended, modified or supplemented in any
respect, except by a subsequent writing executed by both parties hereto.
17. Notices.
-------
All notices, requests and other communications to any party
hereunder shall be given or made in writing and telecopied, mailed (by
registered or certified mail) or delivered by hand to the respective party
at the address set forth in the caption of this Agreement or to such other
address (or telecopier number) as such party may hereafter specify for the
purpose of notice to the other party hereto. Each such notice, request or
other communication shall be effective (i) if given by telecopier, when
such telecopy is transmitted to the telecopier number specified herein and
the appropriate answer back is received or (ii) if given by any other
means, when delivered at the address specified herein.
18. Applicable Law.
--------------
This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of Israel without given effect to principles
of conflicts of law and courts of Israel, District of Tel Aviv, shall have
exclusive jurisdiction over the parties hereto and subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first appearing above.
ESC MEDICAL SYSTEMS LTD.
By: _____________________________ _____________________________
Title: SHIMON ECKHOUSE
Exhibit 10.34
EMPLOYMENT AGREEMENT
ESC JAPAN COMPANY LTD., having its registered office at No. 31
Kowa Building, 19-1 Shirokanedai 3-chome, Minato-ku, Tokyo (hereinafter the
"Company") and ALON MAOR, residing at No. 103 Japan Plaza, 8-11
Shirokanedai 5-chome, Minato-ku, Tokyo (hereinafter "Maor") hereby agree as
follows:
Article 1. (Employment)
As from January 15, 1999, the Company employs Maor as the
President and Representative Director of the Company and Maor hereby agrees
to work for the Company in such capacity.
Article 2. (Duties)
1. Maor shall exert his best efforts in performing his duties
as the President and Representative Director of the Company, in the areas
of registration, marketing, sales, administration and clinical and
technical support.
2. Maor shall report to the Vice President of International
Sales of ESC Medical Systems, Israel with respect to the performance of his
duties.
Article 3. (Place of Work)
- ----------
Maor shall perform his duties hereunder at the head office of
the Company in Tokyo, Japan.
Article 4. (Salary and Commission)
- ----------
1. The Company shall pay Maor an annual salary of (Y)22,000,000
(twenty- two million yen), payable by equal monthly installments (rounded
up to the yen) on the 15th day of each month.
2. The annual salary shall be reviewed by mutual agreement on an
annual basis.
Article 5. (Allowances and Benefits)
- ----------
1. The Company shall pay to Maor an annual housing reimbursement,
which shall be in the range of (Y)12,000,000 (twelve million yen) per year,
to be adjusted buy mutual agreement annually in accordance with the market
housing prices. In addition, the monthly payments of the salary shall be
increased by an amount equivalent to 35% (thirty-five percent) of the
monthly rent, provided, however, that the same amount shall be deducted by
the Company upon the monthly payments of the salary.
2. The Company shall pay to Maor an annual allowance of
(Y)5,000,000 (five million yen) for the education of children. The said
amount shall be the net amount. Accordingly, the Company shall gross-up the
amounts to be actually paid considering applicable taxes and deductions.
3. Maor shall be entitled to membership of the American Club in
Tokyo, Japan at the Company's expense.
4. The Company shall make available to Maor a company car.
Article 6. (Stock Option Plan)
- ----------
Maor shall be entitled to a stock option plan, granting Maor
the option for 20,000 shares of ESC Medical Systems of Israel. The stock
option shall be granted over a period of five (5) years, twenty percent
(20%) to be granted upon every anniversary of Maor's service with the
Company.
Article 7. (Retirement Benefit)
- ----------
Maor shall be entitled to a retirement benefit after the first
year of service, which shall be in an amount equal to the gross monthly
salary at the time of retirement. The amount of the retirement benefit
shall be increased in subsequent years by one month's gross salary in
respect to each full year of service completed with the Company.
Article 8. (Insurance Premiums)
- ----------
The Company shall bear fifty percent (50%) of Maor's Japanese
National Health Insurance premiums.
Article 9. (Vacation and Leave)
- ----------
1. Maor shall have an annual paid vacation of twenty-four (24)
days.
2. In addition to the annual paid vacation under the preceding
paragraph, Maor shall be granted a paid yearly family home leave of [ ]
days per year.
Article 10. (Term)
The initial term of this Agreement shall be twenty-four (24)
months. If either party wishes to terminate this Agreement upon expiration
of the initial term, such party shall give a written notice to the other
party at least six (6) months prior to the end of the term. It is expressly
agreed by the Company that during the six (6) months following such
termination notice, the Company shall pay to Maor the full remuneration
(salary and all other allowances and benefits) in accordance with this
Agreement.
Article 11. (Miscellaneous)
1. Any new invention, product, component, procedure, technology
or other intellectual properties, which may result from Maor's work for the
Company hereunder or the work of other employees of the Company shall be
the sole property of the Company.
2. Maor shall keep confidential the terms of his salary payable
hereunder. In addition, Maor shall separately enter into a confidentiality
and non-competition agreement with the Company in accordance with the
policy of the ESC group.
Dated the 15th day of January, 1999
The Company: ____________________________
Name:
Title:
Maor: ____________________________
Alon Maor
We agree to be bound by the terms and conditions set forth above.
Date:
ESC MEDICAL SYSTEMS
- --------------------------------
Name: Dr. Shimon Eckhouse
Title: Chairman & CEO
Exhibit 10.35
AMENDMENT TO THE EMPLOYMENT AGREEMENT FOR A GENERAL MANAGER
(GESCHAFTSFUHRER-ANSTELLUNGEVERTRAG)
DATED JANUARY 16, 1996
among
ESC MEDIZINTECHNIK VERTRIEHS GMBH,
Leonhardsweg 2, D-82008 Unterhaching bei Munchen
- hereinafter: "ESC" -
and
MR. HANS EDEL, with his office at the same place
- hereinafter: "Mr. Edel" -
PREAMBLE :
The parties have entered into an employment agreement for General Managers
on January 16, 1996 (hereinafter "the Employment Agreement"), whose
provisions regarding remuneration have been changed several times
subsequently. As of now the area of responsibilities of Mr. Edel shall be
extended to contain several European responsibilities. Therefore, the
parties hereby agree as follows:
1. Mr.Edel will be employed with immediate effect as Chief Executive
Officer (CEO) for the business unit Europe/Africa/Near and Middle
East. The exact scope of responsibilities will be defined in further
detail in a separate job description. For now, the parties assume that
eighty percent (80%) of the activity will relate to the area
Germany/Austria/Switzerland/France and Italy.
2. As of January 1, 2000, the fixed remuneration according to Section ss.
3(1) of the Employment Agreement shall be DM 350,000,-- p.a. Until
December 31, 1999 the provisions described in Exhibit 1 to this
Amendment shall apply.
As of January 1, 2000, Mr. Edel will in addition be eligible for a
bonus in the amount of up to DM 175,000 p.a. depending on success and
performance; the preconditions for the receipt and the total amount of
the bonus to be paid will be determined for the following year within
the framework of the budget planning during the last calendar quarter
but not later than the end of the year.
The current bonus and commission provision under Section 3(2) and (3)
of the Employment Agreement and the changes made thereto in the
telefax dated October 19, 1998 will apply until December 31, 1999,
i.e., all orders received until December 31, 1999 will be covered by
this bonus and commission provision and the commission resulting
thereof will be calculated and paid on a quarterly basis upon receipt
of payment for the order.
3. A. Mr. Edel will be entitled to be granted 30,000 stock options in
year 2000 and 30,000 stock options in year 2001, under ESC's 1999
Stock Option Plan, at the market price on the date of each grant.
The options granted in 2000 will become exercisable as of
November 30, 2000, and the options granted in 2001 will become
exercisable as of November 30, 2001.
B. In addition, Mr. Edel will be entitled to be granted 15,000
stock options in year 2000 and 13,000 stock options in year
2001, under ESC's 1999 Stock Option Plan, at the market price on
the date of each grant. Each of the grants of 15,000 options
each) mentioned in this Subsection B will be exercisable only if
the total revenues and Net Income in business unit 2 (EMEA)
according to the budget 2000 and 2001 have been reached.
The 19,834 stock options at a price of US$0.605 each still held
by Mr. Edel under the current stock option plan can be exercised
immediately for this price and not -- as originally stipulated
in the stock option agreement -- in two portions of 9,917 stock
options each on October 1, 1999 and October 1, 2000.
4. In partial deviation from the current provision in Section 3(4) of the
Employment Agreement, Mr. Edel will be provided as a fringe benefit
with an upper middle class company car for a net purchase price of a
new car of up to DM 90,000.
5. In partial deviation from the current prevision in Section 6 of the
Employment Agreement, Mr. Edel will be entitled to travel business
class from now on. Overnight expenses will be reimbursed upon
submission of corresponding receipts; with regarded to daily
allowances, Mr. Edel may choose between the maximum lump sums for
daily allowances stipulated by German tax law and a reimbursement upon
submission of corresponding receipts. The amount reimbursed exceeding
the maximum lump sums will be subject to income taxation and social
security contributions.
6. Mr. Edel will represent the Company as sole general director
(Alleingeschaftsfuhrer) according to the Employment Agreement and the
changes made thereto in the telefax of October 19, 1998 and this
amendment. Each appointment of another or an additional general
manager shall be deemed to be a revocation of the appointment of Mr.
Edel, notwithstanding eventual claims for damages arising out of this
agreement; provided, however, that the Company will be allowed to
appoint a Procurist to facilitate the corporate affairs of the
Company.
7. All expenses approved within the framework of the annual budge shall
be deemed to be approved by the shareholders of SCS Medizintechnik
GmbH.
8. The duration of the Employment Agreement is hereby extended until and
including December 31, 2001 taking into account the aforementioned
provisions.
__________________ this ________ __________________ this ________
ESC Medizintechnik Vertriebs GmbH
----------------------------- -----------------------------
Represented by its shareholder Hans Edel
ESC Medical Systems Ltd.
EXHIBIT I TO THE AMENDMENT TO THE EMPLOYMENT AGREEMENT FOR GENERAL MANAGERS
DATED JANUARY 16, 1996
among
ESC Medizintechnik Vertriebs GmbH, Leonhardsweg 2, D-82008 Unterhaching
and
Mr. Hans Edel
i) Until December 31, 1999 the gross remuneration per month is DM
14,060,000. As of January 1, 2000, the new agreement shall apply.
ii) For the year 1999, the bonus provision in the Employment Agreement
dated January 16, 1996 shall be substituted by the following
provision:
Turnover (sales) attained bonus in KDM (Deutsche Mark one
attained in second half of 1999thousand)
below 11 Million DM no bonus
11-12.4 Million DM 50 KDM
12.5-14.4 Million DM 80 KDM
14.5-15.7 Million DM 120 KDM
exceeding 15.7 Million DM 170 KDM
The bonus shall be due upon submission of the Q4-Report but not later
than the salary for February 2000.
All transactions for which a sale is booked in the Company's Audited
Accounts from 1st July 1999 to or on December 31, 1999 shall be
included in the turnover for 1999. Sales will not include sales of
dental lasers for which a commission has been paid or is due to Mr. J.
Koop or his company. If no payment has been received by ESC
Medizintechnik Vertriebs GmbH until the bonus due date for such
transactions, a corresponding percentage of the bonus will be withheld
until payment has been received from the client.
Calculation example:
Annual Turnover = 25 million DM Unsettled Accounts = 2.5 million DM
(or 10%)
Result: 10% of the total bonus due will be withheld until payment has
been received from the client.
ADDITIONAL NOTE: UNPAID ACCOUNT RECEIVABLES FROM QUARTERS BEFORE 1.6.1999
ARE NOT INFLUENCING THIS BONUS AGREEMENT.
TEL AVIV, THIS 12TH DAY OF UNTERHACHING, THIS 12TH DAY OF
NOVEMBER 1999 NOVEMBER 1999
ESC MEDIZINTECHNIK VERTRIEBS GMBH
------------------------------ -------------------------------
REPRESENTED BY ITS SHAREHOLDER HANS EDEL
ESC Medical Systems Ltd.
Exhibit 21
ESC MEDICAL SYSTEMS LTD.
List of Subsidiaries
Applied Optronics Corp.
111Corporate Boulevard,
Bldg. J
South Plainfield, NJ 07080
USA
Energy Systems Holdings Inc.
16885 W. Bernardo Drive
San Diego, CA, 92127
USA
ESC Japan K.K.
2nd Floor, No. 31 Kowa Building
19-1, Shirokanedai 3-Chome
Minato-ku, Tokyo
Japan
ESC Medical Systems Inc.
100 Morse Street
Norwood, MA 02062
USA
ESC Medical Systems (Italy) Srl
Via Degli Olmetti 36
00060 Formello, Roma
Italy
ESC Medizintechnik Vertriebs GmbH
Leonhardsweg 2
D-82008 Unterhaching b. Munchen, Germany
ESC / Sharplan France SARL
6 Bd. Henri Sellier
Bat. Le Ventose
92150 Suresne
France
Laser Industries, Ltd.
Atidim Science Based Industrial Park
Neve Sharet P.O. Box 13135
Tel Aviv 61131, Israel
Luxar Corporation
22011 30th Ave., SE Building B
Bothell, WA 98021
USA
Opus Dent GmbH
AM Lohmuhbach 12A
85356 Freising/Lerchenfeld
Germany
OpusDent Limited
Atidim Science Based Industrial Park
Neve Sharet P.O. Box 13135
Tel Aviv 61131, Israel
Sharplan Lasers, Inc.
5 Pearl Court
Allendale, New Jersey 07401
USA
Sharplan Lasers UK Limited
Merit House, 1st Flr.
Edgware Rd.
Colindale, London
NW9 5AF
England
SPECTRON Laser GmbH
Echersheimer Land STR 526
60433 Frankfurt/Main
Germany
Spectron Laser Systems Ltd.
8 Consul Rd,
Rugby, Warwickshire
CV21 1PB, England
Spectron Lasers USA, Inc.
33 Plan Way
Warwick, Rhode Island 02886
USA
Wuhan Sharplan Chutian Medical Laser Manufacturing Ltd.
No.7-3,Guanshan San Rd
Wuhan, P.R. China 430074
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independednt public accountants, we hereby consent to the incorporation
by reference in the Registration Statements of ESC Medical Systems LTD. on
Form F-3 (File Nos. 333-6610, 333-8056 and 333-9256) and on Form S-8 (File
No. 333-6774) of our report dated March 30, 2000 relating to the
consolidated financial statements, which appears in this Form 10-K.
Brightman Almagor & Co.
Certified Public Accountants
A member of Deloitte Touche Tohmatsu
Tel Aviv, Israel
March 30, 2000
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in the Registration Statements of ESC Medical Systems LTD. on
Form F-3 (File Nos. 333-6610, 333-8056 and 333-9256) and on Form S-8 (File
No. 333-6774) of our report dated February 10, 1999 relating to the
consolidated financial statements, which appears in this Form 10-K.
Luboshitz Kasierer
Certified Public Accountants
Member Firm of Arthur Andersen
Haifa, Israel
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE AUDITED BALANCE SHEET OF ESC
MEDICAL SYSTEMS LTD. AT DECEMBER 31, 1999 AND
DECEMBER 31, 1998 AND THE AUDITED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER
31, 1999 AND DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 24,524 42,950
<SECURITIES> 43,841 46,867
<RECEIVABLES> 68,792 88,872
<ALLOWANCES> (25,432) (10,480)
<INVENTORY> 39,516 61,200
<CURRENT-ASSETS> 157,093 242,233
<PP&E> 12,187 38,474
<DEPRECIATION> (5,638) (24,597)
<TOTAL-ASSETS> 174,907 327,666
<CURRENT-LIABILITIES> 72,273 55,852
<BONDS> 96,691 116,306
0 0
0 0
<COMMON> 577 553
<OTHER-SE> 5,366 154,955
<TOTAL-LIABILITY-AND-EQUITY> 174,907 327,666
<SALES> 142,151 225,206
<TOTAL-REVENUES> 142,151 225,206
<CGS> 96,474 78,585
<TOTAL-COSTS> 96,474 78,585
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 25,432 10,480
<INTEREST-EXPENSE> 7,626 7,832
<INCOME-PRETAX> (144,683) 35,152
<INCOME-TAX> 4,079 2,201
<INCOME-CONTINUING> (148,762) 4,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> (7,974) 0
<CHANGES> 0 0
<NET-INCOME> (140,788) 4,000
<EPS-BASIC> (5.48) 0.15
<EPS-DILUTED> (5.48) 0.15
</TABLE>
