SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D/A
Under the Securities Exchange Act of 1934
(Amendment No. 7)*
ESC Medical Systems Ltd.
(Name of Issuer)
Ordinary Shares, NIS 0.10 par value per Share
(Title of Class of Securities)
M40868107
(CUSIP Number)
Edward Klimerman, Esq.
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza, 29th Floor
New York, New York 10112
(212) 698-7700
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
May 11, 1999
(Date of Event which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of ss.ss.240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box. |_|
Page 1 of 35 Pages
<PAGE>
This Amendment No. 7 (the "Amendment") amends and supplements the Schedule
13D filed on October 9, 1998, as previously amended and restated by Amendment
No. 1, filed on March 12, 1999 and further amended by Amendment No. 2 filed on
March 23, 1999, Amendment No. 3 filed on March 26, 1999, Amendment No. 4 filed
on April 15, 1999, Amendment No. 5 filed on April 20, 1999 and Amendment No. 6
filed on May 11, 1999 (the "Schedule 13D"), on behalf of Mr. Arie Genger
("Genger"), TPR Investment Associates, Inc., a Delaware corporation ("TPR"),
TPR's subsidiary, Trans-Resources, Inc., a Delaware corporation ("TRI"), TRI's
indirect subsidiary, Haifa Chemicals Holdings Ltd., a company incorporated in
the State of Israel ("HCH"; Genger and said corporations, all of which are
directly or indirectly controlled by Genger, being collectively called the "TRI
Entities"), and Mr. Thomas G. Hardy ("Hardy"; Hardy and the TRI Entities being
collectively called the "Reporting Persons") with respect to the Ordinary
Shares, par value NIS 0.10 per share (the "Shares"), of ESC Medical Systems
Ltd., a company incorporated in the State of Israel (the "Company"). The
Reporting Persons are filing this Amendment to update the information with
respect to the Reporting Persons' purposes and intentions with respect to the
Shares.
Item 4. Purpose of Transaction.
Item 4 of the Schedule 13D is hereby amended and supplemented as follows:
On May 10, 1999, the legal representative of Messrs. Genger and Barnard J.
Gottstein ("Gottstein") sent a letter addressed to the legal representative of
the Company, notifying the Company that Messrs. Genger and Gottstein were
exercising their right under Section 66 of the Israel Companies Ordinance to
request a copy of the Register of Members of the Company, as of May 10, 1999. A
copy of such letter is attached hereto as Exhibit 20.
In response to the complaint filed by the Company on April 23, 1999 (a copy
of which was filed as Exhibit 15 to the Schedule 13D), on May 11, 1999, the
legal representative of Messrs. Genger and Gottstein served the legal
representative of the Company with a motion to dismiss the complaint. A copy of
the motion to dismiss is attached hereto as Exhibit 21.
On May 11, 1999, Messrs. Genger and Gottstein issued a press release,
commenting on the Company's legal action filed in an Israeli court seeking to
prevent the Company's shareholders meeting called by Messrs. Genger and
Gottstein from occurring as scheduled on June 2, 1999. A copy of the press
release is attached hereto as Exhibit 22. The Israeli court denied the Company's
attempt to prevent the solicitation through an ex parte motion and set May 26,
1999 as the date for a full hearing. On May 12, 1999, the Israeli court reset
the hearing date from May 26 to May 25, 1999.
Other than as described above and as previously described in the Schedule
13D, the Reporting Persons do not have any present plans or proposals which
relate to or would result in (although they reserve the right to develop such
plans or proposals) any transaction, change or event specified in clauses (a)
through (j) of Item 4 of the form of Schedule 13D.
Page 2 of 35 Pages
<PAGE>
Item 7. Material to be Filed as Exhibits.
Item 7 of the Schedule 13D is hereby amended to add the following exhibits:
Exhibit 20: Letter, dated May 10, 1999, from the legal representative of
Messrs. Genger and Gottstein to the legal representative of the Company
Exhibit 21: Motion to Dismiss
Exhibit 22: Press Release, dated May 11, 1999
Page 3 of 35 Pages
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: May 12, 1999
/s/ Arie Genger
----------------------------------------
Arie Genger
TPR INVESTMENT ASSOCIATES, INC.
By: /s/ Arie Genger
------------------------------------
Arie Genger, President
TRANS-RESOURCES, INC.
By: /s/ Arie Genger
------------------------------------
Arie Genger, Chairman of the Board
HAIFA CHEMICALS HOLDINGS LTD.(1)
By: /s/ Arie Genger
------------------------------------
Arie Genger
/s/ Thomas G. Hardy
----------------------------------------
Thomas G. Hardy
- ----------
(1) pursuant to power of attorney
Page 4 of 35 Pages
<PAGE>
EXHIBIT INDEX
Exhibit
Number Title Page
- ------ ----- ----
20 Letter, dated May 10, 1999, from the legal 6
representative of Messrs. Genger and Gottstein to
the legal representative of the Company
21 Motion to Dismiss 7
22 Press Release, dated May 11, 1999 35
Page 5 of 35 Pages
Exhibit 20
----------
May 10, 1999
Hand Delivery
Gene Kleinhendler, Adv.
Kleinhendler & Halevy
30 Kalisher St.
Tel Aviv
Re: ESC Medical Systems Ltd.
Dear Mr. Kleinhendler,
Further to our letter of May 9, 1999, advising you that our clients, TPR
Investments Associates, Inc., Trans-Resources, Inc., Haifa Chemicals Holdings
Ltd. and Barnard Jacob Gottstein TTEE, are convening an extraordinary general
meeting pursuant to Section 110 of the Companies Ordinance, on behalf of our
said clients we hereby request under Section 66 of the Ordinance a copy of the
Register of Members of the Company, as of May 10, 1999.
Sincerely yours,
/s/ Yoram Ashery, Adv.
cc: Arie Genger
Barnard J. Gottstein
Page 6 of 35 Pages
Exhibit 21
----------
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ESC MEDICAL SYSTEMS, LTD.,
- ----------------------------------------
Plaintiff,
-against-
ARIE GENGER, BARNARD J. GOTTSTEIN, No. 99 CV 2984 (KMW)
THOMAS G. HARDY, TPR INVESTMENTS
ASSOCIATES, INC., TRANS-RESOURCES,
INC., HAIFA CHEMICALS LTD., HAIFA
CHEMICALS HOLDINGS, INC., and
BARNARD J. GOTTSTEIN REVOCABLE TRUST,
Defendants.
- ----------------------------------------
MEMORANDUM OF LAW IN SUPPORT OF
DEFENDANTS' MOTION TO DISMISS THE COMPLAINT
Page 7 of 35 Pages
<PAGE>
TABLE OF CONTENTS
TABLE OF AUTHORITIES..........................................................i
PRELIMINARY STATEMENT.........................................................1
STATEMENT OF FACTS............................................................5
ARGUMENT.....................................................................11
I. SECTION 13(d) WAS NEVER INTENDED TO BE USED AS ARMAMENT
FOR ENTRENCHED MANAGEMENT TO DEPRIVE SHAREHOLDERS OF
THEIR RIGHT TO EFFECT CHANGES IN CORPORATE
MANAGEMENT.........................................................11
II. DEFENDANTS FULLY COMPLIED WITH SECTION 13(d) AS A
MATTER OF LAW, BY DISCLOSING ALL REQUIRED
FACTS..............................................................13
A. Defendants have Disclosed All Required Facts
Concerning Their Alleged "Group"
Status........................................................14
B. Defendants Have Disclosed All Required Facts
Concerning Their "Intent to Control" ESC......................16
1. Plaintiff Does Not And Cannot Allege that the
Defendants Will Control A Majority Of The
Board Of Directors Even If Successful In The
Proxy Contest............................................16
2. Defendants' Disclosures, Including Attaching
A Copy Of The Complaint To Their Schedules
13D, Adequately Disclose All Pertinent
Information Required By Law..............................17
III. PLAINTIFF'S COMPLAINT FAILS TO COMPLY WITH THE PLEADING
REQUIREMENTS OF PSLRA SECTION 21D..................................20
IV. PLAINTIFF'S BREACH OF FIDUCIARY DUTY CLAIM SHOULD BE
DISMISSED..........................................................22
CONCLUSION...................................................................24
Page 8 of 35 Pages
<PAGE>
TABLE OF AUTHORITIES
CASES PAGE(S)
- ----- -------
Amalgamated Clothing & Textile Workers Union, v. Fieldcrest Cannon,
Inc., No. 93 Civ. 3580 (RO), 1993 WL 300011 (S.D.N.Y. Aug. 4,
1993)...................................................................18
Avnet Inc. v. Scope Industries, 499 F. Supp. 1121 (S.D.N.Y.
1980).......................................................14, 15, 17, 20
Ballan v. Wilfred American Education Corp., 720 F. Supp. 241
(E.D.N.Y. 1989), citing, Field v. Trump, 850 F.2d 938, 949
(2d Cir. 1988), cert. denied, 489 U.S. 1012
(1989)...................................................................5
Citizens First Bancorp, Inc. v. Harreld, 559 F. Supp. 867 (W.D. Ky.
1982)...................................................................17
Condec Corp. v. Farley, 573 F. Supp. 1382 (S.D.N.Y.
1983)...........................................................14, 15, 20
Corenco Corp. v. Schiavone & Sons, Inc., 488 F.2d 207 (2d Cir.
1973)...................................................................13
Dan River, Inc. v. Unitex Ltd., 624 F.2d 1216 (4th Cir. 1980)................13
Horsehead Resource Dev. Co. v. B.U.S. Envtl. Services, Inc., 916 F.
Supp. 305 (S.D.N.Y.), opinion vacated in part on other grounds,
928 F. Supp. 287 (S.D.N.Y.
1996)...................................................................13
ICN Pharm., Inc. v. Khan, 2 F.3d 484 (2d Cir. 1993)..........................13
Piper v. Chris-Craft Industrial, Inc., 430 U.S. 1 (1977).....................12
Pitchell v. Callan, 13 F.3d 545 (2nd Cir. 1994)..............................23
Rondeau v. Mosinee Paper Corp., 422 U.S. 49 (1975)........................5, 12
Schnell v. Conseco, Inc., No. 98 Civ. 2527, 1999 WL 182327 (S.D.N.Y.
Mar. 31, 1999)..................................................21, 22
Sea Containers Ltd. v. Stena AB, 741 F. Supp. 231 (D. D.C.),
aff'd in pertinent part, rev'd in part, 890 F.2d 1205 (D.C.
Cir.
1989)...................................................................18
Todd Shipyards Corp. v. Madison Fund, Inc., 547 F. Supp. 1383
(S.D.N.Y. 1982).........................................................17
Treadway Companies, Inc. v. Care Corp, 638 F.2d 357 (2d Cir.
1980)...............................................................12, 13
United Mine Workers v. Gibbs, 383 U.S. 715, 86 S. Ct. 1130
(1996)..................................................................23
Page 9 of 35 Pages
<PAGE>
Weeden v. Continental Health Affiliates, Inc., 713 F. Supp. 396 (N.D.
Ga. 1989)...........................................................14, 15
Wellman v. Dickinson, 682 F.2d 355 (2d Cir. 1982), cert. denied, 460
U.S. 1069 (1983)........................................................14
STATUTES PAGE(S)
- -------- -------
The Private Securities Litigation Reform Act of 1995, Pub. L. No.
104-67, 109 Stat. 737 (1995), 15 U.S.C. ss. 78u-4(b).................1, 21
Securities Exchange Act of 1934, 15 U.S.C.ss. 78m(d)......................1, 12
Page 10 of 35 Pages
<PAGE>
Defendants Arie Genger ("Genger"), Barnard J. Gottstein ("Gottstein"),
Thomas G. Hardy ("Hardy"), TPR Investments Associates, Inc. ("TPR"),
Trans-Resources, Inc. ("TRI"), Haifa Chemicals Ltd. ("HCL"), Haifa Chemicals
Holdings, Inc. ("HCH"), and Barnard J. Gottstein Revocable Trust ("Gottstein
Trust"), respectfully submit this Memorandum of Law in support of their motion,
pursuant to Rules 12(b)(6) and 12(b)(1) of the Federal Rules of Civil Procedure
and Section 21D of the Private Securities Litigation Reform Act of 1995
("PSLRA"), for an Order dismissing the complaint (the "Complaint") of plaintiff
ESC Medical Systems, Ltd. ("ESC" or "Plaintiff"), a corporation organized under
the laws of Israel and headquartered in Israel.(2)
Preliminary Statement
From a cursory review of the Complaint, one might believe that this is a
case about a successful corporation being raided and exploited by outsiders bent
on seizing control from competent leadership. But, in truth, this is a case
about entrenched management, with the rubber-stamp consent of an entrenched
Board, using Section 13(d) of the Securities Exchange Act of 1934 ("1934 Act"),
15 U.S.C. ss. 78m(d), to try to stifle the shareholders' franchise until the
insiders have wrung every bit of shareholder value from the company.
Given incumbent management's dismal performance, it is no wonder that they
would seek to chill shareholder democracy in this manner. After all, ESC stock
traded on the NASDAQ system at $46.50 per share on June 14, 1996, yet closed at
only $4.75 on February 24, 1999. (Compl. Exh. E at 6, Exh. K at 4) The market
value of the company fell from almost $1 billion in mid-1998 to less than $200
million in March 1999. (Compl. Exh. K at 4) And
- ----------
(2) A copy of the Complaint (cited herein as "Compl.") is attached as
Exhibit 1 to the accompanying Declaration of Anthony Ragozino ("Ragozino Dec.").
Page 11 of 35 Pages
<PAGE>
earnings per share have fallen from $.48, in 1998's second quarter, to only $.05
in 1998's fourth quarter. (Compl. Exh. K at 4) These disappointing results were
accompanied by an independent research report prepared by Donaldson, Lufkin &
Jenrette ("DLJ"), dated October 21, 1998, which noted that "institutional
sponsorship [of ESC] appears to be almost non-existent at this juncture given
management's lack of credibility...." (Id. (emphasis added))
Defendants Genger and Gottstein each control significant blocks of the
common stock of ESC. Like every other ESC shareholder, they have watched the
value of their shares plummet with ever-increasing disappointment. And, like
independent analyst DLJ and other institutional investors, they naturally have
grown uncomfortable with incumbent management's unwillingness or inability to
arrest ESC's downward spiral. Genger and Gottstein, at first individually and
later as allies, therefore have proposed to alter the present composition of
ESC's Board of Directors in an effort to resurrect shareholder value. They wrote
letters to the company, seeking to achieve such a restructured Board
consensually. Each also filed Schedules 13D, disclosing their ownership of ESC
stock and (i)their desires to replace several members of the ESC Board of
Directors with independent persons; and (ii)their hopes that a restructured,
truly independent Board would then exercise tighter control over - perhaps even
consider replacing present management, including ESC's CEO.
But, importantly, although Genger and Gottstein have proposed to replace a
majority of the incumbent Board, they do not seek to take or exercise control
themselves. Genger and Gottstein have not sought to have themselves named
Directors of ESC. Indeed, they have not proposed a majority of candidates for
election to ESC's Board over whom they even
Page 12 of 35 Pages
<PAGE>
arguably could exercise any "control." As Genger and Gottstein stated in a
letter to the company, which was publicly disclosed in their Schedules 13D:
we believe that the composition of the Board of Directors needs to be
restructured to include capable individuals who have established themselves
in the business and/or scientific community. We are convinced that such
action would instill a new sense of direction into the Company and give
much needed credibility to the Company's plans and prospects. The newly
restructured Board will provide a valuable resource to management to help
rebuild the profitability of the Company and restore shareholder value
which has been significantly eroded over the past several months.
It is our intent that after such restructuring a majority of the Board
would be unaffiliated with either management or ourselves.
(Compl. Exh. D at 24-25 (emphasis added))
After ESC refused to alter materially the composition of the Board in
response to Genger's and Gottstein's proposals, defendants called upon ESC to
convene an extraordinary meeting of ESC shareholders to vote on the issue. In
violation of governing Israeli law - and further confirming their resolve to
entrench themselves - management simply refused to convene that required meeting
in the statutory time period for doing so.(3) The second branch of management's
response to Genger's and Gottstein's efforts to return control of the company to
the shareholders at large was to cause ESC to institute this lawsuit. ESC
interposed claims under Section 13(d), the rules and regulations of the
Securities and Exchange Commission ("SEC") promulgated thereunder, as well as a
claim of breach of fiduciary duty.(4)
- ----------
(3) Under Israeli law, shareholders with an interest in excess of 10% of
the Company's ordinary shares currently outstanding have the right to require an
extraordinary general meeting of shareholders, which must then be convened
between 7 and 21 days after the shareholders' formal request. See Section 109 of
the Israel Companies Ordinance.
(4) Plaintiffs have asserted the Section 13(d) claims against all
defendants, and the breach of fiduciary duty claim solely against Hardy.
Page 13 of 35 Pages
<PAGE>
ESC's first claim is that defendants are acting as a "group," within the
meaning of the 1934 Act, and have failed to disclose that fact. But defendants'
Schedules 13D specifically disclose that they may be deemed to be a "group" by
virtue of their alliance. Although defendants dispute that they are such a
"group," this disclosure renders this claim defective as a matter of law.
ESC's second claim is that defendants are actually seeking to gain control
of ESC, and have failed to disclose, or affirmatively misstated, that intention.
But ESC's conclusory allegation in this respect, which is premised entirely on
"information and belief," is not supported by a single fact, or group of facts,
that would support any reasonable inference that defendants intend to take
control of ESC. Specifically, while ESC alleges that defendants seek to replace
six of the eight directors of ESC, even the most charitable view of the
allegations contained in the Complaint demonstrate that defendants would
"control" at most three directors. As a result, defendants would not have
"control" over a majority of the board, and ESC's unsupported conclusion to the
contrary is without merit. Moreover, ESC's conclusory, "information and belief"
allegations that defendants have misstated their intentions concerning ESC is
not plead with the requisite degree of specificity required by Section 21D of
the PSLRA and thus must be dismissed.
ESC's third claim is that Hardy, a non-management Director of ESC who is
allied with Genger and Gottstein, has breached a fiduciary duty to ESC by
participating in Defendants' alleged wrongdoing. But because ESC's claims that
Defendants filed misleading Schedules 13D
Page 14 of 35 Pages
<PAGE>
are without merit, its pendent claim that Hardy breached a fiduciary duty to ESC
by participating in the filing of those documents should be dismissed as well.
* * *
In sum, rather than containing any detailed, factual allegations of
wrongdoing, the Complaint demonstrates nothing more than an improper effort by
an entrenched management to chill the fundamental corporate right of
shareholders to hold a democratic election of directors. In this respect,
Plaintiff has failed to heed the caution of the Supreme Court:
[In enacting Section 13(d),] Congress intended to do no more than give
incumbent management an opportunity to express and explain its position.
The Congress expressly disclaimed an intention to provide a weapon for
management ... [or to discourage checks on entrenched but inefficient
management].
Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58 & n. 8 (1975) (citation
omitted).
Statement of Facts
The following statement of facts is taken from the Complaint (and the
exhibits attached thereto), the allegations of which are assumed to be true
solely for purposes of this motion, and Exhibits 2 and 3 to the Ragozino
Declaration.(5)
A. The Plaintiff
ESC is an Israeli corporation engaged in the development, manufacture and
marketing of high-technology medical devices. Its stock is publicly listed and
traded on the NASDAQ system. (Compl. P. 2)
- ----------
(5) Exhibits 2 and 3 to the Ragozino Dec. are amendments to Gottstein's and
Genger's Schedules 13D, respectively, dated and filed with the SEC on May 10,
and May 11, 1999, respectively. On a motion to dismiss, the Court may consider
documents filed with the SEC that are available to the public. Ballan v. Wilfred
American Educ. Corp., 720 F. Supp. 241, 247 (E.D.N.Y. 1989) (citing Field v.
Trump, 850 F.2d 938, 949 (2d Cir. 1988), cert. denied, 489 U.S. 1012 (1989)).
Page 15 of 35 Pages
<PAGE>
B. The Defendants
Genger is the Chairman of the Board of Directors and Chief Executive
Officer of defendant TRI, a global developer, producer and marketer of specialty
plant nutrients and specialty industrial and agricultural chemicals. (Compl.
Exh. A at 7) Genger founded TRI in 1985 and the company now has thirteen
manufacturing plants around the world. (Compl. Exh. K at 13) Genger is also a
director and/or officer of defendants TPR, HCL, and HCH. Genger and his family
own all of the common stock of TPR, which is the parent corporation of TRI. TRI
is the parent corporation of HCL, which owns HCH. (Compl. Exh. A at 7)
Gottstein is a founding investor of ESC and a partner of Carr-Gottstein
Properties, a real estate partnership based in Anchorage, Alaska. (Compl. Exh.
B, at 5) He is also the sole trustee of defendant Gottstein Trust. (Compl. P.
11) Gottstein started his career in business in 1949 at his father's grocery
company which he, along with a partner, expanded and eventually sold in 1990 for
$300 million. (Compl. Exh. K, at 14)
Hardy is President and Chief Operating Officer of TRI, a director and/or
officer of HCL and HCH, and a non-management director of ESC. (Compl. P. 12)
C. The Original 13D Filings
On October 9, 1998, Genger filed a Schedule 13D on behalf of himself, as
well as TPR, TRI, HCL and HCH (the "TRI Entities"), disclosing that those
parties had acquired 7.4% of ESC's outstanding common stock for investment
purposes. (Compl. P. 19) The filing disclosed that the reporting parties had no
arrangements or understandings with any other party involving the voting of ESC
stock. (Id.)
Page 16 of 35 Pages
<PAGE>
Also on October 9, 1998, Gottstein filed a Schedule 13D on behalf of
himself as an individual and as trustee of the Gottstein Trust, disclosing that
those parties had acquired 5.23% of ESC's outstanding common stock for
investment purposes. (Id. P. 20) The filing disclosed that none of the reporting
parties had any contract, arrangement, understanding, or relationship with any
other persons. (Id.)
D. Amendments to the 13D Filings
On or around January 19, 1999, Gottstein filed an amendment to the original
13D filing ("Gottstein Amendment No. 1") to reflect that the filing parties had
acquired additional shares of ESC common stock. (Id. P. 21) On or around March
12, 1999, Genger, filed an amendment to his original 13D filing ("Genger
Amendment No. 1"), this time on behalf of himself, certain of the entities in
the original filing, and Hardy. (Id. P. 22) This amendment also disclosed that:
(1) on March 9, 1999, Genger and Gottstein reached an agreement to work
together; (2) they agreed that "the composition of [ESC's] Board of directors
needed to be restructured" to give ESC, among other things, "a new sense of
direction"; and (3) in pursuit of their common objectives, Genger and Gottstein
agreed to share expenses. (Id.) The amendment also disclosed that Hardy would
generally be cooperating with Genger, Gottstein and the other filing parties.
(Id. P. 23)
Genger Amendment No. 1 also disclosed that Genger and Gottstein had sent a
joint letter to ESC's directors proposing: (a) the removal of two management
directors other than ESC Chairman and CEO Dr. Shimon Eckhouse ("Eckhouse"); (b)
the removal of one
Page 17 of 35 Pages
<PAGE>
non-management director other than Hardy; and (c) the addition of four new
directors to be selected by Genger and Gottstein. (Id. P. 24)(6)
On March 12, 1999, Gottstein filed another amendment to his Schedule 13D
("Gottstein Amendment No. 2"), disclosing that he had reached an understanding
to cooperate with Genger in attempting to achieve a change in the composition of
ESC's Board of Directors. (Id. P. 27) In this amendment, as the Complaint notes,
Gottstein expressly states that he and Genger are not working as a group and
that they have no intention to take control of ESC. (Id.)
On or around March 23, 1999, Genger and Hardy filed a second amendment to
the original 13D filing ("Genger Amendment No. 2"), which discloses that on
March 22, 1999, legal representatives of Genger and Gottstein sent a letter to
ESC's counsel listing the names of Genger's and Gottstein's four nominees for
ESC's Board of Directors. (Id. P. 28) The amendment denies that Genger and Hardy
are acting as a group and includes a copy of a letter to ESC, which repeats that
with the proposed change to the Board of Directors, neither Genger nor Gottstein
will control a majority of the Board. (Id.)
Also on or around March 23, 1999, Gottstein filed a third amendment to his
Schedule 13D ("Gottstein Amendment No. 3"), in which he disclosed information
consistent with his and Genger's prior 13D filings and, in addition, disclosed
the March 22, 1999 letter sent to ESC listing the proposed nominees. (Id.)
- ----------
(6) In characteristically conclusory fashion, Plaintiff alleges that these
changes would "yield a new nine member Board, with five members - defendants'
four nominees and Hardy controlled by defendants." (Id.) Notably absent from the
Complaint, however, are any factual allegations supporting the conclusion that
these four nominees would be controlled by Genger and Gottstein. To the
contrary, Genger Amendment No. 1 discloses that the result of the restructuring
would be that "a majority of [ESC's] Board would be unaffiliated with either
management or Genger and [Gottstein]." (Id. P. 25)
Page 18 of 35 Pages
<PAGE>
On March 26, 1999, Genger and Hardy filed a third amendment to Genger's
Schedule 13D ("Genger Amendment No. 3") disclosing that on March 24, 1999,
Genger and Gottstein received notice that ESC was prepared to consider
nominating two of the four candidates proposed by Genger and Gottstein, along
with two candidates selected by the Board, but Genger and Gottstein rejected
that offer and renewed their original proposal. (Id. P. 30) Significantly,
Genger and Gottstein noted that, even though two of their nominees were paid
directors of TRI, which is wholly-owned by Genger, neither nominee was under
Genger's control. (Id.) Moreover, Genger and Gottstein noted that, "[i]n any
event, these two individuals, together with Mr. Hardy, would constitute less
than a majority of the Company's Board of Directors as proposed to be
restructured." (Id.)
Genger and Gottstein also disclosed that, if the Board did not accept their
proposal, they would exercise their lawful rights under Israeli law to convene
an extraordinary general meeting of shareholders to remove all of the directors
(except Hardy and perhaps the CEO), and fill all of the vacancies on the Board.
(Id.) Importantly, this Schedule 13D amendment disclosed once again that "it is
not Mr. Genger's nor Mr. Gottstein's intention to control the Company, but
rather to restructure the Board of Directors with an independent Board." (Id. P.
31)
On March 26, 1999, Gottstein filed a fourth amendment to his Schedule 13D
("Gottstein Amendment No. 4") disclosing information consistent with his and
Genger's prior filings and the new information in Genger Amendment No. 3. (Id.
P. 32) On April 15, 1999, Gottstein filed another amendment ("Gottstein
Amendment No. 5"), in which he stated that on April 14, 1999, he and Genger "had
jointly commenced mailing solicitation materials to
Page 19 of 35 Pages
<PAGE>
shareholders of ESC, and that counsel for Genger and Gottstein intended to send,
on April 15, 1999, 'a letter addressed to each of [ESC]'s directors demanding
that [ESC] convene an Extraordinary General Meeting.'" (Id. P. 33) Gottstein
attached to this amendment a letter from himself and Genger to ESC shareholders,
wherein they stated that "the Company lacks the professional expertise and
appropriate oversight by a board of directors" that it requires, and that he and
Genger sought a "truly independent Board of Directors." (Id. P. 34) The letter
further disclosed that Genger and Gottstein were soliciting the shareholders'
proxies to vote for the purpose of replacing all current directors (except the
CEO and Hardy) with six nominees. (Id.) Notably, neither Genger nor Gottstein
sought to place themselves on ESC's Board of Directors. Once again, Genger and
Gottstein clearly state that "[o]ur intention is not to acquire control of the
Company." (Id. P. 36)
In the proxy materials sent by Genger and Gottstein, they disclose that one
of their proposed nominees to the ESC Board, S.A. Spencer ("Spencer"), receives
$15,000 per year as a director of TRI, and that Spencer's firm provides
investment banking advice to TRI, but that the firm has received no compensation
from TRI since January 1998. (Id. P. 37) In addition, the proxy materials
disclose that another nominee, Professor Zehev Tadmor, receives $15,000 per year
as a director of HCL, and that he is a technological consultant for TRI, for
which he receives a retainer fee. (Id.)
On or around April 15, 1999, Gottstein delivered to ESC and its Board of
Directors a demand that the Board convene an Extraordinary General Meeting of
the Company's shareholders for the purpose of removing all of the directors
other than Hardy and Eckhouse and to elect Genger's and Gottstein's six
nominees. (Id. P. 39) Also on April 15, 1999, Genger filed
Page 20 of 35 Pages
<PAGE>
the fourth amendment to his Schedule 13D ("Genger Amendment No. 4"), which
disclosed, among other things, the mailing of the proxy materials. On April 19,
1999, Gottstein filed a sixth amendment to his Schedule 13D ("Gottstein
Amendment No. 6") in which he included a letter from himself and Genger to ESC's
CEO, Eckhouse. Once more, in this letter, Gottstein and Genger expressly state
that they were not attempting to gain control of ESC and that any suggestion
that any of their nominees were "somehow under our influence and control is
absurd." (Id. P. 41) On or around April 20, 1999, Genger filed another amendment
("Genger Amendment No. 5") which disclosed information consistent with that
disclosed in his and Gottstein's prior filings, including the letter he and
Gottstein sent to Eckhouse. (Id. P. 42)
On May 10 and May 11, 1999, Genger and Gottstein, respectively, filed
amendments to their Schedules 13D, in which they disclosed the existence of this
lawsuit and disclosed all of management's allegations by attaching copies of the
Complaint as exhibits thereto. (Ragozino Dec. Exhs. 2 and 3)
Page 21 of 35 Pages
<PAGE>
ARGUMENT
I. SECTION 13(d) WAS NEVER INTENDED TO BE USED AS ARMAMENT FOR ENTRENCHED
MANAGEMENT TO DEPRIVE SHAREHOLDERS OF THEIR RIGHT TO EFFECT CHANGES IN
CORPORATE MANAGEMENT.
Section 13(d) requires that any person who acquires beneficial ownership of
more than 5% of any registered equity security must file a Schedule 13D within
10 days of acquiring such beneficial ownership, disclosing, among other things,
the purpose for buying such shares, and information as to any contracts,
arrangements, or understandings with any person with respect to the securities
of the issuer. See Treadway Companies, Inc. v. Care Corp., 490 F. Supp. 660, 664
(S.D.N.Y.) (noting that Section 13(d) is purely a notice statute, the purpose of
which is "to alert the marketplace to every large, rapid aggregation or
accumulation of securities ... which might represent a potential shift in
corporate control ... and which is, therefore, information that shareholders and
potential investors in a corporation need in order to determine both the
likelihood of change in corporate control, and the probable future value of the
corporation") (citations omitted), aff'd in pertinent part, 638 F.2d 357 (2d
Cir. 1980). Filing persons are also required to file amendments to the Schedule
13D upon certain changes in the facts disclosed in the original filing. See ss.
13(d)(2); 15 U.S.C. ss. 78m(d)(2).
Congress passed the Williams Act (of which Section 13(d) is a part) as a
legislative response to a gap in the federal securities laws which permitted
cash tender offers and other acquisitions to occur without adequate disclosure
to investors of relevant information. See Piper v. Chris-Craft Indus., Inc., 430
U.S. 1, 22 (1977). However, it was never intended to arm management with a
weapon with which to frustrate a proposed control change. Rondeau v. Mosinee
Paper Co., 422 U.S. 49, 58-59 (1975); see also Corenco Corp. v. Schiavone &
Sons,
Page 22 of 35 Pages
<PAGE>
Inc., 488 F.2d 207, 209-10 (2d Cir. 1973) (noting that the institution of a
lawsuit claiming Williams Act violations is a familiar defensive tactic).
As the Supreme Court in Rondeau stated:
By requiring disclosure of information to the target corporation as well as
the Securities and Exchange Commission, Congress intended to do no more
than give incumbent management an opportunity to express and explain its
position. The Congress expressly disclaimed an intention to provide a
weapon for management to discourage takeover bids or prevent large
accumulations of stock which would create the potential for such attempts.
Indeed, the Act's draftsmen commented upon the 'extreme care' which was
taken 'to avoid tipping the balance of regulation either in favor of
management or in favor of the person making the takeover bid.'
422 U.S. at 58-59 (citations omitted) (emphasis added).
The Williams Act thus provides only a narrow right of action on behalf of
the issuer: "the right of the corporation . . . is limited to equitable relief,
compelling the filing of a full and accurate Schedule 13D." Dan River, Inc. v.
Unitex Ltd., 624 F.2d 1216, 1225 (4th Cir. 1980). Therefore, once a defendant
has disclosed all relevant facts through amendments to their Schedules 13D,
including management's allegations against them, Section 13(d) is fully
satisfied and the claim should be dismissed. See Treadway, 638 F.2d at 380
(holding that an action claiming a violation of Section 13(d) in the face of
curative Schedule 13D amendments should be dismissed as moot for failure to
state a claim).
II. DEFENDANTS FULLY COMPLIED WITH SECTION 13(d) AS A MATTER OF LAW, BY
DISCLOSING ALL REQUIRED FACTS.
Defendants' amended Schedules 13D disclose that they may be deemed to be a
"group" by virtue of their shared activities, and explicitly detail defendants
desire to effect a change in control of ESC. Thus, even if defendants' original
Schedules 13D were arguably deficient in some manner - which they were not - the
subsequent amendments and the
Page 23 of 35 Pages
<PAGE>
supplemental information they contain cured any lapse and rendered Plaintiff's
claims moot as a matter of law. E.g., ICN Pharm., Inc. v. Khan, 2 F.3d 484,
489-92 (2d Cir. 1993); Treadway, 638 F.2d at 380; Horsehead Resource Dev. Co. v.
B.U.S. Envtl. Servs., Inc., 916 F. Supp. 305, 309 (S.D.N.Y.) (granting
defendant's motion to dismiss in part and stating that "[g]enerally, once a
subsequent 13D filing cures alleged omissions in prior filings, the ss. 13(d)
claim alleging omissions must be dismissed as moot") (citation omitted), opinion
vacated in part on other grounds, 928 F. Supp. 287 (S.D.N.Y. 1996); see also
Avnet Inc. v. Scope Indus., 499 F. Supp. 1121, 1124 (S.D.N.Y. 1980).
Indeed, in this case, defendants have gone well beyond divulging the
relevant facts, by including ESC's Complaint as an exhibit to their Schedules
13D and therefore disclosing even ESC's adverse interpretation of those facts.
The investing public now possesses all relevant information with which to make
an investment decision. Section 13(d) requires nothing more. See Condec Corp. v.
Farley, 573 F. Supp. 1382, 1387 (S.D.N.Y. 1983) (Where "there is a dispute as to
the facts, the law requires only that the disputed facts and the possible
outcomes be disclosed."); Weeden v. Continental Health Affiliates, Inc., 713 F.
Supp. 396 (N.D. Ga. 1989) (rejecting issuer's argument that amended Schedule 13D
would have to disclose the facts themselves, not merely the existence of a
dispute concerning the facts; holding disclosure requirements satisfied when
filing was amended to reveal the dispute).
A. Defendants have Disclosed All Required Facts Concerning Their Alleged
"Group" Status.
When two or more persons act as a "group" for the purposes of acquiring,
holding or otherwise disposing of more than 5% of the securities of an issuer,
the group must file a joint Schedule 13D, "disclosing, inter alia, the identity
of its members and the purpose of its
Page 24 of 35 Pages
<PAGE>
acquisition." Wellman v. Dickinson, 682 F.2d 355, 362 (2d Cir. 1982), cert.
denied, 460 U.S. 1069 (1983). The purpose of this provision is to prevent
multiple shareholders from secretly accumulating shares of the company which in
the aggregate amount to 5% or more of the company's stock, while avoiding filing
a Schedule 13D because each of their individual holdings amount to less than 5%.
This is not such a case.
Genger (on behalf of himself and the TRI Entities) and Gottstein (on behalf
of himself and the Gottstein Trust) each filed Schedules 13D disclosing the
ownership of their ESC stock. Further, they both have amended their respective
Schedules 13D multiple times to include complete and updated information
concerning the acquisition of more shares, their plans with respect to the
company, and the allegations of this lawsuit, including their alleged "group"
status. See Condec, 573 F. Supp. at 1386 (noting that defendant was not seeking
to evade the filing requirement, but rather, fully disclosed all relevant facts
in his 13D filings; stating, "[t]his is the limit of the law").
To be sure, while they have disclosed that they might be deemed a group by
virtue of their shared desires, Genger and Gottstein dispute that they are a
group.(7) But there simply is no legitimate basis on which to allow ESC to
pursue litigation over a disputed legal conclusion; i.e., whether Gottstein and
Genger are a statutory Section 13(d) group. Avnet, Inc. v. Scope Indus., 499 F.
Supp. 1121, 1125 (S.D.N.Y. 1980) (sufficient to disclose dispute as to whether
filing party is an investment company). Even where "there is a dispute as to the
facts, the law
- ----------
(7) Although it is not necessary for the Court to resolve the issue on the
present motion, Genger and Gottstein have a good faith basis for disputing that
they are a "group." Genger and Gottstein have asserted repeatedly that, although
they are coordinating their efforts to restore a truly independent Board to ESC,
they each retain complete, independent control over their respective investments
and have no agreement concerning acquisition, disposition, voting, or otherwise,
with respect to their ESC shares. (See, e.g., Compl. Exh. D at 7).
Page 25 of 35 Pages
<PAGE>
requires only that the disputed facts and the possible outcomes be disclosed."
Condec Corp. v. Farley, et al., 573 F. Supp. 1382, 1387 (S.D.N.Y. 1983); Weeden
v. Continental Health Affiliates, Inc., 713 F. Supp. 396, 399-400 (N.D. Ga.
1989) (rejecting issuer's argument that amended Schedule 13D would have to
disclose the facts themselves, not merely the existence of a dispute concerning
the facts; holding disclosure requirements satisfied when filing was amended to
reveal the dispute). A fortiori, it is sufficient for purposes of Section 13(d)
to disclose a dispute over a legal conclusion such as whether the filing parties
are a group.
The decision in Citizens First Bancorp, Inc. v. Harreld, 559 F. Supp. 867,
873 (W.D. Ky. 1982), is directly on point. There, the defendants disclaimed
group status in their 13D filings. The court held that although there was a
substantial likelihood that the plaintiff would be able to establish that the
defendants were acting as a group for purposes of calling a special stockholders
meeting and voting their shares together to remove members of the board of
directors, no irreparable harm existed because the party had filed a Schedule
13D which "substantially complie[d] with the S.E.C. rules." Id. at 873. Further,
the court noted that "[s]uch a disclaimer [of group status] is specifically
allowed by the instructions" for Schedule 13D. Id.; see 1934 Act, Schedule 13D,
Instructions for Cover Page (2) ("If the reporting person disclaims membership
in a group or describes a relationship with other person but does not affirm the
existence of a group, please check row 2(b)").
Page 26 of 35 Pages
<PAGE>
B. Defendants Have Disclosed All Required Facts Concerning Their "Intent
to Control" ESC
1. Plaintiff Does Not And Cannot Allege That The Defendants Will
Control A Majority Of The Board Of Directors Even If Successful
In The Proxy Contest
Taking ESC's allegations as true for purposes of this motion, even if
defendants succeeded in nominating all of the directors they have proposed,
defendants still would not "control" a majority of the directors. The Complaint
states that Hardy is the defendants' representative on the current board.
(Compl. P. 35) It further alleges that Mr. Spencer is a member of the board of
directors of TRI, a company founded by Genger, and Professor Zehev Tadmor is a
member of the board of directors of HCL, a wholly-owned subsidiary of TRI.
Assuming the truth of such allegations, ESC's argument that because of such
relationships, Gottstein and Genger will control all three of these directors
insofar as ESC is concerned, is a preposterous proposition on its face.
Nevertheless, Plaintiff has alleged - at most - that the defendants will
"control" at most three of the eight members of the ESC board of directors, not
a majority. See Todd Shipyards Corp. v. Madison Fund, Inc., 547 F. Supp. 1383,
1389 (S.D.N.Y. 1982) (holding that defendants' Schedule 13D disclosures which
stated that they may seek some representation on plaintiff's board of directors
and might seek to affect the course of the company by advice and suggestion to
management to be "full and fair" and were not the equivalent of a desire to
attain control of a company). Thus, ESC's claim that defendants seek to control
ESC fails as a matter of law.
Page 27 of 35 Pages
<PAGE>
2. Defendants' Disclosures, Including Attaching A Copy Of The
Complaint To Their Schedules 13D, Adequately Disclose All
Pertinent Information Required By Law.
In any event, ESC's position on this issue is known to investors since
Gottstein and Genger each attached copies of the Complaint to their latest
Schedule 13D amendments. "'The only regulatory objective is that access to
material information be enjoyed equally, but this objective requires nothing
more than the disclosure of basic facts so that outsiders (read here investors)
may draw upon their own evaluative expertise in reaching their own investment
decisions with knowledge equal to that of the (discloser).'" Avnet, 499 F. Supp.
at 1125 (quoting SEC v. Texas Gulf Sulpher Co., 401 F.2d 833, 849 (2d Cir.
1968), cert. denied, 394 U.S. 976 (1969)).
The defendants' disclosures more than adequately comply with Section 13(d)
and thus cannot be deemed misleading. See Amalgamated Clothing & Textile Workers
Union v. Fieldcrest Cannon, Inc., No. 93 Civ. 3580 (RO), 1993 WL 300011, at *2
(S.D.N.Y. Aug. 4, 1993) (granting motion to dismiss where "any reasonable reader
of [the] 13Ds would have concluded that there was a real possibility that
[defendants] would divest control .... The federal securities laws do not
require controlling shareholders ... to go further .... Fair and accurate notice
to the investing public of such clear possibility is enough").
The holding in Sea Containers Ltd. v. Stena AB, 741 F. Supp. 231 (D. D.C.),
aff'd in pertinent part, rev'd in part, 890 F.2d 1205 (D.C. Cir. 1989), is
illustrative. There, the 13D reporting persons stated that their intention in
acquiring the shares was for investment. The plaintiff alleged that the
defendants had an intent to take control of the company. The district court
stated that the defendants' activities suggested that the purpose of the
acquisition of the
Page 28 of 35 Pages
<PAGE>
securities was other than as stated in the 13D and subsequent amendments. 741 F.
Supp. at 235. However, the court held that it was "only concerned with the
adequate information available to the public shareholders pursuant to securities
law" and that the defendants had "conform[ed] with the intent of securities
disclosure law" by attaching a copy of the complaint to their filings. The court
of appeals affirmed on this issue. 890 F.2d at 1211.
Here, in addition to the 13D amendments which attach copies of the
Complaint, the defendants made multiple disclosures concerning their purposes.
For example, Gottstein explains how he and Genger came to discuss their
investments in ESC and explore the possibility of working together "to affect
the policies of the Company in order to reverse its recent setbacks and begin
restoring its long-term potential value;" he discloses the understanding reached
between himself and Genger to "encourag[e] the Company to take certain actions
which Gottstein and Genger believe are necessary in order for the Company to
grow and prosper as an independent public company;" he describes the letter sent
to ESC's Board of Directors. (Compl. Exh. E at 5) Importantly, the amendment
states that:
the Reporting Persons may otherwise become more active in attempting to
affect the policies of the Company, with or without the cooperation of Mr.
Genger and possibly with the cooperation of as yet uncontacted shareholders
other than Mr. Genger in order that the long-term potential of the Company
be realized; and the Reporting Persons may buy more Shares depending upon
market conditions and other factors described below.
* * *
Other than as described above, the Reporting Persons do not have any
present plans or proposals which relate to or would result in (although
they reserve the right to develop such plans or proposals) any transaction,
change or event specified in clauses (a) through (j) of Item 4 of the form
of Schedule D.
(Id. at 5-7)
Page 29 of 35 Pages
<PAGE>
Genger's disclosures describe the correspondence between ESC and Genger and
Gottstein concerning the restructuring of the Board of Directors and state that
"Genger and [Gottstein] intend to continue to have discussions with other
shareholders of the Issuer regarding their proposal and to seek shareholder
support." (Compl. Exh. H, at p.5) Gottstein also discloses that he and Genger
commenced mailing solicitation materials to ESC shareholders, and attaches
copies of such materials to the filing. (Compl. Exh. J, at p.2) Significantly,
Gottstein discusses the letter sent by Gottstein and Genger to Eckhouse on April
19, 1999, wherein the amendment quotes the letter:
[W]e strongly object to the Company's statement that we are attempting 'to
seize control' of the Company. . . . Moreover, the nominees proposed to
replace the current directors are in no way controlled by us. In fact, a
majority of the directors of the new Board will have had no prior business
relationship with either of us. To suggest that somehow these directors -
who would be elected by a majority of outside shareholders - are somehow
under our influence and control is absurd. We demand that you immediately
cease such characterizations.
(Compl. Exh. L, at pp. 2-3)
In light of the foregoing disclosures, ESC's claim that defendants have
filed false and misleading Schedules 13D is without merit and must be dismissed.
See Condec, 573 F. Supp. at 1386 (in finding no violation of Section 13(d), the
court stated that "the net consequence of the filings . . ., which include a
full recitation of the issues raised by plaintiff in this litigation, is that
all interested parties now have access to all of the facts").8
- ----------
(8) In any event, requiring Defendants to state that they do intend to take
control of ESC, as Plaintiff requests (Compl. p.15), may actually render their
Schedules 13D false. In Avnet, this Court refused to require a filing person to
acknowledge in an amendment to its Schedule 13D that it was an unregistered
investment company because its status as an investment company was a contested
fact issue. The court noted that "a statement that [defendant] is in fact an
unregistered investment company may actually render the Schedule 13D false,
since [defendant] alleges that it does not consider itself to be an investment
company, and it would be misleading
(continued...)
Page 30 of 35 Pages
<PAGE>
III. PLAINTIFF'S COMPLAINT FAILS TO COMPLY WITH THE PLEADING REQUIREMENTS
OF PSLRA SECTION 21D.
Even if the extensive Schedule 13D disclosures concerning defendants'
purposes were not sufficient as a matter of law to require dismissal of the
Complaint, dismissal would still be warranted because the Complaint fails to
allege with specificity facts that would, if true, support Plaintiff's
allegations about defendants' supposed control intent. Section 21D of the
Private Securities Litigation Reform Act of 1995 ("PSLRA"), Pub. L. No. 104-67,
109 Stat. 737 (1995), 15 U.S.C. ss. 78u-4(b), requires that:
In any private action arising under [the 1934 Act] in which the plaintiff
alleges that the defendant -
(A) made an untrue statement of a material fact; or
(B) omitted to state a material fact necessary in order to make the
statements made, in the light of the circumstances in which they were made,
not misleading;
the complaint shall specify each statement alleged to have been misleading,
the reason or reasons why the statement is misleading, and, if an
allegation regarding the statement or omission is made on information and
belief, the complaint shall state with particularity all facts on which
that belief is formed.
15 U.S.C. ss. 78u-4(b) (emphasis added). See Schnell v. Conseco, Inc., No. 98
Civ. 2527, 1999 WL 182327, at *8-9 (S.D.N.Y. Mar. 31, 1999) (holding that the
PSLRA's "heightened pleading standard" applies to 1934 Act claims alleging
misrepresentations and omissions).
- ----------
(8) (...continued)
for it to file a statement the contents of which it does not, in truth,
believe." Avnet, 499 F. Supp. at 1126. This reasoning applies with equal force
here. It would be inappropriate to force defendants to disclose an intent to
control when it does not, in fact, exist. Avnet, 499 F. Supp. at 1126; see also
Condac, 573 F. Supp. at 1386 (denying injunctive relief and noting that "what
plaintiff now seeks by way of a court mandated corrective revision to the 13D
filings is not a further factual disclosure by defendants but rather a
'confession of judgment,' i.e., an admission that an intent to seek control
antedated any of defendants' stock purchases").
Page 31 of 35 Pages
<PAGE>
ESC alleges that, with respect to defendants' intent to "control" ESC,
defendants both (1) made untrue statements of material fact, and (2) omitted to
state material facts in their Schedules 13D. (See, e.g., Compl. P. P. 5, 18, 44)
Further, ESC states that its Complaint is based, in this respect, on information
and belief. (See Compl. P. P. 1, 37) As such, PSLRA ss. 78u-4(b) applies to
ESC's Section 13(d) claims and, "in order to survive a motion to dismiss,
plaintiff must 'state with particularity all facts on which that belief is
formed.'" Schnell, 1999 WL 182327, at *9.
The Complaint simply fails to state any facts, let alone with
particularity, to support its allegation that defendants have an intent, or even
an ability, to control ESC. Rather, ESC simply notes an affiliation between two
of Genger and Gottstein's nominees and Genger-related entities (Compl. P. 37),
and that Hardy is Genger and Gottstein's "representative" on the Board. (Id. 35)
ESC fails to plead sufficient facts to support that Genger and Gottstein could
assert any control over these three individuals. Moreover, although Plaintiff
notes that Genger and Gottstein intended to select six additional nominees (Id.
38), the Complaint is devoid of any factual basis for concluding that any of
these additional nominees has any connection with Genger or Gottstein
whatsoever, let alone a relationship that would enable Genger or Gottstein to
control their behavior once elected to the Board.8 Thus, under the PSLRA's
pleading standards, Plaintiff's claim must be dismissed. See Schnell, 1999 WL
182327, at *9 (dismissing plaintiff's complaint for failing to meet the PSLRA's
pleading standard and noting that "[s]uch allegations, bereft of any facts on
which plaintiff's belief of [defendant's] misconduct is based, are insufficient
to withstand a motion to dismiss").
Page 32 of 35 Pages
<PAGE>
IV. PLAINTIFF'S BREACH OF FIDUCIARY DUTY CLAIM SHOULD BE DISMISSED
Plaintiff's fiduciary duty claim against Hardy is predicated on the same
conduct underlying the federal securities law claim; namely, his participation
in the filing of an allegedly misleading disclosure document. (Compl. P. 47)
However, there is no independent basis for federal subject matter jurisdiction
over this claim. As a result, because Plaintiff's federal securities claims must
be dismissed, this Court should also dismiss Plaintiff's pendent claim for
breach of fiduciary duty. See, e.g., United Mine Workers v. Gibbs, 383 U.S. 715,
726 (1996) ("Certainly, if the federal claims are dismissed before trial . . .
the state claims should be dismissed as well."); Pitchell v. Callan, 13 F.3d
545, 549 (2d Cir. 1994) ("[I]t is axiomatic that a court should decline to
exercise jurisdiction over state-law claims when it dismisses the federal claims
prior to trial.").
Page 33 of 35 Pages
<PAGE>
CONCLUSION
For all the foregoing reasons, the Complaint should be dismissed.
Dated: New York, New York
May 11, 1999
Respectfully submitted,
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
By: /s/ Samuel Kadet
---------------------------------------
Samuel Kadet (SK 1856)
Of Counsel: 919 Third Avenue
James W. Brown (JB 0981) New York, New York 10022
Anthony Ragozino (AR 1601) (212) 735-3000
Attorneys for Defendants Arie Genger,
Barnard J. Gottstein, Thomas G. Hardy,
TPR Investments Associates, Inc.,
Trans-Resources, Inc., Haifa Chemicals
Ltd., Haifa Chemicals Holdings, Inc.,
and Barnard J. Gottstein Revocable Trust
Page 34 of 35 Pages
Exhibit 22
----------
For Immediate Release
ESC SHAREHOLDERS REACT TO ESC MEDICAL
ATTEMPT TO STOP SHAREHOLDER MEETING
May 11, 1999 -- New York, New York -- Messrs. Arie Genger and Barnard J.
Gottstein, two of the largest shareholders of ESC Medical Systems Ltd. (NASDAQ:
ESCMF), commented today on the ESC legal action filed in Israeli court seeking
to prevent the ESC shareholders meeting called by Messrs. Genger and Gottstein
from occurring as scheduled on June 2, 1999. The court has denied ESC's attempt
to prevent the solicitation through an ex parte motion and has set May 26 as the
date for a full hearing.
Messrs. Genger and Gottstein stated "This is typical of ESC's continuing
pattern to disenfranchise shareholders at every opportunity. All we have done is
sought to exercise our legal rights to have a shareholder referendum on whether
a majority of the current board of directors should be replaced. Instead of
allowing this vote to go forward with ample opportunity for both sides to
present their views, this management has chosen once again to use the court
process in an attempt to inhibit shareholders from stating their views. We
wonder how much more evidence shareholders need to become convinced as we are
that the current board and management are not acting in the interest of all
shareholders but seem more interested in entrenching themselves in office at all
cost."
Messrs. Genger and Gottstein have called for a special meeting of
shareholders to be convened June 2, 1999. Shareholders of record on May 10 will
be entitled to vote and be represented at the meeting.
Page 35 of 35 Pages
