UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended March 31, 2000
[ ] 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: 972-4-9599000
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 _
The number of shares outstanding of the registrant's common stock as
of May 9, 2000 was 27,629,017 Ordinary Shares, NIS 0.10 par value
per share.
ESC MEDICAL SYSTEMS LTD.
FORM 10-Q
For the Quarter Ended March 31, 2000
INDEX
PART I. FINANCIAL INFORMATION................................................4
ITEM 1. Financial Statements...........................................4
1) Independent Accountant's Review Report.........................5
2) Consolidated Balance Sheets....................................6
3) Consolidated Statements of Operations..........................7
4) Statement of Changes in Shareholders' Equity...................8
5) Consolidated Statements of Cash Flows..........................9
6) Notes to Condensed Interim Consolidated Financial Statements..10
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................15
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk.....18
PART II. OTHER INFORMATION...................................................18
ITEM 1. Legal Proceedings.............................................18
ITEM 6. Exhibits and Reports on Form 8-K..............................19
# # # # # #
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
ESC MEDICAL SYSTEMS LTD.
UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000
3
ESC MEDICAL SYSTEMS LTD.
INDEX TO UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000
Page
-------
INDEPENDENT ACCOUNTANT'S REVIEW REPORT 5
BALANCE SHEET 6
STATEMENT OF OPERATIONS 7
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 8
STATEMENT OF CASH FLOWS 9
NOTES TO FINANCIAL STATEMENTS 10-14
# # # # # #
4
Independent Accountant's Review Report
--------------------------------------
The Board of Directors
ESC Medical Systems Ltd.
Yokneam
-------
We have reviewed the accompanying interim consolidated balance sheet of
ESC Medical Systems Ltd. and consolidated subsidiaries as of March 31,
2000 and the related interim consolidated statement of operations,
statement of changes in shareholders' equity and statement of cash flows
for the three-month period then ended. These financial statements are the
responsibility of the company's board of directors and management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with accounting principles generally accepted in the United
States.
Brightman Almagor & Co.
Certified Public Accountants
A member of Deloitte Touche Tohmatsu
Tel Aviv
May 15, 2000
5
<TABLE>
<CAPTION>
ESC MEDICAL SYSTEMS LTD.
INTERIM CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
March 31, December 31,
2000 1999
------------ --------------
(Unaudited)
------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 10,315 $ 24,524
Short-term investments 38,936 43,841
Trade receivables (net of allowances of $24,242 and $25,432,
respectively) 48,321 43,360
5,287 5,852
Prepaid expenses and other receivables 36,648 39,516
------------- --------------
Inventories 139,507 157,093
------------- --------------
LONG-TERM INVESTMENTS
Bank deposits and securities 811 879
Other 5,963 5,566
FIXED ASSETS 6,497 6,549
OTHER ASSETS 4,551 4,820
------------- --------------
Total assets $ 157,329 $ 174,907
============= ==============
CURRENT LIABILITIES
Short-term debt and current maturities of long-term loans $ 65 $ 21
Accounts payable and accrued expenses 54,091 72,252
------------- --------------
54,156 72,273
------------- --------------
LONG TERM LIABILITIES
Bank loans 38 42
Restructuring accrual 1,528 2,472
Accrued severance pay 1,034 1,248
Convertible subordinated notes 91,787 92,929
------------- --------------
94,387 96,691
------------- --------------
Total liabilities 148,543 168,964
------------- --------------
SHAREHOLDERS' EQUITY
Ordinary shares of NIS 0.1 par value: Authorized - 50,000,000 shares;
Issued and outstanding - 27,629,017 and 27,579,020 shares, respectively 578 577
Paid-in capital 138,240 137,732
Unearned compensation (85) (117)
Accumulated deficit (112,731) (113,975)
Treasury stock, at cost 2,491,683 and 2,644,813 shares, respectively (17,216) (18,274)
------------- --------------
Total shareholders' equity 8,786 5,943
------------- --------------
Total liabilities and shareholders' equity $ 157,329 $ 174,907
============= ==============
The accompanying notes are an integral part of these interim consolidated financial statements.
</TABLE>
6
ESC MEDICAL SYSTEMS LTD.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
For the three
months ended
March 31,
--------------------------
2000 1999
--------- -------------
REVENUES $ 36,028 $ 31,292
COST OF SALES 16,481 30,090
--------- -------------
Gross profit 19,547 1,202
--------- -------------
OPERATING EXPENSES
Research and development, net 2,908 4,969
Marketing and selling 12,281 24,413 (*)
General and administrative 2,268 4,014
Restructuring costs - 6,446 (*)
Settlement of litigation - 3,000
--------- -------------
Total operating expenses 17,457 42,842
--------- -------------
Operating income (loss) 2,090 (41,640)
FINANCING EXPENSES, NET (1,040) (1,410)(*)
--------- -------------
Income (loss) before income taxes 1,050 (43,050)
INCOME TAXES 98 123
--------- -------------
Income (loss) after income taxes 952 (43,173)
EXTRAORDINARY GAIN ON PURCHASE OF COMPANY'S
CONVERTIBLE NOTES 292 2,483 (*)
--------- -------------
Net income (loss) for the period $ 1,244 $ (40,690)
========= =============
EARNINGS (LOSS) PER SHARE
Basic:
Income (loss) before extraordinary items $ 0.04 $ (1.68)
Extraordinary gain 0.01 0.10
--------- -------------
Net earnings (loss) per share $ 0.05 $ (1.58)
========= =============
Diluted:
Income (loss) before extraordinary items $ 0.03 $ (1.68)
Extraordinary gain 0.01 0.10
--------- -------------
Net earnings (loss) per share $ 0.04 $ (1.58)
========= =============
WEIGHTED AVERAGE NUMBER
OF SHARES
Basic 25,061 25,716
--------- -------------
Diluted 27,564 25,716
========= =============
(*) Reclassified
The accompanying notes are an integral part of these interim consolidated
financial statements.
7
<TABLE>
<CAPTION>
ESC MEDICAL SYSTEMS LTD.
INTERIM STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(UNAUDITED)
(In thousands)
Share Paid in Unearned Accumulated Treasury
capital Capital compensation deficit stock Total
--------- --------- -------------- ------------- --------- ---------
Balance as of
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999 $ 577 $ 137,732 $ (117) $ (113,975) $(18,274) $ 5,943
Exercise of options 1 127 1,058 1,186
Grant of options 381 381
Amortization of unearned
compensation 32 32
Net income for the period 1,244 1,244
--------- --------- -------------- ------------- --------- ---------
Balance as of
March 31, 2000 $ 578 $ 138,240 $ (85) $ (112,731) $(17,216) $ 8,786
The accompanying notes are an integral part of these interim consolidated
financial statements.
</TABLE>
8
<TABLE>
<CAPTION>
ESC MEDICAL SYSTEMS LTD.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
For the three months
ended March 31
--------------------
2000 1999
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 1,244 $ (40,690)
Adjustments to reconcile net income (loss) to net cash
used in operating activities -
Income and expenses not affecting operating cash flows:
Deferred income taxes - 793
Amortization of unearned compensation 32 33
Depreciation and amortization 1,143 2,651
Gain on purchase of Company's convertible notes (292) (2,483)
Restructuring costs - 27,854
Other (214) 3,122
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables (4,961) 7,695
Decrease in prepaid expenses and other receivables 565 119
Decrease (increase) in inventories 2,868 (5,970)
Decrease in accounts payable and accrued expenses (18,724) (7,632)
--------- ----------
Net cash used in operating activities (18,339) (14,508)(*)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (696) (1,370)
Proceeds from investments, net 4,473 1,372 (*)
--------- ----------
Net cash provided by investing activities 3,777 2
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of convertible notes (873) (4,580)
Proceeds from exercise of options 1,186 -
Repayment of long-term loans (4) (97)
Increase (decrease) in short-term bank debt, net 44 (404)
Purchase of treasury stock - (4,006)
--------- ----------
Net cash provided by (used in) financing activities 353 (9,087)
--------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (14,209) (23,593)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,524 42,950
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 10,315 19,357
========= ==========
CASH PAID DURING THE PERIOD IN RESPECT OF:
Income taxes 211 12
========= ==========
Interest 2,777 3,306
========= ==========
(*) Reclassified
The accompanying notes are an integral part of these interim consolidated financial statements.
</TABLE>
9
ESC MEDICAL SYSTEMS LTD.
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2000
(In thousands)
Note 1 -BASIS OF PRESENTATION
A. The unaudited condensed interim consolidated financial
statements as of March 31, 2000 and for the three months
then ended ("interim financial statements") of ESC
Medical Systems Ltd. (the "Company") and subsidiaries
should be read in conjunction with the audited financial
statements of the Company as of December 31, 1999 and
for the year then ended, including the notes thereto.
The results of operations for the interim periods are
not necessarily indicative of the results to be expected
on a full-year basis.
B. The interim financial statements have been prepared in
accordance with accounting principles generally accepted
in the United States.
The accounting principles applied in the preparation of
these interim financial statements are consistent with
those principles applied in the preparation of the most
recent annual audited financial statements.
Note 2 -RESTRUCTURING
In 1999 the Company recorded a $45,068 charge for comprehensive
restructuring plans approved by the Board of Directors.
For the three months ended March 31, 1999, the Company recorded
a $27,854 charge with respect to this plan, including: $4,800
for writedowns of receivables reflected in marketing and
selling expenses; $16,608 for writedowns of inventory reflected
in cost of goods sold; and $6,446 for severance, lease
terminations and other costs.
As of March 31, 2000 the unutilized accrual amounted to $4,135,
relating to $1,596 for severance and $2,539 for lease
terminations.
As of March 31, 2000 most of the restructuring plan initiated
in 1999 has already been implemented. Certain restructuring
costs are expected to be incurred later in this year.
Management estimates an additional $2,000 in restructuring
charges related to these actions.
10
ESC MEDICAL SYSTEMS LTD.
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2000
(In thousands)
Note 3 - INVENTORIES
Inventories are composed of the following:
March 31 December 31
2000 1999
--------------- --------------
(Unaudited)
Raw materials $ 15,382 $ 15,998
Work in process 6,884 8,052
Finished products 14,382 15,466
--------------- --------------
$ 36,648 $ 39,516
=============== ==============
Note 4 - SEGMENT INFORMATION
A. COMPOSITION OF REVENUES BY GEOGRAPHIC AREAS
For the three
months ended
March 31,
--------------------------
2000 1999
----------- ------------
Revenues
North America $ 13,825 $ 13,656
Europe 8,521 11,016
Asia 8,504 1,624
Central and South America 1,407 1,097
Other 3,771 3,899
---------- -----------
Consolidated $ 36,028 $ 31,292
========== ===========
11
ESC MEDICAL SYSTEMS LTD.
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2000
(In thousands)
Note 4 - SEGMENT INFORMATION (CONT.)
B. REPORTABLE SEGMENTS
Starting in 2000, the Company changed its structure of
internal organization in a manner that caused the
composition of its reportable segments to change. Prior
period data has not been restated due to impracticability.
In addition, previously reported segment data has not been
presented due to the lack of relevance and comparability in
light of the structural changes. The following table sets
forth segment information for the three month period ended
March 31, 2000:
For the three
months ended
March 31, 2000
--------------
Revenues
Surgical and aesthetics $ 31,328
Dental 1,130
Industrial 3,570
Consolidated 36,028
Operating income (loss)
Surgical and aesthetics $ 3,207
Dental (827)
Industrial (290)
Consolidated 2,090
Financing expenses, net (1,040)
Income (loss) before
=============
Income taxes $ 1,050
March 31, 2000
--------------
Assets
Surgical and aesthetics $ 89,600
Dental 2,939
Industrial 6,997
Unallocated assets 57,793
Consolidated $ 157,329
12
ESC MEDICAL SYSTEMS LTD.
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2000
(In thousands)
Note 5 - CONTINGENT LIABILITIES
(A) 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
Industries Limited, a subsidiary of the Company ("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.
(B) 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.
(C) 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.
13
(D) 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. An arbitration panel has been appointed and
the parties are awaiting the scheduling of the preliminary
conference. No accrual has been recorded in the financial
statements for this matter.
(E) On May 8, 2000, UBS Warburg L.L.C. ("Warburg") filed a
complaint in the Southern District Court of New York
alleging that the Company failed to pay approximately
$2,600 in retainer and advisory fees arising out of a
March 15, 1999 agreement, pursuant to which Warburg was
engaged by prior management with respect to matters
relating to the proxy contest that preceded the Company's
1999 annual meeting of shareholders. The Company intends
to vigorously defend itself against this suit. No accrual
has been recorded in the financial statements for this
matter.
(F) 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.
(G) 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 Company's consolidated financial position.
# # # # # # #
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
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.
Starting in 2000, the Company organized itself into three business units
one consisting of three geographical sub-units serving the aesthetic and
surgical market, one unit serving the dental market and one unit serving
the industrial market.
As of March 31, 2000 most of the restructuring plan initiated in September
1999 has already been implemented. Certain remaining cost saving measures
are planned for later in this year. Management estimates an additional
$2,000 in restructuring charges related to these actions. As a result of
the above planned actions, management estimates another $5,000 in annualized
cost saving.
In this Report, unless the context otherwise requires, all references to
the "Company" are to ESC Medical Systems Ltd. and its direct and indirect
wholly owned subsidiaries.
RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTH PERIODS
ENDED MARCH 31, 1999 (In thousands of U.S. Dollars)
Revenues. The Company's net revenues increased by 15% to $36,028 for the
three months ended March 31, 2000 compared to $31,292 for the three months
ended March 31, 1999
The increase in sales is attributable to a significant increase in unit
sales.
Gross Profit. Gross profit increased to $19,547 for the three months ended
March 31, 2000 from $1,202 for the three months period ended March 31,
1999. Excluding the write off of inventory and other reserves mainly
relating to restructuring, in 1999 gross profit for the three months ended
March 31, 1999 was $17,810. The increase in Gross profit in the three
months period ended March 31, 2000 is due to the increase in sales. As a
percentage of sales the gross profit was 54% in the three months period
ended March 31, 2000 compared to 57% in the same period in 1999, excluding
write off of inventory and other reserves.
Research and Development, net. Net research and development costs decreased
by 41% to $2,908 for the three months ended March 31, 2000 from $4,969 in
the same period in 1999. As a percentage of sales, research and development
cost were 8% in the three months period ended March 31, 2000 as compared to
16% in the three month period ended March 31, 1999. The decrease in
research and development costs, net is due to a reduction in overhead
costs, significantly lower material consumption and cost savings
implemented during 1999 including the elimination of certain uneconomical
projects.
Marketing and Selling. Marketing and selling expenses decreased by 50% to
$12,281 for the three months ended March 31, 2000 compared to $24,413 for
the same period in 1999. Excluding-write-offs relating to the restructuring
in the period of the three months ended March 31, 1999, marketing and
selling expenses were 19,613. As a percentage of sales, marketing and
selling expenses in the three month period ended March 31, 2000 were 34%
compared to 63% in the same period in 1999 excluding write-offs. The
decrease in 2000 is attributable to the reduction in overhead costs mainly
in the United States as a result of the restructuring plan adopted during
1999.
15
General and Administrative. General and administrative expenses decreased
by 43% to $2,268 for the three months ended March 31, 2000 from $4,014 in
the same period in 1999. As a percentage of sales, general and
administrative expenses in the three month period ended March 31, 2000 were
6% compared to 13% in the same period in 1999.
The decrease in general and administrative expenses is attributable mainly
to a reduction in overheads as a result of the restructuring plan adopted in
1999 and a significant reduction in legal costs.
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 in the first
quarter of 1999 charges of $11,246 related to its sales and marketing
operations out of which $4,800 is included in marketing and selling
expenses and $16,608 related to inventory write-off (included in the cost
of goods sold).
Settlement of Litigation. Settlement of litigation in the three months
period ended March 31, 1999 included provision in connection with the
litigation settled at the beginning of 2000.
Operating Income (loss) For the three months ended March 31, 2000,
operating profit was $2,090 compared to operating loss of $41,640 for the
same period in 1999.
The improvement in operating result is due to the adoption of the
restructuring plan, mainly designed to align the Company's cost structure
with its revenue.
Financing Income (expenses), net. For the three months ended March 31,
2000, financing expenses were $1,040 compared to financing expenses of
$1,410 in the same period in 1999. These expenses include $750 and $1,060
of currency charges in 2000 and 1999, respectively.
Taxes on Income. Taxes on income of $98 incurred in the three months ended
March 31, 2000 compared to $123 in the same period in 1999.
Extraordinary gain on purchase of Company's convertible notes. For the
three month ended March 31, 2000 extraordinary gain on purchase of
Company's convertible bonds was $292 compared to $2,483 in the same period
in 1999. The decrease is due to the purchase of fewer of the Company's
convertible notes.
Net Income (loss). As a result of the foregoing factors, the Company's net
income was $1,244 for the three months ended March 31, 2000 compared to net
loss of $40,690 in the period in 1999. Excluding 1999 restructuring costs,
the net loss for the three month period ended March 31, 1999 was $12,836.
The improvement in net income is due to the adoption of the restructuring
plan, mainly designed to align the Company's cost structure with its
revenue capabilities.
Accounts Receivable. Accounts receivable rose by $4,961 mainly due to
certain temporary manufacturing and collection inefficiencies related to
restructuring.
LIQUIDITY AND CAPITAL RESOURCES
(in thousands of dollars)
As of March 31, 2000, the Company had cash and cash equivalents of $10,315
compared to $24,524 on December 31, 1999. The decrease of $14,209 is mainly
attributable to:
16
1. Payment of legal settlements of approximately $10,775;
2. Repurchase of the Company's 6% Convertible Notes for $873;
3. Decrease of accounts payable in an amount of $4,086;
4. Payments in respect of restructuring of $3,863;
5. Increase of trade receivables in an amount of $4,961;
6. Maturity of long term investments in an amount of $4,473;
7. Proceeds from exercise of options in the amount of $1,186;
8. Decrease of inventories in the amount of $2,868.
The Company believes that internally generated funds, together with
available cash, will suffic over at least the next 12 months to meet its
present anticipated day-to-day operating expenses, materials, commitments,
working capital and capital expenditure requirements.
Investing Activities
(in thousands of dollars)
For the three months ended March 31, 2000, cash provided by investing
activities was approximately $3,777. The primary changes in the Company's
investing activities were the maturity of $4,473 in long-term investments
which was used in operations activities and use of cash of approximately
$696 to purchase fixed assets.
Financing Activities
(in thousands of dollars)
For the three months ended March 31, 2000, cash provided by financing
activities was $353. The primary financing activities of the Company
included the repurchase of the Company's convertible notes for $873 and
proceeds from the exercise of options of $1,186.
CAUTIONARY 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.
17
Readers are cautioned not to place undue reliance on forward-looking
statements made in this 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 affected to any significant degree by a sudden change
in market interest rates on its securities portfolio.
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 this 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings incident to its
business. Except as noted below and as noted in the Company's annual report
on Form 10-K for the year ended December 31, 1999, 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.
On November 5, 1998, Light Age, Inc. ("Light Age") instituted a statement
of claim and an application for preliminary injunction in the Tel-Aviv
District Court (the "Tel-Aviv Court") against the Company and others,
seeking injunctions 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 affiliated entities,
brought an action in the Superior Court of New Jersey, Somerset County (the
"U.S. Court"), against Light Age, Inc. relating to disputes arising out of
an agreement between Light Age and Laser Industries Limited, a subsidiary
of the Company, pursuant to which Light Age supplied certain medical laser
devices to Laser Industries Limited. 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. An arbitration panel has been appointed
and the parties are awaiting the scheduling of the preliminary conference.
The Tel Aviv Court has stayed the proceedings pending the outcome of the
U.S. arbitration.
On May 8, 2000, UBS Warburg L.L.C. ("Warburg") filed a complaint in the
Southern District Court of New York alleging that the Company failed to pay
approximately 2.6 million dollars in retainer and advisory fees arising out
of a March 15, 1999 agreement, pursuant to which Warburg was engaged by
prior management with respect to matters relating to the proxy contest that
preceded the Company's 1999 annual meeting of shareholders. The Company
intends to vigorously defend itself against this suit.
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
- ------- ------------
10.1 Agreement, dated as of July 15, 1999, between the Company and
Sagi Genger
10.2 Agreement, dated as of March 31, 2000, between the Company and
Yacha Sutton
10.3 Agreement, dated as of January 4, 2000, between the Company and
Peter D'Erico
10.4 Agreement, dated as of March 1, 2000, between the Company and
Israel Ohana (English Translation)
27 Financial Date Schedule
(b) Reports on Form 8-K
The Company filed the following Current Reports of Form 8-K during the
three month period ended March 31, 2000:
Date of Report Subject of Report
- ------------- -----------------
February 14, 2000 Termination of the client/auditor relationship
between the company and Luboshitz Kasierer and the
appointment of Brightman Almagor & Co., member firm
of Deloitte, Touche, Tohmatsu, as the Company's new
independent accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESC Medical Systems Ltd.
/s/ Sagi A. Genger
-----------------------------
Date: May 15, 2000 By: Sagi A. Genger
(Chief Financial Officer,
and Duly Authorized Officer)
19
EXHIBIT INDEX
10.1 Agreement, dated as of April 13, 2000, between the Company and Sagi
Genger
10.2 Agreement, dated as of March 31, 2000, between the Company and
Yacha Sutton
10.3 Agreement, dated as of January 4, 2000, between the Company and
Peter D'Erico
10.4 Agreement, dated as of March 1, 2000, between the Company and
Israel Ohana (English Translation)
27 Financial Data Schedule
20
Exhibit 10.1
EMPLOYMENT AGREEMENT - SAGI GENGER
This Employment Agreement (the "Agreement") is made and
entered into as of July 15, 1999 by and among (i) ESC MEDICAL SYSTEMS,
Inc., a Delaware corporation, with its principal offices at 100 Crescent
Road, Needham, MA 02194, U.S.A. ("ESCI"), (ii) ESC Medical Systems Ltd., an
Israeli public company, with its principal offices at the New Industrial
Park, Yokneam, Israel ("ESCL, and jointly with ESCI, the "Companies"), both
of the first party, and MR. SAGI GENGER residing at __________________ (the
"Executive"), of the second party.
WHEREAS, the Companies desire to employ and secure for
themselves the services of the Executive upon the terms and subject to the
conditions specified herein, and
WHEREAS, the Executive will provide his services pursuant to
this Agreement to both Companies, and, based on the Executive
responsibilities, the Companies respective needs for his services, and the
parties' experience during the months preceding the signing of this
Agreement, the Companies and the Executive estimate the allocation of the
Executive's time and efforts between the Companies to be 75% to ESCI and
25% to ESCL, and accordingly each of the Companies will each satisfy the
rights and benefits of the Executive hereunder in accordance with such
allocation, unless otherwise specified herein; and
WHEREAS, the Executive desires to accept employment with the
Company upon the terms and subject to the conditions specified herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants, terms and conditions hereinafter set forth, and for other
good and valuable consideration, the receipt of which is hereby
specifically acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. Each of the Companies hereby employs the
Executive in the capacity of the Chief Financial Officer of each Company,
respectively, upon the terms and subject to the conditions set forth below.
The Executive hereby accepts employment with each Company in such capacity
upon the terms and subject to the conditions set forth below.
2. DUTIES. (a) The Executive agrees to devote his full
business time (except for certain exceptions as approved from time to time
by the CEO), attention, best efforts and ability to the affairs of the
Companies, as set forth in the preamble of this Agreement. He shall report
to the Chief Executive Officer of ESCL (the "CEO"). The Executive shall
have responsibility for the financial affairs of the Companies and the
other group companies, with the powers and duties as customarily assigned
to such office and/or as otherwise may be defined by the CEO from time to
time.
(b) The Executive acknowledges that his capacity is a
fiduciary position and requires a special degree of trust, his duties and
responsibilities may entail irregular work hours and extensive traveling
and relocation, for which he is adequately rewarded by the compensations
provided for in this Agreement, and that accordingly the provisions of the
Work Hours and Rest Law, 1951 (or any equivalent U.S. federal or state
labor law) will not apply to his employment with the Company.
1
(c) When the Executive performs services for the Companies,
the Executive shall be, at all times, an employee of the Companies. While
performing such services, the Executive shall not engage in any activities
that may interfere or conflict with the proper discharge of his duties.
3. TERM AND TERMINATION. The term of this Agreement shall
commence on July 15, 1999 and shall continue in full force and effect until
terminated pursuant to the terms hereof.
(a) The Agreement and the Executive's employment may be
terminated (A) at any time at the option of either the Executive or both
Companies jointly, and subject to a ninety (90) days prior written notice
("Prior Notice"); (B) upon the death of the Executive; (C) in the event of
the inability of the Executive to perform his duties hereunder, whether by
reason of injury (mental or physical), illness or otherwise, incapacitating
the Executive for a continuous period exceeding 45 days or non-consecutive
45 days in any six month period; or (D) for cause. For purposes of this
Agreement, an event or occurrence constituting "cause" includes, but is not
limited to:
(i) The Executive's failure or refusal to perform
specific directives of his superior;
(ii) Dishonesty of the Executive affecting the
Companies;
(iii) The Executive's conviction of a felony or of any
crime involving moral turpitude, fraud or
misrepresentation;
(iv) Any gross negligence or willful conduct of the
Executive resulting in material loss to the
Companies or any of its affiliates or material
damage to the reputation of the Companies or any
of its affiliates;
(v) Any material breach of any of the provisions of
this Agreement.
(b) In the event of a termination of this Agreement and the
Executive's employment by the Companies pursuant to a Prior Notice, the
Companies shall only be obligated to pay (i) Executive's base salary and
benefits through the Prior Notice period specified above, provided that the
Executive continues his employment obligations through such period, and
(ii) the lump sum severance payment to which the Executive shall be
entitled pursuant to any applicable law, but in no event less than the last
month's base salary per each 12-month period of the Executive's employment
with the Company and a pro-rata portion for any shorter period since the
last anniversary of the Executive's employment prior to the effective date
of such termination ("Severance Payment"). such payments shall be less
deductions for all applicable taxes and withholdings. The Companies shall
have no further obligation to make any salary payments or provide any
benefits to the Executive after the expiration of such Prior Notice period,
except as required by applicable law. Notwithstanding the foregoing, either
Company may, in its sole discretion, elect not to require the services of
the Executive during the Prior Notice period, but shall continue to pay the
Executive's base salary and benefits through such period.
4. BASE SALARY. As compensation for services rendered
hereunder, the Companies shall pay the Executive, in allocation between
them as set forth in the preamble of this Agreement, an annual base salary
of U.S. $120,000 (one hundred and twenty thousand United States Dollars),
less deductions for all applicable taxes and withholdings, payable in
twelve equal monthly installments in conformance with the regular payroll
dates and practices for salaried personnel of the Company during the term
of the Agreement. The Executive's salary level shall be reviewed by the CEO
annually or at such other times as the CEO shall determine. The Company and
the Executive shall reconcile any difference between all advances on
account of salary made to the Executive prior to the date of this Agreement
and any balance, if in the Executive's favor, shall be paid to the
Executive, and if in the Company's favor, shall be credited against future
salaries.
2
5. BENEFITS. In addition to the compensation set forth in
paragraph 4 above, the Executive shall receive the following benefits, and
only such benefits, from the Companies (less deductions for all applicable
taxes and withholdings), it being understood that any wage-based benefits
shall be calculated exclusively on the basis of the base salary (without
consideration to any other benefit):
(a) VACATION. The Executive shall be entitled to twenty (20)
business days of vacation per year in accordance with Company's policy. The
specific dates of such vacations shall be coordinated in advance with the
CEO. The Executive shall not be entitled to accumulate or to redeem any
unused vacation days in excess of an aggregate of forty days.
(b) OPTIONS. Upon the execution of this Agreement, the
Executive shall be granted options to purchase up to 150,000 (one hundred
and fifty thousand) Ordinary Shares, par value NIS 0.10 per share, of ESCL
under the terms and conditions of one of the employees equity incentive
plans maintained by ESCL, as designated for the senior executives of the
Companies. The options shall vest with the Executive in five (5) equal
annual installments of 30,000 (thirty thousand) options each, upon each
anniversary of the Executive's employment with the Companies, the first
occurring on July 15, 2000, and will be exercisable at a price per share of
US$5.0625. The options shall otherwise be under such terms as the Board
and/or the Compensation Committee of ESCL may determine.
(c) CERTAIN SOCIAL BENEFITS. The Companies shall grant the
Executive all the social benefits, such as pension, life insurance, health
insurance, disability insurance, certain saving programs and others as are
granted to each Companies' respective senior executives in the Executive's
rank and under their usual terms pursuant to such Company's current policy
(including employees' participation therein). Each Company shall grant such
benefits on the basis of the portion of the Base Salary payable thereby
hereunder. Such benefits shall include, but not be limited to, in the case
of ESCL: Manager's Insurance ("Bituach Menahalim"), Disability Insurance,
and Advanced Study Provident Fund ("Keren Hishtalmut"); and in the case of
ESCI: Health Insurance (under the customary terms offered to ESCI's senior
executives).
(d) CERTAIN REIMBURSEMENTS. The Executive shall be entitled
to full reimbursement from the Companies (in allocation between them as set
forth in the preamble of this Agreement) for the following:
(i) The travel expenses of the Executive's wife to
Israel, up to ___ occasions until December 31,
1999; and
(ii) The payments on a lease of a corporate apartment in
the Tel-Aviv area, reasonably satisfactory to the
Executive, which shall serve the Executive during
his stays in Israel, and his telephone expenses.
(iii) Relocation expenses to Israel, as approved by the
CEO.
3
6. CONFIDENTIAL INFORMATION. The Executive agrees not to
divulge or use, except in furtherance of the Companies' business at any
time during his employment or after the termination of his employment with
the Companies, any confidential and other proprietary information
("Confidential Information") obtained at any time, disclosed to the
Executive or developed by the Executive in the course of the Executive's
employment with the Companies or regarding the business of either the
Companies, its subsidiaries, affiliates, or any of its customers, except
that the Executive may disclose certain necessary information to co-workers
employed at the Companies and to third parties when required to do so in
connection with the performance of his duties hereunder. "Confidential
Information" shall mean information which is not known to the public and
shall include, but not be limited to, trade secrets, know-how, data,
technical or non-technical, whether written, graphic or oral, the names and
addresses of prospective or existing investors, customers, supply sources,
ideas, financial information, operations policies, marketing strategies,
business development plans, corporate assets, financial forecasts, and
historical financial results.
7. COVENANT NOT TO SOLICIT BUSINESS. (a) Upon termination of
this Agreement the Executive agrees that for a period of two (2) years he
will not directly or indirectly solicit any business from individuals or
entities that are customers at the time of the termination of this
Agreement of the Companies, any of its subsidiaries or affiliates, without
the prior written consent of the Board.
(b) For a period of two (2) years from the date of
termination of this Agreement without the prior written consent of the
Board, the Executive shall not employ, offer to employ, or in any way
directly or indirectly solicit or seek to obtain or achieve the employment
of any person employed by either the Companies, its subsidiaries,
affiliates, or any successors or assigns thereof now or during a two (2)
year period from the date of the Executive's termination of employment,
except for those executives who have left the Companies, its subsidiaries,
affiliates, or any successors or assigns thereof more than one (1) year
prior to the date of the Executive's termination of employment with the
Companies.
(c) For a period of two (2) years from the date of
termination of this Agreement, without the prior written consent of the
Board or the Committee, the Executive shall not participate, directly or
indirectly (whether as advisor, principal, agent, partner, officer,
director, employee, stockholder, associate or consultant of), in any
Business Entity (except for an interest of less than 5% in any entity whose
securities are traded in any exchange). For purposes of this paragraph 7
(c), the term "Business Entity" shall mean any person, partnership,
corporation or other business entity that at the time of the Executive's
involvement with the Companies is involved in any competition with any
business carried on by the Companies or its affiliates or subsidiaries
prior to the date of this Agreement or hereafter conducted by the Companies
or its affiliates or subsidiaries during the term of this Agreement
anywhere in the world.
(d) The parties hereto agree that the duration and area for
which the covenant not to compete set forth in paragraph 7(c) above is to
be effective and reasonable, in terms of their geographical and temporal
scope. In the event that any court determines that the time period and/or
area are unreasonable and that such covenant is to that extent
unenforceable, the parties hereto agree that such covenant shall remain in
full force and effect for the greatest period of time and in the greatest
geographical area that would not render it unenforceable. In addition, the
Executive acknowledges and agrees that a breach of paragraph 6 or sections
(a), (b) or (c) of this paragraph 7 shall cause irreparable harm to the
Companies, its subsidiaries, and/or its affiliates and that the Companies
shall be entitled to specific performance of this Agreement or an
injunction without proof of special damages, together with the costs and
reasonable attorney's fees and disbursements incurred by the Companies in
enforcing their rights under paragraph 6 and this paragraph 7.
4
8. INTELLECTUAL PROPERTY ASSIGNMENT. Any invention or
know-how which shall occur to the Executive during the period of his
employment relating to the business of the Companies or the use of any of
its technologies, notwithstanding that it is perfected or reduced to
specific form at any time thereafter provided that its conception arose
during such period, including all rights therein and in any patent or other
form of legal protection with respect thereto, shall become the sole
property of the Companies, without need for any specific action or notice
or any consideration to the Executive other than as provided for by this
Agreement.
9. DEDUCTIONS AND WITHHOLDINGS. The Companies shall be
entitled to deduct and withhold from any amount payable to the Executive,
whether pursuant to this Agreement or otherwise, any and all taxes,
withholdings or other payments as required under any applicable law.
10. NO ASSIGNMENT BY EXECUTIVE. The Executive shall have no
right to assign any of the rights nor to delegate any of the duties created
by this Agreement and any assignment or attempted assignment of the
Executive's rights, and any delegation or attempted delegation of the
Executive's duties, shall be null and void. The Companies retain the right
at any time to assign any of its rights or delegate any of its duties under
this Agreement.
11. CONDITIONS. The Executive represents that he has full
authority to enter into this Agreement and that the performance of his
duties under this Agreement will not interfere with or violate the terms of
any other agreement, arrangement or understanding.
12. BENEFIT. Except as otherwise expressly provided herein,
this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, beneficiaries, personal
representatives, successors and assigns.
13. NOTICES. All notices hereunder shall be in writing and
delivered by hand or telefaxed or mailed to the address stated below of the
party to which such notice is given, or to such changed address as such
party shall have given to the other party by written notice provided,
however, that any notice of change of address shall be effective only upon
receipt by the other party.
To the Companies: ESC Medical Systems Ltd.
P.O. Box 240
Yokneam, Israel
Attention: Chief Executive Officer
To Executive: c/o Trans-Resources, Inc.
9 West 57th Street
New York, NY 10019
14. SEVERABILITY OF PROVISIONS. If any of the provisions of
this Agreement is held invalid, such provisions shall be severed and the
remainder of the Agreement shall remain in force and shall not be affected
thereby.
5
15. NO ORAL CHANGES. This instrument constitutes and
contains the entire Agreement between the parties except as otherwise
expressly stated herein. This Agreement may be changed only in writing, and
must be signed by the party against whom enforcement of any waiver,
modification, discharge or other change is sought.
16. WAIVER. Neither party's failure to insist upon strict
compliance with any of the terms, covenants or conditions hereof shall not
be deemed a waiver of such term, covenant or condition, nor shall any
waiver or relinquishment of any right or power hereunder at any one or more
times be deemed a waiver or relinquishment of such right or power at any
other time or times.
17. ENTIRE AGREEMENT. The Agreement contained in this
instrument supersedes and cancels any and all prior agreements between the
parties hereto, express or implied, written or oral, relating to the
subject matter hereof. This Agreement sets forth the entire agreement
between the parties hereto with respect to the subject matter hereof.
18. GOVERNING LAW; SUBMISSION TO JURISDICTION. This
Agreement shall be governed by and construed in accordance with the laws of
the State of Israel. Any litigation concerning any claims under or breach
of this Agreement shall be brought exclusively in the competent courts of
the Tel-Aviv-Jaffa District.
19. DESCRIPTIVE HEADINGS. The paragraph headings contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute one and the same instrument.
* * * *
6
IN WITNESS WHEREOF, the Company and the Executive have
executed this Employment Agreement, as of the day and year first above
written.
ESC Medical Systems Ltd.
By: /s/ Yacha Sutton
Yacha Sutton
Chief Executive Officer
ESC MEDICAL SYSTEMS, Inc.
By: /s/ Louis Scafuri
Louis Scafuri
Chief Executive Officer
North America Operations
SAGI GENGER
/s/ Sagi Genger
7
Exhibit 10.2
EMPLOYMENT AGREEMENT- YACHA SUTTON
This Employment Agreement (the "Agreement") is made and
entered into as of March 31, 2000 by and among ESC MEDICAL SYSTEMS LTD., a
public company incorporated under the laws of the State of Israel, with its
principal offices at the New Industrial Park, Yokneam, Israel (the
"Company"), and MR. YACHA SUTTON, residing at ____________ (the
"Executive").
WHEREAS, the Executive is employed by the Company in the
position of Chief Executive Officer pursuant to an Employment Agreement
dated June 29, 1999 between the parties (the "Original Agreement"), and
WHEREAS, the Company desires to continue to employ and
secure for itself the services of the Executive upon the terms and subject
to the conditions specified herein, and
WHEREAS, the Executive desires to continue his employment
with the Company upon the terms and subject to the conditions specified
herein, and
WHEREAS, for the avoidance of any doubt, it is agreed and
understood between the parties that by continuing his employment with the
Company pursuant to this Agreement the Executive shall not be deemed in
breach of either the Termination Agreement between Laser Industries Ltd.
and the Executive or the Non-Competition Agreement between the Company and
the Executive, both agreements dated February 22, 1998.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants, terms and conditions hereinafter set forth, and for other
good and valuable consideration, the receipt of which is hereby
specifically acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive in the
capacity of Chief Executive Officer of the Company upon the terms and
subject to the conditions set forth below. The Executive hereby accepts
employment with the Company upon the terms and subject to the conditions
set forth below. This agreement is personal and shall not invoke the
provisions of any collective bargaining agreement or arrangement or
extension orders, whether presently existing or shall exist in the future,
except and only to the extent so mandated by law.
2. DUTIES. (a) The Executive agrees to devote his full business
time, attention, best efforts and ability to the affairs of the Company. He
shall report to the Board of Directors of the Company (the "Board") or to
the Executive Committee of the Board (the "Committee") or to such members
of the Board or the Committee as either of them shall designate from time
to time to direct the Executive in the execution of his duties and
responsibilities hereunder. The Executive shall have primary responsibility
for operating and managing the business of the Company in the ordinary
course of its business, with the powers and duties accorded to the position
of CEO as set forth in the Articles of Association of the Company and such
other duties consistent therewith as may be assigned to the Executive from
time to time by the Board or the Committee or such members of the Board or
the Committee as either of them shall designate from time to time to direct
the Executive in the execution of his duties and responsibilities
hereunder.
1
(b) The Executive acknowledges that his capacity as CEO is a
fiduciary position and requires a special degree of trust, his duties and
responsibilities may entail irregular work hours and extensive traveling,
for which he is adequately rewarded by the compensations provided for in
this Agreement, and that accordingly the provisions of the Work Hours and
Rest Law, 1951 will not apply to his employment with the Company.
(c) When the Exec utive performs services for the Company,
the Executive shall be, at all times, an employee of the Company. While
performing services for the Company, the Executive shall not engage in any
activities that may interfere or conflict with the proper discharge of his
duties.
3. TERM AND TERMINATION. The term of this Agreement shall be
effective as of January 1, 2000 and shall continue in full force and effect
until terminated pursuant to the terms hereof.
3.1 The Agreement and the Executive's employment will
terminate (a) upon the death of the Executive; (b) in the event of the
inability of the Executive to perform his duties hereunder, whether by
reason of injury (mental or physical), illness or otherwise, incapacitating
the Executive for a continuous period exceeding 45 days or non-consecutive
45 days in any six month period; or (c) if terminated by the Company for
cause, upon delivery by the Company to the Executive of written notice to
such effect. For purposes of this Agreement, an event or occurrence
constituting "cause" includes:
(i) The Executive's omission or refusal to perform
specific directives of the Board or the Committee
or such members of the Board or the Committee as
either of them shall designate from time to time
to direct the Executive in the execution of his
duties and responsibilities hereunder;
(ii) Dishonesty of the Executive affecting the Company;
(iii) The Executive's conviction of a felony or of any
crime involving moral turpitude, fraud or
misrepresentation;
(iv) Any gross negligence or bad-faith conduct of the
Executive resulting in material loss to the
Company or any of its subsidiaries or material
damage to the reputation of the Company or any of
its subsidiaries; and
(v) Any material breach of this Agreement.
3.2 The Company may also terminate this Agreement and the
Executive's employment at any time by a ninety (90) days prior notice if
the Board has determined in good faith, with the approval of the Audit
Committee, that the Executive's performance is not sufficient for the
Company to achieve its business targets. The Executive will be entitled to
terminate this Agreement and his employment, for any reason, by a sixty
(60) days prior notice to the Company.
3.3 In the event of any termination of this Agreement and
the Executive's employment, the Company shall only be obligated to pay (i)
Executive's base salary and benefits until the effective date of
termination, provided that the Executive continues his employment
obligations through such period (if so required by the Company), and (ii)
any severance payment to which the Executive shall be entitled pursuant to
the Severance Payment Law, 1963 ("Severance Payment") less any amounts
received by the Executive from his Managers' Insurance on account of
severance payment (all such payments shall be less deductions for all
applicable taxes and withholdings under any relevant laws). The Company
shall have no further obligation to make any salary payments or provide any
benefits to the Executive after such termination, except as required by
applicable law. Notwithstanding the foregoing, the Company may, in its sole
discretion, elect not to require the services of the Executive until the
effective date of such termination, but shall nevertheless continue to pay
the Executive's base salary and benefits through such date.
2
In addition to the payments specified in this
subparagraph 3.3, if this Agreement and the Executive's employment is
terminated by the Company at any time other than for "cause", then the
unpaid balance of the amounts payable by the Company to the Executive
pursuant to the Non-Competition Agreement, dated February 22, 1998, between
the Company and the Executive entered in connection with the merger of the
Company with Laser Industries Ltd., will be paid to the executive in a lump
sum, in lieu of in monthly installments as provided by the said agreement.
3.4 Following any termination of this Agreement and the
Executive's employment, the Company shall no longer be obligated to make
any base salary payments or provide any benefits of any kind whatsoever
(except as required by applicable law) to the Executive or the Executive's
estate. However, any base salary payments earned but not yet paid and any
benefits (other than base salary) to which the Executive has already become
entitled under the terms of any Company plan or policy or this Agreement
but has not yet been provided shall be made and provided by the Company to
the Executive or the Executive's estate in accordance with their respective
terms.
3.5 Notwithstanding anything to the contrary contained in
this Agreement, if not terminated earlier pursuant to any other provision
of this paragraph 3, this Agreement and the Executive's employment
thereunder shall terminate automatically on December 31, 2002, unless
otherwise agreed between the Executive and the Company in writing and with
the approval of the Board. In the event of such termination, as of such
date the Company shall no longer be obligated to make any base salary
payments or provide any benefits of any kind whatsoever to the Executive.
3.6 In the event of any termination of this Agreement and
the Executive's employment, the Executive will promptly return any Company
property then in his possession and will assign his responsibilities in an
orderly fashion to any temporary or permanent successor designated by the
Board, and at the Company's request, the Executive will provide such
successor with reasonable assistance in assuming the Executive's
responsibilities; provided, that if such assistance will require the
Executive to devote of his time after the effective date of such
termination, the Executive will be fairly and reasonably compensated by the
Company therefor.
4. BASE SALARY. As compensation for services rendered hereunder,
the Company shall pay the Executive a gross monthly base salary of U.S.
$20,000 (twenty thousand U.S. Dollars), less deductions for all applicable
taxes and withholdings, payable in conformance with the regular payroll
dates and practices for executives of the Company during the term of the
Agreement. The base salary is denominated in U.S. Dollar and accordingly
shall not be adjusted to any changes in the consumer price index or changes
in the cost of living.
3
5. BENEFITS. In addition to the compensation set forth in
paragraph 4 above, the Executive shall receive the following benefits, and
only such benefits, from the Company (less deductions for all applicable
taxes and withholdings under any applicable law), it being understood that
any wage-based benefits shall be calculated exclusively on the basis of the
base salary (without consideration to any other benefit):
(a) VACATION. The Executive shall be entitled to twenty-four
(24) business days of vacation per year in accordance with Company's
policy. The specific dates of such vacations shall be coordinated in
advance with the Board or the Committee. The Executive shall not be
entitled to accumulate or to redeem any unused vacation days in excess of
an aggregate of twelve days.
(b) OPTIONS. The Executive shall be granted options to purchase
up to 400,000 (four hundred thousand) of the Company's Ordinary Shares, par
value NIS 0.10 per share, under the terms and conditions of the Company's
1999 Option Plan (the "Plan") (subject to shareholders approval thereof).
The exercise price per share for the shares covered by the said options
shall be US$ 8.875 (the closing price of the Ordinary Shares in Nasdaq on
January 3, 2000). Notwithstanding the provisions of the Plan, the options
shall vest with the Executive in three annual installments, the first
installment occurring on December 31, 2000 with respect to 66,666 shares,
and the second and third installments occurring on December 31 of 2001 and
2002, respectively, with respect to 166,667 shares each, during the
Executive's continuous employment with the Company pursuant to this
Agreement, and upon any termination of the Executive's employment any
unvested options will conclusively expire and have no further force or
effect, provided that if terminated by the Company other than for "cause",
a number of options out of the then pending installment will become vested
upon such termination, proportionately to the time elapsed since the
immediately preceding installment and until such termination. Unless this
Agreement and the Executive employment with the Company thereunder is
terminated by the Executive for whatever reason or by the Company for
"cause", all vested options shall be exercisable at any time thereafter
until December 31, 2009 (regardless of whether the Executive is still
employed by or affiliated with the Company at the time of their exercise),
and shall otherwise be subject to the provisions of the Plan. The foregoing
notwithstanding, any unvested options will become vested immediately prior
to the occurrence of a "Change of Control" (as defined in the Plan). The
options granted to the Executive pursuant to this paragraph shall be in
addition to (i) the options to purchase 100,000 Ordinary Shares granted to
the Executive pursuant to the Original Agreement, which grant shall survive
the termination of the Original Agreement pursuant to Section 18 below, and
(ii) the additional options to purchase 100,000 Ordinary Shares granted to
the Executive on December 3, 1999.
(c) MANAGERS INSURANCE ETC. In accordance with the Company's
general policy, the Company shall procure for the benefit of the Executive
a "Managers' Insurance Policy" (for life insurance and pension), under
customary terms, and contribute to such policy an amount equal 5% of the
Executive's base salary and 8.33% on account of the Company's severance
payment obligations, and the Company shall withhold 5% from the Executive's
base salary and contribute such amount to the said policy as the
Executive's participation. Upon any termination of the Executive employment
with the Company (other than termination by the Company under circumstances
in which severance payment is not payable) the rights in the Executive's
"Managers' Insurance Policy" shall be assigned to the Executive. The
Executive may designate for the above purpose a policy already existing in
his favor in lieu of the new policy. In addition, the Company shall pay an
amount of up to 2.5% of the Executive's base salary as premium of a
disability insurance policy in favor of the Executive, and an additional
7.5% of the base salary to an "Advanced Study Fund" ("Keren Hishtalmut")
(in which the Executive shall participate in an amount of 2.5% of his base
salary by way of withholding from his pay).
4
(d) OTHER BENEFITS. The Board or the Committee shall consider
such additional benefits to the Executive as generally provided by the
Company to its senior executives under its current remuneration policy. The
Executive shall be entitled to use a Company vehicle in accordance to the
Company's existing policies, with respect to the type of vehicle, coverage
of costs and expenses and grossing of applicable taxes.
(e) INDEMNIFICATION. Subject to the approvals required by the
Companies Law, 1999, the Company shall enter with the Executive into an
Indemnification Agreement under substantially the same terms and conditions
as shall be entered into with the directors and other officers of the
Company, and which shall replace any other indemnification rights or
arrangement currently existing in favor of the Executive.
6. CONFIDENTIAL INFORMATION. The Executive agrees not to divulge
or use, except in furtherance of the Company's business at any time during
his employment or after the termination of his employment with the Company,
any confidential and other proprietary information ("Confidential
Information") obtained at any time, disclosed to the Executive or developed
by the Executive in the course of the Executive's employment with the
Company or regarding the business of either the Company, its subsidiaries,
affiliates, or any of its customers, except that the Executive may disclose
certain necessary information to co-workers employed at the Company and to
third parties when required to do so in connection with the performance of
his duties hereunder. "Confidential Information" shall mean information
which is not known to the public and shall include, but not be limited to,
trade secrets, know-how, data, technical or non-technical, whether written,
graphic or oral, the names and addresses of prospective or existing
investors, customers, supply sources, ideas, financial information,
operations policies, marketing strategies, business development plans,
corporate assets, financial forecasts, and historical financial results.
7. COVENANT NOT TO SOLICIT BUSINESS. (a) Upon termination of this
Agreement the Executive agrees that for a period of two (2) years he will
not directly or indirectly solicit any business from individuals or
entities that are customers or distributors of the Company, its
subsidiaries or any of their respective affiliates, at the time of the
termination of this Agreement, without the prior written consent of the
Board.
(b) For a period of two (2) years from the date of termination
of this Agreement, without the prior written consent of the Board or the
Committee, the Executive shall not employ, offer to employ, or in any way
directly or indirectly solicit or seek to obtain or achieve the employment
of any person employed by either the Company, its subsidiaries, affiliates,
or any successors or assigns thereof now or during a two (2) year period
from the date of the Executive's termination of employment, except for
those executives who have left the Company, its subsidiaries, affiliates,
or any successors or assigns thereof more than one (1) year prior to the
date of the Executive's termination of employment with the Company.
(c) For a period of two (2) years from the date of termination
of this Agreement, without the prior written consent of the Board or the
Committee, the Executive shall not participate, directly or indirectly
(whether as advisor, principal, agent, partner, officer, director,
employee, stockholder, associate or consultant of), in any Business Entity
(except for an interest of less than 5% in any entity whose securities are
traded in any exchange). For purposes of this paragraph 7(c), the term
"Business Entity" shall mean any person, partnership, corporation or other
business entity that at the time of the Executive's involvement with the
Company is involved in any competition with any business carried on by the
Company or its affiliates or subsidiaries prior to the date of this
Agreement or hereafter conducted by the Company or its affiliates or
subsidiaries during the term of this Agreement anywhere in the world.
5
(d) The parties hereto agree that the duration and area for
which the covenant not to compete set forth in paragraph 7(c) above is to
be effective and reasonable, in terms of their geographical and temporal
scope. In the event that any court determines that the time period and/or
area are unreasonable and that such covenant is to that extent
unenforceable, the parties hereto agree that such covenant shall remain in
full force and effect for the greatest period of time and in the greatest
geographical area that would not render it unenforceable. In addition, the
Executive acknowledges and agrees that a breach of paragraph 6 or sections
(a), (b) or (c) of this paragraph 7 shall cause irreparable harm to the
Company, its subsidiaries, and/or its affiliates and that the Company shall
be entitled to specific performance of this Agreement or an injunction
without proof of special damages, together with the costs and reasonable
attorney's fees and disbursements incurred by the Company in enforcing
their rights under paragraph 6 and this paragraph 7.
8. INTELLECTUAL PROPERTY ASSIGNMENT. Any invention or know-how
which shall be conceived, developed or reduced to practice by the Executive
during the period of his employment relating to the business of the Company
or the use of any of its technologies, notwithstanding that it is perfected
or reduced to specific form at any time thereafter provided that its
conception arose during such period, including all rights therein and in
any patent or other form of intellectual property or legal protection with
respect thereto, shall become the sole property of the Company, without
need for any specific action or notice or any consideration to the
Executive other than as provided for by this Agreement. The Executive shall
cooperate with the Company and assist it in obtaining any patent or other
form of legal protection for such inventions or know-how for no additional
compensation (other than the coverage of the Executive's reasonable out if
pocket expenses).
9. REIMBURSEMENT OF EXPENSES. (a) The Company shall reimburse the
Executive in the amount of US$1,500 per month for the cost of his apartment
located in New York City, which shall be used for the Company's business.
(b) The Company shall reimburse the Executive for all costs
relating to the maintenance and use of one telephone line at his home,
which shall be used for Company's matters only, and the maintenance and use
of a cellular phone.
10. DEDUCTIONS AND WITHHOLDINGS. The Company shall be entitled to
deduct and withhold from any amount payable to the Executive, whether
pursuant to this Agreement or otherwise, any and all taxes, withholdings or
other payments as required under any applicable law.
11. NO ASSIGNMENT BY EXECUTIVE. The Executive shall have no right
to assign any of the rights nor to delegate any of the duties created by
this Agreement and any assignment or attempted assignment of the
Executive's rights, and any delegation or attempted delegation of the
Executive's duties, shall be null and void (except for such delegations of
authority to other officers of the Company as necessary and customary for
the fulfillment of the Executive's duties). The Company retains the right
at any time to assign any of its rights or delegate any of its duties under
this Agreement.
6
12. CONDITIONS. The Executive represents that he has full authority
to enter into this Agreement and that the performance of his duties under
this Agreement will not interfere with or violate the terms of any other
agreement, arrangement or understanding.
13. BENEFIT. Except as otherwise expressly provided herein, this
Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective heirs, beneficiaries, personal representatives,
successors and assigns.
14. NOTICES. All notices hereunder shall be in writing and
delivered by hand or telefaxed or mailed to the address stated below of the
party to which such notice is given, or to such changed address as such
party shall have given to the other party by written notice provided,
however, that any notice of change of address shall be effective only upon
receipt by the other party.
To the Company: P.O. Box 240
Yokneam, Israel
Attention: Chairman of the Board of Directors
To Executive: __________
15. SEVERABILITY OF PROVISIONS. If any of the provisions of this
Agreement is held invalid, such provisions shall be severed and the
remainder of the Agreement shall remain in force and shall not be affected
thereby.
16. NO ORAL CHANGES. This instrument constitutes and contains the
entire Agreement between the parties except as otherwise expressly stated
herein. This Agreement may be changed only in writing, and must be signed
by the party against whom enforcement of any waiver, modification,
discharge or other change is sought.
17. WAIVER. Either party's failure to insist upon strict
compliance with any of the terms, covenants or conditions hereof shall not
be deemed a waiver of such term, covenant or condition, nor shall any
waiver or relinquishment of any right or power hereunder at any one or more
times be deemed a waiver or relinquishment of such right or power at any
other time or times.
18. ENTIRE AGREEMENT. The Agreement contained in this instrument
supersedes and cancels any and all prior agreements between the parties
hereto, express or implied, written or oral, relating to the subject matter
hereof, including the Original Agreement (but excluding, for the avoidance
of doubt, the Termination Agreement and the Non-Competition Agreement
mentioned in the preamble of this Agreement and the options referred to in
the last sentence of Section 5(b) above). This Agreement sets forth the
entire agreement between the parties hereto with respect to the subject
matter hereof.
19. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
shall be governed by and construed in accordance with the laws of the State
of Israel. Any litigation concerning any claims under or breach of this
Agreement shall be brought exclusively in the competent courts of the
Tel-Aviv-Jaffa District.
7
20. DESCRIPTIVE HEADINGS. The paragraph headings contained herein
are for reference purposes only and shall not in any way affect the meaning
or interpretation of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and all such counterparts shall
constitute one and the same instrument.
22. SURVIVAL. The provisions of paragraphs 6, 7 and 8 shall
survive any termination of this Agreement.
* * * *
8
IN WITNESS WHEREOF, the Company and the Executive have
executed this Employment Agreement, as of the day and year first above
written.
ESC MEDICAL SYSTEMS LTD.
By: _____________________
Jacob A. Frenkel
Chairman of the Board
YACHA SUTTON
_______________________
9
Exhibit 10.3
EMPLOYMENT AGREEMENT- PETER D'ERRICO
January 4, 2000
Peter D'Errico
4 Patriot Drive
South Walpole, MA 02071
Dear Peter,
It is my pleasure and honor to offer you on behalf of ESC Medical
Systems Inc. the position of Corporate Vice-President of Marketing. This
letter will serve as your memorandum of understanding between you and ESC
Medical Systems. The terms of this offer are covered below:
Title: Corporate Vice-President of Marketing
Report to: Lou Scafuri, CEO - North American Operations
Start Date: January 6, 2000
Base Salary: $155,000 annually, paid on a bi-weekly basis.
Bonus: Targeted at 50% of base salary at 100% of
goals attained; With goals detailed as
follows:
40% global financial objectives (20% top line
/20% bottom line)
40% Americas financial objectives(20% top
line/20% bottom line)
20% MBOs, as follows:
1. Develop marketing plan, coordinating it
with the R&D Process
2. Develop recurring revenue business
3. Develop and begin to implement value-added
services
Car Allowance: $7,200 annualized ($600.00 per month)
Stock Options: It will be recommended to the Board
of Directors that you be granted 100,000
options of stock in ESC, vesting at the rate
of 20,000 shares per year at a share price of
$8.00 per share, or, the price of the stock at
close of market on the day before you begin
your employment with ESC - - - whichever is
lower; The authority to grant stock rests
solely with the Board of Directors.
1
Benefits: According to standard benefits of the Company
including Health, Dental, Life Insurance and
Long Term Disability benefits. You will be
eligible to participate in the Company's
401(k) plan for which there will be no waiting
period.
Vacation: Four (4) weeks
Severance In the event it becomes necessary for ESC to
Agreement: terminate your employment for reasons other
than cause, you will be entitled to six (6)
months severance compensation.
Confidentiality Attached is a Confidentiality Agreement that
Agreement: is an integral part of the employment agreement.
This position at ESC provides a very exciting opportunity to you
and to the company. I have no doubt that you will prove to be
successful in the new endeavor and further on in new opportunities
to come. Through your acceptance of this offer, you confirm you
understand that your compensation, benefits, as well as other
Company policies, rules, regulations and procedures, - except for
the at will term - of your employment, may be altered, amended or
discontinued from time to time at the sole discretion of ESC
Medical Systems. Not withstanding any prior representation, express
or implied, you acknowledge that your continued employment is
terminable at the will of either party at any time with or without
cause. This at-will relationship may only be altered by written
agreement signed by you and the CEO of ESC Medical Systems - North
America.
Congratulations and Welcome
Sincerely Yours,
ESC Medical Systems, Inc.
Carole F. Longe
Director of Human Resources
North America Operations
I willingly accept the terms of this offer
__________________________________________
Peter D'Errico Date:
2
CONFIDENTIALITY and NON-COMPETE AGREEMENT
January 4, 2000
Dear Peter,
ESC Medical Systems, Inc. ("ESC") desires to engage you as
an employee. The business of ESC is highly competitive and, in connection
with your employment, you will have access to confidential information
which may include developments, inventions, technical and engineering data,
drawings, specifications, processes, methods, financial information and
other information and data of competitive value concerning ESC
(collectively, referred to in this Agreement as "Confidential, Sales,
Marketing and Customer Information, Customer Goodwill"). As a condition to
your employment by ESC, regardless of whether you have and/or entities with
which ESC conducts business received remuneration prior to receipt of
Confidential Information, you agree as follows:
1. You recognize and acknowledge the competitive value and
confidential nature of all Confidential Information now or hereafter
furnished to you or obtained by you from ESC or its representatives and
acknowledge that to ESC could suffer substantial, irreparable harm if any
of this Confidential Information is disclosed to any third party.
2. You hereby agree that you will not disclose any of the
Confidential Information now or hereafter received or obtained by you
(other than information already known to you and which was not obtained
through a source under an obligation of confidence to ESC) to any person or
entity, other than to an officer of ESC in connection with your work for
ESC, unless you have received the prior written consent of ESC. Without
limiting the generality of the foregoing, you shall not disclose
Confidential Information in any academic writings, speeches, classroom
teachings or discussions with colleagues.
3. All records and other documents, and all copies thereof,
relating to Confidential Information (including summaries, analyses and
notes of the contents or parts thereof), whether delivered by ESC or
prepared by you shall be given to ESC upon ESC's request and no copies
shall be retained by you. All such records, documents and copies are the
sole property of ESC. Return of such documents shall in no event relieve
you of any obligation of confidentiality contained herein respecting such
information.
4. You shall not use any of the Confidential Information now
or hereafter received or obtained by you in furtherance of your personal
research, career or business, or the business of your employer or any other
organization, excepting only ESC, unless such information has become public
other than as a result of acts by you.
5. You agree to and hereby do, assign and transfer to ESC
(without any separate remuneration or compensation), all right, title and
interest in and to any research and other information, inventions,
discoveries and improvements incorporating any Confidential Information,
together with the right to file for United States and foreign patents and
trademarks thereon. You shall promptly disclose to ESC such research and
other information, inventions, discoveries and improvements incorporating
any Confidential Information and you agree to assist in the filing of any
such patent or trademark applications.
1
6. For so long as you are engaged as a employee of ESC or
are otherwise performing any services for ESC, and for a period of one year
thereafter, you will not act as an employee, owner or a consultant or
otherwise participate in or assist any business engaged in the development,
manufacture or sale of medical devices used primarily for the treatment of
varicose veins, port wine stains, hair removal, skin resurfacing, or the
removal of other skin markings using flash lamp or laser technology, in any
state of the United States in which ESC did business or planned to do
business at any time within two (2) years prior to the last date that you
were employed by or provided services to ESC.
7. You represent and warrant that your employment by ESC
will not violate any other agreement to which you are a party. This
Confidentiality Agreement is entered into for the benefit of ESC and each
of its subsidiaries and affiliates. This Agreement may only be modified in
writing signed by you and ESC. This Agreement is governed by the laws of
the State of Massachusetts, including Massachusetts' choice of law rules.
Please acknowledge and confirm your agreement as to the
matters set forth above by countersigning and returning this letter.
Agreed as of the date hereof:
______________________________________
Peter D'Errico
______________________________________
Date
2
Exhibit 10.4
EMPLOYMENT AGREEMENT- ISRAEL OHANA
February 9, 2000
To: Israel Ohana
Employment Offer
----------------
We are pleased to offer you a full time position with E.S.C. Medical
Systems Ltd. as a Vice President R&D. In this position you will report to
the CEO.
Your monthly salary and additional employment conditions are detailed
herewith:
1. Your starting working date with ESC/Sharplan will be 1 March, 2000.
Notification of termination of contract (either by you or by the
Company) will be given, in writing, 3 months in advance.
2. Your global salary will be $10,000 per month.
3. A bonus of one monthly salary (Gross) will be paid to you on 1
March, 2000.
4. You are entitled to the following social benefits:
1. You will be entitled to 22 days of paid annual vacation. (Based on
a five working days per week);
2. Sick leave - according to the Company Sick Leave Policy;
3. You will be entitled to join the Managers' Insurance Policy
(Bituach Minahalim) according to the terms offered by the Company
to its employees. This includes deductions by both Employer and
Employee as follows:
8.33% - To be paid by Employer as Severance Pay.
Employer will pay for loss of working ability, according to Company
Policy;
5.0% - To be paid by Employer as Compensatory payment.
5.0% - To be paid by Employee as Compensatory payment;
4. You will be entitled to join the Education Fund (Keren Hishtalmut)
according to the terms offered by the Company to its employees:
1
2.5% - employee's payment;
7.5% - employer's participation;
The amounts paid by both Employer and Employee that will surpass
the maximal amount decided upon, from time to time, by the Income
Tax Authorities will be considered as an additional Income.
5. You will be entitled to a Company car, as customary for all
Company's V.P.'s you will pay, from your gross salary, the amount
dictated by the Tax authorities.
5. You will be entitled to join the stock Options plan for senior
employees. You will get 30,000 options for the year 2000 at an
exercise price of $5.0625 per unit. Date of exercise will be
1.2.2001. In addition, you will be entitled to 80,000 additional
options for the years 2001-2004. (25% each year) at the price of $
9.75 per unit. Date of exercise: 1.2.01, 1.2.02, 1.2.03, 1.2.04,
1.2.05 accordingly. Your stock options' plan requires the approval
of the Board of Directors of the company.
6. You will be entitled to a yearly bonus of up to 5 monthly salaries
(Gross), following your personal performance, completion of
milestones and the Company's performance.
7. In case Employer - Employee relations are terminated by the
employer before one of the periods mentioned above, you will be
able to exercise your options correspondingly to the proportionate
period of your work with the company during this year.
8. Any new invention, product, component, procedure, technology, etc.,
whether they may be registered or not, which are the outcome of
your work or the work of others in the company are the sole
property of the company.
9. You must sign a confidentiality and prevention of competition
agreement, according to company policy.
10. The company's policies and procedures as they will be published
from time to time will be an inseparable part of this employment
agreement. In the event that a contradiction arises between the new
procedures and the terms of this offer, the new procedures will be
the binding version from their date of publication.
2
11. This offer will be considered a personal and confidential
employment agreement between yourself and the company. Detailed
explanations regarding your employment will be given to you by our
Human Resources Department. We believe that our success depends on
the valuable human resources at ESC Medical Systems Ltd., and that
using your talents and efforts to participate in the general effort
is the key to our success.
We are looking forward to having you join ESC Medical Systems Ltd.
Sincerely yours,
Yacha Sutton
CEO
______________________________________________________________________________
I have read this offer carefully. I agree to all the terms and conditions
herein, and to fulfil them as specified.
I am aware that the salary conditions offered herein and in the future as
long as I am employed by the Company, are confidential and I am bound to
keep them so.
March 1, 2000
- -------------- ---------------------------------
Date Employee's Signature
3
ESC Medical Systems Ltd
Yokneam
-------
Subject: Non Disclosure Agreement
------------------------
I, the undersigned, hereby declare, confirm and undertake the following:
1. To guard total and absolute professional secrecy with regard to all
Company's activities, including and without limitation all
commercial and technical secrets, existing products and products in
development, ideas, technologies, production processes including
customers, suppliers, marketing methods and plans, extent of
activities, orders' receipt, maintenance, inventions, product
plans, Company's working procedures and any other information
related and/or derived directly and/or indirectly from the
Company's activity, all the above mentioned shall be kept during my
employment by you and at all times.
2. I shall not disclose, reveal nor publish, myself and/or through
other means and parties and/or anonymously the contents of
documents, reports or information of any kind that shall be known
to me, directly and/or indirectly, following my employment with
your Company.
3. I acknowledge and agree that all commercial and/or professional
and/or technical information, and any invention, formulas,
discovery, development or experimental work including working
methods, the origin of all the above mentioned is the Company,
derived from my employment with you and/or from other employees'
work in the Company are the sole and exclusive property of the
Company.
4. I agree to keep in complete secrecy the commercial relations of the
Company and all other issues and activities of the Company
including Corporations, private people and other companies with
whom the Company has professional and/or commercial relations.
5. I agree to abstain from all activities that can damage the
interests of the Company during my period of employment with the
Company and at all times after this period is terminated, all this
in addition and not conflicting with all other directive mentioned
in this Non Disclosure Agreement.
6. My above mentioned commitment refers both to my period of
employment by the Company and at all times after this period is
terminated.
7. I hereby agree not to compete with the Company and not to act in
any manner and/or method that can compete and/or might compete with
the Company's activities, and for this purpose I commit myself not
to engage in any of the Company's activity areas, all of them
and/or part of them for the period of at least 24 months from the
date of the termination of my employment with the Company.
I am aware, and I agree that the Company has the total right to claim from
me any damages monies following my breech of commitment to you, all of them
or part of them as mentioned above, in addition and without damaging any
other right the Company has, including the right to terminate my employment
with you at any time with no right to severance pay and I agree in advance
and waive any claim against termination of employment without Severance Pay
in the circumstances described above, as my breech of commitment, all
and/or part of them, towards the Company following this Non Disclosure
Agreement is a fundamental breech of my employment contract with the
Company.
1
Name of Employee:_______________ Name of witness_____________
Employee's Signature:___________ Witness' Signature:_________
Date: March 1, 2000 Date:_______________________
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the Company's Report on Form 10-Q for the
quarter ended March 31, 2000 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,315
<SECURITIES> 38,936
<RECEIVABLES> 72,563
<ALLOWANCES> (24,242)
<INVENTORY> 36,648
<CURRENT-ASSETS> 139,507
<PP&E> 12,883
<DEPRECIATION> (6,386)
<TOTAL-ASSETS> 157,329
<CURRENT-LIABILITIES> 54,156
<BONDS> 94,387
0
0
<COMMON> 578
<OTHER-SE> 8,208
<TOTAL-LIABILITY-AND-EQUITY> 157,329
<SALES> 36,028
<TOTAL-REVENUES> 36,028
<CGS> 16,481
<TOTAL-COSTS> 16,481
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,600
<INCOME-PRETAX> 1,050
<INCOME-TAX> 98
<INCOME-CONTINUING> 952
<DISCONTINUED> 0
<EXTRAORDINARY> 292
<CHANGES> 0
<NET-INCOME> 1,244
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.04
</TABLE>
