STATES UNITED DISTRICT COURT SOUTHERN DISTRICT OF NEW YOR K
In Re ESC Medical Systems Ltd Securities Litigation x This Document Relates To All Actions
98 Civ 7530 (NRB )
NOTICE OF PENDENCY OF CLASS ACTION , DISCLOSURE OF PROPOSED SETTLEMENT TERMS, AND HEARING THEREO N
TO : ALL PERSONS WHO PURCHASED OR OTHERWISE ACQUIRED COMMON STOCK OF ESC MEDICAL SYSTEMS LTD. (NOW KNOWN AS LUMENIS LTD .) DURING THE PERIOD JANUARY 27, 1997 THROUGH SEPTEMBER 28, 1998 . PLEASE READ THIS NOTICE CAREFULLY YOUR RIGHTS MAYBE AFFECTED BY LEGAL PROCEEDINGS IN THIS LITIGATION IF YOU ARE A MEMBER OF THE CLASS DESCRIBED IN THIS NOTICE, YOU MAY BE ENTITLED TO RECEIVE PAYMENTS PURSUANT TO THE PROPOSED SETTLEMENT IN THIS ACTION IF YOU ARE A MEMBER OF THIS CLASS AND DO NOT SUBMIT TO A TIMELY REQUEST FOR EXCLUSION, YOU WILL BE BOUND BY THE RELEASE WHETHER OR NOT YOU SUBMIT A CLAIM.
You are hereby notified that a hearing (the "Final Settlement Hearing") shall be held before the Hon Naomi Reice Buchwald, on March 25, 2002, at 11 00 a m in Courtroom 21A of the United States District Court for the Southern District of New York, to determine whether an order should be entered (i) finally approving the proposed settlement of the claims asserted by and on behalf of plaintiffs in this Class Action against defendants ESC Medical Systems Ltd . ("ESC ") and officers and directors of ESC ( the "Individual Defendants", and together with ESC , the "ESC Defendants "), on the terms set forth in the Stipulation of Settlement (the"Stipulation") dated December 7-10, 2001 (the "Settlement"), (ii) certifying this Class Action as a class action pursuant to Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure, (iii) dismissing the Class Action with prejudice, (iv) approving the Plan of Allocation of the Net Settlement Fund, and (v) awarding counsel fees and reimbursement of expenses to counsel for plaintiffs and the Class
SUMMARY DISCLOSURE OF SETTLEMENT TERM S The following is a summary of the proposed Settlement terms You should read this Notice in its entirety for a full explanation of these terms and other important information CLASS RECOVERY : The proposed Settlement is $16,000,000' Plaintiffs estimate that there were approximately 35,500,100 shares of ESC common stock purchased or otherwise acquired during the Class Period that were damaged as a result of the alleged wrongdoing Plaintiffs estimate that the Settlement represents an average recovery for Class members, before deduction of any Cou rt awarded a tt orney fees and expenses , of $0 45 per share, depending on, among other things, the number of valid claims submitted by Class members , the actual prices paid for ESC common stock , and when such shares were purchased and sold during the Class Period PLEASE BE ADVISED THAT THIS IS AN ESTIMATE Your actual recovery may be more or less POTENTIAL RECOVERY IF ACTION WERE TRIED : The parties disagreed on both liability and damages and do not agree on the average amount of damages per share that would be recoverable if Plaintiffs were to have prevailed on each claim alleged . The issues on which the parties disagree include but are not limited to, (a) whether any statement complained of was, at the time made, materially false or misleading ; (b) the appropriate economic model for determining the amounts by which ESC's common stock were allegedly artificially inflated (if at all) during the Class Period ; (c) the amounts by which ESC's common stock were allegedly artificially inflated (if at all) during the Class Period, (d) the effect of various market forces influencing the trading prices of ESC's common stock at various times during the Class Period, (e) the extent to which external factors such as general market and industry conditions influenced the trading prices of ESC's common stock at various times during the Class Period, (f) the extent to which the various matters that Plaintiffs alleged were materially false or misleading influenced (if at all) the trading price of ESC's common stock at various times during the Class Period, (g) the extent to which the various allegedly adverse material facts that Plaintiffs alleged were omitted influenced (if at all) the trading price of ESC's common stock at various times during the Class Period, and (h) whether the statements made or facts allegedly omitted were material or otherwise actionable under the federal securities laws
Plaintiffs' counsel considered the risks that Plaintiffs and the Class might not have prevailed on all their claims and the risk that the decline in the price of ESC's common stock could be attributed, in whole or in part, to other factors, as well as the nsk of collecting any judgment that the Court might enter against Defendants These risks created the possibility that Plaintiffs could have recovered nothing or substantially less than the amount of this Settlemen t
' The total value of the proposed Settlement and the estimated average recovery are based upon the share price of ESC common stock, which closed at $23 35 on January 10, 2002 ESC is now known as Lumenis Ltd and trades under the symbol "LUME" .
The Defendants deny any wrongdoing, deny that they are liable to the Plaintiffs or the Class, and deny that Plaintiffs or the Class have suffered any damage s REASONS FOR SETTLEMENT : Plaintiffs believe that the proposed Settlement is fair, reasonable and adequate to the members of the Class Plaintiffs have reached this conclusion after investigating and considering, among other things, the strengths and weaknesses of Plaintiffs' claims against Defendants, including the Defendants' contentions, among others, that Plaintiffs' claims for damages are without merit, that Defendants did not make any materially false and misleading statements, and that even if Defendants made misleading statements, such statements did not cause injury to the Class nor can Class members establish reliance upon such statements In addition, the parties considered the uncertainties inherent in this complex litigation, the prospects for recovery of damages in light of, inter alia, ESC's limited financial resources, and the substantial benefits provided by the Settlement to the members of the Class Without admitting any wrongdoing or liability on their part whatsoever, Defendants are nevertheless willing to agree to make the payment provided for by the Stipulation of Settlement provided that all claims of the Class are settled and compromised, in order to minimize, if not entirely to avoid, the continuing burden, expense, inconvenience and distraction to Defendants of this litigatio n ATTORNEYS' FEES AND COSTS SOUGH T To date, Plaintiffs' counsel have not received any payment for their services or reimbursement of out-of-pocket expenses Plaintiffs' counsel intend to apply to the Court for an award of attorneys' fees from the Settlement Fund not to exceed thirty percent (30%) of the Settlement Fund ($0 14 on a per share basis based on the maximum number of claims that may be filed), plus an additional amount not to exceed $200,000 as reimbursement for the expenses and costs actually incurred, in prosecuting the Class Action Plaintiffs' counsel believe their intended fee request to be fair and reasonable in light of, among other things, the excellent recovery, given the circumstances, obtained for the Class PLAINTIFFS' COUNSE L If you have any questions regarding the information contained in this Notice, you may contact Plaintiffs' Lead Counsel by writing to Lionel Z Glancy, Esq at the Law Offices of Lionel Z Glancy, 1801 Avenue of the Stars, Suite 311, Los Angeles, CA 90067 (info@glancylaw com ) Neither the ce rtifi cation of the Class for purposes of this Se ttlement nor the sending of this Notice should be construed as any Indication of the Court's view as to the merits of any claims or defenses asserted by any party to the litigation. 1. THE CLASS INVOLVED IN THE PROPOSED SETTLEMEN T
The proposed Settlement affects the rights of members of the Class as conditionally certified by the Court for purposes of the Settlement The Class shall consist of All persons, other than any Excluded Persons, who purchased or otherwise acquired common stock of defendant ESC Medical Systems Ltd during the period January 27 , 1997 through September 28, 1998 . The Excluded Persons are all persons who were directors and/or corporate officers of ESC at any time during the Class Period (the "Class Period Directors and Officers"), members of the immediate families of each of the Class Period Directors and Officers , any entity in which any of the Class Period Directors and Officers is affiliated ( as that term is defined in Rule 12b -2 promulgated by the SEC pursuant to the Securities Exchange Act of 1934), and the legal representatives , heirs or assigns of any of the individual Class Period Directors and Officers . In addition, excluded from the Class is any person or entity who requests exclusion from the Class in writing in accordance with the procedures prescribed by the Court as set forth belo w It . BACKGROUND OF THE LITIGATION AND TERMS OF THE PROPOSED SETTLEMENT
On October 23, 1998, certain purchasers of the common stock of ESC filed a class action complaint in this Court asserting claims against ESC and officers and directors of ESC (hereinafter "Defendants") on behalf of themselves and other persons similarly damaged by Defendants alleging violations of the federal securities laws . This complaint was based on the systematic overstatement of the Company's reported revenues through the improper acceleration of revenues and improper recognition of income, materially distorting ESC's operating income and artificially inflating the market price of the Company's stoc k By Memorandum and Order dated February 10, 1999, this Court (i) appointed Lead Plaintiffs ("Plaintiffs") pursuant to 21D (a)(3) of the Private Securities Litigation Reform Act (the "PSLRA"), 15 U S C 78u-4(a)(3), (ii) approved Plaintiffs' selection, pursuant to 15 U S C 78u4(a)(3)(B)(v), of the Law Offices of Lionel Z Glancy as Lead Counsel for the Clas s On July 9, 1999 , Lead Plaintiffs filed an Amended Class Action Complaint . The Amended Class Action Complaint asse rted claims under Sections 6, 10(b ), 14(a), 20( a) and 20A of the Securities Exchange Act of 1934, 15 U .S .C . 77k, 771, 77o, 78f, 78j( b), 78n (a), 78t(a) and 78t-1 , and SEC Rules 10b -5 and 14a - 9, 17 C . F .R . 240 . 10b-5 and 240 . 14a-9 , promulgated thereunder . The Amended Class Action Complaint alleged that the Company overstated reported revenues through the improper acceleration of revenues and improper recognition of income, materially distorting ESC's operating income and artificially inflating the market price of the Company's stoc k On December 23, 1999 , Defendants filed a Motion to Dismiss the Amended Class Action Complaint . On Februa ry 23, 2000, Plaintiffs filed their memorandum in opposition to Defendants' motion to dismiss the amended class action complaint . On March 28 , 2000, Defendants filed their reply memorandum in suppo rt of their motion to dismiss . At the hearing held on August 24, 2000, Judge Buchwald denied the ESC Defendants' Motion to Dismiss, and on January 17, 2001, the Court issued a Media ti on Order which suspended discovery during the pendency of the parties' mediation efforts . The parties engaged in extended arm'slength nego ti a ti ons that ultimately led to an agreement , subject to Court approval, to settle the Action The parties negotiated and signed a Memorandum of Understanding on or about August 20, 2001, and pursuant thereto, negotiated and on December 7-10, 2001, signed the Stipulation of Settlement to set forth the complete terms and conditions of settlement.
RELEASE S If the Settlement is finally approved by the Court, the Action and the Class Action shall be dismissed with prejudice as to all Defendants, and Plaintiffs and all members of the Class shall be barred and permanently enjoined from asserting all claims, known or unknown that have been, could have been, or in the future can or might be asse rted In the Action or in any cou rt, tribunal or proceeding (including, but not limited, to any claims arising under federal , state , Israeli or common law, including the federal securities laws and any state disclosure law), by or on behalf of Plaintiffs or any member of the Stipulated Class , whether individual , class , representative , legal, equitable , or any other type or in any other capaci ty against Defendants or any of their families , parent entities, associates , affiliates , or subsidiaries and each and all of their respective past, present or future officers, directors, stockholders , principals , representatives , employees , advisors, agents , attorneys, financial or Investment advisors , consultants , accountants , investment bankers , insurers, commercial bankers, heirs, executors , trustees, personal representatives , estates, administrators, predecessors , successors and assigns (collectively, the "Released Persons ") which have arisen , could have arisen, arise now or, or hereafter may arise out of, or relate in any manner to the ma tters complained of in the Action, the allegations and facts set fo rth in the Amended Complaint or otherwise related , directly or indirectly, to the Action . IV . REASONS FOR ENTERING INTO THE SETTLEMENT
Plaintiffs, through their counsel, have conducted an investigation of Plaintiffs' claims and the underlying events and transactions alleged in the Amended Complaint (and the preceding complaint ), including conducting informal inte rv iews of third pa rt ies, inspecting and analyzing thousands of pages of documents , and analyzing news reports and other publicly available information . Counsel for Plaintiffs have also undertaken an extensive analysis of the legal principles applicable to Plaintiffs' claims against Defendants, and the potential defenses thereto, and have consulted with experts to analyze the damages alleged to have been suffered by the Class . As a consequence of Plaintiffs' counsel's investigation and analyses, Plaintiffs believe that settlement on the terms set forth in the Stipulation is in the best interests of Plaintiffs and the Class after taking into account the substantial risks of continued litigation, including the risk of collecting on any judgment they might obtain in this actio n In light of the foregoing risks of litigating the Class Action, the expense and length of continued proceedings necessary to prosecute their claims against Defendants through trial, the uncertain prospects for recovery of any judgment and the possible available defenses to Defendants' insurance coverage, Plaintiffs' counsel have engaged in extensive arm's-length negotiations with counsel for Defendants with a view to achieving the substantial benefits for the proposed Class provided by the Settlement . Plaintiffs and their counsel therefore desire to enter into the Settlement believing such Settlement to be fair, reasonable and adequate and in the best interests of Plaintiffs and the other members of the Class as defined herei n Defendants have denied, and continue to deny, each and every allegation of liability and wrongdoing on their part, and assert that they have strong factual and legal defenses to all claims alleged against Defendants in the Amended Class Action Complaint and that such claims are entirely without merit . Without admitting any wrongdoing or liability on their part whatsoever, ESC nevertheless agreed to cause the payment provided for by the Stipulation to be made provided that all claims of the Class are settled and compromised, in order to minimize, if not entirely to avoid, the continuing burden, expense, inconvenience and distraction to Defendants of this litigation . Having duly considered all of the foregoing and after having engaged in extensive arm's-length negotiations, Plaintiffs have entered into the proposed Settlement with the Defendants, subject to Court approval, as fully set forth in the Stipulation . V. PROPOSED PLAN OF ALLOCATION OF THE NET SETTLEMENT FUN D
In full and complete settlement of the claims which have or could have been asserted in this Action, and subject to the terms and conditions of the stipulation, ESC will pay or cause to be deposited into an escrow account the sum of $4,500,000 in cash plus 470,000 shares of ESC common stock (the "Settlement Fund") for the benefit of Class members . NOTE, Defendants will deposit into escrow 470,000 shares of ESC common stock provided that such 470,000 shares translate to a dollar value of between $11,500,000 and $13,500,000, calculating such value using the average closing share price over the 15 days prior to the final se ttlement hearing ( the "Stock Value Range") . In the event that the value of the 470,000 shares is below the Stock Value Range , then ESC shall then issue additional shares of stock toward the settlement in order to bring the value of the Se ttlement Shares within the Stock Value Range , except that in no event shall ESC issue more than 500,000 Settlement Shares . In the event that the value of the 470,000 is above the Stock Value Range , then ESC shall issue fewer than 470,000 Se ttlement Shares in order to bring the value of the Settlement Shares within the Stock Value Range , except that in no event shall ESC issue fewer than 420,000 Shares . All ESC securities and monies remaining in the Settlement Fund, together with all interest thereon, accrued after deducting any attorneys' fees and expenses as may be awarded by the Court to Plaintiffs' counsel, and all expenses paid or accrued in connection with the administration of the Settlement Fund, shall be denominated the Net Settlement Fund, and shall be allocated and disbursed to members of the Class in accordance with Plaintiffs' proposed Plan of Allocatio n Class members, other than those who have validly excluded themselves from the Class by the means set forth below, who file valid Proof of Claim Forms ("Authorized Claimants") (see the Proof of Claim Form annexed hereto and the Instructions thereto), shall receive their pro rata share, of both cash and ESC stock, of the Net Settlement Fund based upon the amount of their "Net Recognized Losses," computed as follows : A . For Authorized Claimants who purchased shares of ESC common stock during the Class Period and held those shares through September 28, 1998, a Recognized Claim for each share shall be the minimum o f (1) depending upon when such shares were purchased, the Claim per Share listed below; o r (2) the difference between the purchase price and the sales price per share for each share sold between September 29, 1998 and December 24, 1998 (if such difference is greater than zero), o r (3) the difference between the purchase price and (2) $9 085 2for each share still held at the close of trading on December 24, 1998 (if such difference is greater than zero) . 2Pursuant to Section 21(D)(e)(1) of the Private Securities Litigation Reform Act of 1995, "in any private action arising under this title in which the plaintiff seeks to establish damages by reference to the market price of a security, the award of damages to the plaintiff shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the subject security and the mean trading price of that security during the 90-day period beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated ." $9 085 was the mean closing price of ESC common stock during the 90-day period beginning on September 29, 1998 .
Purchase Period Claim per Shar e 01/27/97 - 04/23/97 04/24/97 - 07/21/97 07/22/97 - 10/27/97 10/28/97 - 01/23/98 01/26/98 - 04/20/98 04/21/98 - 07/20/98 07/21/98 - 09/28/98 $ 1 .0 0 $ 2 .7 5 $ 4 .50 $ 6 .5 0 $ 8 50 $10 .25 $11 75
B . For Authorized Claimants who purchased shares of ESC common stock during the Class Penod and sold those shares pnor to the close of trading on September 28, 1998 the Recognized Claim on each share sold shall be 25% of the difference between the purchase price and the sales price (if such difference is greater than zero ) Each such Authorized Claimant will receive a pro rata share of the Net Settlement Fund determined by the ratio that such Authorized Claimant's Net Recognized Loss on ESC common stock purchased during the Class Period bears to the Net Recognized Losses of all such Authorized Claimants In determining allowable claims of all Authorized Claimants, purchases and sales of ESC common stock shall be deemed to have been made on a first-purchased during the Class Period first-sold basis An Authorized Claimant must have suffered a Net Recognized Loss on all of his or her purchases and sales of ESC common stock to recover any benefits in this Settlement An Authorized Claimant's Net Recognized loss, for which it shall receive a Dro rata recovery, shall be computed by combining the Recognized Loss for each separate purchase and sale . The Net Recognized Loss computation is not intended to be an estimate of what an Authorized Claimant might have been able to recover at trial, and it is not an estimate of the amount that will be paid pursuant to the Settlemen t The Claims Administrator shall pay each Authorized Claimant its distribution amount . No distributions of cash shall be made to Authorized Claimants who would not be entitled to receive at least ten ($10) dollars based on the initial proration of the Net Settlement Fund to Authonzed Claimants To the extent not previously distributed, the Settlement Shares shall be distributed to the members of the Class in proportion to the Authorized Claimant's Recognized Claims as determined by the Claims Administrator . No fractional shares shall be issued and no shares shall be issued to any Authorized Claimant who would not be entitled to receive at least five (5) shares based on the initial proration of shares to Authorized Claimants No adjustment will be made in the cash distributions for fractional shares nor for the minimum number of shares . No person shall have any claim against the named parties or their counsel or the Claims Administrator for distributions made in accordance with the Plan of Allocatio n A. DISTRIBUTION OF SETTLEMENT FUN D Upon approval of the Stipulation by the Court and entry of judgment that becomes a final judgment and upon satisfaction of the other conditions to the settlement, the Settlement Fund will be distributed as follow s To pay counsel to Plaintiffs the attorneys' fees, expenses and costs, with interest thereon (the "Fee and Expense Award"), if and to the extent allowed by the Court ; To pay costs and expenses in connection with providing No ti ce to the members of the Class and administering the settlement on behalf of the Settlement Class ; and 3 . To pay the reasonable costs incurr ed in the preparation of any tax returns to be filed on behalf of the Settlement fund as well as the taxes (and any interest and penalties determined to be due thereon) owed by reason of the earnings of the Settlement Fund, including all taxes as set fo rt h in the Stipulation . Subject to the approval by the Court of the Plan of Allocation described below, the balance of the Settlement Fund (the "Net Settlement Fund") shall be distributed to settlement Class members who submit valid, timely proofs of claim ("Authorized Claimants") as set forth above .
B. CLASS RECOVERY The proposed Settlement is $16,000 , 0003 plus any interest that may accrue on that amount . Based on consultations with damages expe rts, Plaintiffs believe that the maximum potential number of shares that were purchased during the Class Period that were damaged as a result of the alleged wrongdoing is 35,500 , 100 . However, many of those shares may have been sold without any loss or may have earned a profit. Fu rthermore, many of the purchasers of those shares may fail to file claims in this action Also , the amount of each Class member 's claim will depend on the date and price at which the shares were purchased Although it is difficult to determine , Plaintiffs estimate that the Settlement represents an average recove ry for Class members , before deduction of any Court awarded a ttorney fees and expenses , and assuming that eve ry eligible Class member files a valid cl aim, of $ 45 per share, depending on, among other things , the number of valid claims submi tted by Class members , the actual p ri ces paid for ESC common stock , and when such shares were purchased and sold during the Class Pe riod . PLEASE BE ADVISED THAT THIS IS AN ESTIMATE . Your actual recovery may be more or less. The Settlement Fund consists of $4,500,000 in cash, plus interest thereon, plus approximately 470,000 shares of ESC common stock, as described above, which will be deposited into an interest bearing account for the benefit of the Class members .
The total value of the proposed Settlement and the estimated average recovery are based upon the share price of ESC common stock, which closed at $23 35 on January 10, 2002 .
VI .
REQUESTING EXCLUSION FROM THE CLAS S
IF YOU ARE A MEMBER OF THE CLASS, YOU MAY BE ELIGIBLE TO SHARE IN THE BENEFITS OF THIS SETTLEMENT AND WILL BE BOUND BY ITS TERMS UNLESS YOU EXCLUDE YOURSELF FROM THE CLAS S Each member of the Class shall be bound by all determinations and judgments of the Cou rt in connection with the Settlement , whether favorable or unfavorable , unless such Class member shall mail, by first class mail, postage prepaid , a written request for exclusion from the Class, postmarked no later than March 5, 2002 , addressed to In re ESC Medical Systems Ltd . Securities Litigation , Claims Administrator, The Garden City Group , Inc , P .O . Box 8840, Melville , New York 11747- 8840 Such request for exclusion shall be in a form that sufficiently identifies (1) the name and address of the person (s) or entity seeking exclusion , (u) a description of all transaction (s) involving ESC securities during the Class Period , including the principal amounts and the trade and settlement dates of each purchase and sale , and (ii ) includes the statement that such person or entity "requests exclusion from the class in In Re ESC Medical Systems Ltd Securities Litigation , No 98 CIV 7530 ( NRB) " A request for exclusion shall not be effective unless submitted within the time and in the form provided for herein . If a person or entity who is a member of the Class timely and validly requests to be excluded from the Class, such person or entity will not be bound by any orders or wdoments entered in respect of the Settlement and shall not be entitled to receive any benefits Provided by the Settlement in the event it is finally approved by the Court . By Order of the Court, if a judgment approving the proposed Settlement provided for in the Stipulation is finally entered, all members of the Class who have not requested exclusion shall conclusively be deemed to have released and shall thereafter be barred from asserting any of the Settled Claims against the Defendants (as defined in Section I herein) . VII . STATEMENT OF ATTORNEYS' FEES AND COSTS SOUGH T
If the proposed Settlement is finally approved, Plaintiffs' counsel intend to apply to the Court for an award of attorneys' fees from the Settlement Fund not to exceed thirty percent (30%) of the Settlement Fund ($0 14 on a per share basis), plus an additional amount not to exceed $200,000 as reimbursement for the expenses and costs actually incurred, in prosecuting the Class Action Plaintiffs' counsel believe their intended fee request to be fair and reasonable in light of the swift and excellent recovery obtained for the Class In addition, Plaintiffs' counsel have litigated this case on a wholly contingent basis and have received no compensation during the period the case has been pending Had the case not been successful, Plaintiffs' counsel woul...