Israel - Pinksheets

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Lumenis Q&A

03.4.06 | 12:30 By Shirley Yom-Tov

One of the most emotionally charged stories on Wall Street, from the local perspective, is that of Lumenis (Nasdaq: LUME.PK). Almost a month has passed since the company's dramatic announcement that it may be delisted, making the pre-Passover holiday - characterized by scrubbing the house - an appropriate time to take a hard look at the company.

Lumenis is a leader in laser technology for cosmetic and medical applications. It settled with the U.S. Securities and Exchange Commission about alleged revenue inflation in its last four annual financial statements. The settlement remains subject to approval by the SEC top brass: if approved, the company's stock will be delisted from the pink sheets. That is part of the agreement.

What does delisting mean for investors?

Simply, Lumenis won't be a publicly traded company any more. Anybody holding its shares after delisting will be an owner of shares in a privately held company.

Who would gain and who would lose from its delisting?

From the company's perspective, the settlement is the lesser evil. Lumenis is spared a fine for breaking the law, which in itself is good news for a company with only $14 million in hand. The ones who get punished are the shareholders, for whom delisting cannot be a good thing. But from the wider perspective, at least the problems dogging Lumenis for years will be left behind. The company can start a new leaf after four years of floundering.

Will it relist?

Yes, it means to start the process in a year. It would start by re-registering with the SEC, which requires it to submit audited financial statements, including the restated ones going back to 2001. And, the ones from the start of 2004, when Brightman-Almagor quit as its accountants.

Are the company's reports from the last two years reliable?

They were not audited by Ziv Haft BDO, its new accountants, who were busy reworking Lumenis' financial statements for previous years. They may also be subject to changes. Lumenis says the reports should all be ready by mid-2007.

Is it in Lumenis' interest to relist?

Yes. Its employment agreement with Avner Raz explains why. In April 2003 he signed an agreement expiring in June 2007, giving him $530,000 a year in pay and a quarter-million dollar bonus, irrespective of the company's performance. He gets the lot even if the company goes broke.

At signing, he also got 400,000 stock options at a strike price of $1.21 per share. In September 2004, the shareholders agreed to give him 425,000 more options, at a strike price of $1.26 per share. Though some could be exercised, he hasn't used a single one. If Lumenis does not relist, these stock options will be as useful as toilet paper. Also, the stock market is the natural place to raise money.

Where would it relist?

Probably in the U.S., where it has already spent a great deal of effort complying with the Sarbanes-Oxley rules, and because that's its main market.

Would delisting affect the company's business?

When the company was tossed off the Nasdaq NM onto the pink sheets two years ago, Raz wrote to the company's customers to settle their hackles. Customers like certainties and its business could take a beating for a quarter or two, but how would investors know? Lumenis wouldn't be releasing financial statements.

Meanwhile, Lumenis is paying about $10 million a year to its accountants and lawyers, a huge sum for a company of its size. Once the SEC woes are done, its costs should plunge and its revenues soar, which is a good thing. The company could break even and step up repaying its gigantic $190 million debt to Bank Hapoalim.

Might somebody buy it?

Maybe. A few months ago Philips entered talks with Bank Hapoalim, Lumenis' biggest creditor by far, about an acquisition, but nothing came of it as far as we know. There is another possibility, that Mivtach Shamir Holdings (TASE: MISH) will bite.

http://www.haaretz.com/hasen/pages/ArticleContent.jhtml?itemNo=701922

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