Medical Device Daily Israel Correspondent

ZICHRON YA’AKOV, Israel — What was a market rumor last year — or rather before the recent celebration of the Jewish New Year (year 5767) — is bright news for Lumenis (Yokneam), Israel’s founding medical aesthetic laser and medical light manufacturer.

Lumenis recently reported that the private equity investment group LM Partners, along with Ofer Hi-Tech Group, has acquired 75% of the firm with an investment of $120 million.

LM Partners and Ofer Hi-Tech will buy $120 million of ordinary shares at a price of $1.0722 a share, representing an approximate 75% interest after closing.

This well-structured and friendly smart-money takeover of control is set to end seven years of mixed history that began in the Spring of 1999 when a major shareholder group unceremoniously ousted Lumenis founder, chairman and CEO Shimon Eckhouse, and then plunged the company into crippling debt by acquiring Coherent (Santa Clara, California),with no apparent plan concerning how to finance the purchase.

The veteran firm last released a financial statement for year 2005 when it was delisted as a public company and began trading on the pink sheets.

Year 2005 showed an operating profit of $5.8 million and a net loss of $14 million on $283 million revenue. Cash flow from current operations totaled $3.5 million in 2005 and the company’s shareholders’ equity deficit was $40 million.

About a year ago, the Division of Enforcement of the U.S. Securities and Exchange Commission caught the company artificially inflating its revenues for 2002, 2003 and 2004. Lumenis agreed to delist until it could re-register with the SEC.

As a global manufacturer of laser, light- and radiofrequency-based devices for medical, aesthetic, ophthalmic, dental and veterinary applications, its technology has continued to impress. As evidence, Frost & Sullivan (London) bestowed its 2005 Technology and World Market Leader recognition in laser and light-based technologies. This was based on excellence in penetrating and servicing a variety of regional and global markets, for superior planning and execution of product launches, strategic alliances, distribution strategies, technological innovations, mergers and acquisitions and initial public offerings.

Earlier this year four potential buyers, bidding up to $100 million, failed to meet the terms of the company and the bank, and the sale fell through. But this actually was for the best. The current team is well equipped for engineering recovery of the company.

LM Partners is a limited partnership formed in connection with the private placement, led by the private equity fund D-Partners. It is headed by Aharon Dovrat, his son Shlomo Dovrat, Avi Zeevi, and led by Harel Beit-On; they oversee the management of about $900 million in private equity investments.

Ofer Hi-Tech led by chairman Ehud (Udi) Angel and CEO Yoav Doppelt is part of the Ofer Brothers Group specializing in leading healthcare companies to their optimum development and exit.

Beit-On’s high level technology management expertise will surely help Lumenis through its recovery process to return to market pre-eminence.

Beit-On told Medical Device Daily, “We are very excited about the opportunity to invest in Lumenis. We will use this infusion of capital to aggressively build on the strong portfolio of products and unsurpassed patent position of this light and laser giant, to help bring new innovative products to the market and bring the company back to definitive market leadership which we believe will result in significantly improved value for all shareholders.” Beit-On will be taking over as Lumenis chairman from Jacob Frenkel, a former Bank of Israel governor.

Beit-On with a luminous history in technology, management and recovery, told MDD, “We are at the beginning of the road, and we look forward to working together. There is a lot of work ahead of us and everyone is prepared and ready to do it.”

Bank Hapoalim holds options for 20% of Lumenis’ shares. Charges of hundreds of millions of shekels in interest on the debt led to major losses for Lumenis since 2002 despite hundreds of millions of dollars in revenues.

In connection with the sale, Bank Hapoalim agreed to restructure the Lumenis outstanding debt, more than $200 million; within 24 months post-closing, the bank will receive repayments of $80 million, write offs of $50 million into equity leaving approximately $75 million outstanding.

Avner Raz, president/CEO of Lumenis, said: “We welcome this infusion of new capital from a highly recognized group of experienced investors and the contributions they will make to Lumenis. We appreciate the cooperative relationship with Bank Hapoalim. The bank has supported Lumenis throughout and worked with the investors to create a new financing structure for the company that is a major milestone for Lumenis and completes the final element critical to our Turnaround Plan for the company.”

Raz, whose contract continues through 2007, added: “We will use the approximately $80 million in cash to accelerate new product dvelopment and to improve our supply chain in order to enhance customer service. We look forward to launching these new initiatives in the markets we serve.”

Doppelt will join the Lumenis board following shareholder approval. He brings years of experience in the medical device industry and is anticipated to be an active director in the company’s affairs.

Lumenis said it intends to re-list on Nasdaq, sending an important message to investors, who from April 2006 have held non-negotiable paper, after the company’s ouster from the pink sheets.

The last financial statements that Lumenis released were for the year 2005, reporting $283 million in revenues, operating income of $6 million and net loss of $14 million. The company’s cash flow from operations amounted to $3.5 million; its equity deficit was $40 million, compared to an $11 million loss in 2004.