# UNITED STATESSECURITIES
AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

# FORM 10-Q

|x | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | ----------------------------------------------------------------------------------------

For the Quarterly Period
Ended September 30, 2003

|o | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | -----------------------------------------------------------------------------------------

For the Transition Period
From ____ to _____

Commission File Number
0-13012

LUMENIS LTD.(Exact
name of registrant as specified in its charter)

|                                | 
|------------------------------- | 
|
|
|
|Israel                          | 
|(State or other jurisdiction of | 
|incorporation or organization)  | 

|                                         | 
|---------------------------------------- | 
|
|
|
|P.O. Box 240, Yokneam, Israel            | 
|(Address of principal executive offices) | 

Registrants
telephone number, including area code: 972-4-959-9000

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes x
 No o

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x
No o

The number of shares outstanding of
the registrants common stock as of November 18, 2003 was 36,942,439 Ordinary
Shares, NIS 0.10 par value per share.



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# LUMENIS LTD.

# FORM 10-Q

# For the Quarter Ended
September 30, 2003

# INDEX

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                      
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------
|PART I.  FINANCIAL INFORMATION                                                  
        ITEM 1. Financial Statements                                            
            1)  Consolidated Balance Sheets                                     
            2)  Interim Consolidated Statements of Operations                   
            3)  Interim Consolidated Statements of Cash Flows                   
            4)  Notes to Unaudited Interim Consolidated Financial
                 Statements                                                    
        ITEM 2. Management's  Discussion and Analysis of Financial Condition
                        and Results of Operations                               
        ITEM 3. Quantitative and Qualitative Disclosure about Market Risk       
        ITEM 4. Controls and Procedures                                         
PART II. OTHER INFORMATION                                                      
        ITEM 1. Legal Proceedings                                               
        ITEM 4. Submission of Matters to a Vote of Security Holders             
        ITEM 6. Exhibits and Reports on Form 8-K |  | 3
 3
 4
 5
 6
 8
27
37
37
37
37
38
38



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# PART I. FINANCIAL
INFORMATION

# ITEM 1. FINANCIAL STATEMENTS

# EXPLANATORY NOTE

INDEPENDENT INVESTIGATION BY THE
AUDIT COMMITTEE AND FAILURE TO OBTAIN A REVIEW OF THE INTERIM FINANCIAL STATEMENTS

As previously reported in the
Companys Current Report on Form 8-K for October 14, 2003 filed on October 16, 2003,
our independent auditors, Deloitte & Touche Brightman Almagor, have requested the
Audit Committee of the Board of Directors to conduct an independent investigation into the
Companys relationship with one of its distributors and the accounting and
disclosures related thereto, in connection with the continuing Securities and Exchange
Commission investigation. Accordingly, the independent auditors did not conduct a review
of the interim financial statements included in this quarterly report, notwithstanding
that such review, using professional review standards and procedures, is required by Form
10-Q.

Following completion of the
independent investigation and the review of its findings by our independent auditors, and
thereafter, a review of our financial statements for the third fiscal quarter of 2003 by
our independent auditors, Lumenis intends to file an amended Form 10-Q for the third
quarter ended September 30, 2003 to reflect revisions, if any, to the financial statements
contained in this Form 10-Q which may be appropriate as a result of such review.

The Audit Committee of the Board of
Directors is working expeditiously to complete its investigation. We cannot, however,
predict when the investigation will be completed, its ultimate scope or its outcome, or
any possible effect on the Companys financial statements.

- 3 -

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---

# LUMENIS LTD.CONSOLIDATED
BALANCE SHEETS 
(In thousands, except
share and per share data)

|                                                          | September 30,
2003 | December 31,
2002
|--------------------------------------------------------- | ------------------ | -----------------
|
|
|
|CURRENT ASSETS                                            |                    |                  
|Cash and cash equivalents                                 |                    |                  
|Trade receivables, net                                    |                    |                  
|Prepaid expenses and other receivables                    |                    |                  
|Inventories                                               |                    |                  
|                                                          |                    |                  
|                                                          |                    |                  
|                                                          |                    |                  
|FINISHED GOODS USED IN OPERATIONS                         |                    |                  
|LONG-TERM INVESTMENTS                                     |                    |                  
|Investments in equity securities                          |                    |                  
|Long term trade receivables                               |                    |                  
|FIXED ASSETS, NET                                         |                    |                  
|GOODWILL, NET OF ACCUMULATED AMORTIZATION                 |                    |                  
|OF $4,627                                                 |                    |                  
|OTHER PURCHASED INTANGIBLE ASSETS, NET OF                 |                    |                  
|ACCUMULATED AMORTIZATION OF $19,259 and $14,921           |                    |                  
|OTHER ASSETS, NET                                         |                    |                  
|                                                          |                    |                  
|Total assets                                              |                    |                  
|                                                          |                    |                  
|CURRENT LIABILITIES                                       |                    |                  
|Short-term debt                                           |                    |                  
|Current maturities of long term loans                     |                    |                  
|Trade payables                                            |                    |                  
|Other accounts payable and accrued expenses               |                    |                  
|Subordinated note                                         |                    |                  
|                                                          |                    |                  
|                                                          |                    |                  
|                                                          |                    |                  
|LONG TERM LIABILITIES                                     |                    |                  
|Bank loans, net                                           |                    |                  
|Deferred income                                           |                    |                  
|Accrued severance pay, net                                |                    |                  
|Other long-term liabilities                               |                    |                  
|                                                          |                    |                  
|                                                          |                    |                  
|                                                          |                    |                  
|Total liabilities                                         |                    |                  
|                                                          |                    |                  
|COMMITMENTS AND CONTINGENT LIABILITIESSHAREHOLDERSEQUITY |                    |                  
|Ordinary shares of NIS 0.1 par value: Authorized -        |                    |                  
|100,000,000 shares; Issued and outstanding                |                    |                  
|36,942,439 and 36,941,914 shares, respectively            |                    |                  
|Additional paid-in capital                                |                    |                  
|Accumulated other comprehensive income (loss)             |                    |                  
|Accumulated deficit                                       |                    |                  
|Treasury stock, 14,898 shares at cost:                    |                    |                  
|                                                          |                    |                  
|Total shareholders' equity                                |                    |                  
|                                                          |                    |                  
|Total liabilities and shareholders' equity                |                    |                  
|                                                          |                    |                  

The accompanying notes are an
integral part of these consolidated financial statements.

- 4 -

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# LUMENIS LTD. 
INTERIM CONSOLIDATED
STATEMENTS OF OPERATIONS
UNAUDITED 
(In thousands, except
per share data)

|                                           | For the three
months ended
September 30, | For the nine
months ended
September 30,
|------------------------------------------ | ---------------------------------------- | ---------------------------------------
|
|
|
|NET REVENUES                               |                                          |                                        
|                                           |                                          |                                        
|COST OF REVENUES                           |                                          |                                        
|                                           |                                          |                                        
|Gross profit                               |                                          |                                        
|                                           |                                          |                                        
|OPERATING EXPENSES                         |                                          |                                        
|Research and development, net              |                                          |                                        
|Selling, marketing and administrative      |                                          |                                        
|Amortization of intangible assets          |                                          |                                        
|Litigation expenses                        |                                          |                                        
|                                           |                                          |                                        
|Total operating expenses                   |                                          |                                        
|                                           |                                          |                                        
|Operating income (loss)                    |                                          |                                        
|                                           |                                          |                                        
|Other income (loss), net                   |                                          |                                        
|Financing expenses                         |                                          |                                        
|                                           |                                          |                                        
|Loss before income taxes                   |                                          |                                        
|                                           |                                          |                                        
|Income tax expense                         |                                          |                                        
|                                           |                                          |                                        
|Loss after income taxes                    |                                          |                                        
|                                           |                                          |                                        
|Company's share in losses of an affiliate  |                                          |                                        
|                                           |                                          |                                        
|LOSS FROM ONGOING OPERATIONS               |                                          |                                        
|                                           |                                          |                                        
|Discontinued Operations:                   |                                          |                                        
|Income (loss) from discontinued operations |                                          |                                        
|                                           |                                          |                                        
|Loss on sale of discontinued operations    |                                          |                                        
|                                           |                                          |                                        
|Income (loss) from discontinued operations |                                          |                                        
|                                           |                                          |                                        
|NET LOSS                                   |                                          |                                        
|                                           |                                          |                                        
|BASIC AND DILUTED LOSS PER SHARE           |                                          |                                        
|Loss per share before extraordinary items  |                                          |                                        
|Loss from discontinuing operations         |                                          |                                        
|                                           |                                          |                                        
|Net loss per share                         |                                          |                                        
|                                           |                                          |                                        
|WEIGHTED AVERAGE NUMBER OF SHARES          |                                          |                                        
|Basic and diluted                          |                                          |                                        
|                                           |                                          |                                        

(*) Restated to reflect the
discontinued industrial operations

The accompanying notes are an
integral part of these consolidated financial statements

- 5 -

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LUMENIS LTD. 
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     UNAUDITED
                                  (In thousands)

|                                                                          | For the nine
months ended
September 30,
|------------------------------------------------------------------------- | ---------------------------------------
|
|
|
|CASH FLOWS - OPERATING ACTIVITIES                                         |                                        
|Net loss for the period                                                   |                                        
|Income from discontinued operations                                       |                                        
|Loss on sale of discontinued operations                                   |                                        
|                                                                          |                                        
|Loss from continuing operations for the period                            |                                        
|                                                                          |                                        
|Adjustment to reconcile net loss to net cash used in operating activities |                                        
|Income and expenses not affecting operating cash-flows:                   |                                        
|Income from discontinued operations                                       |                                        
|Depreciation and amortization                                             |                                        
|Amortization of stock-based compensation                                  |                                        
|Company's shares in losses (gains) of an affiliate                        |                                        
|Extraordinary gain on purchase of Company's convertible notes             |                                        
|Amortization of other long-term assets                                    |                                        
|Loss on sale of investment in an affiliate                                |                                        
|Gain on sale of an impaired investment                                    |                                        
|Loss on impairment of equity securities                                   |                                        
|Other                                                                     |                                        
|Changes in operating assets and liabilities:                              |                                        
|Decrease (increase) in trade receivables                                  |                                        
|Decrease (Increase) in prepaid expenses and other receivables             |                                        
|Decrease (Increase) in inventories (1)                                    |                                        
|Increase (decrease) in accounts payable, accrued expenses and other       |                                        
|long-term liabilities                                                     |                                        
|Decrease  in long term deferred income                                    |                                        
|                                                                          |                                        
|Net-cash - operating activities                                           |                                        
|                                                                          |                                        
|CASH FLOWS - INVESTING ACTIVITIES                                         |                                        
|Purchase of fixed assets                                                  |                                        
|Investment in other long term assets                                      |                                        
|Investments, deposits and securities, net                                 |                                        
|Investment in an affiliate                                                |                                        
|Proceeds from sale of Industrial operations                               |                                        
|Proceeds from sale of subsidiary's operations                             |                                        
|Proceeds from sale of impaired investment                                 |                                        
|Payment for business acquired (Appendix A)                                |                                        
|                                                                          |                                        
|Net-cash - investing activities                                           |                                        
|                                                                          |                                        
|CASH FLOWS - FINANCING ACTIVITIES                                         |                                        
|Purchase of convertible notes                                             |                                        
|Repayment of subordinated notes                                           |                                        
|Proceeds from exercise of options                                         |                                        
|Increase of long term loans                                               |                                        
|Repayment of liability to Coherent                                        |                                        
|Increase (decrease) in short-term bank debt, net                          |                                        
|                                                                          |                                        
|Net-cash - financing activities                                           |                                        
|                                                                          |                                        
|DECREASE IN CASH AND CASH EQUIVALENTS                                     |                                        
|CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD                  |                                        
|                                                                          |                                        
|CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD                        |                                        
|                                                                          |                                        
|CASH PAID DURING THE PERIOD IN RESPECT OF:                                |                                        
|Income taxes                                                              |                                        
|                                                                          |                                        
|Interest                                                                  |                                        
|                                                                          |                                        

(1)      Including
finished goods used in operations.  
The accompanying notes are an
integral part of these consolidated financial statements.

- 6 -

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LUMENIS LTD. 
               CONSOLIDATED STATEMENTS OF CASH FLOWS
                            UNAUDITED
                          (In thousands)

|                                                            | For the nine
months ended
September 30,
|----------------------------------------------------------- | ---------------------------------------
|
|
|
|Appendix A - Payments for business acquired                 |                                        
|                                                            |                                        
|Current assets                                              |                                        
|Goodwill and other intangibles                              |                                        
|Liability in respect to acquisition                         |                                        
|                                                            |                                        
|                                                            |                                        
|                                                            |                                        
|                                                            |                                        
|Appendix B - Non-cash activities                            |                                        
|                                                            |                                        
|Issuance of shares in settlement of litigation              |                                        
|                                                            |                                        
|Repurchase of convertible notes                             |                                        
|                                                            |                                        
|Proceeds of sale of Industrial operations in Escrow Account |                                        
|                                                            |                                        
|Sale of investment in an affiliate for settlement of debt   |                                        
|                                                            |                                        

- 7 -

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# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 1  | GENERAL
|-------- | -------

|A. | As
described in the Companys Annual Report on Form 10-K, for the year
                    ended December 31, 2002, (the 2002 Form 10-K) the Company
is highly                     leveraged, with indebtedness that is substantial in
relation to its                     shareholders equity. To finance the April 2001
Coherent Medical Group                     (CMG) acquisition, ongoing working
capital needs and the refinancing                     of the Companys convertible
subordinated notes, the Company and certain of                     its subsidiaries
entered into various financing arrangements with Bank Hapoalim,                     B.M.
(the Bank). The outstanding short-term and long-term financing
                    obtained from the Bank, as of September 30, 2003, amounts to
$208,670. On  November  19, 2003 the  Company  announced  that it had  completed  the  restructuring  of its  existing  bank
indebtedness  and that it has agreed with the Bank on a new $9,000  receivables  based  revolving  credit loan. The
Bank also agreed to waive the covenants  under the  Company's  existing  debt  agreements  for the third and fourth
quarters  of 2003.  The debt  restructuring  plan  covers the  Company's  existing  $160,700  in term loans and its
$50,000  revolving  credit  agreement  with the Bank.  The  agreements  provide  for a  deferral  of all  principal
payments until August 15, 2006, when  amortization  will resume at the rate of $15,000  annually.  Principal
amortization  will increase to $20,000  annually in 2007 and continue  through 2013. The $50,000  revolving  credit
agreement will mature in March 2005,  but the Company  expects it will be renewed on an annual basis so long as the
Company remains in compliance with its loan covenants.  See "Cautionary  Statements" in Item 2 below.  The interest
rate on all  $210,700 of this  previously  outstanding  debt will be LIBOR plus 2.75%,  resulting in an annual cash
interest  cost of  approximately  $9,000 at current  rates.  The new $9,000 loan  matures in January  2005,  and is
secured by  substantially  all of the  Company's  receivables  in the United  States.  This loan bears  interest at
Prime plus 0.5%.  Covenants  under the  restructured  debt  agreements  include a  requirement  for the  Company to
achieve a minimum  consolidated  EBITDA  amount,  as  defined  in the Bank  Agreements.  For 2004 the  amounts on a
cumulative basis are : Q1 - $100, Q2 - $3,100,  Q3 - $8,600 and Q4 - $16,100. Another  covenant limits  consolidated
capital  expenditures  to $6,000 for each of 2004 and 2005. In connection  with the deferral of principal  payments
on the  $160,700 of debt and  waivers in respect  thereof,  the  Company  has agreed to grant the Bank  options for
7.820  million  Ordinary  Shares at an exercise  price of $1.97 per share for a term of ten years.  In addition,  in
connection  with such  deferrals  and waivers  the Company has agreed to fees  payable to the Bank in cash upon the
Company's  Ordinary  Share price  reaching  $5.00,  $6.00 and $7.00 per share over the next ten years,  which could
result in a total fee of up to $17,500.  In  connection  with the new $9,000  revolver,  the Company  agreed to pay
the Bank a $250 fee.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
October 14, 2003 the Company announced the implementation of its turnaround plan (Plan).
The Plan consists of a reorganization of the Company to a more customer focused
functional organization and a significant cost reduction program to bring costs in line
with current revenues. The Company will reduce approximately 300 positions or 23% of its
workforce, close several manufacturing sites and offices and consolidate other sites and
activities. Implementation of the Plan began immediately and is expected to be completed
within approximately nine months. Costs of implementation for severance and relocation
and related costs are estimated at $9,000. Implementation costs of the Plan are expected
to be incurred and charged to earnings in the amount of $5,000 in the fourth quarter of
2003 and $4,000  in 2004.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company believes that its restructuring plan will bring the Company to profitability when
fully implemented. The Company also believes that with its internally generated funds,
available cash and funds available under the new Bank agreement will be sufficient to
meet the Companys currently anticipated day-to-day operating expenses, commitments,
working capital, capital expenditure, cost of the implementation of the restructuring
plan and debt payment requirements. See Cautionary Statements in Item 2
below.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 8 -

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# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

| | Failure
by the Company to successfully complete the above-mentioned plans, would have a
materially adverse effect on the Companys ability to continue as a going concern.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is party to various legal proceedings, including an investigation by the United
States Securities and Exchange Commission (SEC) and an independent
investigation by its Audit Committee, as described in Note 7 Commitments and
Contingent Liabilities.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 9 -

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# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note  1   | GENERAL
(Cont.)
|---------- | ---------------

|B. | On
April 21, 2003, the Companys subsidiary, Spectron Laser Systems Limited
                    (Spectron), signed a definitive agreement to sell its
principal                     assets for $6,300 in cash, subject to adjustment, and the
assumption of certain                     liabilities. In connection with the sale the
Company reported a loss of $3,689                     of which a loss of approximately
$627 relates to future estimated discounted net                     lease payments on two
abandoned facilities, and approximately $691 relates to                     fixed assets
write-off for assets which had no alternative future use. Spectron                     is
accounted for as a discontinued operation and accordingly, Spectron is
                    excluded from results of continuing operations for all periods
presented. During                     the third quarter a dispute with the buyer arose,
mainly with regards to                     inventory valuation, involving approximately
$700 of the final consideration.                     The dispute is being addressed
according to the process agreed upon in the                     purchase agreement.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following are the net revenues and operating (loss) which are reported as part of the
discontinued operations:
| | ------------------------------------------------------------------------------------------------------------------

|                        | For the three
months ended
September 30, | For the nine
months ended
September 30,
|----------------------- | ---------------------------------------- | ---------------------------------------
|
|
|
|Net revenues            |                                          |                                        
|                        |                                          |                                        
|Operating income (loss) |                                          |                                        

|C. | On
March 28, 2003 the Company commenced a voluntary stock option exchange
                    program (the Offer). Under the program, eligible
participants were                     all current employees of the Company and its
subsidiaries (collectively the                     Group) as well as members
of the Companys Medical Advisory                     Board holding outstanding
options to purchase Ordinary Shares of the Company,                     which have an
exercise price per share of $6.00 or more (Eligible                     Options).
Members of the Board of Directors were not entitled to                     participate in
this program. Eligible Options were cancelled in exchange for new
                    options (New Options) based on a ratio of one New Option
for each                     three Eligible Options with an exercise price of $6.00
-$14.99, and one New                     Option for each four Eligible Options with an
exercise price of $15 or more. The                     New Options will vest in four
equal installments every six months over a                     24-month period from the
date of grant. Pursuant to the Offer, on May 12, 2003                     the Company
accepted for exchange from 481 tendering eligible participants and
                    cancelled 3,160,141 Eligible Options to purchase Ordinary Shares,
representing                     approximately 76% of the options that were eligible to
be tendered in the Offer.                     In exchange for the cancelled options, on
May 12, 2003 the Company granted the                     tendering Eligible Participants
New Options to purchase a total of 912,422                     Ordinary Shares at an
exercise price of $1.77, the May 12, 2003 market price.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|D. | On
September 30, 2003 the Company signed an agreement with the main shareholder
                    of an affiliate, Aculight (UK) Limited. As part of the agreement the
Company                     returned its shares in the affiliate and its option to
purchase additional                     shares. In addition, the Company has agreed to
write off its indebtedness from                     the affiliate in the net amount of
$3,450. The affiliate will return 77 systems                     previously bought or
systems that have been used free of charge. Starting                     October 1, 2003
the affiliate will be charged for all services received such as
                    maintenance and consumables.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 10 -

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# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

| | The
Company had previously provided for a potential loss on the receivable in 2002. In the
third quarter, the Company wrote off all the balances related to the investment in the
affiliate including deferred revenues and net debt. The net effect of the agreement in
the third quarter was a gain of $13 which is presented in other income.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 11 -

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# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 2  | SIGNIFICANT ACCOUNTING POLICIES
|-------- | -------------------------------

|A. | BASIS
OF PRESENTATION
|-- | ---------------------

| | The
accompanying unaudited condensed consolidated financial statements of Lumenis Ltd. (the
Company) and its subsidiaries (collectively the Group) as of
September 30, 2003 and for the three month and nine month periods then ended are
unaudited and reflect all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim period. The condensed
consolidated financial statements should be read in conjunction with the consolidated
financial statements and notes thereto, contained in the 2002 Form 10-K. The results of
operations for the three month and nine month periods ended September 30, 2003 are not
necessarily indicative of the results for the entire fiscal year ending December 31,
2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
previously reported in the Companys Current Report on Form 8-K for October 14, 2003
filed on October 16, 2003, our independent auditors, Deloitte & Touche Brightman
Almagor, have requested the Audit Committee of the Board of Directors to conduct an
independent investigation into the relationship of the Company with one of its
distributors and the accounting and disclosures related thereto, in connection with the
continuing Securities and Exchange Commission investigation. Accordingly, the interim
financial statements included in this quarterly report have not been reviewed by our
independent auditors using professional review standards and procedures, although that
review is required by Form 10-Q.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Following
completion of the independent investigation and the review of its findings by our
auditors, and thereafter, a review of our financial results for the third fiscal quarter
of 2003 by our auditors, Lumenis intends to file an amended Form 10-Q for the third
quarter ended September 30, 2003 to reflect revisions, if any, to the financial
statements contained in this Form 10-Q which may be appropriate as a result of such
review.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Subsequently
to the review by our auditors, there may be revisions to the financial statements
contained in this Form 10-Q, some of which could be material. Prior to the Companys
October 14, 2003 announcement, the Company notified the Securities and Exchange
Commission of the matter. The Audit Committee of the Board of Directors is working
expeditiously to complete its investigation. We cannot predict how long this
investigation will last, its ultimate scope or its outcome, or any possible effect on the
Companys financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|B. | STOCK-BASED
COMPENSATION
|-- | ------------------------

| | In
December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123",
which provides alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. Accordingly, the Group
has elected to adopt SFAS No. 123 effective January 1, 2003, for all prospective option
grants, modification or settlements. Based on current compensation programs the Group
estimates that the adoption of SFAS No. 123 will result in a non-cash charge to earnings
of up to approximately $1,000 for the year ending December 31, 2003. Stock-based
compensation expenses for the three month and nine month periods ended September 30, 2003
amounted to approximately $195 and $865 respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 12 -

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# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

| | For
all prior periods, the Group accounted for employee stock-based compensation in
accordance with APB No. 25, Accounting for Stock Issued to Employees and the
related FASB interpretations. Pursuant to those accounting pronouncements, the Group
recorded compensation for share options granted to employees at the date of grant based
on the difference between the exercise price of the options and the market value of the
underlying shares at that date. Deferred compensation is amortized to compensation
expense over the vesting period of the underlying options. The Group accounts for
stock-based compensation to consultants in accordance with SFAS No. 123 Accounting
for Stock Based Compensation and EITF 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|C. | STOCK-BASED
COMPENSATION (Cont.)
|-- | --------------------------------

| | The
following table illustrates the effect on net loss and loss per share if the Group had
applied the fair value recognition provisions of SFAS No. 123, to stock-based employee
compensation for the corresponding periods presented:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | For the three
months ended
September 30, | For the nine
months ended
September 30,
|------------------------------- | ---------------------------------------- | ---------------------------------------
|
|
|
|Net loss                        |                                          |                                        
|Add: amortization of deferred   |                                          |                                        
|compensation related to         |                                          |                                        
|employee stock options          |                                          |                                        
|included in consolidated        |                                          |                                        
|statements of operations        |                                          |                                        
|                                |                                          |                                        
|Deduct: amortization of         |                                          |                                        
|deferred compensation at        |                                          |                                        
|fair value                      |                                          |                                        
|                                |                                          |                                        
|Pro forma net loss              |                                          |                                        
|                                |                                          |                                        
|Loss per share                  |                                          |                                        
|Basic and diluted - as reported |                                          |                                        
|                                |                                          |                                        
|Basic and diluted - pro forma   |                                          |                                        
|                                |                                          |                                        

- 13 -

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

| | Under
SFAS No. 123 the fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model assuming 0% dividend yield and with the following
weighted-average assumptions:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | For the three
months ended
September 30, | For the nine
months ended
September 30,
|-------------------------------- | ---------------------------------------- | ---------------------------------------
|
|
|
|Average risk-free interest rates |                                          |                                        
|Average expected life (in years) |                                          |                                        
|Volatility                       |                                          |                                        

- 14 -

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 2  | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|-------- | ---------------------------------------

|D. | PRODUCT
WARRANTY
|-- | ----------------

| | Accrued
warranty costs are recorded at the time of sale based on the Groups experience and
managements estimates. Changes in warranty provision during the three month and
nine month periods ended September 30, 2003 were as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                        | 
|------------------------------------------------------- | 
|
|
|
|Warranty provision as of June 30, 2003                  | 
|Payments made under warranty                            | 
|Increase in product warranty provision for current year | 
|                                                        | 
|Warranty provision as of September 30, 2003             | 
|                                                        | 
|                                                        | 
|Warranty provision as of December 31, 2002              | 
|Payments made under warranty                            | 
|Increase in product warranty provision for current year | 
|                                                        | 
|Warranty provision as of September 30, 2003             | 
|                                                        | 

|E. | NEW
ACCOUNTING PRONOUNCEMENTS
|-- | -----------------------------

| | In
April 2002, the FASB issued SFAS No. 145, which rescinds and amends several
pronouncements, including SFAS No. 4, Reporting Gains and Losses from
Extinguishments of Debt and SFAS No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements As a result of rescinding SFAS No. 4 and SFAS No.
64, the criteria in APB No. 30 will be used to classify gains and losses from
extinguishments of debt. Due to the adoption of SFAS No. 145 the Company reclassified as finance expenses the
$92 extraordinary gain incurred during the nine month period ended September 30, 2002
from repurchasing its convertible notes.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
September 2002, the EITF issued Issue No. 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables., which will be effective for interim
periods beginning after June 15, 2003. The scope of EITF 00-21 deals with how a company
should recognize revenue when it sells multiple products or services to a customer as
part of an overall solution. In general, EITF 00-21 provides the following broad criteria
for recognizing revenue in multiple element arrangements: (i) revenue should be
recognized separately for separate units of accounting; (ii) revenue for a separate unit
of accounting should be recognized only when the arrangement consideration is reliably
measurable and the earnings process is complete; and (iii) consideration should be
allocated among separate units of measure of accounting in an arrangement based on their
relative fair values.The adoption of EITF 00-21 did not have material effect on the
financial statements of the Company.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November 2002, the FASB issued FIN No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 requires the guarantor to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in issuing the
guarantee and to provide certain disclosures. The recognition provisions of FIN 45 are
applicable on a prospective basis to guarantees issued or modified after December 31,
2002. The Company does not expect the adoption of FIN 45 to have a material effect on its
consolidated financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 15 -

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 2  | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|-------- | ---------------------------------------

|E. | NEW
ACCOUNTING PRONOUNCEMENTS (Cont.)
|-- | -------------------------------------

| | In
January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest
Entities. FIN 46 classifies entities into two groups: (1) those for which voting
interests are used to determine consolidation; and (2) those for which other interests
(variable interests) are used to determine consolidation. FIN 46 deals with the
identification of Variable Interest Entities (VIE) and the business
enterprise which should include the assets, liabilities, non-controlling interests, and
results of activities of a VIE in its consolidated financial statements. FIN 46 will
become effective at the beginning of the first interim reporting period that starts after
July 1, 2003. As
of September 30, 2003 the Company renounced its investment in an affiliate, and FIN 46
has no effect on the financial statements of the Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, which amends and clarifies accounting for
derivative instruments, and for hedging activities under SFAS 133. Specifically, SFAS 149
requires that contracts with comparable characteristics be accounted for similarly.
Additionally, SFAS 149 clarifies the circumstances in which a contract with an initial
net investment meets the characteristics of a derivative and when a derivative contains a
financing component that requires special reporting in the statement of cash flows. This
Statement is generally effective for contracts entered into or modified after June 30,
2003. and does not have an impact on the Companys financial
statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity, which establishes standards
for classifying and measuring as liabilities certain financial instruments that embody
obligations of the issuer and have characteristics of both liabilities and equity. SFAS
150 must be applied immediately to instruments entered into or modified after May 31,
2003,and does not have an impact on the Companys financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F. | RECLASSIFICATION
|-- | ----------------

| | Certain
prior period balances have been reclassified to conform to current period presentation.
| | -----------------------------------------------------------------------------------------------

|Note 3  | TRADE RECEIVABLES
|-------- | -----------------

| | The
trade receivables as of September 30, 2003 and December 31, 2002 are presented net of
allowance for doubtful accounts of $18,083 and $17,689, respectively and provision for
returns of $3,769 and $4,550, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 4  | INVENTORIES
|-------- | -----------

| | Inventories
are composed of the following:
| | ------------------------------------------

|                  | September 30,
2003 | December 31,
2002
|----------------- | ------------------ | -----------------
|
|
|
|Raw materials     |                    |                  
|Work in process   |                    |                  
|Finished products |                    |                  
|                  |                    |                  
|                  |                    |                  
|                  |                    |                  

- 16 -

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 5  | SEGMENT INFORMATION
|-------- | -------------------

|A. | REPORTABLE
SEGMENTS
|-- | -------------------

| | Commencing
January 1, 2002, we began to evaluate our business based on four separate business units,
as follows: Aesthetic, Ophthalmic, Surgical, and Other. These business units are
identified as operating segments in accordance with SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information. The information evaluated by the
Companys senior management in deciding how to allocate resources to these segments
is net revenues and gross profit. Due to several organizational changes, commencing
January 1, 2003, we again reorganized our business based on three separate business units
as follows: Aesthetics, Medical, and Other. Medical includes the surgical and ophthalmic
operations; all 2002 data have been restated to reflect such change.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Due
to the change in the structure of the Company, following the turnaround plan announced by
the Company during October 2003, the Company will change its reporting segments from
business units to geographical units. The change is to take place effective January 1,
2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 17 -

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 5  | SEGMENT INFORMATION (Cont.)
|-------- | ---------------------------

|A. | REPORTABLE
SEGMENTS (Cont.)
|-- | ---------------------------

|                      | For the three months ended September 30, 2003 (Unaudited)
|--------------------- | ---------------------------------------------------------
|
|
|
|Net Revenues          |                                                          
|Gross Profit          |                                                          
|Un-allocated expenses |                                                          
|                      |                                                          
|Operating loss        |                                                          
|                      |                                                          

|                      | For the three months ended September 30, 2002 (Unaudited)
|--------------------- | ---------------------------------------------------------
|
|
|
|Net Revenues          |                                                          
|Gross Profit          |                                                          
|Un-allocated expenses |                                                          
|                      |                                                          
|Operating income      |                                                          
|                      |                                                          

|                      | For the nine months ended September 30, 2003 (Unaudited)
|--------------------- | --------------------------------------------------------
|
|
|
|Net Revenues          |                                                         
|Gross Profit          |                                                         
|Un-allocated expenses |                                                         
|                      |                                                         
|Operating loss        |                                                         
|                      |                                                         

|                      | For the nine months ended September 30, 2002 (Unaudited)
|--------------------- | --------------------------------------------------------
|
|
|
|Net Revenues          |                                                         
|Gross Profit          |                                                         
|Un-allocated expenses |                                                         
|                      |                                                         
|Operating income      |                                                         
|                      |                                                         

- 18 -

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 5  | SEGMENT INFORMATION (Cont.)
|-------- | ---------------------------

|B. | GEOGRAPHIC
INFORMATION:
|-- | -----------------------

| | The
following presents net revenues based on the location of the customer:.
| | ---------------------------------------------------------------------------

|             | For the three
months ended
September 30, | For the nine
months ended
September 30,
|------------ | ---------------------------------------- | ---------------------------------------
|
|
|
|Net Revenues |                                          |                                        
|Americas     |                                          |                                        
|Europe       |                                          |                                        
|Asia         |                                          |                                        
|Israel       |                                          |                                        
|             |                                          |                                        
|Consolidated |                                          |                                        
|             |                                          |                                        

|                  | September 30,
2003 | December 31,
2002
|----------------- | ------------------ | -----------------
|
|
|
|Long lived assets |                    |                  
|North America     |                    |                  
|Europe            |                    |                  
|Asia              |                    |                  
|Israel            |                    |                  
|                  |                    |                  
|                  |                    |                  
|                  |                    |                  

|C. | ALLOCATION
OF GOODWILL BETWEEN REPORTABLE SEGMENTS:
|-- | ---------------------------------------------------

|           | September 30,
2003 | December 31,
2002
|---------- | ------------------ | -----------------
|
|
|
|Aesthetics |                    |                  
|Medical    |                    |                  
|Other      |                    |                  
|           |                    |                  
|           |                    |                  
|           |                    |                  

- 19 -

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 6  | FINANCING ACTIVITIES 
|-------- | ----------------------

| | The
outstanding short-term and long-term financing obtained from the Bank, as of September
30, 2003, amounts to $208,670.
| | -------------------------------------------------------------------------------------------------------------------------

| | On  November  19, 2003 the  Company  announced  that it had  completed  the  restructuring  of its  existing  bank
indebtedness  and that it has agreed with the Bank on a new $9,000  receivables  based  revolving  credit loan. The
Bank also agreed to waive the covenants  under the  Company's  existing  debt  agreements  for the third and fourth
quarters  of 2003.  The debt  restructuring  plan  covers the  Company's  existing  $160,700  in term loans and its
$50,000  revolving  credit  agreement  with the Bank.  The  agreements  provide  for a  deferral  of all  principal
payments until August 15, 2006, when  amortization  will resume at the rate of $15,000  annually.  Principal
amortization  will increase to $20,000  annually in 2007 and continue  through 2013. The $50,000  revolving  credit
agreement will mature in March 2005,  but the Company  expects it will be renewed on an annual basis so long as the
Company remains in compliance with its loan covenants.  See "Cautionary  Statements" in Item 2 below.  The interest
rate on all  $210,700 of this  previously  outstanding  debt will be LIBOR plus 2.75%,  resulting in an annual cash
interest  cost of  approximately  $9,000 at current  rates.  The new $9,000 loan  matures in January  2005,  and is
secured by  substantially  all of the  Company's  receivables  in the United  States.  This loan bears  interest at
Prime plus 0.5%.  Covenants  under the  restructured  debt  agreements  include a  requirement  for the  Company to
achieve a minimum  consolidated  EBITDA  amount,  as  defined  in the Bank  Agreements.  For 2004 the  amounts on a
cumulative basis are : Q1 - $100, Q2 - $3,100,  Q3 - $8,600 and Q4 - $16,100. Another  covenant limits  consolidated
capital  expenditures  to $6,000 for each of 2004 and 2005. In connection  with the deferral of principal  payments
on the  $160,700 of debt and  waivers in respect  thereof,  the  Company  has agreed to grant the Bank  options for
7.820  million  Ordinary  Shares at an exercise  price of $1.97 per share for a term of ten years.  In addition,  in
connection  with such  deferrals  and waivers  the Company has agreed to fees  payable to the Bank in cash upon the
Company's  Ordinary  Share price  reaching  $5.00,  $6.00 and $7.00 per share over the next ten years,  which could
result in a total fee of up to $17,500.  In  connection  with the new $9,000  revolver,  the Company  agreed to pay
the Bank a $250 fee.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 6, 2003 the Company and the Bank signed a new financing arrangement, effective
as of December 31, 2002, which extended the Companys existing revolving credit
agreement to December 31, 2003; increased the amount available under the revolver to
$50,000 until July 1, 2003 and to $35,000 thereafter, until December 31, 2003; provided
for an interest rate on the $15,000 increase of LIBOR plus 3%; deferred the loan
amortization of a $10,000 principal payment due April 2003; and amended certain covenants
in the loan agreements. In addition the February 2003 arrangement waived the covenants
requirement for the quarter ending December 31, 2002 and replaced the debt coverage
covenant with minimum EBITDA amounts, as defined in the Bank agreements. In connection
with the above-mentioned February 2003 agreement the Company re-priced the 1,136,300
outstanding options owned by the Bank to the then current market price and granted an
additional 275,000 options at the then current market price. Additionally the Company
paid the Bank a $200 fee.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
June 2003 the Company and the Bank amended certain terms of its financing arrangements
described above. The amendments extended the $50,000 available under its revolver until
December 31, 2003, and modified certain covenants and other terms and provisions in its
loan agreements. The Company had agreed that it would use the net proceeds, or at least
$3,000, from the sale of its industrial laser business to prepay a portion of the October
principal payment by July 31, 2003. Subsequently, based on an understanding with the
Bank, this prepayment requirement was waived. Additionally the Company paid the Bank a
$200 fee. Under its loan agreements as amended the Company was required to maintain a
minimum EBITDA amount, as defined in the Bank agreements, on a cumulative basis at the
end of each quarter in 2003. These amounts were changed pursuant to the November 2003
debt restructuring, as described above.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 20 -

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 7  | COMMITMENTS AND CONTINGENT LIABILITIES
|-------- | --------------------------------------

| | The
Company is a party to various legal proceedings incident to its business. Certain
proceedings in which the Company is involved are described in the Legal Proceedings section
and note 13C to the Consolidated Financial Statements in the 2002 Form 10-K,
and certain subsequent developments as to legal proceedings are described in the
Legal Proceedings section and Note 7 to the Consolidated Financial Statements
in the Forms 10-Q for the quarterly periods ended March 31, 2003 and June 30, 2003,
respectively. The following discussion is limited to recent developments concerning
certain of the Companys legal proceedings since the filling of the Companys Form
10-Q for the quarterly period ended June 30, 2003, and should be read in conjunction with
the descriptions of legal proceedings in the above-mentioned
earlier Reports. Unless otherwise indicated, all proceedings discussed in those
earlier Reports remain outstanding. Except for the legal proceedings described below or
in the above- mentioned earlier Reports, there are no legal proceedings pending or
threatened against the Company that management believes are likely to have a material
adverse effect on the Companys consolidated financial position.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Towards
the end of the third quarter, Deloitte & Brightman Almagor, the Companys
outside auditors (Deloitte), sent a letter to the Audit Committee, raising
for review certain questions regarding one of the Companys distributors, in
connection with the pending investigation of the Company by the United States Securities
and Exchange Commission. In particular, the letter expressed concern that certain payment
and other terms in connection with specific transactions may not have been disclosed to
them. The letter asked the Audit Committee to conduct an independent investigation into
the Companys relationship, with, and the accounting treatment and disclosures
related, to that distributor. In addition, the letter stated that Deloitte will not
render any opinions or reports concerning Lumenis financial statements until after
completion of the Audit Committee investigation. As requested, the Audit Committee has
commenced an investigation of the matters raised in the Deloitte letter, and has engaged
independent counsel for assistance. The Company and management are cooperating fully in
the Audit Committee investigation. Management will continue to provide whatever documents
or information may be requested by the Audit Committee or its independent counsel.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other than the above-described independent investigation by the Audit Committee, there have been no material
       new developments in the Securities and Exchange Commission investigation of the Company, which primarily
          relates to the Companys relationships with distributors and certain previously disclosed charges and
write-downs.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 21 -

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 7  | COMMITMENTS AND CONTINGENT LIABILITIES (cont.)
|-------- | ----------------------------------------------

| | On
or about February 28, 2003, a lawsuit was filed on behalf of Aqua Fund, L.P. and certain
other purchasers of Lumenis securities in the United States District Court for the
Northern District of Illinois. The named defendants are the Company, Yacha Sutton (the
Companys former Chief Executive Officer) and Sagi Genger (the Companys former
Chief Operating Officer). The Company was served with a summons and complaint in this
action in June 2003, and on September 2, 2003, Lumenis filed a motion to dismiss the
complaint for failure to state a claim upon which relief can be granted and failure to
plead fraud with particularity. On October 24, 2003, plaintiffs filed, inter alia,
an amended complaint and a motion to transfer the action to the United States District
Court for the Southern District of New York (the New York Court). On November
7, 2003, the plaintiffs and the Company submitted to the court an agreed motion seeking,
inter alia, to transfer the action to the New York Court, and to extend the
time for the defendants to respond or answer the amended complaint. Plaintiffs have
indicated their intention, upon transfer of the action, to seek consolidation, for
discovery purposes only, with the action captioned In re: Lumenis Ltd. Securities
Litigation discussed below. Yacha Sutton and Sagi Genger have not been properly
served with a summons and complaint in this action, and neither of those individuals has
appeared in the case. The Company believes that all of the allegations and claims are
baseless, and the Company intends to vigorously defend against them.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
March, April and May 2002, eight purported class action lawsuits were filed in the United
States District Court for the Southern District of New York on behalf of purchasers of
Lumenis securities between January 7 and February 28, 2002 (the Class Period).
The named defendants include, in addition to the Company, Prof. Jacob A. Frenkel (the
Chairman of the Board of Directors of the Company), Yacha Sutton, Sagi Genger and Asif
Adil (the Companys former Executive Vice President  Business Operations and
acting Chief Financial Officer). The Company has been served with the summons and
complaint in some but not all of these actions. By Memorandum and Order, dated June 17,
2003, the Court consolidated these eight actions and the purported class action discussed
below under the caption In re: Lumenis Ltd. SecuritiesLitigation,
appointed a lead plaintiff and approved selection of lead plaintiffs counsel.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
or about August 29, 2003, plaintiffs filed and served a Consolidated Amended Class Action
Complaint in all of these class actions, as well as the purported class action discussed
below. The Consolidated Amended Complaint (CAC) alleges a class period from
October 2, 2000 to May 16, 2002, and contains the following allegations: (a) the Companys
financial statements, and the related press releases announcing or pre-announcing such
results, from the third quarter of FY 2000 to the first quarter of FY 2002, overstated
revenues for the applicable quarter due to alleged violations of GAAP; (b) improper
revenue recognition on sales to distributors which the CAC characterizes as channel
stuffing; (c) the Company (then known as ESC Medical Systems, Ltd.)
acquired the assets of the Coherent Medical Group (CMG) on April 30, 2001,
for the fraudulent purpose of taking very large one-time charges and write-downs claimed
to be associated with the acquisition but which were really intended to write down
receivables or other assets which should have been written-off or written-down earlier;
and (d) the Company fraudulently overstated the progress or success of ongoing efforts to
integrate CMG with the Company, and the benefits or synergies expected to be achieved by
that combination. In addition to these basic claims, the CAC asserts additional claims
based on several other alleged violations of financial reporting requirements, including:
(e) the alleged failure to disclose all anticipated write-downs and charges in a Form
8-K/A pro forma balance sheet filed in July 2001 presenting the effects of the
combination of CMG and the Company, as if it had occurred as of March 31, 2001; (f) the
alleged misclassification of $9 million in assets as inventory instead of finished goods
used in operations on the balance sheet for the year ending December 31, 2001; and (f)
the failure to make adequate disclosures in the Companys annual report on Form 10-K
for the year ending December 31, 2001 regarding an $8.2 million related-party sale
agreement during the last quarter between Lumenis and its UK affiliate, Aculight, which
transaction allegedly lacked  economic
substance. The Company is required to answer or move with respect to the CAC by November
19, 2003. The Company plans to file a motion to dismiss for failure to state a claim,
failure to plead fraud with particularity as required by the Private Securities
Litigation Reform Act of 1995 and Rule 9(b) of the Federal Rules of Civil Procedure, and
on the grounds that certain of the claims asserted are barred by the applicable statute
of limitations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 22 -

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 7  | COMMITMENTS
AND CONTINGENT LIABILITIES (cont.)
|-------- | ----------------------------------------------

| | In
May 2002, another purported class action complaint was filed in the United States
District Court for the Southern District of New York on behalf of purchasers of the
Companys securities between August 2, 2001 and May 7, 2002 (the Extended
Class Period). In addition to the Company, the named defendants include Prof. Jacob
A. Frenkel, Yacha Sutton, Sagi Genger and Asif Adil. By order dated June 17, 2003, this
action was consolidated with the other purported class action lawsuits described above.
The Company believes that all of the allegations and claims in all of the above purported
class action lawsuits are baseless, and the Company intends to vigorously defend against
them.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the litigation in the Bailiffs Court of Horsholm, Denmark, between the Company and
Danish Dermatological Development A/S, a Danish company (DDD) previously
reported in greater detail, the parties held preliminary settlement discussions earlier
in the year, however, a settlement was not reached. A hearing date has not been set, and
the Company currently expects that its petition for an interim injunction against DDD in
Denmark will be heard in mid 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the claim filed by the Company in the Tel Aviv  Jaffa District Court against
Syneron Medical Ltd. and Messrs. Shimon Eckhouse, Michael Kreindel, Mark Aronovitz, and
Avner Lior previously reported in greater detail, by mutual agreement, the parties
completed pre-trial proceedings on June 9, 2003. Nonetheless, on November 5, 2003, the
Defendants filed a motion seeking clarifications to certain responses by Lumenis to the
Defandants questionnaire. Additionally, in September 2003, Syneron filed a motion
demanding that the Company submit a NIS 1,000 bond, and on October 15, 2003, the
Company filed its response in opposition to Synerons motion. The next pre-trial
hearing is scheduled for February 17, 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the lawsuit by Lumenis Inc. against Syneron Inc. (Canada), Syneron Inc. (Delaware), and
certain former Lumenis employees, Brian D. Lodwig, J. Scott Callihan, Mark Lazinski, and
Stephen Harsnett, in the Superior Court of California for the County of Santa Clara
previously reported in greater detail, discovery has commenced, and the parties attended
a court-ordered mediation in September 2003. The parties failed to reach an agreement
resolving their claims, and the court has scheduled a trial setting conference for
January 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
previously reported in greater detail, Lumenis Ltd. and Lumenis Inc. (collectively, Lumenis)
in the United States District Court for the Central District of California, alleging that
Syneron Medical Ltd., Syneron Inc. and Syneron Canada Corp. (collectively Syneron)
are infringing six U.S. patents held by Lumenis by, inter alia, selling Synerons
Aurora DS and Aurora SR devices. Lumenis asked for a temporary restraining order and a
preliminary and permanent injunction against further infringement as well as an award of
as yet undetermined damages and lost profits resulting from Synerons infringement
and Lumenis attorneys fees and costs. On July 11, 2003, the court entered its
ruling, and on August 5, 2003, the court entered its order (the Order), inter
alia, granting the Companys motion for a preliminary injunction based on Claim 3 of
U.S. Patent No. 5,683,380 (the '380 Patent). The Order enjoins Syneron
Medical Ltd. and Syneron Inc., and their officers, agents, servants, employees and
attorneys, and those persons in active concert or participation with them who receive
actual notice of the Order, from using gel with Synerons Aurora DS, SR and DS/SR
devices, and from selling and offering for sale the Aurora devices for
use
with gel. The court did not enjoin use of the Aurora devices with water. The court denied
the Companys motion as to U.S. Patent Nos. 5,405,368 and 6,174,325. On August 15,
2003 the Company posted a bond in the amount of $400 in accordance with the Order. On
November 4, 2003, the Company filed an appeal of the courts Order with the U.S.
Court of Appeals for the Federal Circuit. Syneron has filed a cross-appeal, and the
Company expects both appeals to be heard in mid-2004. The trial is presently scheduled for
October 5, 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 23 -

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---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 7  | COMMITMENTS
AND CONTINGENT LIABILITIES (cont.)
|-------- | ----------------------------------------------

| | In
the lawsuit filed by Lumenis Inc. in the United States District Court for the Northern
District of California (the Federal Action) against Palomar Medical
Technologies, Inc. (Palomar) and the General Hospital Corp. (General),
previously reported in greater detail, Lumenis Inc. seeks a declaratory judgment that two
U.S. patents, which are owned by General and sublicensed by Palomar to Lumenis Inc.
pursuant to a 1998 license agreement (the License Agreement), are invalid
and/or unenforceable and/or are not infringed by Lumenis. In October 2003, the parties
filed their respective claim interpretationsregarding the patents in
question. The Markman Hearing on the claim interpretations is presently
scheduled for February 20, 2004. The trial is presently scheduled for November 1, 2004.
The Company is continuing to explore with Palomar a possible settlement of this
litigation.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the action by Mr. Asif Adil, the Companys former Executive Vice President Business
Operations and acting Chief Financial Officer, in the Superior Court of New Jersey,
Somerset County; Law Division against the Company and Prof. Jacob A. Frenkel, Yacha
Sutton and Sagi Genger, previously reported in greater detail, Mr. Adils pending
claims have been transferred to the United States District Court in Boston,
Massachusetts, which has exclusive jurisdiction to hear claims under Mr. Adils
employment agreement with the Company. Substantive discovery has not commenced, and a
trial date has not been set. A Scheduling Conference in the case was held on October 14,
2003. Pursuant to the courts order, discovery must be completed by February 1,
2005. A trial is not expected to take place before the second half of 2005.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
previously reported in greater detail, on September 20, 1999, Dr. Richard Urso filed what
purported to be a class action lawsuit against the Company and against a leasing company
in Harris County, Texas, alleging a variety of causes of action. On October 9, 2003, the
court entered an order granting the Companys previously filed motion to dismiss
the cases based on forum non conveniens, as to all non-Texas plaintiffs. As a condition
to the courts order granting the motion, the Company stipulated that, in the event
any of the non-Texas plaintiffs file an action within one year of the courts order,
the Company will not object to jurisdiction in those actions. The Company also stipulated
that any statutes of limitations applicable to the dismissed actions will be tolled for
one year from the date of the courts order. On November 7, 2003, the non-Texas
plaintiffs served the Company with a notice of appeal of the courts order.
Approximately 12 actions by the remaining Texas plaintiffs are pending before the court,
and the court has not issued an order setting a trial date for those actions. The Company
denies the allegations and will continue to vigorously defend these cases and any new
actions that may be filed by the non-Texas plaintiffs.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
previously reported in greater detail, on March 27, 2003, Diodem, LLC filed a complaint
in the United States District Court for the Central District of California against
Lumenis Inc., Lumenis Ltd., Continuum, American Dental Technologies, Inc. and BT, Inc.,
alleging infringement of four U.S. patents owned by Diodem in the field of surgical laser
technology. The Company was served with the First Amended Complaint, and filed its answer
on July 8, 2003, generally denying all of the allegations and asserting numerous
affirmative defenses. Diodem has initiated discovery, and the Markman Hearingon
claim interpretations is expected to take place in mid-2004. The Company believes the
claims against it are without merit, and intends to vigorously defend against them.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 24 -

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# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 7  | COMMITMENTS
AND CONTINGENT LIABILITIES (cont.)
|-------- | ----------------------------------------------

| | As
previously reported in greater detail, William P. Young, DVM, has filed a complaint in
the United States District Court for the Southern District of Ohio, Eastern Division,
against Lumenis Inc., alleging infringement of one U.S. method patent owned by Dr. Young
in the field of veterinary laser surgery. The complaint seeks, inter alia, injunctive
relief and unspecified damages. The Company was served with a summons and complaint, and
motion for preliminary injunction in September 2003. The Company filed its answer and its
statement of intent to oppose plaintiffs motion for preliminary injunction on
October 9, 2003. The Company is required to file its papers in opposition to plaintiffs
motion by November 14, 2003. The motion is scheduled to be heard on December 10, 2003.
The Company believes the claims against it are without merit, and will vigorously defend
against them.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
August 19, 2002, Cool Laser Optics, Inc. (Cool Laser) commenced an
arbitration proceeding before the American Arbitration Association by filing a demand for
arbitration claiming that Lumenis Inc. violated an August 1996 patent license agreement
(that was entered into by Cool Laser and Coherent Inc. and assigned to Lumenis Inc.) by
not paying royalties thereunder respecting sales of Lumenis Inc.s LightSheer
systems and that as a result the license agreement has been or is terminated and Lumenis
Inc.s sales of the LightSheer systems constitute infringement of certain of Cool
Lasers U.S. patents. On September 9, 2003, the parties signed a settlement
agreement providing for a fully paid-up license from Cool Laser to Lumenis, and the
arbitration proceeding has been terminated.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition to the actions described above or set forth in the Legal Proceedingssection
and note 13C to the Consolidated Financial Statements in the 2002 Form 10-K, or the Legal
Proceedings section and note 7 to the Consolidated Financial Statements in the
Forms 10-Q for the quarterly periods ended March 31, 2003 or June 30, 2003, respectively,
the Company is a party in certain actions in various countries, including the U.S., in
which the Company sells its products in which it is alleged that the Companys
products did not perform as promised and/or that the Company made certain
misrepresentations in connection with the sale of products to the plaintiffs. Management
believes that none of these actions (other than those set forth above or in the Legal
Proceedings section and note 13C to the Consolidated Financial Statements in the
2002 Form 10-K, or the Legal Proceedings section and note 7 to the
Consolidated Financial Statements in the Forms 10-Q for the quarterly periods ended March
31, 2003 or June 30, 2003, respectively) that are presently pending individually would
have a material adverse impact on the consolidated financial position of the Company,
although such actions in the aggregate could have a material adverse effect on quarterly
or annual operating results or cash flows when resolved in a future period.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Finally,
the Company also is a defendant in various product liability lawsuits in which the Companys
products are alleged to have caused personal injury to certain individuals who underwent
treatments using the Companys products. The Company is defending itself vigorously,
maintains insurance against these types of claims and believes that these claims
individually or in the aggregate are not likely to have a material adverse impact on the
business, financial condition or operating results of the Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of September 30, 2003 the Company has an accrual of $13,715 reflecting managements
estimate of the Companys potential exposure with respect to certain, but not all,
legal proceedings, claims and litigation. With respect to the pending legal proceedings
and claims for which no accrual has been recorded in the financial statements, Company
management is unable to predict the outcome of such matters, the likelihood of an
unfavorable outcome or the amount or range of potential loss, if any.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 25 -

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# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003 
(In thousands, except
share and per share data)

|Note 8  | COMPREHENSIVE
LOSS
|-------- | ------------------

| | The
Company reports components of comprehensive loss in its annual consolidated statements of
shareholders equity. Comprehensive loss consists of net loss, foreign currency
translation adjustments and unrealized loss on available for sale equity
securities. Total comprehensive loss for the three month and nine month periods ended
September 30, 2003 and 2002 is as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | For the three
months ended
September 30, | For the nine
months ended
September 30,
|-------------------------------- | ---------------------------------------- | ---------------------------------------
|
|
|
|Net loss                         |                                          |                                        
|Recognition of loss on available |                                          |                                        
|for sale equity securities       |                                          |                                        
|Unrealized gain on available for |                                          |                                        
|sale equity securities           |                                          |                                        
|Foreign currency translation     |                                          |                                        
|adjustments                      |                                          |                                        
|                                 |                                          |                                        
|Consolidated                     |                                          |                                        
|                                 |                                          |                                        

- 26 -

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ITEM 2.     MANAGEMENT'S  DISCUSSION
 AND ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF OPERATIONS (In  thousands of U.S.
 Dollars, except share and per share data)

# OVERVIEW

Lumenis is a world leader in the
design, manufacture, marketing and servicing of laser and light based systems for
aesthetic, ophthalmic, surgical, veterinary and dental applications. Lumenis offers a
broad range of laser and light based systems which are used in skin treatments, hair
removal, non-invasive treatment of vascular lesions and pigmented lesions, acne,
psoriasis, ear, nose and throat, gynecology, urinary lithotripsy, benign prostatic
hyperplasia, open angle glaucoma, diabetic retinopathy, secondary cataracts, age-related
macular degeneration, vision correction, neurosurgery, dentistry and veterinary.

As previously reported in the
Companys Current Report on Form 8-K for October 14, 2003 filed on October 16, 2003,
our independent auditors, Deloitte & Touche Brightman Almagor, have requested the
Audit Committee of the Board of Directors to conduct an independent investigation into the
Companys relationship with one of its distributors and the accounting
and disclosures related thereto, in connection with the continuing Securities and Exchange
Commission investigation. Accordingly, the independent auditors did not conduct a review
of the interim financial statements included in this quarterly report, notwithstanding that such review, using professional
review standards and procedures is required by Form 10-Q.

Following completion of the
independent investigation and the review of its findings by our independent auditors, and
thereafter, a review of our financial results statements for the third fiscal quarter of
2003 by our independent auditors, Lumenis intends to file an amended Form 10-Q for the
third quarter ended September 30, 2003 to reflect revisions, if any, to the financial
statements contained in this Form 10-Q which may be appropriate as a result of such
review.

The Audit Committee of the Board of
Directors is working expeditiously to complete its investigation. We cannot, however,
predict when the investigation will be completed, its ultimate scope or its outcome, or
any possible effect on the Companys financial statements.

During 2002 the Company faced several
operating and cash flow issues arising mainly from the inadequate integration of systems
and processes following the Coherent Medical Group (CMG) acquisition and lower
revenue principally in the U.S. markets for the Companys Aesthetic business due to
the loss of a number of sales people and increased competitive pressure due to new
entrants to the market. As a result of these issues, the Company built up high levels of
inventory in 2002 that reduced its availability of credit for working capital purposes. In
order to address these issues, the Company undertook an inventory reduction program,
reduced employment levels to match more closely with the lower expected revenue levels,
and arranged additional financing from Bank Hapoalim, B.M. (the Bank).

On February 6, 2003 the Company and
the Bank signed a new financing arrangement, effective as of December 31, 2002, which
extended the Companys existing revolving credit agreement to December 31, 2003;
increased the amount available under the revolver to $50,000 until July 1, 2003 and to
$35,000 thereafter, until December 31, 2003; provided for an interest rate on the $15,000
increase of LIBOR plus 3%; deferred the loan amortization of a $10,000 principal payment
due April 2003; and amended certain covenants in the loan agreements. In addition the
February 2003 arrangement waived the covenants requirement for the quarter ending December
31, 2002 and replaced the debt coverage covenant with minimum EBITDA amounts, as defined
in the Bank agreements. In connection with the above-mentioned February 2003 agreement the
Company re-priced the 1,136,300 outstanding options owned by the Bank to the then current
market price and granted an additional 275,000 options at the then current market price.
Additionally the Company paid the Bank a $200 fee.

During June, 2003 the Company and the
Bank amended certain terms of its financing arrangements described above. The amendments
extended the $50,000 available under its revolver until December 31, 2003, and modified
certain covenants and other terms and provisions in its loan agreements. Additionally the
Company paid the Bank a $200 fee.

- 27 -

---

---

On  November  19, 2003 the  Company  announced  that it had  completed  the  restructuring  of its  existing  bank
indebtedness  and that it has agreed with the Bank on a new $9,000  receivables  based  revolving  credit loan. The
Bank also agreed to waive the covenants  under the  Company's  existing  debt  agreements  for the third and fourth
quarters  of 2003.  The debt  restructuring  plan  covers the  Company's  existing  $160,700  in term loans and its
$50,000  revolving  credit  agreement  with the Bank.  The  agreements  provide  for a  deferral  of all  principal
payments until August 15, 2006, when amortization  will resume at the rate of $15,000  annually.  Principal
amortization  will increase to $20,000  annually in 2007 and continue  through 2013. The $50,000  revolving  credit
agreement will mature in March 2005,  but the Company  expects it will be renewed on an annual basis so long as the
Company remains in compliance with its loan covenants.  See "Cautionary  Statements" in Item 2 below.  The interest
rate on all  $210,700 of this  previously  outstanding  debt will be LIBOR plus 2.75%,  resulting in an annual cash
interest  cost of  approximately  $9,000 at current  rates.  The new $9,000 loan  matures in January  2005,  and is
secured by  substantially  all of the  Company's  receivables  in the United  States.  This loan bears  interest at
Prime plus 0.5%.  Covenants  under the  restructured  debt  agreements  include a  requirement  for the  Company to
achieve a minimum  consolidated  EBITDA  amount,  as  defined  in the Bank  Agreements.  For 2004 the  amounts on a
cumulative basis are : Q1 - $100, Q2 - $3,100,  Q3 - $8,600 and Q4 - $16,100. Another  covenant limits  consolidated
capital  expenditures  to $6,000 for each of 2004 and 2005. In connection  with the deferral of principal  payments
on the  $160,700 of debt and  waivers in respect  thereof,  the  Company  has agreed to grant the Bank  options for
7.820  million  Ordinary  Shares at an exercise  price of $1.97 per share for a term of ten years.  In addition,  in
connection  with such  deferrals  and waivers  the Company has agreed to fees  payable to the Bank in cash upon the
Company's  Ordinary  Share price  reaching  $5.00,  $6.00 and $7.00 per share over the next ten years,  which could
result in a total fee of up to $17,500.  In  connection  with the new $9,000  revolver,  the Company  agreed to pay
the Bank a $250 fee.

On October 14, 2003 the Company
announced the implementation of its turnaround plan (Plan). The Plan consists
of a reorganization of the Company to a more customer focused functional organization and
a significant cost reduction program to bring costs in line with current revenues. The
Company will reduce approximately 300 positions or 23% of the workforce, close several
manufacturing sites and offices and consolidate other sites and activities. Implementation
of the Plan began immediately and is expected to be completed within approximately nine
months. Costs of implementation for severance and relocation and related costs are
estimated at $9,000. Implementation costs of the Plan are expected to be incurred and
charged to earnings in the amount of $5,000 in the fourth quarter of 2003 and $4,000 in
2004.

The Company believes that its
restructuring plan will bring the Company to profitability when fully implemented. The
Company also believes that its internally generated funds, available cash and funds
available under the new Bank agreement will be sufficient to meet the Companys
presently anticipated day-to-day operating expenses, commitments, working capital, capital
expenditure, cost of the implementation of the restructuring plan and debt payment
requirements.See Cautionary Statements below.

On April 21, 2003, the Companys
subsidiary, Spectron Laser Systems Limited (Spectron), signed a definitive
agreement to sell its principal assets for $6,300 in cash, subject to adjustment, and the
assumption of certain liabilities. In connection with the sale the Company reported a loss
of $3,689. Spectron is accounted for as a discontinued operation and accordingly, Spectron
is excluded from results of continuing operations for all periods presented. During the
third quarter a dispute with buyer arose, mainly with regards to inventory valuation,
involving approximately $700 of the final consideration. The dispute is being addressed
according to the process agreed upon in the purchase agreement.

On September 30, 2003 the Company
signed an agreement with the main shareholder of an affiliate Aculight (UK) Limited. As
part of the agreement the Company renounced its shares in the affiliate and its option to
purchase additional shares. In addition, the Company has agreed to write off its entire
debt from the affiliate in the amount of $3,450. The affiliate will return 77 systems
previously bought and systems that have been used free of charge. Starting October 1, 2003
the affiliate will be charged for all services received such as maintenance and
consumables. The Company wrote off all the balances related to the investment in the
affiliate including deferred revenues and net debt. The net effect of the agreement in the
third quarter was a gain of $13 which is presented in other income. The discussion and
analysis is based on giving retroactive effect to the discontinued operations.

- 28 -

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In this Report, unless the context
otherwise requires, all references to the Company, Lumenis,
We or Our are to Lumenis Ltd. and its direct and indirect wholly
owned subsidiaries.

# RESULTS OF OPERATIONS

THREE AND NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 2003 COMPARED WITH THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2002

The Company reported net revenues of
$66,220 and $211,745 for the three and nine months ended September 30, 2003, respectively,
compared to net revenues of $87,264 and $260,792 for the three and nine months ended
September 30, 2002, respectively. The loss from continuing operations for the three and
nine months ended September 30, 2003 was $15,255 and $51,832, respectively, or a diluted
loss per share from continuing operations of $0.41 and $1.39, respectively, compared to a
loss from continuing operations of $750 and $4,452 for the three and nine months ended
September 30, 2002 or a diluted loss per share from continuing operations of $0.02 and
$0.12, respectively. The net loss for the three and nine months ended September 30, 2003
was $15,255 and $55,437, respectively, or a diluted loss per share of $0.41 and $1.49,
compared with a net loss of $928 and $4,400, for the three and nine months ended September
30, 2002 or a diluted loss per share of $0.02 and $0.12 per diluted share, respectively.

Commencing January 1, 2002, we began
to evaluate our business based on four separate business units, as follows: Aesthetic,
Ophthalmic, Surgical, and Other. These business units are identified as operating segments
in accordance with SFAS No. 131, Disclosure about Segments of an Enterprise and
Related Information. The information evaluated by the Companys senior
management in deciding how to allocate resources to these segments is net revenues and
gross profit. Due to several organizational changes, commencing January 1, 2003, we again
reorganized our business based on three separate business units as follows: Aesthetics,
Medical, and Other. Medical includes the surgical and ophthalmic operations. All 2002 data
have been restated to reflect such change.

Due to the change in the structure of
the Company, following the turn around plan announced by the Company during October 2003,
the company will change its reporting segments from business units to geographical units.
The change is to take place effective January 1, 2004

Revenues.              The
Companys net revenues decreased by 24% to $66,220 for the three months
          ended September 30, 2003 compared to $87,264 for the three months ended
          September 30, 2002. The Companys net revenues decreased by 19% to
$211,745           for the nine months ended September 30, 2003 compared to $260,792 for
the nine           months ended September 30, 2002. By business segment, revenues for the
third           quarter of 2003 were Aesthetic $23,887, Medical $25,269 and Other $17,064
          compared to the revenues in the third quarter of 2002 of Aesthetic $37,894,
          Medical $33,341 and Other $16,029.

The decrease in sales reflects mainly
the weakness in the aesthetic business, particularly in the U.S., and shipment delays
particularly of our new ophthalmic products as a result of manufacturing delays and supply
chain issues.

During the second quarter, the
Company entered into an agreement with WaveLight Laser Technologie AG, pursuant to which
the Company serves as the exclusive, independent sales representative in the United States
for WaveLights Allegretto Wave(TM) refractive excimer laser systems. WaveLight
received FDA approval for the Allegretto in October 2003. As sales representative in the
US, the Company will record only its commissions earned as revenue. The Company also
entered into two other agreements with WaveLight, pursuant to which the Company serves as
the exclusive distributor in most Asian, European, Latin American and Middle Eastern
countries, for the Allegretto Wave refractive excimer laser systems. The agreements have
an initial term of five years.

Gross Profit. Gross profit
decreased by 42% to $26,646 for the three months ended September 30, 2003 from $46,222 for
the three months ended September 30, 2002. As a percentage of sales the gross profit was
40% in the three months ended September 30, 2003, compared to 53% in the same period in
2002.

Gross profit decreased by 43% to
$80,396 for the nine months ended September 30, 2003 from $140,824 for the nine months
ended September 30, 2002. As a percentage of sales the gross profit was 38% in the nine
months ended September 30, 2003, compared to 54% in the same period in 2002.

- 29 -

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As a percentage of sales, gross
profit by business segment for the three months ended September 30, 2003 was Aesthetic,
50% Medical 40% and Others 27% compared to gross profit for the three months ended
September 30, 2002 of 65%, 48% and 34% respectively. As a percentage of sales, gross
profit by business segment for the nine months ended September 30, 2003 was Aesthetic 51%
Medical 36% and Others 23% compared to gross profit for the nine months ended September
30, 2002 of 68%, 48% and 33% respectively.

The decrease in gross profit in the
three and nine months ended September 30, 2003 is due to the decrease in sales, lower
absorption of fixed manufacturing costs and the mix of sales of lower margin products.

The decrease in gross profit in the
nine months ended September 30, 2003 is also due to inventory adjustments of $8,900
primarily due to the processing of excess inventory in the second quarter of 2003, which
was recovered at a lower value than previously estimated and costs associated with the
final closure of the Santa Clara manufacturing facilities and the transfer of these
activities to Salt Lake City and Israel.

Net revenues and gross profit by
business unit for the three and nine months ended September 30, 2003 and 2002 were as
follows:

FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2003

|             | 
|------------ | 
|
|
|
|Net Revenues | 
|             | 
|Gross Profit | 

FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2002

|             | 
|------------ | 
|
|
|
|Net Revenues | 
|             | 
|Gross Profit | 

FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2003

|             | 
|------------ | 
|
|
|
|Net Revenues | 
|             | 
|Gross Profit | 

FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2002

|             | 
|------------ | 
|
|
|
|Net Revenues | 
|             | 
|Gross Profit | 

Research and Development, net.
Net Research and Development costs decreased by 31% to $4,593 for the three months ended
September 30, 2003 from $6,638 in the same period in 2002. As a percentage of sales,
Research and Development costs were 7% in the three-month period ended September 30, 2003
compared to 8% in the same period in 2002. Net Research and Development costs decreased by
22% to $15,495 for the nine months ended September 30, 2003 from $19,990 in the same
period in 2002. As a percentage of sales, Research and Development costs were 7% in the
nine-month period ended September 30, 2003 compared to 8% in the same period in 2002.

- 30 -

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The decrease in Research and
Development costs in the three and nine months ended September 30, 2003 is due mainly to
completion of a number of projects in late 2002 and a cost reduction program implemented
last year which eliminated certain staff positions and consolidated office space.

Selling, Marketing and
Administrative expenses. Selling, Marketing and Administrative expenses decreased by
9% to $31,231 for the three months ended September 30, 2003 compared to $34,198 for the
same period in 2002. As a percentage of sales, Selling, Marketing and Administrative
expenses in the three months ended September 30, 2003 were 47% compared to 39% in the same
period in 2002. Selling, Marketing and Administrative expenses decreased by 6% to $96,952
for the nine months ended September 30, 2003 compared to $103,571 for the same period in
2002. As a percentage of sales, Selling Marketing and Administrative expenses in the nine
months ended September 30, 2003 were 46% compared to 40% in the same period in 2002.
Selling, Marketing and Administrative expenses for the nine month period ended September
30, 2002 include a charge of $3,300 for additional severance costs associated primarily
with the relocation of manufacturing operations from the Santa Clara facility. The charge
was offset by a reduction in previously provided accruals for items associated with the
CMG acquisition. In addition, expenses in 2002 included a cost of approximately $2 million
associated with the SEC investigation and other legal and integration costs.

The decrease in Selling, Marketing
and Administrative expenses in the three and nine months ended September 30, 2003 were due
to lower commissions, reduction of certain marketing expenses and tighter control on
administrative expenses such as travel costs, facilities and communication expenses.

The increase in Selling, Marketing
and Administrative expenses in the three and nine months ended September 30, 2003 as a
percentage of sales was mainly attributable to fixed costs over the lower sales in 2003.

Amortization of intangible
assets. Amortization of intangible assets, which includes amortization of intangible
assets arising from the CMG and the HGM acquisitions amounted to $1,280 and $4,338 in the
three and nine months ended September 30, 2003, respectively, compared to $1,569 and
$5,201 in three and nine months ended September 30, 2002, respectively.

The decrease in the amortization of
intangible assets in the three and nine months ended September 30, 2003 is due to the
impairment of intangible assets recorded in the fourth quarter of 2002 and the expiration
of the amortization period of certain intangible assets.

Other income (loss). Other
loss for the three and nine months ended September 30, 2003 represents mainly the
recognition of loss on an investment due to other than temporary impairment in the amount
of $445 offset by a gain of $13 from termination of an agreement with an affiliate. See
also Overview above. Other income for the nine months ended September 30, 2002 of $1,720
represent the gain arising from the sale of the investment in Galil Medical Ltd. for which
the Company took an impairment reserve in 2001.

Litigation expenses.
Litigation expenses amounted to $0 for the three-month and $925 for the nine-month periods
ended September 30, 2003, compared to $0 for the three-month and $5,201 for the nine-month
periods ended September 30, 2002, which represented managements estimate of the
Companys potential exposure relating to certain legal proceedings, claims,
litigation and other matters.

Financing expenses, net. For
the three and nine months ended September 30, 2003, financing expenses were $3,489 and
$10,405, respectively, compared to financing expenses of $3,951 and $11,194 in the same
periods in 2002, respectively.

The decrease in financing expenses in
the three and nine months ended September 30, 2003 is mainly due to lower interest costs
of $237 and $761, respectively, from the lower balance of the long term bank loan and a
loss from hedge transaction of $1,824 in the nine months ended September 30, 2002, as well
as a higher exchange rate gain of approximately $1,103 and $1,557, respectively. The
decrease was offset in part by an increase of $681 and $1,922 in amortization of the value
of options re-priced as part of the financing agreement in February 2003 with the Bank and
amortization of the $4,000 fee paid to with the Bank as part of the financing agreement
from August 2002. Also, interest expense for the three and nine months ended September 30,
2003 were higher by $269 and $1,634, respectively due to the higher rate on the $70,667
long-term loan compared to the subordinated convertible bonds which the loan refinanced
and due to higher outstanding balance and interest rates on the revolving credit.

- 31 -

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Income Tax expense. 
Income tax expenses in the three and nine months ended September 30, 2003 were $876 and
$3,219, respectively, compared to $586 and $1,718 in the three and nine months ended
September 30, 2002 respectively. The increase in the tax expense in the three and nine
months ended September 30, 2003 was due mainly to a provision of $181 and $782 in the
three and nine months ended September 30, 2003, respectively for the effect of the New Law
in Israel.

Companys share in losses of
an affiliate. For the three and nine months ended September 30, 2003, the
Companys share in Aculight (UK) Limiteds losses amounted to $0 and $492,
respectively, compared to $30 and $121 in the same period in 2002. See also Other
income(loss) and Overview above.

Discontinued Operations. 
On April 21, 2003, the Companys subsidiary, Spectron Laser Systems Limited
(Spectron), signed a definitive agreement to sell its principal assets for
$6,300 in cash, subject to adjustment, and the assumption of certain liabilities. In
connection with the sale the Company reported a loss of $3,689 of which a loss of
approximately $627 relates to future estimated discounted net lease payments on two
abandoned facilities, and approximately $691 relates to fixed assets write-off for which
the Company had no alternative future use. Spectron is accounted for as a discontinued
operation and accordingly, the industrial business is excluded from results of continuing
operations for all periods presented.

Net Loss. As a result of the
foregoing factors, the Companys net loss was $15,255 and $55,437 for the three and
nine months ended September 30, 2003 compared to net loss of $928 and $4,400 in the same
period in 2002, respectively.

LIQUIDITY AND CAPITAL
RESOURCES (in thousands of dollars)

As of September 30, 2003, the Company
had cash and cash equivalents of $16,130 compared to $18,106 on December 31, 2002. The
decrease of $1,976 is mainly attributable to:

# Operating activities

For the nine months ended September
30, 2003, cash used for operating activities was $3,242, with the operating loss of
$51,328 offset mainly by depreciation and amortization charges of $16,858 and a net
decrease in working capital. The net decrease in operating assets and liabilities resulted
from a decrease in trade receivables of $17,367 due to declining sales and improved
collections, a decrease in prepaid expenses and other receivables of $4,185 and a decrease
in inventory of $19,317 including the $8,900 of inventory adjustments taken in the second
quarter offset by a decrease of $11,168 in accounts payable, accrued expenses and other
long-term liabilities.

# Investing Activities

For the nine months ended September
30, 2003, cash provided by investing activities was approximately $1,804 representing
proceeds of $4,407 from the sale of the industrial operations offset by investments in
fixed assets of $2,603. The remainder of the proceeds from the sale of Spectron in the
amount of approximately of $1,300 is subject to any final adjustments as per the sales
agreement.

# Financing Activities

For the nine months ended September
30, 2003, cash used for financing activities was $538. A total of $9,141 was provided by
utilizing the available credit with the Bank offset by payments of $9,679 to repay the
Companys subordinated notes to Coherent, Inc.

- 32 -

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On  November  19, 2003 the  Company  announced  that it had  completed  the  restructuring  of its  existing  bank
indebtedness  and that it has agreed with the Bank on a new $9,000  receivables  based  revolving  credit loan. The
Bank also agreed to waive the covenants  under the  Company's  existing  debt  agreements  for the third and fourth
quarters  of 2003.  The debt  restructuring  plan  covers the  Company's  existing  $160,700  in term loans and its
$50,000  revolving  credit  agreement  with the Bank.  The  agreements  provide  for a  deferral  of all  principal
payments until August 15, 2006, when  amortization  will resume at the rate of $15,000  annually.  Principal
amortization  will increase to $20,000  annually in 2007 and continue  through 2013. The $50,000  revolving  credit
agreement will mature in March 2005,  but the Company  expects it will be renewed on an annual basis so long as the
Company remains in compliance with its loan covenants.  See "Cautionary  Statements" in Item 2 below.  The interest
rate on all  $210,700 of this  previously  outstanding  debt will be LIBOR plus 2.75%,  resulting in an annual cash
interest  cost of  approximately  $9,000 at current  rates.  The new $9,000 loan  matures in January  2005,  and is
secured by  substantially  all of the  Company's  receivables  in the United  States.  This loan bears  interest at
Prime plus 0.5%.  Covenants  under the  restructured  debt  agreements  include a  requirement  for the  Company to
achieve a minimum  consolidated  EBITDA  amount,  as  defined  in the Bank  Agreements.  For 2004 the  amounts on a
cumulative basis are : Q1 - $100, Q2 - $3,100,  Q3 - $8,600 and Q4 - $16,100. Another  covenant limits  consolidated
capital  expenditures  to $6,000 for each of 2004 and 2005. In connection  with the deferral of principal  payments
on the  $160,700 of debt and  waivers in respect  thereof,  the  Company  has agreed to grant the Bank  options for
7.820  million  Ordinary  Shares at an exercise  price of $1.97 per share for a term of ten years.  In addition,  in
connection  with such  deferrals  and waivers  the Company has agreed to fees  payable to the Bank in cash upon the
Company's  Ordinary  Share price  reaching  $5.00,  $6.00 and $7.00 per share over the next ten years,  which could
result in a total fee of up to $17,500.  In  connection  with the new $9,000  revolver,  the Company  agreed to pay
the Bank a $250 fee.

On February 6, 2003 the Company and
the Bank signed a new financing arrangement, effective as of December 31, 2002, which
extended the Companys existing revolving credit agreement to December 31, 2003;
increased the amount available under the revolver to $50,000 until July 1, 2003 and to
$35,000 thereafter, until December 31, 2003; provided for an interest rate on the $15,000
increase of LIBOR plus 3%; deferred the loan amortization of a $10,000 principal payment
due April 2003; and amended certain covenants in the loan agreements. In addition the
February 2003 arrangement waived the covenants requirement for the quarter ending December
31, 2002 and replaced the debt coverage covenant with minimum EBITDA amounts, as defined
in the Bank agreements. In connection with the above-mentioned February 2003 agreement the
Company re-priced the 1,136,300 outstanding options owned by the Bank to the then current
market price and granted an additional 275,000 options at the then current market price.
Additionally the Company paid the Bank a $200 fee.

During June 2003 the Company and the
Bank had amended certain terms of its financing arrangements described above. The
amendments extended the $50,000 available under its revolver until December 31, 2003, and
modified certain covenants and other terms and provisions in its loan agreements. The
Company has agreed that it will use the net proceeds, or at least $3,000, from the sale of
its industrial laser business to prepay a portion of the October payment by July 31, 2003.
Subsequently, based on an understanding with the Bank, this prepayment requirement was
waived. Additionally the Company paid the Bank a $200 fee. Under its loan agreements as
amended the Company was required to maintain a minimum EBITDA amount, as defined in the
Bank agreements, on a cumulative basis at the end of each quarter in 2003. These amounts
were changed pursuant to the November 2003 debt restructuring, as described above.

On October 14, 2003 the Company
announced the implementation of its turnaround plan (Plan). The Plan consists
of a reorganization of the Company to a more customer focused functional organization and
a significant cost reduction program to bring costs in line with current revenues. The
Company will reduce approximately 300 positions or 23% of the workforce, close several
manufacturing sites and offices and consolidate other sites and activities. Implementation
of the Plan began immediately and is expected to be completed within approximately nine
months. Costs of implementation for severance and relocation and related costs are
estimated at $9,000. Implementation costs of the Plan are expected to be incurred and
charged to earnings in the amount of $5,000 in the fourth quarter of 2003 and $4,000 in
2004.

The Company believes that its
restructuring plan will bring the Company to profitability when fully implemented. The
Company also believes that with its internally generated funds, available cash and funds
available under the new Bank agreement will be sufficient to meet the Companys
presently anticipated day-to-day operating expenses, commitments, working capital, capital
expenditure, cost of the implementation of the restructuring plan and debt payment
requirements. See Cautionary Statements below.

- 33 -

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Failure by the Company to
successfully complete the above-mentioned plans, would have a materially adverse effect on
the Companys ability to continue as a going concern. See Cautionary
Statements below.

# Critical Accounting
Policies

The preparation of financial
statements and related disclosures in conformity with accounting principles generally
accepted in the United States of America requires management to make judgments,
assumptions and estimates that affect the amounts reported. Please see the discussion of
critical accounting policies in Lumenis Annual Report on Form 10-K for the
fiscal year ended December 31, 2002.

# CAUTIONARY STATEMENTS

Certain statements made in this
Report or made in press releases or in oral presentations made by the Companys
employees or agents reflect the Companys estimates and beliefs and are intended to
be, and are hereby identified as, forward looking statements for the purposes
of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

The Company cautions readers that
such forward looking statements involve risks and uncertainties that could cause actual
results to differ materially from those expected by the Company or expressed in the
Companys forward looking statements. These factors include, but are not limited to,
the following:

| |  | At
the request of the Companys accountants, the Audit Committee of the Board of
Directors is conducting an independent investigation into the relationship of the Company
with one of its distributors and the accounting and disclosures related thereto, in
connection with the continuing Securities and Exchange Commission investigation. We
cannot, however, predict when the investigation will be completed, its ultimate scope or
its outcome, or any possible effect on the Companys financial statements.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company is undergoing an organizational turnaround plan, in order to return
                    to positive earnings and cash flow from operations following poor
financial                     results for the past two years including declining revenue
and unanticipated                     expenses and inventory losses. If the restructuring
process is unable to achieve                     its intended results there will likely
be an adverse impact on the                     Companys business, operations,
results of operations, growth, and the                     Companys ability to
repay its debts as they come due.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company is highly leveraged, with indebtedness that is substantial in relation to its
shareholders equity and significant debt service requirements in relation to its
current cash and available liquidity. The Company's loan agreements permit its bank lender to deem that
an Event of Default has occurred if in its sole discretion the bank determines that there has been a
material adverse change to the business, operations, property, condition (financial or otherwise) or prospects of the Company.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | As
part of the organizational turnaround plan, the Company will terminate the employment of
a substantial number of employees, including skilled personnel and certain senior officers with which it has operated
its business. The Company is unable to predict the effect of the departure of a large
number of employees in a short period of time, and this might result in an adverse impact
on the Companys business and operations.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company is being investigated by the U.S. Securities and Exchange Commission and has been named as a
defendant in several class action lawsuits alleging misrepresentations and other
violations of the securities laws. We
cannot, however, predict when the investigation will be completed, its ultimate scope or
its outcome, or any possible effect on the Companys financial statements.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company must control its operating expenses in order to achieve profitability and
positive cash flow.
| | - | ---------------------------------------------------------------------------------------------------------

| |  | The
Companys future success depends on its ability to develop and successfully
introduce new and enhanced products that meet the needs of its customers.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Company might have difficulties in collecting cash from customers experiencing financial difficulties
 which could adversely affect operating results.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

- 34 -

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| |  | The
Companys market is unpredictable and characterized by rapid technological changes
and evolving standards, and, if the Company fails to keep up with such changes, its
business and operating results will be harmed.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
market for laser and light based systems for aesthetic and medical applications is
relatively new and the Companys business will suffer if it fails to educate
customers or if the market does not develop as we expect.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
markets in which the Company sells its products are intensely competitive and increased
competition could cause reduced sales levels, reduced gross margins or the loss of market
share.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company must spend heavily on research and development.
| | - | -----------------------------------------------------------

| |  | The
Companys products are subject to U.S., E.U. and international medical regulations
and controls, which impose substantial financial costs on it and which can prevent or
delay the introduction of new products.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company depends on its facilities in Israel and on its international sales. Many of its
customers operations are also located outside the U.S.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Enforcement
actions may restrict sales of the Companys hair removal products in Japan.
| | - | ---------------------------------------------------------------------------------------

| |  | The
closure of manufacturing facilities in Santa Clara and their transition to Salt Lake City
and Israel might impact the Companys ability to supply products in a timely manner,
which could result in the Company losing sales and customers.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company faces challenges as it integrates new and diverse operations.
| | - | -------------------------------------------------------------------------

| |  | Any
acquisitions the Company makes could harm or disrupt its business without bringing the
anticipated synergies.
| | - | -----------------------------------------------------------------------------------------------------------------

| |  | The
Company depends on skilled personnel to operate its business effectively in a rapidly
changing market, and if the Company is unable to retain existing personnel or avoid their
departure, its ability to develop and sell its products could be harmed.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company may experience a decline in selling prices of its products as competition
increases, which could adversely affect its operating results.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company may not be able to protect its proprietary technology, which could adversely
affect its competitive advantage.
| | - | --------------------------------------------------------------------------------------------------------------------------

| |  | The
Company is subject to litigation regarding intellectual property rights, and any of the
respective outcomes could seriously harm its business.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
long sales cycles for the Companys products may cause it to incur significant
expenses without offsetting revenues.
| | - | ------------------------------------------------------------------------------------------------------------------------

| |  | If
the Company fails to accurately forecast component and material requirements for its
products, it could incur additional costs and significant delays in shipments, which
could result in loss of customers.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Companys dependence on sole source suppliers for certain components exposes it to
possible supply interruptions that could delay or prevent the manufacture of its systems.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 35 -

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| |  | Some
of the Companys medical customers willingness to purchase its products
depends on their ability to obtain reimbursement for medical procedures using its
products and its revenues could suffer from changes in third-party coverage and
reimbursement policies.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Some
of the Companys laser and intense pulsed light (IPL) systems are complex in design
and may contain defects that are not detected until deployed by its customers and could
lead to product liability claims.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company may be required at any time in the future to implement a product recall.
| | - | ------------------------------------------------------------------------------------

| |  | The
Company does not knowingly use laboratory or manufacturing materials that
                    could be considered hazardous; any accidental or unintentional use of
hazardous                     materials could result in liability for any damages arising
from such use or                     from accidental environmental contamination or
injury.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Conditions
in Israel (including terrorism) could affect the Companys operations, and a
catastrophic loss of the Companys facilities in Israel, or near major earthquake
faults in California, would seriously harm its operations and its ability to produce and
sell its products.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company faces risks associated with decreased revenues.
| | - | -----------------------------------------------------------

| |  | The
Company could be de-listed from NASDAQ and become subject to Penny StockRules
in the event that it cannot promptly obtain independent accountant review of the interim
financial statements included in this Report (see Explanatory Note at the
front of this Report) or the Companys share price closes below $1.00 for an
extended period of time.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Conditions
in Israel affect the Companys operations and may limit its ability to produce and
sell its products.
| | - | ----------------------------------------------------------------------------------------------------------------

| |  | The
Companys operations could be disrupted as a result of the obligation of key
personnel who hold Israeli citizenship to perform military service.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company receives tax benefits from the Israeli government that may be reduced or
eliminated in the future.
| | - | --------------------------------------------------------------------------------------------------------------

| |  | It
may be difficult to serve process on the Companys officers and directors in Israel,
or to enforce in Israel a U.S. judgment against the Company, its officers and directors
based on U.S. securities laws claims
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
new Israeli Companies Law may cause uncertainties regarding corporate governance.
| | - | -------------------------------------------------------------------------------------

| |  | In
the event of proceedings against former employees, the Company may not be able to fully
enforce covenants not to compete and therefore may be unable to prevent competitors from
benefiting from the expertise of some of its former employees.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Readers are cautioned not to place
undue reliance on forward-looking statements made in this Report, or made in press
releases or in oral presentations. Such forward-looking statements reflect
managements analysis only as of the date such statements are made and the Company
undertakes no obligation to revise publicly these forward-looking statements to reflect
events or circumstances that arise subsequently. Readers should carefully review the risk
factors set forth above and described elsewhere in this document, more fully set forth in
the Companys Annual Report on Form 10-K for the year ended December 31, 2002
(the 2002 Form10-K) and which may be set forth in other documents the Company
files from time to time with the Securities and Exchange Commission.

- 36 -

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The preparation of financial
statements in conformity with accounting principles generally accepted in the United
States of America (GAAP) requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Such estimates include, but are not limited to,
allocation of corporate expenses, allowances for uncollectible accounts receivable and
sales returns reserves, inventory reserves, warranty costs, depreciation and amortization,
income taxes and contingencies. Actual results could differ from those estimates.

|ITEM  3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|-------- | -----------------------------------------------------------

The Company has no fixed rate debt.
The Company has floating rate debt of approximately $208,670,000, which exposes the
Company to potential losses related to changes in interest rates.

The Company has foreign subsidiaries,
which sell and manufacture its products in various markets. As a result, the
Companys earnings and cash flows are exposed to fluctuations in foreign currency
exchange rates. The Company attempts to limit this exposure by selling and linking its
products mostly to the United States dollar or by hedging, from time to time, revenues
dominated in currencies other than US dollars.

The Company also enters, from time to
time, into foreign currency hedging transactions mainly to protect the Dollar value of its
non-Dollar denominated trade receivables and to protect revenues and expenses, mainly in
Yen and EURO. The gains and losses on these transactions are included in the statement of
operations or as part of the other comprehensive loss, as appropriate, in the period in
which the changes in the exchange rate occur. There can be no assurance that such
activities or others will eliminate the negative financial impact of currency
fluctuations. Indeed, such activities may have an adverse impact on earnings.

|ITEM 4. | CONTROLS AND PROCEDURES.
|------- | ------------------------

The Companys management carried out
an evaluation, with the participation of its Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the Companys disclosure controls and procedures as
of September 30, 2003. Based upon that evaluation, the Companys Chief Executive
Officer and Chief Financial Officer concluded, subject, however, to the results of the
Audit Committees independent investigation (see Note 7 to Unaudited Financial
Statements) that the Companys disclosure controls and procedures were effective to
ensure that information required to be disclosed by the Company in reports that the
Company files or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in the rules and forms of the
Securities and Exchange Commission.

There has not been any change in the
Companys internal control over financial reporting in connection with the evaluation
required by Rule 13a-15(d) under the Securities Exchange Act of 1934 that occurred
during the quarter ended September 30, 2003 that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting.

|PART II. | OTHER INFORMATION
|-------- | -----------------

|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

See Note 7 to Unaudited Financial
Statements  Commitments and Contingent Liabilities in Item 2 of Part 1
of this Report which is incorporated herein by reference into this Item 1 of Part II of
this Report.

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|ITEM 4. | SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

The Company held a Special General
Meeting of the Companys shareholders on October 1, 2003 (the Special
Meeting). The following sets forth the matter which was presented to the
Companys shareholders and voted upon at the meeting and the number of votes cast
for, or withheld:

| | 1. | To
elect the following nominees to serve as Outside Directors of the Company
                    until the 2006 Annual General Meeting: Dr. Shlomo Segev and Mr.
Alexander                     Yuhjtman.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       | For | Withhold
Authority
|---------------------- | --- | ------------------
|
|
|
|Dr. Shlomo Segev       |     |                   
|                       |     |                   
|Mr. Alexander Yuhjtman |     |                   
|                       |     |                   

|ITEM 6. | EXHIBITS
AND REPORTS ON FORM 8-K
|------- | --------------------------------

|(a) | Exhibits
|--- | --------

|10.1 | Loan Agreement
between Lumenis Inc. and Bank Hapoalim B.M., dated November 13,  2003.
|---- | -------------------------------------------------------------------------------------

|10.2 | Option Agreement, dated as of November 19, 2003, between Lumenis Ltd. and Bank Hapoalim B.M.
|---- | --------------------------------------------------------------------------------------------

|10.3 | Letter Agreement, dated November 19, 2003, between Lumenis Ltd. and Bank Hapoalim B.M., regarding cash
         fee.
|---- | --------------------------------------------------------------------------------------------------------------------

|10.4 | Letter Agreement, dated November 19, 2003, between Lumenis Holdings Inc. and Bank Hapoalim, regarding
         cash fee.
|---- | ------------------------------------------------------------------------------------------------------------------------

|10.5 | Letter Agreement, dated November 19, 2003, among Lumenis Ltd., Lumenis Holdings Inc. and Lumenis Inc.
         and Bank Hapoalim B.M., regarding covenants.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 | Letter Agreement, dated November 19, 2003, among Lumenis Ltd., Lumenis Holdings Inc. and Lumenis Inc.
         (and certain subsidiaries of Lumenis Ltd.) and Bank Hapoalim B.M., regarding material adverse change,
         cross collateralization of loans and monthly financial reports.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | Letter Agreement, dated November 19, 2003, between Lumenis Holdings Inc. and Bank Hapoalim B.M.,
         regarding extension of payments.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------

|10.8 | Letter Agreement, dated November 19, 2003, between Lumenis Ltd. and Bank Hapoalim B.M., regarding
         interest rates and commitment for new loans.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 | Letter Agreement, dated November 19, 2003, among Lumenis Ltd., Lumenis Holdings Inc. and Bank Hapoalim
B.M., regarding extension and renewal of Short Term Credit Line.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 | Letter Agreement, dated November 19, 2003, regarding Short Term Credit Line -  waiver of Financial Ratios.
|----- | ----------------------------------------------------------------------------------------------------------

|10.11 | Agreement
 between Lars Thomas  Rydstrom,  Reuben  Leonard  Berg,  Sharplan  Lasers (UK)  Limited,
 Aculight (UK) Limited,           Vanishing Point Limited, Lumenis (UK) Limited, and
Lumenis Ltd. dated November 3, 2003.
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.1 | Certification
of the Chief Executive Officer required by Securities Exchange Act Rule 13a-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.2 | Certification
of the Chief Financial Officer required by Securities Exchange Act Rule 13a-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.1 | Certification
 of the Chief  Executive  Officer and Chief  Financial  Officer  required  by  Securities
 Exchange  Act Rule          13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Reports on Form 8-K
|--- | -------------------

During the quarterly period ended
September 30, 2003, (i) on July 11, 2003 the Company furnished a Current Report on Form
8-K disclosing (pursuant to Item 12, under Item 9) the Companys preliminary sales
results for the second quarter ended June 30, 2003; and (ii) on July 30, 2003 the
Company furnished a Current Report on Form 8-K disclosing (under Item 12) the
Companys financial results for the second quarter ended June 30, 2003.

- 38 -

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# SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.

|Date: November 19, 2003 |  | Lumenis Ltd.BY: /S/ Kevin Morano
Kevin Morano(Chief Financial Officer,and Duly Authorized Officer)
|----------------------- |  | ----------------------------------------------------------------------------------------------------------------

- 39 -

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Exhibit 10.1

LOAN AGREEMENT

THIS
LOAN AGREEMENT, dated as of November 13, 2003, between LUMENIS INC., a
Massachusetts corporation (the Borrower), and BANK HAPOALIM B.M., an
Israeli banking corporation acting through its New York Branches (the Bank).

In
consideration of the mutual agreements herein contained, the parties hereto
agree as follows:

1.       DEFINITIONS.

| | 1.1. | Certain General Definitions. 
  For all purposes of this Agreement and the other Loan Documents,
  unless the context otherwise requires:
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------

Account
or Accounts Receivable: means, in addition to the definition of account as set forth in Section 9-102 of the Uniform
Commercial Code as in effect from time to time in the State of New York, the
right of the Borrower to receive payment for goods sold or leased or for
services rendered which are not evidenced by an instrument or chattel paper,
whether or not such right has been earned by performance.

Account
Debtor means, in addition to the definition of account debtor as set
forth in Section
9-102 of the Uniform Commercial Code as in effect from time to time in the
State of New York, the Person or persons obligated to the Borrower on an
Account, or who is represented by the Borrower to be so obligated.

Advance
shall have the meaning provided therefor in Section 2.1 hereof.

Affiliate:  as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person.  For purposes
of this definition, control of a Person means any director of such Person or
the power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person, whether through ownership of voting
securities, by contract or otherwise; provided that, for purposes of
determining compliance with the provisions of this Agreement and the other Loan
Documents, the Bank shall not be deemed to be an Affiliate of the Borrower,
Holdings or the Parent.

Agreement
means this Loan Agreement, including all Exhibits and Schedules hereto, as the
same may be amended or otherwise modified from time to time, and the terms
herein, hereof, hereunder and like terms shall be taken as referring to
this Agreement in its entirety and shall not be limited to any particular
section or provision thereof.

Asset
Purchase Agreement means that certain Asset Purchase Agreement dated as of
February 25, 2001 and amended as of April 30, 2001, between the Parent, Holdings
and Coherent Inc.

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Bank
of America Lockbox Account means the deposit account of the Borrower
established with Bank of America as more particularly described in the Bank of
America Lockbox Deposit Account Control Agreement, as may be amended from time
to time.

Bank
of America Lockbox Deposit Account Control Agreement means the Deposit
Account Control Agreement to be entered into among the Borrower, the Bank and
Bank of America, in form and substance satisfactory to the Bank, pursuant to
which the Bank shall obtain control over the Bank of America Lockbox Account as
Collateral security, which accounts will be pledged to the Bank pursuant to the
Borrower Security Agreement.

Bank
of America Other Deposit Accounts means all deposit accounts of the
Borrower established with Bank of America, other than the Bank of America
Lockbox Account, as more particularly described on Schedule 1.1 hereto.

Bank
of America Other Deposit Accounts Control Agreement means the Deposit
Account Control Agreement to be entered into among the Borrower, the Bank and
Bank of America, in form and substance satisfactory to the Bank, pursuant to
which the Bank shall obtain control over the Bank of America Other Deposit
Accounts as Collateral security, which accounts will be pledged to the Bank
pursuant to the Borrower Security Agreement.

Billed
Accounts means Accounts of the Borrower for which a bill has been rendered
to the Account Debtor and which are unpaid for no more than one hundred twenty
(120) days from the date of the original bill.

Borrower
Security Agreement means the Borrower Security Agreement to be executed
and delivered by the Borrower, substantially in the form of Exhibit B,
as the same may be amended, supplemented or otherwise modified from time to
time.

Borrowing
Base Report Certificate means a monthly certificate in substantially the
form of Exhibit D hereto, duly completed and certified by a duly
authorized officer of the Borrower.

Business
Day means a day on which the Banks New York Branches shall be open for
ordinary business.  In the Banks
discretion, the New York Branches may be closed on any Saturday, Sunday, legal
holiday or other day on which it is lawfully permitted to close.

Capitalized
Lease: means all leases that have been or should be capitalized on the
books of the lessee in accordance with generally accepted accounting principles
in effect in the United States consistently applied.

Closing
Date means the date on which the conditions precedent set forth in Section
8.1 shall be satisfied.

Collateral
means all personal property of the Borrower as more particularly described  in the Borrower Security Agreement.

Commitment
means Nine Million Dollars ($9,000,000).

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Control
means the power to direct or cause the direction of the management and policies
of a Person, either alone or in conjunction with others and whether through the
ownership of voting securities, by contract or otherwise.

Delinquent
Account means any Billed Account of the Borrower that remains unpaid for
more than one hundred and fifty (150) days from the date of the original bill.

Disbursement
Date means a Business Day upon which the disbursement of any Advance will
be made.

Default
means any condition, event or act which, with notice or lapse of time, or both,
would constitute an Event of Default.

Default
Interest shall have the meaning provided therefor in Section 5.2 (a)
hereof.

Disbursement
Request shall have the meaning provided therefor in Section 2.1 hereof.

Dollars
and $ means dollars in lawful currency of the United States.

Eligible
Accounts means such Billed Accounts for goods delivered or services
rendered owing to the Borrower as the Bank, in its sole and absolute
discretion, shall from time to time elect to consider to be Eligible Accounts
for purposes of this Agreement.  Without
limiting the discretion of the Bank to consider any such Billed Account not to
be an Eligible Account, the Bank may consider the following classes of Billed
Accounts not to be Eligible Accounts:

(a)          Billed
Accounts that do not arise out of sales of Inventory (as defined in Section
9-102 of the Uniform Commercial Code as in effect from time to time in the
State of New York) of the Borrower or the rendering of services in the ordinary
course of the Borrowers business;

(b)          Billed
Accounts on terms other than those normal or customary in the Borrowers
business for each class of customer;

(c)          Billed
Accounts owing from any Person that is an employee or Affiliate or Subsidiary
of the Borrower or Parent;

(d)          Billed
Accounts for which a surety bond was required or given on behalf of the
Borrower in connection with any contract or purchase orders under which such
Billed Account arose;

(e)          Billed
Accounts owing from any Person that to the knowledge of the Borrower has
asserted any claim, offset, defense, demand or liability, whether by action,
suit, counterclaim or other judicial or arbitral proceeding or otherwise, or
has otherwise disputed its liability or refused to pay all or any part of such
obligation or Account;

(f)          Billed
Accounts owing from any Person that has filed against it a petition or other
pleading under any bankruptcy, reorganization, arrangement, insolvency,
liquidation or similar law for the relief of debtors;

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(g)          Billed
Accounts (i) owing from any Person that is also a supplier to or creditor of
the Borrower unless such Person has waived any right of set-off in a manner
acceptable to the Bank, or (ii) representing any manufacturers or suppliers
credits, discounts, incentive plans or similar arrangements entitling the
Borrower to discounts on future purchase therefrom, unless the Bank has
accepted in its sole discretion in writing such Person or Billed Account as an
Eligible Account;

(h)          Billed
Accounts arising out of sales on a bill-and-hold, sale-or-return, sale on
approval or consignment basis or similar arrangements, or subject to any right
of return, deduction or charge-back;

(i)          Billed
Accounts in respect of which the Bank does not have, or ceases to have, a valid
and perfected Lien under applicable law in favor of the Bank securing the
Secured Obligations (as defined in the Borrower Security Agreement), or Billed
Accounts in respect of which a Person, other than the Bank, has a perfected
Lien;

(j)          Billed
Accounts due in a currency other than U.S. dollars or from Account Debtors
located outside the United States or Canada, unless in each case, the Billed
Account is (A) fully backed by an irrevocable letter of credit, the issuer and
terms of which the Bank, in its sole discretion, has first expressly approved
in writing, or (B) on terms acceptable to the Bank in its sole discretion;

(k)          Any
amount of a Billed Account which is held back or retained by an Account Debtor
(to the extent of such amount held back or retained) pursuant to the original
purchase agreement with the Borrower until such time as the Borrower has
satisfactorily completed and complied with the terms and conditions of the
related underlying sales/purchase order or contract;

(l)          Billed
Accounts owing from an Account Debtor that is an agency, department or
instrumentality of the United States or any State thereof, including, without
limitation, any Medicare, Medicaid and similar government funded health
care receivables;

(m)          Billed
Accounts owing from Account Debtors who do not meet credit standards acceptable
to the Bank;

(n)          Billed
Accounts, the full and timely collection of which the Bank, in its sole and
absolute judgment, believes to be doubtful;

(o)          In
the event that the aggregate unpaid Billed Accounts due from an Account Debtor
from time to time exceed fifteen percent (15%) of all then unpaid Billed
Accounts of the Borrower, then the unpaid Billed Accounts due from said Account
Debtor in excess of such fifteen percent (15%) may be considered by the Bank
not to be Eligible Accounts;

(p)          Because
of the nature of the Borrowers ownership of assets or conduct of business, the
Borrower is required by applicable law to be authorized to do business in the
jurisdiction where the Account Debtor is located and the Borrower is not so
authorized;

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(q)          Billed
Accounts from an Account Debtor located in New Jersey, Minnesota or other
jurisdiction that requires a Notice of Business Activities Report or similar
report to be filed by the Borrower, and the Borrower has not filed for the then
current year the required report or is not otherwise authorized to transact
business in said jurisdiction (but only to the extent of such Billed Accounts
owing from an Account Debtor located in any such state or other jurisdiction
for which the Borrower has not so filed is not so authorized to do business);

(r)          Any
of the representations set forth in Section 7.15 of this Agreement are untrue
with respect to such Billed Account;

(s)          Fifty
percent (50%) of all Billed Accounts due from an Account Debtor if such Account
Debtor has one or more Delinquent Accounts;

(t)          Any
invoice or bill that has not been rendered to the Account Debtor or does not
otherwise constitute a Billed Account; and

(u)          Billed
Accounts that are otherwise unacceptable to the Bank.

ERISA
means the Employee Retirement Income Security Act of 1974, as amended from time
to time, including the rules and regulations promulgated thereunder.

ESC
Inc. Security Agreement means the ESC Inc. Security Agreement dated as of
April 30, 2001, as amended from time to time, from the Borrower in favor of the
Bank.

Event
of Default shall have the meaning provided therefor in Section 11.1
hereof.

Governmental
Person means any United States, Israeli, or other national, state or local
government, political subdivision, or governmental, quasi-governmental,
judicial, public or statutory instrumentality, agency, authority, body or
entity including the Federal Deposit Insurance Corporation, any central bank or
any comparable authority.

Governmental
Rule means any law, rule, regulation, ordinance, order, code,
interpretation, judgment, decree, directive, guideline, policy or similar form
of decision of any Governmental Person.

Gross
Accounts means all Accounts of the Borrower (A) complying with the
representations and warranties set forth in clauses Section 7.15 of this
Agreement, or (B) other than Accounts owing from any employee or Affiliate of
the Borrower or Parent.

Holdings
means Lumenis Holdings Inc., a Delaware corporation.

Holdings
Loan Agreement means the Loan Agreement dated as of April 30, 2001, as
amended, between Holdings and the Bank.

Indebtedness
of any Person at any date, (i) all indebtedness or liability of
such Person for borrowed money, (ii) all obligations of such Person for the
deferred purchase price of property or services (other than current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices), (iii) all obligations of such Person
evidenced by a note, bond, debenture or similar instrument, (iv) all
obligations of such Person under Capitalized Leases, (v) all obligations of
such Person under letters of credit, (vi) all obligations of such Person in
respect of acceptances issued or created for the account of such Person, (vii)
all obligations and liabilities secured by any Lien on any property owned by
such Person, whether or not such Person has assumed or otherwise become liable
for the payment thereof, (viii) all current liabilities of such Person in
respect of unfounded vested benefits under Plans covered by ERISA, and (ix) all
guaranties, endorsements (other than for collection or deposit in the ordinary
course of business), and other contingent obligations to purchase, to provide
funds for payment, to supply funds to invest in any Person or entity, or
otherwise to assure a creditor against loss.

5

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Intercompany
Debt means all outstanding Indebtedness of the Borrower to the Parent
and/or to any Subsidiary of the Parent (including, without limitation,
Holdings), whether incurred pursuant to, or in connection with, the Asset
Purchase Agreement or otherwise.

Lender
shall have the meaning provided therefor in Section 2.6(b) hereof.

Lien
means any floating or fixed charge, lien, mortgage, pledge, security interest
or other encumbrance of any nature whatsoever upon, of or in property or other
assets of a Person, whether absolute or conditional, voluntary or involuntary,
whether created pursuant to agreement, arising by force of statute, by judicial
proceedings or otherwise.

Loan
shall have the meaning provided therefor in Section 2.1 hereof.

Loan
Documents means this Agreement, the Note, the Borrower Security Agreement,
the Bank of America Lockbox Deposit Account Control Agreement, Bank of America
Other Deposit Accounts Control Agreement, Signature Bank Lockbox Account
Control Agreement (and any other security agreement, assignment, collateral
mortgage, or similar document, instrument or agreement creating and/or
perfecting the Lien of the Bank under Canadian law in the Collateral as
security for the Borrowers obligations under the Loan Documents), the 2003
Parent Guarantee, the 2003 Request to Issue the Letter of Undertaking, and
the 2003 Letter of Undertaking.

Lockbox
Account means any one or both of the Bank of America Lockbox Deposit
Account and/or the Signature Bank Lockbox Account Deposit Account, as the
context may require.

Margin
means 0.5% per annum.

Maturity
Date means January 31, 2005.

New
York Branches means the New York branches of the Bank.

Note
means the Borrowers promissory note, substantially in the form of Exhibit A
hereto, with appropriate insertions.

Parent
means Lumenis Ltd., an Israeli corporation.

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PBGC
means the Pension Benefit Guaranty Corporation and any entity succeeding to any
or all of its functions under ERISA.

Permitted
Encumbrances means (i) Liens for current taxes not yet due or taxes
being contested in good faith, (ii) Liens created by operation of law, or
incurred in the ordinary course of business and securing payments not
delinquent and such Liens are unfiled and no other action has
been taken to enforce the same,
(iii) leases or the rights, if any, of third-party suppliers or other
vendors having possession of equipment, (iv)  imperfections of title,
easements and zoning restrictions, if any, (v) judgments Liens, in respect of
judgments that do not constitute an Event of Default hereunder, (vi) Liens in
favor of the Bank, (vii) Liens existing on the date of this Agreement
and described on Schedule I hereto securing Indebtedness outstanding on
the date of this Agreement, (viii) Liens not securing Indebtedness which are
incurred in the ordinary course of business in connection with workmens
compensation, unemployment insurance, social security and other like laws, and
(ix) purchase money Liens upon the equipment or other personal property of the
Borrower acquired or held by the Borrower in the ordinary course of its
business to secure the purchase price of such equipment or property, provided
that, (A) such Lien attaches solely to the equipment or property so acquired,
(B) the principal amount of the Indebtedness secured thereby does not exceed
100% of the fair market value of such property at the time of incurrence of
such Indebtedness, (C) no extension, renewal or replacement shall extend to or
cover any property not theretofore subject to the Lien being extended, renewed
or replaced, and (D) such Lien is non-recourse to the Borrower, the Parent and
any Subsidiary of the Parent.

Person
means any individual, partnership, limited liability company, joint venture,
corporation (including, without limitation, the Parent, the Borrower or any
Subsidiary), trust, estate, unincorporated organization or association or
Governmental Person.  If any Person is a
corporation, unless otherwise provided, the use of the term Person to refer
to that corporation means that corporation as a single entity and not as
consolidated with its Subsidiaries.

Plan
means an employee benefit plan or other plan, including both single-employer
and multi-employer plans, maintained for employees of the Borrower or any
Subsidiary thereof or any controlled group of trades or businesses under common
control, as defined respectively in Sections 1563 and 414(c) of the Internal
Revenue Code of 1986, as amended, of which the Borrower or any Subsidiary
thereof is or becomes a part, and covered by Title IV of ERISA.

Revolving Credit Period means the
period from and including the Closing Date to but not including the Maturity
Date, or such earlier date on which the Commitment shall terminate  as provided herein.

Reportable
Event shall have the meaning set forth in Section 4043(b) of Title IV of
ERISA.

Signature
Bank Lockbox Account means the deposit account of the Borrower to be
established with Signature Bank as more particularly described in the Signature
Bank Lockbox Deposit Account Control Agreement, as the same may be amended from
time to time.

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Signature
Bank Lockbox Account Control Agreement means the Deposit Account Control
Agreement to be entered into among the Borrower, the Bank and Signature Bank,
in form and substance satisfactory to the Bank, pursuant to which the Bank
shall obtain control over the Signature Bank Lockbox Account as Collateral
security.

Subsidiary
means, when used with reference to any corporation, any corporation of which at
least a majority of the outstanding stock, having by the terms thereof ordinary
voting power to elect a majority of the Board of Directors of such corporation,
is at the time directly or indirectly owned by such first-mentioned
corporation.

Taxes
shall have the same meaning provided therefor in Section 2.6 hereof.

Transfer
shall have the meaning provided therefor in Section 12.11(a).

Transferee
shall have the meaning provided therefor in Section 12.11(c).

Transferred
Item shall have the meaning provided therefor in Section 12.11(a).

Treasury
Obligation means a note, bill or bond issued by the United States Treasury
Department as a full faith and credit general obligation of the United States.

2003
Letter of Undertaking means the Letter of Undertaking from the Haifa
Branch (or any other branch) of Bank Hapoalim B.M. in favor of the New York
Branch of Bank Hapoalim B.M., in the principal amount not exceeding $9,000,000,
in form and substance satisfactory to the New York Branch of Bank Hapoalim
B.M., as may be amended from time to time.

2003
Parent Guarantee means the Deed of Continuing Guarantee Unlimited in
Amount from the Parent in favor of the Bank, pursuant to which the Parent
unconditionally guarantees the full and complete payment and performance of all
obligations and liabilities of the Borrower to the Bank under this Agreement
and the other Loan Documents to which it is a party, all in form and substance
satisfactory to the Bank, as may be amended from time to time.

2003
Request to Issue a Letter of Undertaking means the request and undertaking
of the Parent to the Haifa Branch of Bank Hapoalim B.M. to issue the 2003
Letter of Undertaking, in form and substance satisfactory to the Haifa Branch
of Bank Hapoalim B.M., as may be amended from time to time.

Uniform
Commercial Code means, unless otherwise indicated in this Agreement or any
other Loan Document, the Uniform Commercial Code in effect from time to time in
the State of New York.

United
States when used in a geographical sense, means all of the States of the
United States of America and the District of Columbia and, so long as they
continue as possessions or territories of the United States, Puerto Rico and
the Virgin Islands.

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| | 1.2. | Use of Accounting Terms. 
  Unless otherwise expressly stated herein, accounting terms used herein
  shall be construed, calculations hereunder shall be made and financial data
  required hereunder shall be prepared, both as to classification of items and
  as to amounts, in accordance with generally accepted accounting principles in
  effect in the United States as of the date thereof consistently applied,
  which principles shall be consistent with those used in the preparation of
  the most recent reviewed financial statements of such Person delivered to the
  Bank.  All statements relating to
  earnings and expenses shall set forth separately or otherwise identify all
  extraordinary and nonrecurring items.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2.       THE LOAN

2.1.     Loan.

The
Bank agrees, so long as no Default or Event of Default exists, and subject to
and upon the other terms and conditions herein set forth, to make revolving
credit loans (collectively called the Loan and individually an Advance)
to the Borrower from time to time on any Business Day during the Revolving Credit
Period in such aggregate amounts  not to
exceed the Commitment, provided that, from and including the Closing
Date to and including December 31, 2003, the maximum aggregate amount of
Advances that may be outstanding shall be $5,000,000, and from and including
January 1, 2004 to and including March 31, 2004, and subject to Section 9.3(b)
hereof, the maximum aggregate amount of Advances that may be outstanding shall
be $8,000,000, and on and after April 1, 2004 until the Maturity Date, the
maximum aggregate amount of Advances that may be outstanding shall be
$9,000,000.  Within the foregoing limits
and subject to the terms and conditions of this Agreement, the Borrower may
borrow under this Section 2.1, repay Advances and reborrow at any time during
the Revolving Credit Period.  The
Borrower shall give the Bank (i) a written request for disbursement in the form
of Exhibit C attached hereto (the Disbursement Request),
completed and certified by the chief financial officer of the Borrower as of
the date of such Disbursement Request, not later than by 11:00 a.m., New York,
New York time, two (2) Business Days prior to the Disbursement Date, and (ii) a
Borrowing Base Report Certificate completed and certified by the chief
financial officer of the Borrower as of the last day of the month most recently
ended prior to such Disbursement Request. 
Subject to the terms and conditions of this Agreement, the Bank will
make the amount of the Loan available to the Borrower by transferring such
amount to the Borrowers account maintained with the Bank.

2.2.     Repayment
of the Loan.

The
commitment of the Bank to make Advances hereunder shall terminate, and the
Borrower hereby
unconditionally promises to pay to the Bank the then unpaid principal amount of
each Advance (together with all accrued interest and fees thereon), on the
Maturity Date.

2.3.     Borrowing
Base Report Certificate.

| |  | (i) | In order to
  assist the Bank in its determination of Eligible Accounts and the Borrowers
  compliance with other provisions of this Agreement, the Borrower agrees to
  deliver to the Bank from time to time as hereinafter provided a Borrowing
  Base Report Certificate. 
  Presentation of a Borrowing Base Report Certificate shall constitute
  the Borrowers representation to the Bank that, as of the date thereof, the Borrowers Gross Accounts Eligible
  Accounts (other than components of
  such definition that are determined by the Bank in its discretion) included
  in the Borrowing Base Report Certificate qualify as such in accordance with
  the terms of this Agreement, and that all other information contained therein
  is accurate and complete.
| |  | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | (ii) | A Borrowing
  Base Report Certificate dated as of the last day of each month (the Certificate
  Date) shall be presented by the Borrower to the Bank on or before the
  fifteenth (15th) day of the month next following the Certificate Date, or if
  such day is not a Business Day, the next following Business Day (the Delivery
  Date).  A Borrowing Base Report
  Certificate shall be effective from and including the date the Bank receives
  it on or before the Delivery Date, until the Bank receives the next Borrowing
  Base Report Certificate on or before the next following Delivery Date.
| |  | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2.4.     Increased
Costs.  If, after the date of this
Agreement, the adoption of any applicable Governmental Rule, any change in any
applicable Governmental Rule, any change in the interpretation or
administration of any applicable Governmental Rule by any Governmental Person
charged with the interpretation or administration thereof, or compliance by the
Bank with any request or directive (whether or not having the force of law) of
any such Governmental Person of general applicability shall subject the Bank to
any tax, duty or other charge with respect to all or any portion of the Loan or
shall change the basis of taxation of payments to the Bank of any amounts due
under this Agreement, or the Note (except for changes which affect franchise
taxes or taxes measured by or imposed on the overall net income of the Bank or
any of its offices imposed by the tax laws of any jurisdiction in the world);
or shall impose, modify or deem applicable any reserve (including, without
limitation, any imposed by the Board of Governors of the Federal Reserve
System), special deposit, capital adequacy requirement, capital equivalency,
ratio of assets to liabilities or any other capital substitute or similar
requirement against assets of, deposits with or for the account of, credit
extended by, letters of credit issued and maintained by, or collateral subject
to a lien in favor of the Bank, or shall impose on the Bank any other condition
affecting all or any portion of the Loan; and the result of any of the
foregoing is to increase the cost to or to impose a cost on the Bank of making
or maintaining all or any portion of the Loan, or to reduce the amount of any
sum received or receivable by the Bank under this Agreement or the Note, or (in
the case of a capital adequacy or similar requirement) to reduce the rate of
return on the Banks capital as a consequence of maintaining all or any portion
of the Loan to a level below that which could have been achieved but for the
imposition of such requirement (taking into consideration the Banks capital
adequacy policies), then, the Bank shall give written notice to the Borrower of
any such increased costs, and upon demand by the Bank, the Borrower shall pay
the Bank for its own account such additional amount or amounts as will
compensate the Bank for such increased cost or reduction actually incurred.

2.5     Net
Payments.

(a)     Subject
to the provisions of Section 2.6(b), all payments to the Bank under this
Agreement or the Note shall be made without setoff or counterclaim and shall be
increased (grossed up) by such amounts as may be necessary in order that all
such payments (after deduction or withholding for or on account of any present
or future taxes, levies, imposts, duties, or other charges of whatsoever nature
imposed by any government, any political subdivision or any taxing authority,
other than any franchise tax or other tax owed and measured by the overall net
income of the Bank or any of its offices pursuant to the tax laws of any
jurisdiction in the world (collectively, the Taxes)) shall not be less
than the amounts otherwise specified to be paid under this Agreement or the
Note.

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(b)     The
Bank or any transferee which becomes a party hereto pursuant to Section 12.11
(the Bank and such transferee each, a Lender) shall endeavor and
exercise reasonable efforts to:

(1)     no
later than the Closing Date (or, in the case of a Lender which becomes a party
hereto pursuant to Section 12.11 hereof after the Closing Date, the date upon
which such Lender becomes a party hereto) deliver to the Borrower two accurate,
complete and signed originals of U.S. Internal Revenue Service Form W-8BEN or
Form W-8 ECI or successor form, as applicable, in each case indicating that
such Lender is, on the date of delivery thereof, entitled to receive payments
of principal, interest and fees for the account of its lending office under
this Agreement free from withholding of United States Federal income tax;

(2)     if
at any time such Lender changes its lending office or offices or selects an
additional lending office, at the same time or reasonably promptly thereafter,
deliver to the Borrower in replacement for, or in addition to, the forms
previously delivered by it hereunder, two accurate, complete and signed
originals of such Form W-8BEN or Form W-8 ECI or successor form, as applicable,
in each case indicating that such Lender is, on the date of delivery thereof,
entitled to receive payments of principal, interest and fees for the account of
such changed or additional lending office under this Agreement free from
withholding of United States Federal income tax; and

(3)     promptly
upon the Borrowers reasonable request to that effect, deliver to the Borrower
such other forms or similar documentation as may be required from time to time
by any applicable law, treaty, rule or regulation in order to establish such
Lenders exemption from Tax for withholding Tax purposes.

(c)     The
Borrower shall not be entitled to be advised of and/or take part and/or
interfere in any way whatsoever in the manner chosen by the Bank to prepare its
tax returns, determine its policies regarding Taxes and handle all its taxing
affairs in general (including - inter alia, in any and all kind of negotiations
with the Israeli tax authorities). 
Furthermore, the Borrower shall have no claim whatsoever against the
Bank in connection with any decision, act or omission chosen, taken or omitted
by the Bank in connection with any of the foregoing all executed by the Bank in
good faith.

(d)     The
Borrower shall have no claim against the Bank in connection with any such Taxes
paid, withheld or deducted, except as otherwise specifically stipulated in this
Section.

2.6.              Security
for the Loan.  The Loan shall be
secured by a perfected  Lien on the
Collateral in favor of the Bank pursuant to the Borrower Security
Agreement.

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3.       USE
OF PROCEEDS.

The
proceeds of the Loan shall be utilized by the Borrower for
Borrowers working capital and
to pay fees and expenses related hereto, and for other general corporate
purposes, including, without limitation, repayment of Intercompany Debt, provided
that, no proceeds of any Advance shall be given or otherwise made
available to the Parent or any of its Subsidiaries unless in connection with
the repayment of outstanding Intercompany Debt owing by the Borrower.

4.       NOTE
EVIDENCING BORROWINGS.

The
Loan shall be evidenced by the Note. 
All advances made by the Bank to the Borrower and all repayments of
principal by the Borrower shall be reflected by the Bank in its books and
records, which books and records shall be rebuttal presumptive evidence of the
entries made therein or thereon; provided, however, the failure of the
Bank to record any entry, or any error in any book or record, shall not in any
manner affect the obligations of the Borrower to repay (with applicable
interest) the Advances made to the Borrower by the Bank in accordance with the
terms of this Agreement. The Bank agrees to provide statements of such amounts
to the Borrower upon Borrowers written request; provided, however,
that, in the event of any conflict between such statement and the Banks books
and records, the latter shall be controlling absent manifest error.

5.       INTEREST

5.1.     Interest.

(i)       The
unpaid principal amount of each Advance shall bear interest at a rate per annum
equal to the Prime Rate, plus the Margin. 
The Prime Rate shall mean the Banks New York Branches
stated Prime Rate as reflected in its books and records as such Prime Rate may
change from time to time.  The Banks
determination of its Prime Rate shall be conclusive and final.  The Prime Rate is a reference rate generally
applicable to the Banks customers who borrow at the Banks Prime Rate, and is
not necessarily the lowest rate charged by the Bank to borrowers.  Adjustments to the variable interest rate
will be effective, without prior notice, as of the effective date of any change
in the Prime Rate.

(ii)      Interest
on each Advance shall accrue from and including the date of disbursement
applicable thereto to but excluding the date of any repayment thereof, and
shall be payable on the last Business Day of each month, at maturity (whether
by acceleration or otherwise) and, after such maturity, on demand.

(iii)     All
computations of interest hereunder shall be made on the actual number of days
elapsed over a year of 360 days.

5.2.     Default
Rate.

(i)     The
Borrower shall pay default interest (Default Interest) on sums not
paid when due (whether at the stated maturity, by acceleration, or otherwise)
under this Agreement or the Borrower Security Agreement (or, in the event sums
are payable on demand, if not paid on the date of demand) from such due date
(or the date of demand) and up to the date of actual payment (as well as after
judgment) at a rate equal to five percent (5%) per annum above the aggregate of
the Margin and the Prime Rate.

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(ii)     Default
Interest shall be due and payable on demand and calculated on the basis of the
actual number of days elapsed divided by 360 days.

5.3.     Generally.  Interest shall be payable on the unpaid
principal balance of the Loan evidenced by the Note on the last Business Day of
each month and at any time that any part of such principal is due or is paid,
or any time that the Note is paid in full. 
Such interest shall be calculated on a daily basis on the outstanding
principal balance of the Loan at the Prime Rate plus the Margin or the Default
Rate, as the case may be, divided by 360 on the actual days elapsed from the
date hereof, or from the date the entire principal balance of the Note shall
have become due and payable, or from the stated date of maturity, as
appropriate, until paid.  Any payment by
other than immediately available funds shall be subject to collection.  Interest shall continue to accrue until the
funds by which payment of principal is made are available to the Bank for its
use.  Interest shall never exceed the
maximum lawful rate of interest applicable to the Note.

5.4     Fees.  The Borrower agrees to pay the Bank a
facility fee on the average daily amount of the Commitment (whether used or
unused), from the Closing Date to and including the Maturity Date, at the rate
of 0.20%, payable in advance, commencing on the Closing Date for the period
from the Closing Date to and including December 31, 2003, and thereafter
quarterly on the first day of each calendar quarter during the term of the
Commitment.  The Borrower also agrees to
pay the Bank, on the Closing Date, an administrative fee of $250,000.00.

6.       PAYMENTS,
OFFSETS AND REDUCTION.

6.1.     Place
of Payment.  All payments hereunder
(including payments with respect to the Note) shall be made without set-off,
counterclaim or deduction and shall be made in immediately available funds by
the Borrower to the Bank, prior to 3:00 p.m., New York time, at its offices at
1177 Avenue of the Americas, New York, New York, 10036 or at such other place
as may be designated by the Bank to the Borrower in writing.  Any payment received after 3:00 p.m., New
York time, shall be deemed received on the next Business Day.  If any payment of principal of or interest
on the Note or any other amount under the Note or this Agreement falls due on a
day that is not a Business Day, it shall be payable on the next succeeding
Business Day (unless such day would be a day in the next calendar month, and in
such case payment shall be due on the immediately preceding Business Day), and
the resulting additional or decreased time (if any) shall be included in or
deducted from the computation of interest.

6.2.     Set-Off.  In addition to and not in limitation of all
rights of set-off that the Bank may have under applicable law, any and all
balances, credits, deposits, accounts or moneys of the Borrower then or
thereafter maintained or held at any of the Banks or its Subsidiarys or
Affiliates offices worldwide and in any currency, shall be subject to being
set off against any sum not paid on its due date by the Borrower to the Bank
arising under this Agreement or the other Loan Documents, and in furtherance
thereof, the Bank may at any time and from time to time after an Event of
Default shall have occurred and be continuing at its option and without prior
notice to the Borrower, except as may be required by law, appropriate and apply
toward the payment of any of such obligations of the Borrower to the Bank, for
sums not paid on its due date all or any part of the balances of each such
balance, credit, deposit, account, or money maintained or held at the Bank or
its Subsidiarys or Affiliates offices worldwide and in any currency.  The Bank shall notify the Borrower forthwith
upon the exercise of any right of set-off giving details in relation thereto.

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7.       REPRESENTATIONS
AND WARRANTIES.

To
induce the Bank to enter into this Agreement and to make the Loan hereunder,
the Borrower represents, warrants and covenants to the Bank as of the date of
this Agreement and each Disbursement Date that, except as otherwise disclosed
in any reports or information publicly disclosed from time to time by the
Parent, including all filings with the Securities and Exchange Commission and
press releases by the Parent:

7.1.     Corporate
Existence.  Each of the Borrower,
Parent and Parents Subsidiaries  is a
duly organized and validly existing corporation in good standing under the laws
of the jurisdiction of its formation and has the corporate power and authority
to own its properties and other assets and to transact the business in which it
is now engaged or proposes to engage. 
Each of the Borrower, Parent and Parents Subsidiaries is duly qualified
to do business and is in good standing in each jurisdiction in which the
failure to qualify would have a material adverse effect on its business.

7.2.     Control
and Holdings. All of the capital stock of the Borrower is beneficially
owned by Holdings and all capital stock of Holdings is beneficially owned by
the Parent.

7.3.     Authorization
and Execution. The Borrower has the corporate power and authority to
execute, deliver and carry out the terms and provisions of the Loan Documents
executed by it.  The execution, delivery
and performance by the Borrower of the Loan Documents to which it is a party
and the borrowing hereunder have been duly authorized by all requisite
corporate action.  This Agreement, the
Note and the Borrower Security Agreement, when executed and delivered by the
Borrower pursuant hereto, will be legal, valid and binding obligations of the
Borrower, enforceable against the Borrower, in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors rights generally and by the application by a court of
equitable principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).

7.4.     Compliance
with Other Instruments.  After
giving effect to the waivers, amendments and/or consents described in Sections
8.1(x) and 8.1(xi) hereof, each of the Borrower, Parent and Parents
Subsidiaries is not in default in the performance, observance or fulfillment of
any of the material obligations, covenants or conditions contained in any evidence
of Indebtedness of the Borrower, Parent or such Subsidiary, or contained in any
material instrument under or pursuant to which any such evidence of
Indebtedness has been issued or made and delivered.  Neither the execution and delivery of the Loan Documents to which
it is a party, nor the consummation of the transactions herein contemplated,
including but not limited to the use of the proceeds of the Loan for the
purposes set forth herein, will conflict with or result in a breach of any of
the terms, conditions or provisions of the Certificate of Incorporation or
By-laws or other organizational charter and instruments of the Borrower, Parent
or such Subsidiary, or of any material agreement or instrument to which the
Borrower, Parent or such Subsidiary is now a party or otherwise bound or to
which the Borrowers, Parents or such Subsidiarys properties or other assets
is subject, or of any law, statute, rule or regulation or any order or decree
of any court or governmental instrumentality, or of any arbitration award,
franchise or permit, or constitute a default thereunder, or if any action was
required under such instrumentality, award, franchise or permit, it will not,
to the Borrowers knowledge, have a material adverse effect on the Borrower,
Parent or any such Subsidiary, or result in the creation or imposition of any
Lien upon any of the properties or other assets of the Borrower, Parent or such
Subsidiary, except as contemplated in this Agreement or the other Loan
Documents or as disclosed in the first sentence of this Section 7.4.

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7.5.     Consents.  Subject to satisfaction of the conditions to
closing expressly set forth in Section 8.1 hereof, no consent or approval of,
or exemption by, any Person, and no waiver of any right by any Person is
required to authorize or permit, or is otherwise required in connection with,
the execution, delivery and performance of the Loan Documents, or with respect
to the required use by the Borrower of the proceeds of the Loan, except those
which shall have been obtained on or prior to the date hereof.

7.6.     Financial
Statements.   The Borrower has
heretofore furnished to the Bank copies of (i) the unqualified audited
consolidated financial statements of the Parent and its consolidated Subsidiaries
as of December 31, 2002 and for the year then ended and consolidating financial
statements for the Borrower for such period, and (ii) Parent-prepared financial
statements of the Parent and its consolidated Subsidiaries as of June 30, 2003
(collectively, the Lumenis Financial Statements).  The Lumenis Financial Statements present
fairly the financial position of the Parent, its consolidated Subsidiaries and
the Borrower on the date of the balance sheet included therein and the results
of the operations of the Parent, its consolidated Subsidiaries and the Borrower
for the period involved, and have been prepared in accordance with generally
accepted accounting principles in effect in the United States as of the date
thereof applied on a consistent basis throughout the periods involved (subject
to, in the case of the interim Lumenis Financial Statements, normal year-end
audit adjustments not material in amount).

7.7.     No
Material Changes.  There has been no
material adverse change in the business, properties or other assets or in the
condition, financial or otherwise, of the Borrower or the Parent, since the
date of the most recent balance sheets included in the financial statements of
the Parent as of June 30, 2003.

7.8.     Litigation.  There are no actions, suits, investigations
or proceedings pending or, to the knowledge of the Borrower threatened in
writing against the Borrower, Parent or Parents Subsidiaries at law or in
equity or before or by any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or before any arbitrator of any
kind, which involve the possibility of any material liability or of any
material adverse effect on the business, operations, prospects, properties or
other assets or in the condition, financial or otherwise, of (i) the Borrower
and its Subsidiaries taken as a whole, or (ii) the Parent and its Subsidiaries
taken as a whole.

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7.9.     Compliance
with Law.  The Borrower, Parent and
Parents Subsidiaries are in compliance, in all material respects, with all
applicable requirements of law and all applicable rules and regulations of each
Federal, state, municipal or other governmental department, agency or
authority, domestic or foreign, the noncompliance with which would have a
material adverse effect on the business, affairs, or financial condition of the
Borrower, Parent and/or Parents Subsidiaries, as the case may be.

7.10.    Investment
Company.  Neither the Borrower nor
its Subsidiaries is an investment company or a company controlled by an
investment company within the meaning of the Investment Company Act of 1940,
or the regulations under such act.

7.11.    Regulation U.  None of the proceeds of the Loan will be used, directly or indirectly,
to acquire or maintain margin stock within the meaning of, or for any purpose
that will violate, or cause the Bank to be in violation of, or that will
require the Bank to file or obtain any forms or notices or applications of any
kind so as not to be in violation of, Regulation U (12 CFR, Part 221) of the
Board of Governors of the Federal Reserve System.  Neither the Borrower nor any agent acting on its behalf has taken
or will take any action which might cause this Agreement or the Note or the
making of the Loan to violate Regulation U or any other regulation of the Board
of Governors of the Federal Reserve System.

7.12.    ERISA.  Each single-employer Plan has been
maintained and funded, in all material respects, in accordance with its terms
and with all provisions of ERISA applicable thereto, and the Borrower and its
Subsidiaries have each taken all actions required to be taken by them to cause
each multi-employer Plan to be maintained and funded, in all material respects,
in accordance with its terms and with all provisions of ERISA applicable
thereto; no Reportable Event has occurred and is continuing with respect to any
single-employer Plan or, to the Borrowers knowledge, any multi-employer Plan;
and  no liability to PBGC has been
incurred by the Borrower or any Subsidiary thereof with respect to any
single-employer Plan or, to the Borrowers knowledge, any multi-employer Plan,
other than for premiums due and payable.

7.13.    Indebtedness;
Liens.  The Borrower (i) does not
have any aggregate outstanding Indebtedness to all creditors (excluding
Intercompany Debt) greater than one hundred thousand dollars ($100,000.00)
other than Indebtedness owing to the Bank and Indebtedness specified on Schedule
7.13 attached hereto, and (ii) has not granted a Lien in favor of any
Person in the Collateral other than the Liens granted to the Bank pursuant to
the Borrower Security Agreement, the ESC Inc. Security Agreement and Permitted
Encumbrances.

7.14     Intercompany
Debt.  The Intercompany Debt is the
legal valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors rights generally and by the
application by a court of equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).  On the date hereof, the outstanding
principal balance of all Intercompany Debt is not less than
$50,000,000.00.

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7.15     Warranties
as to Accounts.  The Borrower
represents and warrants that as to all Accounts of the Borrower reported to the
Bank (i) each such Account is a valid subsisting Account as defined herein,
(ii) each such Account represents a bona fide performed transaction, (iii) the
amount shown on the Borrowers books and on the invoice or statement delivered
to an Account Debtor is owing to the Borrower, (iv) no partial payment has been
made on or in connection with an Account unless it has been reflected on the
Borrowers books and on the invoice or statement delivered to an Account
Debtor.

8.      CONDITIONS
PRECEDENT TO THE LOAN.

| | 8.1. | Conditions to Initial Advance. 
  The obligation of the Bank to make the initial Advance to the Borrower
  hereunder is subject to the satisfaction, immediately prior to or
  concurrently with the making of the initial Advance on the Disbursement Date,
  of the following conditions precedent (all of which shall be in form and
  substance satisfactory to the Bank and its counsel):
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (i)  | Loan Documents.  The Bank shall have received
  this Agreement, the Note and the Borrower Security Agreement, executed and
  delivered by a duly authorized officer of the Borrower, the Bank of America
  Lockbox Deposit Account Control Agreement and the Bank of America Other
  Deposit Accounts Control Agreement, executed and delivered by a duly
  authorized officer of the Borrower, Bank of America and the Bank, the 2003
  Parent Guarantee, executed by a duly authorized officer of the Parent, the
  2003 Letter of Undertaking, duly authorized, executed and delivered by the
  Haifa Branch (or other branch) of Bank Hapoalim B.M., and such agreements,
  instruments, documents and filings as the Bank, upon advice of its special
  Canadian counsel, may deem to be necessary or desirable in order to perfect
  and/or enforce the Lien of the Bank in the Accounts of the Borrower owing
  from Account Debtors located, licensed or otherwise doing business in Canada.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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| |  | (ii) | Closing Certificate of Borrower. 
  The Bank shall have received (A) a copy of the Borrowers Certificate
  of Incorporation, as amended, certified by the appropriate office of the
  jurisdiction of incorporation; (B) a certificate of such office, dated as of
  a recent date, as to the good standing and charter documents of the Borrower
  on file; (C) a certificate of an officer of the Borrower, dated the initial
  Disbursement Date certifying (aa) that the Certificate of Incorporation of
  the Borrower has not been amended since the date of the last amendment
  thereto indicated on the certificate furnished pursuant to clause (B) above,
  (bb) as to the absence of dissolution or liquidation proceedings by or, to
  its knowledge, against the Borrower, Parent or any of Parents Subsidiaries,
  (cc) that attached thereto is a true, correct and complete copy of the
  By-Laws of the Borrower as in effect on the date of such certification, (dd)
  that attached thereto is a true, correct and complete copy of the resolutions
  adopted by the Board of Directors of the Borrower authorizing the execution,
  delivery and performance of this Agreement, the Note and the other Loan
  Documents to which the Borrower is a party, and that such resolutions have
  not been amended, modified, revoked or rescinded and are in full force and
  effect on the date of such certificate, and (ee) as to the incumbency and
  specimen signatures of the officers of the Borrower executing any Loan
  Document; such certificate (and the attachments thereto) shall be in form and
  substance satisfactory to the Bank.

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| |  | (iii) | Closing Certificate of Parent. 
  The Bank shall have received (A) a copy of the Parents charter
  documents, as amended, certified by the appropriate office of the
  jurisdiction of formation; (B) a certificate of such office, dated as of a
  recent date, as to the good standing or existence of the Parent; (C) a
  certificate of an officer of the Parent, dated the initial Disbursement Date
  certifying (aa) that the charter documents of the Parent have not been
  amended since the date of the last amendment thereto attached pursuant to
  clause (cc) below, (bb) as to the absence of dissolution or liquidation
  proceedings by or, to its knowledge, against the Parent or any of Parents
  Subsidiaries, (cc) that attached thereto is a true, correct and complete copy
  of the memorandum or articles of association of the Parent as in effect on
  the date of such certification, (dd) that attached thereto is a true, correct
  and complete copy of the resolutions adopted by the Board of Directors of the
  Parent authorizing the execution, delivery and performance of the 2003 Parent
  Guarantee and the 2003 Request to Issue the Letter of Undertaking and any
  other Loan Documents to which the Parent is a party, and that such
  resolutions have not been amended, modified, revoked or rescinded and are in
  full force and effect on the date of such certificate, and (ee) as to the
  incumbency and specimen signatures of the officers of the Parent executing
  any Loan Document; such certificate (and the attachments thereto) shall be in
  form and substance satisfactory to the Bank.
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| |  | (iv)  | Legal Opinions.  The Bank shall have received
  (a) an executed legal opinion of Sonnenschein Nath & Rosenthal LLP,
  and/or such other Person acceptable to the Bank, special New York counsel to
  the Borrower, dated the initial Disbursement Date and covering the due
  authorization, execution, delivery by, and the enforceability against, the
  Borrower of the Loan Documents to which it is a party and the perfection of
  the Banks security interest in the Collateral, and covering such additional
  matters relating to the transactions contemplated by the Loan Documents as
  the Bank may reasonably request (which opinion may rely on an opinion of special
  Massachusetts counsel to the Borrower reasonably satisfactory to the Bank as
  to matters of Massachusetts law, or alternatively, such Massachusetts matters
  of law shall be covered by an opinion of said special Massachusetts counsel
  delivered to the Bank rather than by said special New York counsel), (b) an
  executed legal opinion of Avraham Ortal of Zellermayer, Pelossoff & Co.,
  Israeli counsel to the Parent, dated the initial Disbursement Date and
  covering the due authorization, execution, delivery by, and the
  enforceability against, the Parent of the 2003 Parent Guarantee and the 2003
  Request to Issue the Letter of Undertaking and any other Loan Document to
  which the Parent is a party.                                                                                                                                                                                                                           

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| |  | (v)    | Actions to Perfect Liens. 
  The Bank shall have received evidence in form and substance
  satisfactory to it that all filings, recordings, registrations and other
  actions, necessary or, in the opinion of the Bank, desirable to perfect the
  Liens created by the Borrower Security Agreement have been made, whether in
  the United States, Canada or otherwise.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
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| |  | (vi)   | Lien Searches.  The Bank shall have received
  the results of a recent search by a Person reasonably satisfactory to the
  Bank of the Uniform Commercial Code, judgment, bankruptcy and tax lien
  filings which may have been filed with respect to personal property of the
  Borrower and the results of such search shall be reasonably satisfactory to
  the Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | (vii)  | Disbursement Request.  The Bank shall have received
  a Disbursement Request dated not less than two (2) Business Days prior to the
  initial Disbursement Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | (viii) | Fees.  The Bank shall have received, for its own
  account, all accrued fees and expenses owing hereunder or in connection
  herewith (including, without limitation, all fees specified in Section 5.4
  hereof and all fees and disbursements of counsel to the Bank).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | (ix)   | Borrowing
  Base Report Certificate.  The Bank shall have received a Borrowing Base Report
  Certificate dated as of the initial Disbursement Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | (x)    | Holdings
  Loan Agreement Amendment and Consent.  The Bank shall have received one or more
  amendments and/or consents to the Holdings Loan Agreement, executed and
  delivered by a duly authorized officer of the Bank, Holdings, the Parent and
  each Material Subsidiary (as defined in the Holdings Loan Agreement), or as
  otherwise required by the Bank, in form and substance satisfactory to the
  Bank pursuant to which such parties acknowledge and agree that (A) the Loan
  shall be deemed to be permitted Indebtedness by a Subsidiary with respect to
  Section 10.5 of the Holdings Loan Agreement, (B) the occurrence and
  continuance of any Default or Event of Default under this Agreement shall
  constitute an Event of Default under the Holdings Loan Agreement, (C) the
  Lien granted by the Borrower in favor of the Bank on the Collateral to secure
  the Secured Obligations (as defined in the Borrower Security Agreement) shall
  be deemed to be a Permitted Encumbrance for purposes of Section 10.4 of the
  Holdings Loan Agreement, (D) the semi-annual installment of $10,000,000
  payable on October 31, 2003, and the semi-annual installment of $5,000,000
  payable on December 31, 2003, shall be postponed and paid on April 30, 2004,
  unless a different amortization schedule is agreed upon by the Bank in
  writing prior to such date, and (E) as to such other amendments, waivers
  and/or restructuring matters relating to the Holdings Loan Agreement as the
  Borrower, Holdings, Parent and the Bank have heretofore discussed and agreed
  upon, or as the Bank may require in connection with the foregoing.

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| |      | (xi)                                                                                                                                                                                                                                                                | Parent Loan
  Waivers, Amendments and Consents.  The Bank shall have received one or more
  waivers, amendments and/or consents in connection with the outstanding loans
  from the Bank to the Parent, in form and substance satisfactory to the Bank,
  pursuant to which the Parent and/or its Subsidiaries and the Bank acknowledge
  and agree that (A) the Bank will waive the Parents compliance with the
  minimum EBITDA as at the end of the third quarter of 2003 as set forth in the
  loan documents evidencing such loans to the Parent, (B) the Loan shall be
  deemed to be permitted Indebtedness by a Subsidiary, (C) the Parent and/or
  its Subsidiaries may use the cash proceeds received in connection with the
  sale of Spectron Laser Systems Limiteds assets to GSI Lumonics Inc., and (D)
  as to such other amendments, waivers and/or restructuring matters relating to
  the outstanding loans from the Bank to the Parent as the Parent and the Bank
  have heretofore discussed and agreed upon, or as the Bank may require in
  connection with the foregoing.
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| |      | (xii)                                                                                                                                                                                                                                                               | Schedule of
  Intercompany Debt. 
  The Bank shall have received a schedule, in form and substance
  satisfactory to the Bank, certified by the Borrower to its knowledge, of all
  Intercompany Debt of the Borrower outstanding as of September 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 8.2. | Conditions
  to each Advance. 
  The obligation of the Bank to
  make any Advance (including, without limitation, the initial Advance) to the
  Borrower hereunder on any Disbursement Date is subject to the
  satisfaction of the following conditions precedent:
| |      |                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | (i)                                                                                                                                                                                                                                                                 | Representations
  and Warranties. 
  Each of the representations and warranties made by the Borrower in or
  pursuant to the Loan Documents shall be true and correct in all material
  respects on and as of such date as if made on and as of such date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | (ii)                                                                                                                                                                                                                                                                | No Default.  No Default or Event of Default shall have
  occurred and be continuing on such date or after giving effect to the Advance
  requested to be made on such date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | Each
  borrowing by the Borrower hereunder shall constitute a representation and
  warranty by the Borrower as of the date thereof that the conditions contained
  in this Section 8.2 have been satisfied.                                                        

9.      AFFIRMATIVE
COVENANTS.

The
Borrower covenants and agrees that from and after the date hereof until all
sums due and to become due hereunder or under any other Loan Document have been
paid or repaid in full and the Commitment has been terminated, unless the Bank
shall otherwise consent in a writing delivered to the Borrower:

20

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---

| | 9.1.     Pay
  Principal and Interest.  The
  Borrower will punctually pay or cause to be paid the principal and interest
  to become due in respect of the Note according to the terms hereof and
  thereof.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 9.2.     Maintenance
  of Office.  The Borrower will
  maintain an office in New York (or such other place in the United States as
  the Borrower may designate in writing to the Bank or to any subsequent holder
  of the Note), where notices and demands to or upon the Borrower in respect of
  the Note and the Borrower Security Agreement may be given or made.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 9.3.     Keep
  Books; Analysis of Accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (a)  The Borrower will keep, and will cause
  each of its Subsidiaries to keep, proper books of record and account in which
  true, correct and complete entries in conformity with United States generally
  accepted accounting principles, as applicable, will be made of all dealings
  and transactions in relation to their respective businesses and activities of
  the Borrower and its Subsidiaries, will maintain, and cause each of its
  Subsidiaries to maintain, their respective fiscal reporting periods on the
  present basis, and will permit, and cause each of its Subsidiaries to permit,
  representatives of the Bank to visit and inspect any of their respective
  properties, to examine and make abstracts from any of their respective books
  and records, and to discuss their respective affairs, finances and accounts
  with their officers, employees and independent public accountants, all at
  such reasonable times and as often as may be reasonably desired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (b)  The Bank shall have the
  right to make test verifications of the Accounts in any manner and through
  any medium that it considers advisable, and the Borrower shall furnish all
  such assistance and information as the Bank may reasonably require in
  connection with such test verifications. 
  At any time and from time to time, upon the Banks request and at the
  expense of the Borrower, the Borrower shall cause independent public
  accountants or others satisfactory to the Bank in its sole discretion to
  furnish to the Bank reports showing reconciliations, aging and test
  verifications of, and trial balances for, the Accounts, and such other
  information as is requested by the Bank. 
  The Bank in its own name or in the name of others may (but in any
  event not less than twice every calendar year and during such time as an
  Event of Default shall have occurred and be continuing) commence a field exam
  audit of the Accounts by independent public accountants or others
  satisfactory to the Bank at the expense of the Borrower, and/or communicate
  with the obligors on the Accounts to verify with them to the Banks
  satisfaction the existence, amount and terms of any Accounts (the results of
  any such field exam audit, including, without limitation, the results of any
  reconciliations, aging, concentrations and test verifications of, and trial
  balances for, the Accounts, and such other information as is prepared or
  examined in connection with such audit at the request of the Bank, is
  hereinafter referred to as a Field Exam Report).  On or prior to December 31, 2003, the Borrower agrees, at its
  expense, to deliver to the Bank a Field Exam Report by its independent public
  accountants or others satisfactory to the Bank, covering all Accounts of the
  Borrower as of September 30, 2003; such report to include reconciliations,
  aging, concentrations and test verifications of, and trial balances for, the
  Accounts, and such other information as is requested by the Bank.  All field exam audits that are conducted
  by such independent public accountants or other Persons shall be conducted in
  accordance with the terms and provisions of this Agreement.  If there is a conflict or deviation between
  a Field Exam Report and the Borrowers Borrowing Base Report Certificate or
  other report of the Borrower relating to same, then such Field Exam Report of
  such independent public accountants or others Persons shall prevail and
  control, provided that, if such Field Exam Report shall indicate that
  a default has occurred with respect to Section 10.7 and/or 10.8 hereof, such
  default shall become an immediate Event of Default (with the Bank having the
  right to demand immediate repayment of the Loan) unless any short fall in
  such amounts is deposited in cash by the Borrower in an account at, and
  pledged in favor of, the Bank, within two (2) days after delivery of such
  Field Exam Report to the Bank and provided further that Borrower shall not
  use any new loan from the Bank to make up such shortfall or as cash
  collateral.  The Borrower may not
  initiate any Disbursement Requests for the additional $4,000,000 of borrowing
  availability pursuant to Section 2.1 of this Agreement until seven (7) days
  after the Bank has received and reviewed the above-described field exam audit
  report to be delivered on or prior to December 31, 2003.

21

---

---

| | (c)  The Borrower will keep and maintain at its
  own cost and expense complete books and records relating to the Collateral,
  which are satisfactory to the Bank, including, without limitation, a record
  of all payments received and all credits granted with respect to the
  Collateral and all of its other dealings with the Collateral (including,
  without limitation, the Lockbox Account, and, for so long as it is in effect,
  the Bank of America Lockbox Account). 
  The Borrower will mark its books and records pertaining to the
  Collateral to evidence the Lien of the Bank pursuant to the Borrower Security
  Agreement and any other Loan Document. 
  For the Banks further security, the Borrower agrees that the Bank
  shall have a special property interest in all of the Borrowers books and
  records pertaining to the Collateral (including, without limitation, the
  Lockbox Account, and, for so long as it is in effect, the Bank of America Lockbox
  Account), and the Borrower shall deliver and turn over any such books and
  records to the Bank or to its representatives at any time on demand of the
  Bank.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 9.4.     Payment
  of Taxes; Corporate Existence; Maintenance of Properties.  The Borrower will and will cause each of
  its Subsidiaries to:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (i)       Pay
  and discharge in its ordinary course of business all taxes (including,
  without limitation, all payroll withholdings), assessments and governmental
  charges or levies imposed upon it or upon its income or profits or upon any
  of its property, real, personal or mixed, or upon any part thereof, before
  the same shall become in default, as well as all claims for labor, materials
  and supplies which, if unpaid, might by law become a Lien upon its property; provided,
  however, that it shall not be required to pay any such tax, assessment,
  charge, levy or claim or discharge any such Lien if the validity thereof
  shall be contested in good faith by appropriate proceedings and if it shall
  have set aside on its books such reserves, if any, as may be required in
  accordance with generally accepted accounting principles in effect in the
  United States as of the date thereof with respect to the tax, assessment,
  charge, levy or claim so contested;                                                                                                                                               

22

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|                                                                                                                               | (ii)      Conduct
  its business according to good business practices;  keep in full force and effect the corporate existence, and
  material rights, licenses, permits and franchises of the Borrower and its
  Subsidiaries, and comply in all material respects with all of the laws, rules
  and regulations governing its business; and make all such reports and pay all
  such franchise and other taxes and license fees and do all such other things
  as may be lawfully required, to maintain the material rights, licenses,
  powers and franchises of the Borrower and its Subsidiaries under the laws of
  the United States and of the States or jurisdictions in which it is organized
  or does business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|9.5.     Financial
  Statements and Reports.  The
  Borrower will furnish, or cause to be furnished, to the Bank in duplicate:
|                                                                                                                              
|                                                                                                                               | (i)       As
  soon as practicable and when available, and in any event within 90 days after
  the end of each fiscal year of the Parent , annual audited consolidated
  balance sheet of the Parent as at the end of such year and consolidating
  balance sheet of the Parent  for such
  period and related consolidated statements of income, retained earnings and
  cash flows of the Parent for such year and consolidating statements of
  income, retained earnings and cash flows of the Parent for such period,
  setting forth in comparative form the corresponding figures for the preceding
  fiscal year, certified on an unqualified basis with respect to such
  consolidated balance sheet and consolidated statements of income and retained
  earnings and cash flows of the Parent by independent certified public
  accountants of recognized standing selected by the Parent, and acceptable to
  the Bank;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                               | (ii)      As
  soon as practicable and when available, and in any event within 45 days after
  the end of each fiscal quarter of the Parent (other than the 4th
  quarter), a consolidated balance sheet, related consolidated statements of
  income, retained earnings and cash flows of the Parent showing its financial
  condition as of the last day of such fiscal quarter and the results of
  operations for such fiscal quarter;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                               | (iii)     Contemporaneously
  with the delivery of each set of financial statements referred to in clauses
  (i) and (ii) above, a certificate of the chief financial officer of the
  Borrower, and with respect to clauses (i) and (ii) above, a certificate of
  the chief financial officer of the Parent, (A) stating whether or not to the
  best of such officers knowledge, after diligent inquiry, a Default or Event
  of Default exists as of the date of such certificate, and if so, setting
  forth the nature and details thereof and the action which the Borrower is
  taking or proposes to take to remedy same, and (B) with respect to the
  delivery of each set of financial statements referred to in clauses (i) and
  (ii) above, stating (aa) that such financial statements fairly present the
  financial position and the results of operations of the Parent, (bb) that
  such financial statements have been prepared in accordance with generally
  accepted accounting practices in effect in the United States as of the date
  thereof consistently applied, and (cc) stating whether, since the date of the
  most recent previous delivery of financial statements pursuant to clauses (i)
  or (ii) of this Section, as the case may be, there has been a material
  adverse change in the business, financial position, results of operations or
  prospects of the Borrower and its Subsidiaries, taken as a whole, or of the
  Parent and its Subsidiaries, taken as a whole, and if so, the nature of such
  material adverse change;

23

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---

| | (iv)      Promptly
  following the occurrence thereof, notice of any material adverse change in
  the business, affairs or financial condition of the Parent or the Borrower or
  any of their respective Subsidiaries;                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (v)      Promptly following the occurrence
  thereof, notice of any Default or Event of Default hereunder or of any
  default under any other Loan Document;                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (vi)     Such other information as to the financial
  condition, operations, business, properties and other assets of the Parent
  and the Borrower and its Subsidiaries as the Bank may from time to time reasonably
  request;                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (vii)    The Borrower shall cause all audited financial
  statements required to be delivered to the Bank pursuant to this Section 9.5
  to be delivered to the Bank by the independent certified public accountant
  who performed the audit;                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (viii)    On
  each Delivery Date, a Borrowing Base Report Certificate pursuant to Section
  2.3(ii) hereof showing as of such Certificate Date the Borrowers Gross
  Accounts and Eligible Accounts (other than components of such definition that
  are determined by the Bank in its discretion), certified as to its accuracy
  by the chief financial officer of the Borrower, together with supportive
  documentation satisfactory to the Bank;
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (ix)     For so long as the Signature
  Bank Lockbox Account is in
  effect, furnish, or cause Signature Bank, at the Borrowers expense, to
  furnish to the Bank on each Business Day, a Lockbox Account report setting
  forth the amount and identification of all payments (matched to invoice
  number) received in  the Signature
  Bank Lockbox Account from the previous Business Day, in form and substance
  satisfactory to the Bank; and  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (x)       For
  so long as the Bank of
  America Lockbox Account is in effect, furnish, or cause Bank of America, at the Borrowers expense, to
  furnish to the Bank on each Business Day, a Lockbox Account report setting
  forth the amount and identification of all payments (matched to invoice
  number) received in the Bank of America Lockbox Account from the previous
  Business Day, in form and substance satisfactory to the Bank.     

9.6.     ERISA Compliance.  The Borrower
will comply, in all material respects, and cause each of its Subsidiaries to
comply, in all material respects, with the provisions of ERISA, if applicable,
with respect to each of its or their respective Plans and as soon as possible
after the Borrower knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, furnish to the Bank a statement signed by its
chief executive officer or its chief financial officer setting forth details as
to such Reportable Event and the action, if any, which the Borrower or its
Subsidiary proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event furnished to PBGC.

24

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---

9.7     Payments to Lockbox Account; Establishment of Signature Bank Lockbox Account.  The Borrower shall promptly advise the
Account Debtor in each Account bill or invoice issued after the Closing Date to
make or send all payments relating to such invoice to the Lockbox Account, and
if, after May 15, 2004, any payment by an Account Debtor with respect to an
Account is sent or received to the Borrower, or is otherwise not sent or made
by an Account Debtor directly to the Signature Bank Lockbox Account, then such
event shall constitute a Default under this Agreement.  The Borrower undertakes to work and
cooperate with Signature Bank to establish and set up the Signature Bank
Lockbox Account as soon as is reasonably possible after the Closing Date, and
once so established and set up, to have all Account payments sent by Accounts
Debtors to the Signature Bank Lockbox Account as soon as commercially
reasonable, but in no event later than May 15, 2004 as aforesaid.  Contemporaneously with the establishment of
the Signature Bank Lockbox Account, the Borrower agrees to execute and deliver
to the Bank the Signature Bank Lockbox Account Control Agreement, together with
an opinion of counsel to the Borrower covering substantially the same matters
as addressed in the opinion of counsel to the Borrower delivered on the Closing
Date with respect to the Bank of America Lockbox Deposit Account Control
Agreement.

9.8.     Delivery
of Canadian Counsel Opinion.  If
required by the Bank, the Borrower shall deliver to the Bank within
thirty (30) days from the Closing Date an executed legal opinion of special
Canadian counsel to the Borrower (selected by the Borrower and acceptable to
the Bank in its sole discretion), dated the initial Disbursement Date and
covering the perfection and enforcement of the Banks security interest in the
Accounts of the Borrower owing from Account Debtors located, licensed or
otherwise doing business in Canada, and covering such other matters as the
Bank, upon the advice of its counsel, may, in its sole discretion, determine
are necessary or desirable in
connection with the foregoing.

10.     NEGATIVE COVENANTS.

The
Borrower covenants and agrees that from and after the date hereof until all
sums due and to become due hereunder or under any other Loan Document have been
paid or repaid in full and the Commitment has been terminated, unless the Bank
shall otherwise consent in a writing delivered to the Borrower, the Borrower shall
not:

10.1     Restrictions
on Dividends, Distributions and Redemptions.  Pay dividends or make any other distribution pari passu to its shareholders, or redeem
any shares of its capital stock, or cause or permit any of its Subsidiaries to
redeem any shares of its capital stock, during the period beginning on the date
hereof and ending on the Maturity Date (or on such earlier or later date on
which all principal of and interest on the Note and all other amounts due to
the Bank under the Loan Documents have been paid in full), or cause or permit
any of its Subsidiaries to redeem any shares of its capital stock.

10.2.     Use
of Proceeds of Loan.  Use any part
of the proceeds of the Loan for any purpose other than those specified in Section
3 hereof.

25

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---

10.3.     Mergers,
Etc.;Disposal of Property. 
Wind up, liquidate or dissolve itself, reorganize, merge or consolidate
with or into, or covey, assign, sell, exchange, lease, transfer or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
substantially all of (or agree to do any of the foregoing), its properties or
other assets (whether now owned or hereafter acquired), other than (i) any
Subsidiary of the Borrower may be merged or consolidated with or into the
Borrower (provided that, the Borrower shall be the continuing or
surviving entity) or with or into any one or more wholly owned Subsidiaries of
the Borrower (provided that, the wholly owned Subsidiary or Subsidiaries
shall be the continuing or surviving entity); and (ii) any wholly owned
Subsidiary of the Borrower may sell, lease, transfer or otherwise dispose of
any or all of its assets (upon voluntary liquidation or otherwise) to the
Borrower or any other wholly owned Subsidiary of the Borrower.

10.4.     Liens.  Contract, create, assume, incur or suffer to
be created, assumed or incurred, and shall not permit any Subsidiary to
contract, create, assume, incur or suffer to be created, assumed or incurred,
any Lien upon, or pledge of, any property or other assets of the Borrower or
such Subsidiary, now owned or hereafter acquired, which will secure any
Indebtedness, other than (i) Liens in favor of the Bank, and (ii) Permitted
Encumbrances.

10.5.     Indebtedness.  Assume, incur or suffer to exist, or permit
any Subsidiary to assume, incur or suffer to exist, any Indebtedness, other
than the Loan and other Indebtedness in favor of the Bank, Indebtedness
specified on Schedule 7.13 attached hereto, and Intercompany Debt
incurred from time to time solely in the ordinary course of business of the
Borrower.

10.6.     Transactions
with Affiliates.  Enter into any
transaction, including without limitation, the purchase, sale or exchange of
property or the rendering of any service, with any Affiliate, or permit any
Subsidiary to enter into any transaction, including, without limitation, the
purchase, sale or exchange of property or the rendering of any service, with
any Affiliate, except in the ordinary course of, and pursuant to the reasonable
requirements of, the Borrowers or such Subsidiarys business, and upon fair
and reasonable terms no less favorable to the Borrower or such Subsidiary than
would obtain in a comparable arms-length transaction with a Person not an
Affiliate.

10.7.     Minimum
Gross Accounts.

| |  | (i)       Permit the total Gross Accounts of the Borrower as
  shown as of any Certificate Date of a Borrowing Base Report Certificate
  occurring as of the last day of any October, November, January, February,
  April, May, July and August during the period specified below to be less than
  the amount equal to (A) the total Gross Accounts specified below for such
  period, less (B) ten per cent (10%) of the amount in subclause (A):
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Period                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | From and Including the Closing
  Date to and including March 31, 2004                                                                                                                                                                                                                                                                                                                                                                               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Thereafter                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | (ii)      Permit the total Gross Accounts of the Borrower as
  shown as of any Certificate Date of a Borrowing Base Report Certificate
  occurring as of the end of any December, March, June or September during the
  period specified below to be less than the amount equal to (A) the total
  Gross Accounts specified below for such period, less (B) ten per cent (10%)
  of the amount in subclause (A):                                    

26

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | Period                                                                                                                                                                                                                                                                                                                                                                 |              | Total Gross Accounts | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | -------------------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                                                                                                                                                                                                                                                                                                                                                                        |              |                      | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | From and Including the Closing
  Date to and including March 31, 2004                                                                                                                                                                                                                                                                                                  | $36,111,111 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                                                                                                                                                                                                                                                                                                                                                                        |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | Thereafter                                                                                                                                                                                                                                                                                                                                                             | $38,888,888;
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                                                                                                                                                                                                                                                                                                                                                                       
|provided, that the Borrower shall not be deemed to be in breach of clauses (i) or
  (ii) of this Section so long as (A) any shortfall in the amount of such Gross
  Accounts is deposited in cash by the Borrower in an account at, and pledged
  in favor of, the Bank, within two (2) days after the Delivery Date of such
  certificate, (B) no other Default or Event of Default shall have occurred and
  be continuing, and (C) Borrower shall not use any new loan from the Bank to
  make up such shortfall or as cash collateral pursuant to clause (A) above.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 10.8. | Minimum Eligible Accounts.                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | (i)       Permit the total Eligible Accounts of the Borrower
  as shown as of any Certificate Date of a Borrowing Base Report Certificate
  (occurring as of the last day of any October, November, January, February,
  April, May, July or August) to be less than an amount equal to (A)
  $11,111,111, less (B) ten per cent (10%) of the amount in subclause (A).
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | (ii)     Permit
  the total
  Eligible Accounts of the Borrower as shown as of any Certificate Date of a
  Borrowing Base Report Certificate (occurring as of the end of any December,
  March, June or September) to be less than an amount equal to (A) $13,888,888,
  less (B) ten per cent (10%) of the amount in subclause (A).                                  

provided, that the Borrower shall not be deemed to be in
breach of clauses (i) or (ii) of this Section so long as (A) any shortfall in
the amount of such Eligible Accounts is deposited in cash by the Borrower in an
account at, and pledged in favor of, the Bank, within two (2) days after the
Delivery Date of such certificate, (B) no other Default or Event of Default
shall have occurred and be continuing, and (C) Borrower shall not use any new
loan from the Bank to make up such shortfall or as cash collateral pursuant to
clause (A) above.

11.     DEFAULTS AND
REMEDIES.

11.1.     Events
of Default.  In the case of the
occurrence of, and during the continuance of, any of the following events for
any reason whatsoever, and whether such occurrence shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order,
rule or regulation of any governmental body or otherwise (each herein sometimes
called an Event of Default):

(i)       Any
representation or warranty made herein or in any certificate hereafter
delivered to the Bank pursuant to this Agreement, the Note or any other Loan
Document shall prove in the Banks determination to have been false or
misleading in any material respect when made, and such default, if capable of
being cured, is not remedied within five (5) days after the earlier of (A) the
date upon which an executive officer of the Borrower has actual knowledge
thereof, and (B) the date upon which the Bank gives notice to the Borrower
thereof; or

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(ii)      Any
default shall occur in the payment of principal of or interest on the Note or
any other amount under this Agreement, within five (5) days after the same
shall become due and payable, whether at the due date thereof, by acceleration,
mandatory prepayment or otherwise; or

(iii)    Any
default shall occur in the due observance or performance by the Borrower of any
covenant or agreement in Section 10 of this Agreement, , or an Event of Default
shall have occurred under any other Loan Document, and in the case of any of
the foregoing, such default, if capable of being cured, is not remedied within
five (5) days after the earlier of (A) the date upon which an executive officer
of the Borrower has actual knowledge thereof, and (B) the date upon which the
Bank gives notice to the Borrower thereof; or

(iv)    The
Borrower shall fail to deliver a Borrowing Base Report Certificate on or before
the Delivery Date when due pursuant to Section 9.5(viii), and such default, if
capable of being cured, is not remedied within seven (7) days after the earlier
of (A) the date upon which an executive officer of the Borrower has actual
knowledge thereof, and (B) the date upon which the Bank gives notice to the
Borrower thereof; or

(v)     Any
other covenant, agreement or condition contained herein or in the Note, or in any
other Loan Document to be performed by the Borrower (other than as provided in
paragraphs (i) through (iv) of this Section 11.1), and such default, if capable
of being cured, is not remedied within fifteen (15) days after the earlier of
(A) the date upon which an executive officer of the Borrower has actual
knowledge thereof, and (B) the date upon which the Bank gives notice to the
Borrower thereof; or

(vi)    (A)
The Borrower, the Parent, or any of their respective Subsidiaries, shall
suspend or discontinue its business, or (B) the Borrower, Parent, or any of
their respective Subsidiaries, shall call a meeting of its creditors for the
purpose of postponing or adjusting its liabilities or seeking an arrangement
with its creditors, shall make an assignment for the benefit of creditors or a
composition with creditors, shall be unable or admit in writing its inability
to pay its debts generally as they mature, shall generally not pay its debts
when they are due, shall file a petition in bankruptcy, shall become insolvent
(howsoever such insolvency may be evidenced), shall suffer an order for relief
to be entered against it under any bankruptcy law which shall remain
undismissed or unstayed for a period of 30 (thirty) days or more, shall
petition or apply to any tribunal for the appointment of any receiver,
custodian, liquidator or trustee of or for it or any substantial part of its
property or other assets or shall commence any proceeding relating to it under
any bankruptcy, reorganization, arrangement, readjustment of debt,
receivership, dissolution or liquidation law or statute of any jurisdiction,
whether now or hereafter in effect; or there shall be commenced against the
Borrower, the Parent, or any of their respective Subsidiaries, any such
proceeding which shall remain undismissed or unstayed for a period of 30
(thirty) days or more; or the Borrower, the Parent, or any of their respective
Subsidiaries, shall take any action for the purpose of effecting any of the
foregoing; or

28

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(vii)    Any
order, judgment or decree shall be entered in any proceeding against the Borrower,
the Parent, or any of their respective Subsidiaries, decreeing the dissolution
of the Borrower, the Parent, or any of their respective Subsidiaries, and such
order, judgment or decree shall remain undischarged or unstayed for a period in
excess of 30 (thirty) days; or

(viii)   Any
Loan Document shall become invalid or unenforceable, in whole or in part, and
such unenforceability persists for a period of 5 (five) days, or any default or
event of default shall have occurred thereunder and such default persists for
more than the period of grace, if any, specified therefor; or (A) the Borrower
Security Agreement shall cease for any reason to be in full force and effect,
or the Borrower shall so assert, (B) the Lien created by the Borrower Security
Agreement  shall cease to be enforceable
and/or of the same effect and priority purported to be created thereby, or (C)
the 2003 Parent Guarantee, or the 2003 Letter of Undertaking, or the 2003 Request
to Issue the Letter of Undertaking shall cease for any reason to be in full
force and effect or the Parent shall so assert, and as long as such event is
continuing; or

(ix)     Any
default (unless duly waived in writing by the obligee) shall occur with respect
to any permitted Indebtedness (other than the Indebtedness evidenced by the
Note) of the Borrower, the Parent, or any of their respective Subsidiaries, for
or relating to borrowed money (including, without limitation, for the deferred
purchase price of property or for the payment of rent under any lease), or
under any agreement under which any evidence of Indebtedness may be issued by
the Borrower, the Parent or any of their respective Subsidiaries and such
default shall continue for more than the period of grace, if any, specified
therein, if the effect of such default is to accelerate the maturity of such
Indebtedness or to permit the holder thereof, or any trustee, to cause the same
to become due prior to its stated maturity or if any such Indebtedness shall not
be paid when due (after giving effect to any grace period and other than
Indebtedness contested in good faith), and as long as such default is
continuing and involves liability in excess of US$100,000 in the aggregate at
any time; or

(x)      Final
judgment for the payment of money in excess of $100,000 in the aggregate at any
time (to the extent not covered by insurance or bond) shall be rendered by a
court of record against the Borrower, the Parent or any of their respective
Subsidiaries, and the Borrower, the Parent or any such Subsidiary shall not
discharge the same or provide for its discharge in accordance with its terms,
or procure a stay of execution thereof within 30 (thirty) days from the date of
entry thereof and within such period of 30 (thirty) days, or such longer period
during which execution of such judgment shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal; or

(xi)     Any
Reportable Event which the Bank determines in good faith might constitute
grounds for the termination of any Plan or for the appointment by the
appropriate United States District Court of a trustee to administer any Plan
shall have occurred and be continuing 30 (thirty) days after notice to such
effect shall be given to the Borrower by the Bank, or any Plan shall be
terminated, or a trustee shall be appointed by an appropriate United States
District Court to administer any Plan, or PBGC shall institute proceedings to
terminate any Plan or appoint a trustee to administer any Plan, or the Borrower
or any of its Subsidiaries shall completely or partially withdraw from any
multi-employer Plan or appoint a trustee to administer any such Plan or shall
cease operation at any facility where such cessation could reasonably be
expected to result in a separation from employment of more than 20% of the
total number of employees who are participants under a Plan; and in each case
such event or condition, together with all such other events or conditions, if
any, would subject the Borrower or any of its Subsidiaries to any tax, penalty
or other liability aggregating in excess of $100,000, provided, however,
that in determining whether such taxes, penalties or other liabilities exceed
such limitation, there shall be excluded therefrom any tax, penalty or other
liability which (i) within 30 (thirty) days of being imposed, is paid or
satisfied, or (ii) is being contested in good faith and by appropriate
proceedings, with respect to which adequate reserves have been set aside by the
Borrower and its Subsidiaries in conformity with generally accepted accounting
principles in effect in the United States as of the date thereof and with
respect to which none of the property or assets of the Borrower or any of its
Subsidiaries has become or is about to become subject to any Lien; or

29

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(xii)    The
Parent or any of its Subsidiaries, including, without limitation, the Borrower
or any of its Subsidiaries, shall be in default under any other obligation to
Bank Hapoalim B.M., including its New York Branches, and such default persists
for more than the period of grace, if any, specified therefor, and as long as
such default is continuing, or any default (unless duly waived in writing by
Bank Hapoalim B.M., including its New York Branches) shall occur under any
agreement between the Parent and/or any of its Subsidiaries, including, without
limitation, the Borrower or any of its Subsidiaries, and Bank Hapoalim B.M.,
including its New York Branches, and such default persists for more than the
period of grace, if any, specified therefor, and as long as such default is
continuing; or

(xiii)   The
Parent shall no longer Control Holdings, the Borrower and the Borrowers
Subsidiaries, or shall cease to own beneficially a majority of the issued and
outstanding common stock of Holdings, the Borrower and the Borrowers
Subsidiaries, or Holdings shall no longer Control the Borrower and the
Borrowers Subsidiaries, or shall cease to own beneficially a majority of the
issued and outstanding common stock of the Borrower and the Borrowers
Subsidiaries, and in the case of any of the foregoing as to which there were no
underlying cure or grace periods applicable, such default, if capable of being
cured, is not remedied within five (5) days after the earlier of (A) the date
upon which an executive officer of the Borrower has actual knowledge thereof,
and (B) the date upon which the Bank gives notice to the Borrower thereof; or

(xiv)    The
Borrower or any of its Subsidiaries thereof shall become an investment
company or a company controlled by an investment company within the
meaning of the Investment Company Act of 1940, or the regulations under such
Act and such default, if capable of being cured, is not remedied within five
(5) days after the earlier of (A) the date upon which an executive officer of
the Borrower has actual knowledge thereof, and (B) the date upon which the Bank
gives notice to the Borrower thereof; or

(xv)    In
the good-faith opinion of the Bank, (A) a material adverse change in the
financial condition of the Borrower or any of its Subsidiaries, or the Parent
or any of its Subsidiaries, has occurred since the date hereof; (B) the Banks
prospect of payment hereunder or the Note has been impaired; or (C) an event
has occurred that impairs the financial responsibility of the Borrower or the
Parent or any of their respective Subsidiaries, and in the case of any of the
foregoing, such default, if capable of being cured, is not remedied within five
(5) days after the earlier of (A) the date upon which an executive officer of
the Borrower has actual knowledge thereof, and (B) the date upon which the Bank
gives notice to the Borrower thereof; or

30

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---

(xvi)   The
reasonable suspicion by the Bank that one of more Events of Default have
occurred and the failure of the Borrower, upon 15 (fifteen) days notice
thereof from the Bank, to provide reasonably satisfactory evidence to the Bank
that such Events of Default have not in fact occurred; or

(xvii)  On
and after the Closing Date, any payment from an Account Debtor relating to an
Account of the Borrower is not sent by such Account Debtor in the ordinary
course of business directly to, and received in, the Lockbox Account, and such
default, if capable of being cured, is not remedied within five (5) days after
the earlier of (A) the date upon which an executive officer of the Borrower has
actual knowledge thereof, and (B) the date upon which the Bank gives notice to
the Borrower thereof; or

then, if any Event of Default described in subsection (d) above shall
have occurred the Note shall immediately become due and payable, and if any Event
of Default described in any other subsection of this Section 11.1 shall have
occurred, and at any time thereafter, if any such event shall then be
continuing, the Bank may, by written notice to the Borrower, terminate the
Commitment and/or declare the principal of and accrued interest on the Note,
and any other amounts owed under this Agreement, the Note or any Loan Document,
to be due and payable, without presentment, demand, protest or other notice of
any kind, all of which are hereby expressly waived.

11.2.     Suits
for Enforcement.  If any one or more
of such Events of Default shall occur and be continuing, the holder of the Note
may proceed, to the extent permitted by law, to protect and enforce such
holders rights either by suit in equity or by action at law, or both, whether
for the specific performance of any covenant, condition or agreement contained
in the Loan Documents or in aid of the exercise of any power granted in the
Loan Documents, or proceed to enforce the payment of the Note or to enforce any
other legal or equitable right of the holder of the Note.

11.3.     Remedies
Cumulative.  No right or remedy
herein or in any other agreement or instrument conferred upon the Bank or the
holder of the Note is intended to be exclusive of any other right or remedy,
and each and every such right or remedy shall be cumulative and shall be in
addition to every other right and remedy given hereunder or under any Loan
Document or now or hereafter existing at law or in equity or by statute or
otherwise.  Without limiting the
generality of the foregoing, if the Note or any of the other obligations of the
Borrower to the Bank shall not be paid when due, whether at the stated maturity
thereof, by acceleration or otherwise, the Bank shall not be required to resort
to any particular security, right or remedy or to proceed in any particular
order of priority, and the Bank shall have the right at any time and from time
to time, in any manner and in any order, to enforce its security interests,
liens, rights and remedies, or any of them, as it deems appropriate in the
circumstances and apply the proceeds of its collateral to such obligations of
the Borrower as it determines in its sole discretion.  Subject to compliance with applicable law, upon the occurrence
and continuance of any Event of Default hereunder, the Borrower shall, at the
request of the Bank, sell at the Borrowers expense such amount of Collateral,
on terms and conditions acceptable to the Bank, as in the opinion of the Bank
is necessary or desirable to enable the Borrower to meet its payment and other
obligations under this Agreement and the other Loan Documents.

31

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11.4     Waiver of Automatic
Stay.  In consideration of the mutual covenants
contained in this Agreement, and for other good and valuable consideration,
Borrower, by its execution hereof, hereby covenants and agrees that in the
event Borrower shall (i) file any petition with any bankruptcy court or be the
subject of any petition under the United States Bankruptcy Code (11 U.S.C.
Section 101 et seq., the (Code), (ii) file or be the subject of any petition
seeking any reorganization arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future federal or state act
or law relating to the bankruptcy, insolvency, or other relief for debtors,
(iii) seek or consent to or acquiesce in the appointment of any trustee,
receiver, conservator, or liquidator; or (iv) be the subject of any order,
judgment, or decree entered by any court of competent jurisdiction approving a
petition filed against such party for any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under
any present or future federal or state act or law relating to bankruptcy,
insolvency, or relief for debtors, Lender shall thereupon be entitled, and
Borrower irrevocably consents, to the entry of an order by a bankruptcy court
granting to Lender relief from any automatic stay imposed by Section 362 of the
Code, or otherwise, on or against the exercise of the rights and remedies
otherwise available to Lender as provided herein, in the other Loan Documents,
or otherwise provided by law or in equity in connection with this Agreement or
the other Loan Documents, and Borrower hereby irrevocably waives its right to
object to, attempt to enjoin or otherwise interfere with such relief and the
exercise and enforcement by Lender of its rights and remedies following entry
of such order.  Without limiting the
generality of the preceding sentence, Borrower agrees that Lender will be
entitled to, and Borrower irrevocably agrees to consent to immediate relief
from the automatic stay imposed by the Code to allow Lender to take any and all
actions necessary, desirable, and appropriate to enforce any rights Lender
possesses hereunder, under the other Loan Documents, or otherwise provided by
law or in equity in connection with this Agreement or the other Loan
Documents.  Borrower agrees that it will
not (i) seek, apply for, or cause the entry of any order enjoining, staying or
otherwise prohibiting or interfering with Lenders obtaining an order granting
relief from the automatic stay (or any other stay) to enforce any rights Lender
possesses under this Agreement, the other Loan Documents or otherwise provided
by law or in equity in connection with this Agreement or the other Loan
Documents or (ii) oppose any motion by Lender to transfer venue of any
bankruptcy proceeding to the United States Bankruptcy Court for the Southern
District of New York.  In connection
with this Section 11.04, Borrower acknowledges that it is represented by
counsel and had an opportunity to obtain adequate advice and representation on
this Section 11.04, and that Lender has granted Borrower substantial consideration
in exchange for the provisions contained in this Section 11.04 and that
Borrower has obtained a significant benefit from the terms of this Agreement
that it would not otherwise receive but for its agreement to this Section
11.04, and that Lender has relied on this provision in entering into this
Agreement. Borrower further acknowledges that Lender will be prejudiced in the
event that this Section 11.04 is not enforced pursuant to its terms.

32

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12.     MISCELLANEOUS.

12.1.     Notices.  All notices, requests and other
communications to any party under this Agreement and the other Loan Documents
shall be in writing and shall be given to such party, by mail, telecopy, telex,
personal delivery or other customary means of delivery, addressed to it as set
forth below or such other address or telex number as such party may in the
future specify for such purpose by notice to the other party.  Each such notice, request or communication
shall be effective if given by telex, when such telex is transmitted to the
telex number specified below and the appropriate answerback is received,  if given by mail, two days after such
communication is deposited in the United States mails and sent by certified or
registered mail, return receipt requested, with first class postage prepaid,
addressed as aforesaid or  if given by
telecopy, personal delivery or any other means, when received at the address
specified below.

| |                     | Party                                  |                      | Address |  | 
| | ------------------- | -------------------------------------- | -------------------- | ------- |  | 
| |                     |                                        |                      |         |  | 
| |                     |                                        |                     
| | If to the Borrower: | Lumenis Inc.                           |                     
| |                     | 375 Park Ave                           |                     
| |                     | New York, New York 10152               |                     
| |                     | Attention:  Kevin Morano               |                     
| |                     | Telephone:  212-515-4185               |                     
| |                     | Telecopier: 212-750-3336               |                     
| |                     |                                        |                     
| | and with a copy to: | Sonnenschein Nath & Rosenthal, LLP     |                     
| |                     | 1221 Avenue of the Americas            |                     
| |                     | New York, NY 10020-1089                |                     
| |                     | Attention:  Norman Alpert              |                     
| |                     | Telephone:  (212) 398-5827             |                     
| |                     | Telecopier: (212) 768-6800             |                     
| |                     |                                        |                     
| | If to the Bank:     | Bank Hapoalim B.M.                     |                     
| |                     | New York Branches                      |                     
| |                     | 1177 Avenue of the Americas            |                     
| |                     | New York, New York 10036               |                     
| |                     | Attention:  Boaz Dan,                  |                     
| |                     |                                        | First Vice President |        
| |                     | Telephone:  (212)  782-2165            |                     
| |                     | Telecopier:  (212)  782-2170           |                     
| |                     |                                        |                     
| | with a copy to:     | Bank Hapoalim B.M.                     |                     
| |                     | New York Branches                      |                     
| |                     | 1177 Avenue of the Americas            |                     
| |                     | New York, New York 10036               |                     
| |                     | Attention:  Lawrence
  Lefkowitz, Esq. |                     
| |                     | Telephone:  (212) 782-2130             |                     
| |                     | Telecopier:  (212) 782-2141            |                     
| |                     |                                        |                      |         |  | 

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| | and with a
  copy to: | Shaw Pittman
  LLP               | 
| | --------------------- | -------------------------------- | 
| |                       | 335 Madison
  Avenue, 26th Floor | 
| |                       | New York, NY
  10017             | 
| |                       | Attention:  John Simons.         | 
| |                       | Telephone:  (212) 603-6848       | 
| |                       | Telecopier:  (212) 603-6801      | 

12.2.     Survival
of Representations; Successors and Assigns.  All covenants, agreements, representations and warranties made
herein and in any certificate delivered pursuant hereto shall survive the
making by the Bank of the Loan contemplated herein and the execution and delivery
to the Bank of the Note evidencing the Loan regardless of any investigation
made by the Bank and of the Banks access to any information and shall continue
in full force and effect until all sums due and to become due hereunder or
under any other Loan Document have been paid or repaid in full.  Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party, subject to the provisions hereof.  All covenants, agreements, representations
and warranties by the Borrower which are contained or incorporated in this
Agreement or in any other Loan Document shall inure to the benefit of the
successors and assigns of the Bank and any holder of the Note.  Except for the parties hereto and their
respective successors and permitted assigns, no other Person shall be entitled
to the benefits of this Agreement or to rely thereon.  The Borrower may not assign or transfer any of its rights or
obligations under any Loan Document without the prior written consent of the
Bank.

12.3.     Effect
of Delay.  No failure or delay on
the part of the Bank in exercising any right, power or privilege hereunder or
under the Note, nor any course of dealing between the Borrower and the Bank,
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercise or the exercise of any other
right, power or privilege.

12.4.     Expenses.
The Borrower agrees (a) to pay or reimburse the Bank for all of its
out-of-pocket costs and expenses incurred in connection with the development,
preparation and execution of any amendment, supplement or modification to, this
Agreement, the other Loan Documents, and any other documents prepared in
connection herewith or therewith, and the consummation and administration of
the transactions contemplated hereby and thereby, including, without
limitation, the reasonable fees and disbursements of counsel to the Bank,(b) to
pay or reimburse the Bank for all its out-of-pocket costs and expenses incurred
in connection with the enforcement or preservation of any rights under this
Agreement, the other Loan Documents and any such other documents, including,
without limitation, the reasonable fees and disbursements of counsel to the
Bank, and  (c) all legal fees and
expenses associated with any amendments, waivers, filings, documents, incurred
after the Closing Date in connection with any post-closing restructuring
matters relating to the Borrower, the Parent or any Subsidiary of the Parent.

34

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12.5.     Modifications
and Waivers.  No modification or
waiver of any provisions of this Agreement or of any other agreement or
instrument made or issued pursuant hereto or contemplated hereby, nor consent
to any departure by the Borrower therefrom, shall in any event be effective,
irrespective of any course of dealing between the parties, unless the same
shall be in a writing executed by the Bank, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.  No notice to or demand on the
Borrower in any case shall thereby entitle the Borrower to any other or further
notice or demand in the same, similar or other circumstances.  Any transaction or matter excepted from the
operation of any Section of this Agreement shall nevertheless be subject to the
prohibitions and limitations contained elsewhere in this Agreement, unless
expressly stated otherwise.

12.6.     Set-Off
of Accounts.  The balance of every
account of the Borrower with the Bank existing from time to time at any of the
Banks offices worldwide and in any currency, shall be subject to being setoff
against any sum not paid by the Borrower to the Bank on the date when due under
this Agreement or other Loan Documents, and the Bank may at any time and from
time to time after an Event of Default shall have occurred and be continuing at
its option and without prior notice to the Borrower, except as may be required
by law, appropriate and apply toward the payment of any of such obligations of
the Borrower to the Bank for any such sum not paid when due, all or any part of
the balance of each such account with the Bank.  The Bank shall notify the Borrower forthwith upon the exercise of
any right of set-off giving details in relation thereto.

12.7.     Counterparts.  This Agreement may be executed in any number
of counterparts and by telecopier, each of which shall constitute an original,
and all of which taken together shall constitute one and the same agreement.

12.8.     Construction
and Jurisdiction.  This Agreement,
the Note and the Borrower Security Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York applicable to
contracts made and to be performed wholly within such State. Any action or
proceeding in connection with this Agreement, the Note or the Borrower Security
Agreement, may be brought in a court of record of the State of New York, County
of New York or any federal court located therein, the parties hereby consenting
to the jurisdiction thereof, and service of process may be made upon any party
by mailing a copy thereof to such party, by registered mail, at its address to
be used for the giving of notices under this Agreement.  IN ANY ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT, THE NOTE OR THE BORROWER SECURITY AGREEMENT, THE PARTIES MUTUALLY
WAIVE TRIAL BY JURY AND ANY CLAIM THAT NEW YORK COUNTY IS AN INCONVENIENT
FORUM.

12.9.     Headings.  Section headings are for convenience only
and shall not affect the interpretation or construction of this Agreement, the
Note, the Borrower Security Agreement or any other Loan Document.

12.10.     Release
of Collateral. Promptly after the Borrower shall have indefeasibly and
unavoidably repaid the Loan in full and any and all of the sums due to the Bank
hereunder and under all other Loan Documents, and provided the Bank is no
longer committed to make Advances to the Borrower hereunder, and further
provided that any and all of the sums due to the Bank under documents signed
between the Borrower and/or Parent and/or its Subsidiaries and the Bank shall
have been paid to the Bank in full, the Bank shall release the Liens over the
Collateral.  Notwithstanding the above,
the Bank will release the Liens over the Collateral before any and all amounts
were so paid immediately at the request of the Borrower and/or Parent, provided
the Borrower and/or Parent have deposited with the Bank and charged and pledged
in favor of the Bank cash sums equal to the outstanding balance of any and all
amounts due to the Bank together with all sums accrued and/or to be accrued
thereon until applied to the payment or prepayment, as requested by the
Borrower and/or the Parent and/or its Subsidiaries, of the said sums, according
to documents signed between the Borrower and/or Parent and/or its Subsidiaries
and the Bank.

35

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12.11.     Transfers
and Booking of Loan.

(i) Without limiting
any of the Banks rights hereunder, the Bank may, after the Loan is made
hereunder, book the Loan, or any portion thereof, in any of its branches
anywhere in the world, or negotiate, assign, grant security interests in,
delegate or otherwise transfer (each of the foregoing acts, a Transfer)
to any Person all of, or sell one or more participations in any portion of, any
or all of the following:  the Note, and
the Banks rights and related obligations under this Agreement and the other
Loan Documents (any of the foregoing which is subject to a Transfer, a Transferred
Item); provided, however, that at no time shall the Borrower be
required, as a result of any such Transfer or participation, to (x)  give notices required by this Agreement to
more than one Person and that one Persons designated department, employees
and/or counsel, or (y) obtain any consent or approval required under this
Agreement from more than one Person, or (z) be subject to any additional taxes,
fees, costs or expenses (including withholding taxes), and further provided
that such Person shall be a member of the Banks Group.

The Banks
Group means any company which the Bank possesses 51% or more of its
outstanding share capital, provided, that such Transferee is a bank or
other financial institution that is not a competitor of the Borrower.

(ii)        In
the event the Bank Transfers any Transferred Item, then to the extent provided
by the Bank with respect to such Transfer, the Person to whom such Transfer is
made (the Transferee) shall have, and may exercise and enjoy, the rights,
powers, privileges and remedies of the Bank with respect to such Transferred
Item.  The Bank shall, after any
Transfer, and to the extent of such Transfer, be forever relieved and fully
discharged from all liability and responsibility, if any, that it may
thereafter have to the Borrower with respect thereto, but not with respect to
matters occurring prior to such Transfer. 
The Bank shall retain all its rights and powers with respect to any
Transferred Item to the extent not so Transferred.  The foregoing shall not apply unless the Bank shall notify the
Borrower of such a Transfer promptly upon the execution of the Transfer and the
Transferee shall assure to the Borrower that it has assumed the liability and
responsibility from which the Bank is so discharged.

(iii)       The
provisions of Section 12.6 (regarding setoff rights) shall apply to any account
of the Borrower with, and any claim of the Borrower against, any Transferee to
the extent of such Transfer which shall have purchased the Loan or any portion
thereof and shall become a Bank hereunder. 
This subsection (c) of Section 12.11 shall not limit any other rights of
the Bank or such Transferee whether arising under this Section 12.11, or
otherwise hereunder or under applicable law.

36

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(iv)       The
Bank is authorized to disclose any information it may have or acquire about the
Borrower, Parent and Parents Subsidiaries to any prospective or actual
Transferee, provided, that such Transferee is a bank or other financial
institution that is not a competitor of the Borrower.

[SIGNATURE
PAGE NEXT]

37

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IN
WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to be
duly executed and delivered in the City of New York by their duly authorized
officers, all as of the date first above written.



| | LUMENIS INC.                                                               
| | ---------------------------------------------------------------------------
| |                                                                            
| |                                                                            
| | By:                                                                        
| |                                                                            
| |                                                                            
| |                                                                            
| |                                                                            
| |                                                                            
| | BANK HAPOALIM B.M.
  AN ISRAELI BANK ACTING THROUGH
  ITS NEW YORK BRANCHES
| |                                                                            
| |                                                                            
| | By:                                                                        
| |                                                                            
| |                                                                            
| |                                                                            
| |                                                                            
| |                                                                            
| | By:                                                                        
| |                                                                            
| |                                                                            
| |                                                                            

38

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EXHIBITS

|Exhibit A | Form of Note                               
|--------- | -------------------------------------------
|Exhibit B | Form of
  Borrower Security Agreement      
|Exhibit C | Form of
  Disbursement Request             
|Exhibit D | Form of
  Borrowing Base Report Certificate

SCHEDULES

|Schedule 1.1  | Bank of America Other Deposit Accounts              
|------------- | ----------------------------------------------------
|Schedule 7.13 | Permitted Indebtedness (excluding Intercompany Debt)

39

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Exhibit A

# NOTE

|           |  |                                    
|---------- |  | -----------------------------------
|$9,000,000 |  | State of New York
November 13, 2003

FOR
VALUE RECEIVED, the undersigned, LUMENIS INC., a Massachusetts corporation (the
Borrower), hereby unconditionally promises to pay to the order of BANK
HAPOALIM B.M., an Israeli banking corporation acting through its New York Branches (the
Bank) at the office of its New York Branches located at 1177 Avenue of
the Americas, New York, New York in lawful money of the United States of America and in
immediately available funds, the principal amount of NINE MILLION DOLLARS ($9,000,000),
or, if less, the aggregate unpaid principal amount of all Advances made by the Bank
pursuant to subsection 2.1 of the Loan Agreement, as hereinafter defined, on the Maturity
Date. The Borrower further agrees to pay interest in like money at such office on the
unpaid principal amount hereof from time to time outstanding at the rates and on the dates
specified in subsection 5.1 of such Loan Agreement.

Each
Advance made under the Loan Agreement and all repayments of principal in respect of each
Advance made by the Bank to the Borrower shall be reflected by the Bank in its books and
records which books and records shall be rebuttal presumptive evidence of the entries made
therein or thereon; provided, however, the failure of the Bank to record any entry,
or any error in any book or record, shall not in any manner affect the obligations of the
Borrower to repay (with applicable interest) the Advances made to the Borrower by the Bank
in accordance with the terms of this Note or the Loan Agreement. The Bank agrees to
provide statements of such amounts to the Borrower upon Borrowers written request;
provided, however, that, in the event of any conflict between such statement
and the Banks books and records, the latter shall be controlling absent manifest
error.

In
addition to repayments of all or a portion of each Advance, prepayments of all or a
portion of each Advance may be made in accordance with the provisions of the Loan
Agreement. Any such prepayment shall be together with all interest due on the principal
amount prepaid to the date of payment. Any prepayment shall be noted on the Schedule as
provided in paragraph 3 above.

This
Note (a) is the Note referred to in the Loan Agreement dated as of November 13, 2003 (as
amended, supplemented or otherwise modified from time to time, the Loan
Agreement), between the Bank and the Borrower, (b) is subject to the provisions
of the Loan Agreement and (c) is subject to voluntary and mandatory prepayment in whole or
in part as provided in the Loan Agreement. This Note is secured as provided in the Loan
Documents. Reference is hereby made to the Loan Documents for a description of the
properties and assets in which a security interest has been granted, the nature and extent
of the security, the terms and conditions upon which the security interests were granted
and the rights of the holder of this Note in respect thereof.



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Upon
the occurrence of any one or more of the Events of Default, all amounts then remaining
unpaid on this Note shall become, or may be declared to be, immediately due and payable,
all as provided in the Loan Agreement.

All
parties now and hereafter liable with respect to this Note, whether maker, principal,
surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and
all other notices of any kind.

Unless
otherwise defined herein, terms defined in the Loan Agreement and used herein shall have
the meanings given to them in the Loan Agreement.

THIS
NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.

| |  | LUMENIS INC. BY : /S/ Kevin Morano
Kevin Morano President and Chief Financial Officer
| |  | ---------------------------------------------------------------------------------------------------

2

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Exhibit B

# BORROWER SECURITY
AGREEMENT

BORROWER
SECURITY AGREEMENT, dated as of November 13, 2003, made by LUMENIS INC., a Massachusetts
corporation (the Borrower) in favor of BANK HAPOALIM B.M., an Israeli
banking corporation acting through its New York branches (the
Bank) as holder of the Secured Obligations (as hereinafter defined) and
as a party to the Loan Agreement described below.

# W  I  T  N  E  S  S  E  T  H:

WHEREAS,
the Borrower is a party to the Loan Agreement, dated as of the date hereof (as amended,
supplemented or otherwise modified from time to time, the Loan
Agreement) between the Borrower and the Bank;

WHEREAS,
pursuant to the Loan Agreement, the Bank has agreed to make revolving credit loans to the
Borrower upon the terms and subject to the conditions set forth therein;

WHEREAS,
it is a condition precedent to the obligation of the Bank to make the initial Advance
under the Loan Agreement that the Borrower shall have executed and delivered this Borrower
Security Agreement in favor of the Bank to secure payment and performance of the Secured
Obligations (as defined below);

NOW,
THEREFORE, in consideration of the premises and to induce the Bank to make the initial
Advance, the Borrower hereby agrees as follows:

1.
    Defined Terms.

1.1
Definitions.

(a) Unless
otherwise defined herein, capitalized terms defined in the Loan Agreement and used herein
shall have the meanings given to them in the Loan Agreement. Terms (whether capitalized or
not) used herein that are defined in the Uniform Commercial Code of the State of New York
and not otherwise defined herein or in the Loan Agreement shall have the respective
meanings ascribed to such terms in the Uniform Commercial Code of the State of New York.

(b) The
following terms shall have the following meanings:

Agreementthis
Security Agreement, as the same may be amended, supplemented or otherwise modified from
time to time.

Codethe
Uniform Commercial Code from time to time in effect in the State of New York, provided that,
if, by reason of mandatory provisions of law, the validity or perfection of any security
interest granted herein is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than New York, then, as to the validity or perfection of such security
interest, Code shall mean the Uniform Commercial Code in effect in such other
jurisdiction.



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Collateralas
defined in Section 2 of this Agreement.

Collateral
Account as defined in Section 5.3(a) of this Agreement.

Defaultor
Event of Default shall have the respective meaning given to each such
term in the Loan Agreement.

Receivablemeans
any right to payment for goods sold or leased or for services rendered, whether or not
such right is evidenced by an instrument or Chattel Paper, and whether or not it has been
earned by performance (including, without limitation, any Account).

Secured
Obligations shall be the collective reference to the unpaid principal of and
interest on the Note, and all other obligations, indebtedness and liabilities (including,
without limitation, interest accruing at the then applicable rate provided in the Loan
Agreement after maturity of the Loan and interest accruing at the then applicable rate
provided in the Loan Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to the
Borrower, whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding) of the Borrower to the Bank, whether direct or indirect, absolute or
contingent, due or to become due, or existing or hereafter incurred, which may arise
under, out of, or in connection with, the Loan Agreement, this Agreement, the Note or any
other Loan Document to which it is a party, in each case whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to the Bank that
are required to be paid by the Borrower pursuant to the terms of the Loan Agreement or
any other Loan Document to which it is a party).

Termination
Date the date on which the Secured Obligations have been irrevocably paid in
full, other than the indemnification obligations not then due and payable.

1.2.
Other Definitional Provisions.

(a) The
words hereof, herein, hereto and hereunder
and words of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section, subsection and
Schedule references are to this Agreement unless otherwise specified.

(b) The
meanings given to terms defined herein shall be equally applicable to both the singular
and plural forms of such terms.

2.    Grant
of Security Interest. As collateral security for the prompt and           complete
payment and performance when due (whether at the stated maturity, by
          acceleration or otherwise) of the Secured Obligations, the Borrower hereby
          grants to the Bank, a security interest in all of the following property,
assets           and rights of the Borrower, wherever located, whether now owned or at
any time           hereafter acquired or arising, and all proceeds and products thereof
          (collectively, the Collateral): all personal and fixture
          property of every kind and nature, including, without limitation, all goods
          (including inventory, equipment, and accessions thereto), instruments
(including           promissory notes), documents, accounts (including health-care
insurance           receivables), chattel paper (whether tangible or electronic), deposit
accounts,           letter-of-credit rights (whether or not the letter of credit is
evidenced in           writing), commercial tort claims, securities and all other
investment property,           supporting obligations, any other contract rights or
rights to the payment of           money, insurance claims and proceeds, tort claims, and
all general intangibles,           including, without limitation, all payment
intangibles, patents, patent           applications, trademarks, trademark applications,
trade names, copyrights,           copyright applications, software, engineering
drawings, service marks, customer           lists, goodwill, and all licenses, permits,
agreements of any kind or nature           pursuant to which the Borrower possesses,
uses, or has authority to possess or           use property (whether tangible or
intangible) of others or others possess, use,           or have authority to possess or
use property (whether tangible or intangible) of           the Borrower, and all recorded
data of any kind or nature, regardless of the           medium of recording, including,
without limitation, all software, writings,           plans, specifications, and
schematics..

- 2 -

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3.    Representations
and Warranties. The Borrower hereby represents and           warrants that:

3.1. Good
Standing. The Borrower is a corporation, duly organized and validly existing and in
good standing under the laws of the Commonwealth of Massachusetts, and has the corporate
power and authority and the legal right to own and operate its properties and other
assets, to lease the property or other assets it operates and to conduct the business in
which it is currently engaged.

3.2. Corporate
Power and Authority. The Borrower has the corporate power and authority and the legal
right to execute and deliver, to perform its obligations under, and to grant the security
interest in the Collateral pursuant to this Agreement and has taken all necessary
corporate action to authorize its execution, delivery and performance of, and grant of the
security interest in the Collateral pursuant to this Agreement.

3.3. Perfected
Liens. This Agreement constitutes a legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms against all creditors of the Borrower
and any Persons purporting to purchase any Collateral from the Borrower, except in each
case as enforceability may be affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting creditors
rights generally, general equitable principles and an implied covenant of good faith and
fair dealing. The security interests granted pursuant to this Agreement (a) create
valid security interests in the Collateral in favor of the Bank as collateral security for
the Secured Obligations, and upon the filing of a financing statement with the office of
the Secretary of State of the Commonwealth of Massachusetts describing the Collateral and
naming the Borrower as debtor and the Bank as secured party, will constitute perfected
security interests in the Collateral in favor of the Bank, as collateral security for the
Secured Obligations, and (b) are prior to all other Liens on the Collateral in
existence on the date hereof, except for existing liens in favor of the Bank pursuant to
the ESC Inc. Security Agreement or as otherwise permitted pursuant to the Loan Agreement.

3.4. No
Violation. Except as set forth in Section 7.4 of the Loan Agreement, the execution,
delivery and performance by the Borrower of this Agreement (a) will not violate (i) any
provision of the certificate of incorporation, by-laws or other organizational charter,
instruments or documents of the Borrower, or any material agreement or instrument to which
the Borrower is now a party or otherwise bound or to which its properties are bound, or
(ii) any law, statute, rule or regulation or any order or decree of any court or
governmental authority, or any arbitration award, franchise, permit or contractual
obligation of the Borrower (except to the extent that any such violation would not
reasonably be expected to have a material adverse effect), or constitute a default
thereunder, and (b) will not result in the creation or imposition of any Lien on any of
the properties or revenues of the Borrower pursuant to any law, statute, rule or
regulation or any order or decree of any court or governmental authority, or any
arbitration award, franchise, permit or contractual obligation of the Borrower, except the
security interests created hereby.

- 3 -

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3.5. No
Consents Required. Except as set forth in Section 7.5 of the Loan Agreement, no
consent or authorization of, filing with, or other act by or in respect of, any arbitrator
or Governmental Person and no consent of any other Person (including, without limitation,
any stockholder or creditor of the Borrower), is required to be obtained or made by the
Borrower, in connection with the execution, delivery, performance, validity or
enforceability of this Agreement, other than any which have been obtained or made prior to
the date hereof and remain in full force and effect.

3.6. No
Litigation. Except as disclosed in Parents filings with the Securities and
Exchange Commission, no litigation, investigation or proceeding of or before any
arbitrator or Governmental Person which could reasonably be expected to have a material
adverse effect is pending or, to the knowledge of the Borrower, threatened by or against
the Borrower or against any of its properties or revenues with respect to this Agreement
or any of the transactions contemplated hereby that could reasonably be expected to result
in a material adverse effect.

3.7. Title:
No Other Liens. Except for the security interests granted to the Bank pursuant to this
Agreement, existing liens in favor of the Bank pursuant to the ESC Inc. Security Agreement
and the other Liens permitted to exist on the Collateral pursuant to the Loan Agreement,
the Borrower owns each item of the Collateral free and clear of any and all Liens or
claims of others. No financing statement or other public notice with respect to all or any
part of the Collateral is on file or of record in any public office, except such as have
been filed in favor of the Bank pursuant to this Agreement, or as are otherwise in favor
of the Bank, or as are permitted pursuant to the Loan Agreement.

3.8. Chief
Executive Office; Legal Name. The Borrowers chief executive office is located at
its address set forth in Section 12.1 of the Loan Agreement, and the Borrowers
principal place of business (or if more than one principal place of business then its
chief executive office) for the last six (6) years has been located in the following
states: Massachusetts, New York, California or Utah. The Borrowers correct legal
name is as shown on the signature page of this Agreement.

3.9. Deposit
Accounts. As of the date hereof, the Borrower has no deposit accounts other than the
Bank of America Lockbox Account, the Bank of America Other Deposit Accounts, and the
deposit accounts specified on Schedule 3.9 attached hereto.

4.    Covenants.
The Borrower covenants and agrees with the Bank that, from and           after the date
of this Agreement until the Termination Date:

- 4 -

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4.1. Inspection
of Property: Books and Records: Discussions. The Borrower will keep proper books of
records and account in which full, true and correct entries in conformity with GAAP and
all requirements of law shall be made of all dealings and transactions in relation to the
Collateral. The Borrower will permit representatives of the Bank to visit and inspect any
of the Borrowers properties where any of the Borrowers books and records
relating to the Collateral are located and to examine and make abstracts from any of its
books and records at any reasonable time and as often as may reasonably be desired and to
discuss the condition of the Collateral with officers and key employees of the Borrower
and with its independent certified public accountants.

4.2. Delivery
of Instruments and Chattel Paper. If any amount payable under or in connection with
any of the Collateral shall be or become evidenced by any instrument or chattel paper,
such instrument or chattel paper shall be immediately delivered to the Bank, duly indorsed
in a manner satisfactory to the Bank, to be held as Collateral pursuant to this Agreement.

4.3.
Maintenance of Perfected Security Interest: Further Documentation.

(a) The
Borrower shall maintain the security interests created by this Agreement as perfected
security interests having the priority described in subsection 3.3 and shall defend
such security interests against the claims and demands of all Persons whomsoever.

(b) At
any time and from time to time, upon the written request of the Bank, and at the expense
of the Borrower, the Borrower will promptly and duly execute and deliver such further
instruments and documents and take such further actions as the Bank may reasonably request
for the purpose of obtaining or preserving the full benefits of this Agreement and of the
rights and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the security interests created hereby.

4.4. Changes
in Locations, Name, etc. The Borrower will not, unless it shall have given the Bank at
least 10 days prior written notice of such change:

(a) change
the location of its chief executive office from that specified in subsection 3.8; or

(b) change its
name, identity or corporate structure to such an extent that any financing statement filed
by the Bank in connection with this Agreement would become seriously misleading.

4.5. Further
Identification of Collateral. The Borrower will furnish to the Bank from time to time
statements and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Bank may reasonably request, all in
reasonable detail.

4.6. Payment
of Obligations. The Borrower will pay and discharge or otherwise satisfy at or before
maturity or before they become delinquent, as the case may be, in its ordinary course of
business all taxes, assessments and governmental charges or levies imposed upon the
Collateral or in respect of income or profits therefrom, as well as all claims of any kind
against or with respect to the Collateral, except that no such charge need be paid if the
amount or validity thereof is currently being contested in good faith by appropriate
proceedings, reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower and such proceedings do not involve any material danger of the
sale, forfeiture or loss of any of the Collateral or any interest therein.

- 5 -

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4.7.
Limitation on Dispositions and Liens.

(a) The
Borrower will not sell, transfer, lease or otherwise dispose of any of the Collateral, or
attempt, offer or contract to do so, except as permitted pursuant to this Agreement or the
Loan Agreement.

(b) The
Borrower will not create, incur or permit to exist any Lien or claim on or to the
Collateral, other than the security interests created hereby and other than as permitted
pursuant to this Agreement or the Loan Agreement.

4.8. Indemnification.          The
Borrower agrees to pay, and to hold the Bank harmless from, any and all
          liabilities, costs and expenses (including, without limitation, reasonable
legal           fees and expenses) with respect to the execution, delivery, enforcement,
          performance and administration of this Agreement (indemnified
          liabilities), provided that the Borrower shall have no
          obligation hereunder to the Bank with respect to indemnified liabilities
arising           from the gross negligence or willful misconduct of the Bank. The
agreements in           this subsection shall survive repayment of the Secured
Obligations.

4.9.
Notices.           The Borrower will advise the Bank promptly, in reasonable
detail, at its address           provided in the Loan Agreement of (a) any Lien
(other than security           interests created hereby or Liens permitted under the Loan
Agreement or this           Agreement) on any of the Collateral and (b) the
occurrence of any other           event which could reasonably be expected to have a
material adverse effect on           the aggregate value of the Collateral or on the
security interests created           hereby.

4.10. Other
Actions. Further to ensure the attachment, perfection and ability of the Bank to
enforce, the Banks Lien in the Collateral, the Borrower agrees, in each case at the
Borrowers own expense, to take the following actions with respect to the following
Collateral:

(a) Promissory
Notes and Tangible Chattel Paper. If the Borrower shall at any time hold or acquire
any promissory notes or tangible chattel paper, the Borrower shall forthwith endorse,
assign, and deliver the same to the Bank, accompanied by such instruments of transfer or
assignment duly executed in blank as the Bank may from time to time specify.

(b) Deposit
Accounts. For each deposit account that the Borrower at any time opens or maintains,
the Borrower shall, at the Banks request and option, pursuant to an agreement in
form and substance satisfactory to the Bank, either (i) cause the depositary bank to agree
to comply at any time with instructions from the Bank to such depositary bank directing
the disposition of funds from time to time credited to such deposit account, without
further consent of the Borrower, or (ii) arrange for the Bank to become the customer of
the depositary bank with respect to the deposit account, with the Borrower being
permitted, only with the consent of the Bank, to exercise rights to withdraw funds from
such deposit account. The provisions of this paragraph shall not apply to (A) any deposit
account for which the Borrower, the depositary bank and the Bank have entered into a cash
collateral agreement specially negotiated among the Borrower, the depositary bank, and the
Bank for the specific purpose set forth therein, (B) deposit accounts for which the Bank
is the depositary, and (C) any deposit account for fiduciary or special purposes for which
the Bank has expressly excluded from this paragraph in a writing to the Borrower. The
Borrower agrees that it will not open any new deposit accounts, other than with the Bank
and/or Signature Bank, without giving the Bank at least five (5) Business Days prior
written notice.

- 6 -

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(c) Other
Actions as to Any and All Collateral. The Borrower further agrees to take any other
action reasonably requested by the Bank to ensure the attachment, perfection, and ability
of the Bank to enforce, the Banks Lien in any of the Collateral, including, without
limitation, (i) complying with any provision of any statute, regulation, or treaty of the
United States as to any Collateral if compliance with such provision is a condition to
attachment, perfection, or ability of the Bank to enforce, the Banks Lien in such
Collateral, (ii) obtaining governmental and other third-party consents and approvals,
including, without limitation, any consent of any licensor, lessor, or other Person
obligated on Collateral, and (iii) taking all actions required by any earlier versions of
the Uniform Commercial Code or by other law, as applicable in any relevant Uniform
Commercial Code jurisdiction, or by other law as applicable in any foreign jurisdiction.

5.              Provisions
Relating to Receivables.

5.1. Borrower
Remains Liable under Receivables. Anything herein to the contrary notwithstanding, the
Borrower shall remain liable under each of the Receivables to observe and perform all the
conditions and obligations to be observed and performed by it thereunder, all in
accordance with the terms of any agreement giving rise to each such Receivable. The Bank
shall not have any obligation or liability under any Receivable (or any agreement giving
rise thereto) by reason of or arising out of this Agreement or the receipt by the Bank of
any payment relating to such Receivable pursuant hereto, nor shall the Bank be obligated
in any manner to perform any of the obligations of the Borrower under or pursuant to any
Receivable (or any agreement giving rise thereto), to make any payment, to make any
inquiry as to the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Receivable (or any agreement giving
rise thereto), to present or file any claim, to take any action to enforce any performance
or to collect the payment of any amounts which may have been assigned to it or to which it
may be entitled at any time or times.

5.2. Analysis
of Receivables. The Bank shall have the right to make test verifications of the
Receivables in accordance with Section 9.3 of the Loan Agreement.

- 7 -

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5.3.Collections
on Receivables.

(a) The
Bank hereby authorizes the Borrower to collect the Receivables out of the Lockbox Accounts
in accordance with its ordinary course of business; provided that, the Bank may
curtail or terminate said authority at any time when an Event of Default has occurred and
is continuing and may then, in addition to exercising any and all other remedies it has
under this Agreement, the other Loan Documents, the Code or at law, send its notice of
exclusive control over the Lockbox Accounts to the depositary banks thereof pursuant to
the Bank of America Lockbox Deposit Account Control Agreement and the Signature Bank
Lockbox Account Control Agreement, as the case may be, and/or notify, or cause the
Borrower to notify, the obligors on the Receivables to make all payments on the
Receivables directly to the Lockbox or the Bank in accordance with the provisions of
subsection 7.1. If required by the Bank at any time when an Event of Default has
occurred and is continuing, any payments of Receivables not made to the Lockbox, if
received by the Borrower, (1) shall be forthwith (and, in any event, within one
Business Day after receipt thereof) deposited by the Borrower in the exact form received,
duly indorsed by the Borrower to the Bank if required, in a non-interest bearing cash
collateral account to be established with the Bank upon its request after an Event of
Default (the Collateral Account), subject to withdrawal by the Bank
only as provided in subsection 6.3, and (2) until so turned over, shall be held
by the Borrower in trust for the Bank, segregated from other funds of the Borrower.

(b) Each
such deposit of Proceeds of Receivables shall be accompanied by a report (in the form
customarily prepared by the Borrower for its internal purposes) identifying in reasonable
detail the nature and source of the payments included in the deposit.

(c) At
the Banks request at any time when an Event of Default has occurred and is
continuing, the Borrower shall deliver to the Bank all original and other documents, books
and records evidencing, and relating to, the Receivables and the agreements and
transactions which gave rise to the Receivables, including, without limitation, all
original orders, invoices and shipping receipts.

5.4.Additional
Representations and Warranties.

(a) No
amount payable to the Borrower under or in connection with any Receivable is evidenced by
any instrument or chattel paper which has not been delivered to the Bank.

( b) The
amounts represented by the Borrower to the Bank from time to time as owing to the Borrower
in respect of the Receivables will at such times be accurate in all material respects.

5.5.
Covenants.

(a) Other
than in the ordinary course of business, the Borrower will not (i) grant any
extension of the time of payment of any Receivable, (ii) compromise or settle any
Receivable for less than the full amount thereof, (iii) release, wholly or partially,
any Person liable for the payment of any Receivable, (iv) allow any credit or
discount whatsoever on any Receivable, (v) amend, supplement or modify any Receivable
in any manner that could adversely affect the value thereof or (vi) fail to exercise
promptly and diligently each and every material right which it may have under each
agreement giving rise to a Receivable (other than any right of termination).

(b) The
Borrower will deliver to the Bank a copy of each material demand, notice or document
received by it that questions the validity or enforceability of more than 5% of the
aggregate amount of the then outstanding Receivables.

- 8 -

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6.    Remedies.

6.1. Notice
to Obligors. At any time when an Event of Default has occurred and is continuing, the
Bank may, in addition to exercising any and all other remedies it has under this
Agreement, the other Loan Documents, the Code or at law, send its notice of exclusive
control over the Lockbox Accounts to the depositary banks thereof pursuant to the Bank of
America Lockbox Deposit Account Control Agreement and the Signature Bank Lockbox Account
Control Agreement, as the case may be, and/or notify, or cause the Borrower to notify, the
obligors on the Receivables that the Receivables have been assigned to the Bank and that
payments in respect thereof shall be made directly to the Bank.

6.2. Proceeds
to be Turned Over To Bank. In addition to the rights of the Bank specified in
subsection 5.3 with respect to payments of Receivables, when an Event of Default has
occurred and is continuing, all payments or Proceeds received by the Borrower with respect
to Receivables (notwithstanding the Borrowers instructions on all invoices issued
after the date of this Agreement to send payments on such invoices directly to the Lockbox
Account) consisting of cash, checks and other near-cash items, or otherwise shall be held
by the Borrower in trust for the Bank, segregated from other funds of the Borrower, and
shall, forthwith upon receipt by the Borrower, be turned over to the Bank in the exact
form received by the Borrower (duly indorsed by the Borrower to the Bank, if required) and
held by the Bank in the Collateral Account. All Proceeds while held by the Bank in the
Collateral Account (or by the Borrower in trust for the Bank) shall continue to be held as
collateral security for all the Secured Obligations and shall not constitute payment
thereof until applied as provided in subsection 6.3.

6.3. Application
of Proceeds. At such intervals as may be agreed upon by the Borrower and the Bank, or,
if an Event of Default has occurred and is continuing, at any time at the Banks
election, the Bank may apply all or any part of Proceeds held in any Collateral Account in
payment of the Secured Obligations in such order as the Bank may elect, and any part of
such funds which the Bank elects not so to apply and deems not required as collateral
security for the Secured Obligations shall be paid over from time to time by the Bank to
the Borrower or to whomsoever may be lawfully entitled to receive the same. Any balance of
such Proceeds when no Event of Default is continuing shall be paid over to the Borrower or
to whomsoever may be lawfully entitled to receive the same. Any balance of such Proceeds
remaining after the Secured Obligations shall have been paid in full shall be paid over to
the Borrower or to whomsoever may be lawfully entitled to receive the same.

6.4. Code
Remedies. If an Event of Default has occurred and is continuing, the Bank may
exercise, in addition to all other rights and remedies granted to it in this Agreement and
in any other instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the Code. Without limiting
the generality of the foregoing, if an Event of Default has occurred and is continuing,
the Bank, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred to below)
to or upon the Borrower or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances forthwith
collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or
may forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any exchange,
brokers board or office of the Bank or elsewhere upon such terms and conditions as
it may deem advisable and at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Bank shall have the right upon
any such public sale or sales, and, to the extent permitted by law, upon any such private
sale or sales, to purchase the whole or any part of the Collateral so sold, free of any
right or equity of redemption in the Borrower, which right or equity is hereby waived or
released. To the extent permitted by applicable law, the Borrower waives all claims,
damages and demands it may acquire against the Bank arising out of the exercise by it of
any rights hereunder, except for bad faith, willful misconduct and gross negligence. If
any notice of a proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least 10 days before such
sale or other disposition.

- 9 -

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7.    Banks
Appointment as Attorney-in-Fact: Banks Performance of           Borrowers
Obligations.

7.1.
Powers.           The Borrower hereby irrevocably constitutes and appoints the
Bank and any           officer or agent thereof, with full power of substitution, as its
true and           lawful attorney-in-fact with full irrevocable power and authority in
the place           and stead of the Borrower and in the name of the Borrower or in its
own name,           for the purpose of carrying out the terms of this Agreement to take
any and all           appropriate action and to execute any and all documents and
instruments which           may be necessary or desirable to accomplish the purposes of
this Agreement, and,           without limiting the generality of the foregoing, the
Borrower hereby gives the           Bank the power and right, on behalf of the Borrower,
without notice to or assent           by the Borrower, to do any or all of the following:

(a) at
any time when an Event of Default has occurred and is continuing, in the name of the
Borrower or its own name, or otherwise, take possession of and indorse and collect any
checks, drafts, notes, acceptances or other instruments for the payment of moneys due
under any Receivable or with respect to any other Collateral and file any claim or take
any other action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Bank for the purpose of collecting any and all such moneys due under
any Receivable or with respect to any other Collateral whenever payable;

(b) pay
or discharge taxes and Liens levied or placed on or threatened against the Collateral;

(c) execute,
in connection with any sale provided for in subsection 6.4, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the Collateral;
and

- 10 -

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(d) at
any time when an Event of Default has occurred and is continuing, (1) direct any
party liable for any payment under any of the Collateral to make payment of any and all
moneys due or to become due thereunder directly to the Bank or as the Bank shall direct;
(2) ask or demand for, collect, receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in respect of or arising
out of any Collateral; (3) sign and indorse any invoices, drafts against debtors,
assignments, verifications, notices and other documents in connection with any of the
Collateral; (4) commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the Collateral or any thereof and
to enforce any other right in respect of any Collateral; (5) defend any suit, action
or proceeding brought against the Borrower with respect to any Collateral;
(6) settle, compromise or adjust any such suit, action or proceeding and, in
connection therewith, to give such discharges or releases on commercially reasonable terms
as the Bank may deem appropriate; (7) send its notice of exclusive control over the
Lockbox Accounts and other Borrower deposit accounts to the depositary banks thereof
pursuant to the Bank of America Lockbox Deposit Account Control Agreement, the Bank of
America Other Deposit Account Control Agreement, and the Signature Bank Lockbox Account
Control Agreement, as the case may be, and (8) generally, sell, transfer, pledge and
make any agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Bank were the absolute owner thereof for all purposes, and
do, at the Banks option and at the expense of the Borrower, at any time, or from
time to time, all acts and things on commercially reasonable terms which the Bank deems
necessary to protect, preserve or realize upon the Collateral and the Banks security
interest therein and to effect the intent of this Agreement, all as fully and effectively
as the Borrower might do.

7.2. Performance
by Bank of Borrowers Obligations. If the Borrower fails to perform or comply
with any of its agreements contained herein, the Bank, at its option, but without any
obligation so to do, may perform or comply, or otherwise cause performance or compliance,
with such agreement.

7.3. Borrowers
Reimbursement Obligation. The expenses of the Bank incurred in connection with actions
undertaken as provided in this Section, together with interest thereon at a rate equal to
the rate per annum at which interest would then be payable if the Loan is past due under
the Loan Agreement, from the date of payment by the Bank, to the date reimbursed by the
Borrower, shall be payable by the Borrower to the Bank on demand.

7.4. Ratification:
Power Coupled With An Interest. The Borrower hereby ratifies all that said attorneys
shall lawfully do or cause to be done by virtue hereof in accordance with the terms of
this Agreement. All powers, authorizations and agencies contained in this Agreement are
coupled with an interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released.

- 11 -

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8.    Duty
of Bank. The Banks sole duty with respect to the custody,           safekeeping
and physical preservation of the Collateral in its possession, under           Section
9-207 of the Code or otherwise, shall be to deal with it in the same           manner as
the Bank deals with similar property for its own account. Neither the           Bank, nor
any of its officers, directors, employees or agents shall be liable           for failure
to demand, collect or realize upon any of the Collateral or for any           delay in
doing so or shall be under any obligation to sell or otherwise dispose           of any
Collateral upon the request of the Borrower or any other Person or to           take any
other action whatsoever with regard to the Collateral or any part           thereof. The
powers conferred on the Bank hereunder are solely to protect the           Banks
interests in the Collateral and shall not impose any duty upon the           Bank to
exercise any such powers. The Bank shall be accountable only for amounts           that
it actually receives as a result of the exercise of such powers, and           neither it
nor any of its officers, directors, employees or agents shall be           responsible to
the Borrower for any act or failure to act hereunder, except for           their own
gross negligence or willful misconduct.

9.    Financing
Statements. The Borrower authorizes the Bank to file financing           statements
with respect to the Collateral in such form and in such filing           offices as the
Bank reasonably determines appropriate to perfect the security           interests of the
Bank under this Agreement; provided that the Bank provides the           Borrower with a
copy of any such filing.

10.    Notices.
All notices, requests and demands to or upon the Bank or the           Borrower shall be
given as provided in Section 12.1 of the Loan Agreement.

11.    Severability.
Any provision of this Agreement which is prohibited or           unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective           to the extent of
such prohibition or unenforceability without invalidating the           remaining
provisions hereof, and any such prohibition or unenforceability in any
          jurisdiction shall not invalidate or render unenforceable such provision in any
          other jurisdiction.

12.    Amendments
in Writing: No Waiver: Cumulative Remedies.

12.1. Amendments
in Writing. None of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by the Borrower
and the Bank, provided that any provision of this Agreement imposing obligations on the
Borrower may be waived by the Bank in a written instrument executed by the Bank.

12.2. No
Waiver by Course of Conduct. The Bank shall not by any act (except by a written
instrument pursuant to subsection 12.1), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any Default
or in any breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Bank, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Bank of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or remedy which
the Bank would otherwise have on any future occasion. If there is any direct conflict
between the covenants of this Agreement and the covenants of the Loan Agreement as to any
matter, then the covenants of the Loan Agreement shall control as to such matter.

- 12 -

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12.3. Remedies
Cumulative. The rights and remedies herein provided are cumulative, may be exercised
singly or concurrently and are not exclusive of any other rights or remedies provided by
law.

13.    Section
Headings. The Section and subsection headings used in this           Agreement are
for convenience of reference only and are not to affect the           construction hereof
or be taken into consideration in the interpretation hereof.

14.    Successors
and Assigns. This Agreement shall be binding upon the           successors and
assigns of the Borrower and shall inure to the benefit of the           Bank and its
successors and assigns; provided that, the Borrower may not           assign,
transfer or delegate any of its rights or obligations under this           Agreement
without the prior written consent of the Bank.

15.    GOVERNING
LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND           INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

16.    Suretyship
Waivers. The Borrower waives demand, notice, protest, notice           of acceptance
of this Agreement, notice of loans made, credit extended,           Collateral received
or delivered or other action taken in reliance hereon, and           all other demands
and notices of any description other than those expressly set           forth in the Loan
Documents to which it is a party. With respect to both the           Secured Obligations
and the Collateral, the Borrower assents to any extension or           postponement of
the time of payment or any other indulgence, to any           substitution, exchange, or
release of or failure to perfect any Lien in any           Collateral, to the addition or
release of any party or Person primarily or           secondarily liable, to the
acceptance of partial payment thereon and the           settlement, compromising, or
adjusting of any thereof, all in such manner and at           such time or times as the
Bank may deem advisable. The Bank shall have no duty           as to collection or
protection of the Collateral or any income thereon, nor as           to the preservation
of rights against prior parties, nor as to the preservation           of any rights
pertaining thereto beyond the safe custody thereof as set forth in           Section 8
hereof. The Borrower further waives any and all other suretyship           defenses.

17.    Marshalling.
The Bank shall not be required to marshal any present or           future collateral
security (including, but not limited to, this Agreement and           the Collateral)
for, or other assurances of payment of, the Secured Obligations           or any of them
or to resort to such collateral security or other assurances or           payment in any
particular order, and all of its rights hereunder and in respect           of such
collateral security and other assurances of payment shall be cumulative           and in
addition to all other rights, however existing or arising. To the extent           that
it lawfully may, the Borrower hereby agrees that it will not invoke any law
          relating to the marshalling of collateral which might cause delay in or impede
          the enforcement of the Banks rights under this Agreement or under any
          instrument creating or evidencing any of the Secured Obligations or under which
          any of the Secured Obligations is outstanding or by which any of the Secured
          Obligations is secured or payment thereof is otherwise assured, and, to the
          extent that it lawfully may, the Borrower hereby irrevocably waives the
benefits           of all such laws.

[SIGNATURE PAGE NEXT]

- 13 -

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IN
WITNESS WHEREOF, the undersigned has caused this Security Agreement to be duly executed
and delivered as of the date first above written.

| |  | LUMENIS INC. BY : /S/ Kevin Morano
Kevin Morano President and Chief Financial Officer
| |  | ---------------------------------------------------------------------------------------------------

- 14 -

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Exhibit B

# SCHEDULE 3.9

# DEPOSIT ACCOUNTS
(Other than the Bank
Of America Lockbox Account and the Bank of America Other Deposit Accounts)



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Exhibit C

# DISBURSEMENT REQUEST

|To: | Bank
Hapoalim B.M.          New York Branches
     1177 Avenue of the Americas
         New York, New York 10036
|--- | ----------------------------------------------------------------------------------------------------------------

This
Disbursement Request is given pursuant to 2.1 of the Loan Agreement dated as of November
13, 2003 (as amended, supplemented or otherwise modified from time to time, the "Loan
Agreement"), by and between LUMENIS INC., a Massachusetts corporation (the "Borrower"),
and BANK HAPOALIM, B.M., an Israeli banking corporation acting through its New York
Branches (the "Lender").  Any and all initially capitalized terms used herein have the
meanings ascribed thereto in the Loan Agreement unless otherwise specifically defined
herein.

The
undersigned hereby gives Lender irrevocable notice that it requests the making of an
Advance under the Loan Agreement as follows:

1.
      Date of Advance.  The requested date of the proposed Advance is _______, 20__.

2.
      Amount of Advance.  The principal amount of the requested Advance is:
$______________.

3.
      Use of Proceeds of Advance.  The undersigned confirms that the proceeds of the
requested Advance shall be utilized by the Borrower as working capital, to pay fees and
expenses related to the Loan Agreement or for the Borrower's general corporate purposes,
including, without limitation, repayment of Intercompany Debt, and that no proceeds of
any Advance shall be given or otherwise made available to the Parent or any of its
Subsidiaries unless in connection with the repayment of outstanding Intercompany Debt
owing by the Borrower.

The
undersigned hereby certifies that it is in compliance with all terms, conditions and
covenants, including, without limitation, Sections 10.7 and 10.8 of the Loan Agreement,
and to the best knowledge of the undersigned, after diligent inquiry, no Default or Event
of Default exists as of the date hereof or could result after giving effect to this
Disbursement Request.

|Dated:________________, 20__ |  | LUMENIS, INC. BY : 
Name:Title:
|---------------------------- |  | ---------------------------------------------



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Exhibit D

BORROWING BASE
REPORT CERTIFICATE

|To: | Bank
Hapoalim B.M.                   New York Branches                   1177 Avenue of the
Americas                   New York, New York  10036
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

This
certificate is submitted pursuant to the Loan Agreement dated as of November 13, 2003,
between LUMENIS INC. (the "Borrower") and Bank Hapoalim B.M., an Israeli banking
corporation acting through its New York Branches (the "Bank") as may be amended from time
to time (the "Loan Agreement").  The Bank has been granted a security interest in the
Accounts referred to in Schedule 1 attached hereto pursuant to the Loan Documents.
 Unless otherwise indicated, capitalized terms used herein have the meanings ascribed to
them in the Loan Agreement.

The
undersigned hereby certifies to the best of its knowledge after due inquiry that (i) the
amounts set forth in Schedule 1 attached hereto are true and correct in all material
respects, (ii) the calculations determined in Schedule 1 attached hereto are determined
in accordance with the Loan Agreement, and (iii) except as noted and except for such
provisions that are subject to the Bank's discretion, the exercise of which the Bank has
not so notified us in writing, none of the Eligible Accounts referred to in Schedule 1
attached hereto falls within the ineligible or prohibited categories of Eligible Accounts
as noted in the Loan Agreement.  The undersigned further confirms to the best of its
knowledge after due inquiry that the Bank has a perfected first priority security
interest in all Eligible Accounts of the Borrower, subject to Permitted Encumbrances.

|Date: |  | LUMENIS INC. BY : 
Name:Title:
|----- |  | --------------------------------------------



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SCHEDULE 1

[BORROWER'S FORM OF AGREED UPON SPREADSHEET TO BE ATTACHED]



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Schedule
1.1:  Bank of America Other Deposit
Accounts

|              | Account
  Number                                                                            |  |  | Description | 
|------------- | ------------------------------------------------------------------------------------------- |  |  | ----------- | 
|              |                                                                                             |  |  |             | 
|14876-03760   | Payroll  ZBA - Vendor Payroll, Full A/R PDR Detail, Stops                                 
|2115005123954 | FundSweep Acct                                                                             
|14878-03764   | Concentration - BAMTRAC: CDR/Wires, PDR/ Bal & Detail,
  GMTS, FX Wires & Drafts, MicroCash
|14990-13958   | HGM Salt Lake City
  Disbursement  ZBA - Full
  AR, Positive Pay, CD Rom, CDRom/CD Stops 
|14872-03762   | Wire Disbursement - ZBA - PDR/Detail, Stops GMTS, FX Wires &
  Drafts                      
|14870-03763   | STAR Disbursement - ZBA - Full AR, PDR/Detail, CDRom, Stops, GMTS                          
|14874-03761   | A/P Disbursement  ZBA                                                                     
|14990-14165   | Flex Spending                                                                              
|              |                                                                                            
|14874-03785   | 401K (Stock Options)                                                                       
|14878-03769   | Health / Self-Insurance                                                                    

40

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Schedule
7.13:  Permitted Indebtedness (excluding
Intercompany Debt)

|Beneficiary                     |  | Purpose                             |  | L/C Amount  |  | Amount      |  | Bank            |  | Investment            
|------------------------------- |  | ----------------------------------- |  | ----------- |  | ----------- |  | --------------- |  | ----------------------
|                                |  |                                     |  |             |  |             |  |                 |  |                       
|Liberty Mutual                  |  | Syneron Lawsuit  surety bond       |  | $400,000.00 |  | $400,000.00 |  | Bank of America |  | Certificate of Deposit
|Frapag New England Realty, Inc. |  | Norwood Building  security deposit |  | $250,000.00 |  | $257,000.00 |  | Bank of America |  | Certificate of Deposit
|Kemper Insurance                |  | Workers Comp  security deposit     |  | $185,000.00 |  | $200,000.00 |  | Bank Leumi      |  | Certificate of Deposit

41

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Exhibit 10.2

# OPTION AGREEMENT

THIS OPTION
AGREEMENT(this Agreement), dated as of November 19, 2003
is made and entered into by and between LUMENIS LTD.(formerly ESC MEDICAL SYSTEMS LTD.),
a company incorporated under the laws of the State of Israel (LUMENIS),
and BANK HAPOALIM B.M., an Israeli banking corporation (the Bank).

# RECITALS

WHEREAS, the
Bank has heretofore made certain loans and other extensions of credit to LUMENIS and
Lumenis Holdings Inc. (Holdings) (collectively, the Debt
Previously Contracted); and

WHEREAS, LUMENIS
and Holdings have requested the Bank to grant certain waivers and make certain amendments
in connection with the Debt Previously Contracted; and

WHEREAS, in
order to induce the Bank to grant such waivers and make such amendments in connection
with the Debt Previously Contracted, LUMENIS and the Bank have agreed to execute and
deliver this Agreement;

NOW, THEREFORE,
for valuable consideration, the receipt and adequacy of which are hereby acknowledged,
LUMENIS and the Bank hereby agree as follows:

1. Defined
Terms. As used in this Agreement, the following           terms shall have
the following meanings:

Closing
Price means, as of any day, the closing bid price reported on the NASDAQ
National Market System for a share of LUMENIS Stock on such day.

Governmental
Authority shall mean any court, tribunal, arbitrator, authority, agency,
commission, official or other instrumentality of the United States, any foreign country
or any domestic or foreign state, county, city or other political subdivision.

Lienshall
mean, with respect to any Person, any mortgage, lien, pledge, hypothecation, charge,
security interest or other encumbrance, or any interest or title of any vendor, lessor,
lender or other secured party to or of such Person under any conditional sale or other
title retention agreement or a capital lease, upon or with respect to any property or
asset of such Person (including without limitation in the case of shares of stock,
shareholder agreements, voting trust agreements and all similar arrangements).

LUMENIS
Stock means the ordinary shares, par value NIS 0.1 per share, issued by
LUMENIS.



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Personshall
mean any individual or general partnership, limited partnership, limited liability
company, corporation, joint venture, trust, estate, business trust, co-operative,
association, unincorporated organization, Governmental Authority or other entity, and
where the context so admits, the legal representatives, successors in interest and
permitted assigns of such Person.

Public
Offering means any public offering pursuant to an effective registration
statement under the United States Securities Act of 1933, as amended (the Securities
Act), or any other securities law of any other jurisdiction, covering the offering
and sale of shares of LUMENIS Stock for the account of LUMENIS (other than a registration
statement effected solely to implement an employee benefit plan, a transaction in which
Rule 145 of the United States Securities and Exchange Commission is applicable or any
other form or type of registration in which LUMENIS Stock cannot be included pursuant to
United States Securities and Exchange Commission rules and practice).

2. Grant
of Option. Upon the terms and subject to the conditions set           forth
herein, LUMENIS hereby grants to the Bank or to any of its subsidiaries           (the
Bank or any such subsidiary, the Optionee), the           irrevocable
right and option (the Option) to purchase from           LUMENIS up to
7,824,000 shares of LUMENIS Stock (the Option           Shares), at a
price per share equal to the Purchase Price (as defined           below). The decision to
elect to exercise the Option shall be in the sole           discretion of the Optionee,
and the Optionee shall incur no liability whatsoever           to any Person for any
failure to exercise the Option.

3. Purchase
Price.

(a)       
          The purchase price (the Purchase Price) for the Option Shares
          shall be the Closing Price in effect immediately preceding the execution of this
          Agreement, which is US$1.97 (One and 97/100 United States Dollars) per Option
          Share, subject to adjustment as set forth herein.

(b)       
          LUMENIS shall not, without the prior written consent of the Bank, at any time
          during the Exercise Period, (i) issue any LUMENIS Stock or any securities
          convertible or exercisable into LUMENIS Stock (other than issuances as part of
          any employee stock option plan, employee stock plan or S-8 of LUMENIS , and issuances to directors, consultants and luminaries, provided that, issuances to directors, consultants
   and luminaries may not exceed, without the Banks prior written consent, an aggregate amount per annum equal
      to the average per annum of the amount of issuances to such three groups during the immediately preceding
three years) for a
          purchase price or exercise price less than the Purchase Price hereof, or (ii)
          engage or participate in a tender offer for LUMENIS Stock at a tender price less
          than the Purchase Price hereof.

4. Exercise
Period.Subject to Paragraph 7, this Option may be           exercised, in
part or in whole, during the period beginning on the date of this           Option and
ending on the tenth anniversary of the date hereof (the           Exercise Period).
Without derogating from Paragraph 7 below,           at the end of the Exercise Period,
the Option shall expire with respect to any           Option Shares not then exercised
and acquired.

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5. Adjustment
of Purchase Price and Number of Option Shares.The           number and kind of
securities purchasable initially upon the exercise of this           Option and the
Purchase Price shall be subject to adjustment from time to time           upon the
occurrence of certain events, as follows:

(a)       
          Adjustment for Share Splits and Combinations. If LUMENIS at any time or
          from time to time effects a subdivision of the outstanding shares of LUMENIS
          Stock, the number of shares of LUMENIS Stock issuable upon exercise of this
          Option immediately before the subdivision shall be proportionately increased,
          and conversely, if LUMENIS at any time or from time to time combines the
          outstanding shares of LUMENIS Stock, the number of shares of LUMENIS Stock
          issuable upon exercise of this Option immediately before the combination shall
          be proportionately decreased. Any adjustment under this Paragraph 5(a)
          shall become effective at the close of business on the date the subdivision or
          combination becomes effective.

(b)       
          Adjustment for Certain Dividends and Distributions. In the event LUMENIS
          at any time, or from time to time makes or fixes a record date for the
          determination of holders of shares of LUMENIS Stock entitled to receive a
          dividend or other distribution payable in additional shares of LUMENIS Stock,
          then and in each such event the number of shares of LUMENIS Stock issuable upon
          exercise of this Option shall be increased as of the time of such issuance or,
          in the event such a record date is fixed, as of the close of business on such
          record date, by multiplying the number of shares of LUMENIS Stock issuable upon
          exercise of this Option by a fraction: (i) the numerator of which shall be the
          total number of shares of LUMENIS Stock issued and outstanding immediately prior
          to the time of such issuance or the close of business on such record date plus
          the number of shares of LUMENIS Stock issuable in payment of such dividend or
          distribution, and (ii) the denominator of which is the total number of shares of
          LUMENIS Stock issued and outstanding immediately prior to the time of such
          issuance or the close of business on such record date; provided, however,
          that if such record date is fixed and such dividend is not fully paid or if such
          distribution is not fully made on the date fixed thereof, the number of shares
          of LUMENIS Stock issuable upon exercise of this Option shall be recomputed
          accordingly as of the close of business on such record date and thereafter the
          number of shares of LUMENIS Stock issuable upon exercise of this Option shall be
          adjusted pursuant to this Paragraph 5(b) as of the time of actual payment
          of such dividends or distributions.

(c)       
          Adjustments for Other Dividends and Distributions. In the event LUMENIS
          at any time or from time to time makes or fixes a record date for the
          determination of holders of shares of LUMENIS Stock entitled to receive a
          dividend or other distribution payable in securities of LUMENIS other than
          shares of LUMENIS Stock, then in each such event provision shall be made so that
          the Optionee shall receive upon exercise of this Option, in addition to the
          number of shares of LUMENIS Stock receivable thereupon, the amount of securities
          of LUMENIS that the Optionee would have received had this Option been exercised
          for shares of LUMENIS Stock immediately prior to such event (or the record date
          for such event) and had the Optionee thereafter, during the period from the date
          of such event to and including the date of exercise, retained such securities
          receivable by it as aforesaid during such period, subject to all other
          adjustments called for during such period under this Paragraph 5 and
          LUMENIS Articles of Association with respect to the rights of the
          Optionee.

3

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(d)       
          Adjustment for Reclassification, Exchange and Substitution. If the shares
          of LUMENIS Stock issuable upon the exercise of this Option are changed into the
          same or a different number of shares of any class or classes of shares, whether
          by recapitalization, reclassification or otherwise (other than a subdivision or
          combination of shares or shares dividend or areorganization, merger,
          consolidation or sale of assets, provided for elsewhere in this Paragraph), then
          and in any such event the Optionee shall have the right thereafter to exercise
          this Option into the kind and amount of shares and other securities receivable
          upon such recapitalization, reclassification or other change, by holders of the
          number of shares of LUMENIS Stock for which this Option might have been
          exercised immediately prior to such recapitalization, reclassification or
          change, all subject to further adjustment as provided herein and under
          LUMENIS Articles of Association.

(e)       
          Reorganization, Mergers, Consolidations or Sales of Assets. If at any
          time from time to time there is a capital reorganization of the shares of
          LUMENIS Stock (other than a recapitalization, subdivision, combination,
          reclassification or exchange of shares provided for elsewhere in this Paragraph)
          or a merger or consolidation of LUMENIS with or into another corporation, or the
          sale of all or substantially all of LUMENIS properties and assets to any
          other Person, then, as a part of such reorganization, merger, consolidation or
          sale, provision shall be made so that the Optionee shall thereafter be entitled
          to receive upon exercise of this Option, the number of shares or other
          securities or property of LUMENIS, or of the successor corporation resulting
          from such merger or consolidation or sale, to which a holder of shares of
          LUMENIS Stock deliverable upon conversion would have been entitled on such
          capital reorganization, merger, consolidation or sale. In any such case (except
          to the extent any cash or property is received in such transaction), appropriate
          adjustment shall be made in the application of the provisions of this
          subparagraph and LUMENIS Articles of Association with respect to the
          rights of the Optionee after the reorganization, merger, consolidation or sale
          to the end that the provisions of this subparagraph and LUMENIS Articles
          of Association (including adjustment of the number of shares of LUMENIS Stock
          issuable upon exercise of this Option) shall be applicable after that event and
          be as nearly equivalent to the provisions hereof as may be practicable.

(f)       
          Other Transactions. In the event that LUMENIS shall issue shares to its
          shareholders as a result of a split-off, spin-off or the like, then LUMENIS
          shall complete such issuance or other action if, as part thereof, allowance is
          made to protect the economic interest of the Optionee either by increasing the
          number of Option Shares and/or by reducing proportionately the Purchase Price of
          the Option Shares and/or by procuring that the Optionee shall be entitled, on
          economically proportionate terms, to acquire additional shares of the spun-off
          or split-off entities.

4

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(g)       
          Notice of Capital Changes. If at any time LUMENIS shall offer for
          subscription pro rata to the holders of shares of LUMENIS Stock any
          additional shares of any class, other rights or any equity security of any kind,
          or there shall be any capital reorganization or reclassification of the capital
          shares of LUMENIS Stock or the consolidation or merger of LUMENIS with, or sale
          of all or substantially all of its assets to another company or there shall be a
          voluntary or involuntary dissolution, liquidation or winding up of LUMENIS, or
          other transaction described in this Paragraph 5, then, in any one or more
          of said cases, LUMENIS shall give the Optionee, by registered or certified mail,
          postage prepaid, a written notice containing a brief description of the proposed
          action and stating the date on which (i) a record is to be taken for the purpose
          of such subscription or other rights, or (ii) such reorganization,
          reclassification, consolidation, merger, sale, dissolution, liquidation or
          winding up is to take place, as the case may be. Such notice shall also specify
          the date as of which the holders of record of shares of LUMENIS Stock shall
          participate in such subscription rights, or shall be entitled to exchange their
          shares of LUMENIS Stock for securities or other property deliverable upon such
          reorganization, reclassification, consolidation, merger, sale, dissolution,
          liquidation or winding up, as the case may be. Such written notice shall be
          given at least fourteen (14) days prior to the action in question, and not less
          than fourteen (14) days prior to the record date in respect thereto.

(h)       
          Adjustment of Purchase Price. Upon each adjustment in the number of
          shares of LUMENIS Stock purchasable hereunder, the purchase price per share
          shall be proportionately increased or decreased, as the case may be, in a manner
          that is the inverse of the manner in which the number of shares of LUMENIS Stock
          purchasable hereunder shall be adjusted. In the event that LUMENIS shall
          hereafter issue any additional shares of LUMENIS Stock or any securities
          convertible into or exchangeable for LUMENIS Stock or any warrants, options or
          other rights to acquire shares of LUMENIS Stock or such convertible securities,
          pursuant to Paragraph 5(c) hereof, then the Purchase Price for the Option Shares
          purchasable hereunder shall, at the sole option of the Optionee and in lieu of
          any adjustment pursuant to such Paragraph, be reduced by an amount equal to the
          Fair Market Value of such stock, securities, warrants, options or rights as of
          the date of such initial issuance thereof, without giving effect to any
          withholding or other taxes, charges, imposts or duties. In the event that
          LUMENIS shall hereafter pays any dividend or makes any distribution payable in
          additional shares of LUMENIS Stock pursuant to Paragraph 5(b) hereof,
          then the Purchase Price for the Option Shares purchasable hereunder shall, at
          the sole option of the Optionee and in lieu of any adjustment in the number of
          Option Shares purchasable hereunder pursuant to such Paragraph, be reduced by an
          amount equal to the amount of all such payments and dividends, without giving
          effect to any withholding or other taxes, charges, imposts or duties.

(i)       
          Notice of Adjustments. Whenever the Purchase Price or the number of
          shares of LUMENIS Stock purchasable hereunder shall be adjusted pursuant to
          Paragraph 5 hereof, LUMENIS shall prepare a certificate signed by the
          chief financial officer of LUMENIS setting forth, in reasonable detail, the
          event requiring the adjustment, the amount of the adjustment, the method by
          which such adjustment was calculated, and the Purchase Price and the number of
          shares of LUMENIS Stock purchasable hereunder after giving effect to such
          adjustment, and shall cause copies of such certificate to be mailed (by first
          class mail, postage prepaid) to the Optionee.

5

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(j)       
          Adjustment Proportionate; Rounding Upward. Any adjustment under this
          Paragraph 5 in the number of Option Shares shall apply proportionately to
          only the unexercised portion of the Option. If fractions of a share would result
          from any such adjustment, the aggregate shares adjustment shall be revised to
          the next higher whole number of shares.

# 6. Method of Exercising
Option and Payment of Purchase Price.

The
Option may be exercised, in whole or in part on any number of occasions during the
Exercise Period, by the delivery by the Optionee to LUMENIS at its principal office (or
such other office or agency of Lumenis as it may designate by notice in writing to the
Holder at the address of such holder appearing on the books of Lumenis) of the attached
Notice of Exercise, either by mail, fax, e-mail, or personal delivery, all in accordance
with the provisions of Section 16 below, duly signed by a certified signatory of Optionee.
The Notice of Exercise must be accompanied by payment in full of the aggregate Purchase
Price for the Option Shares being purchased upon such exercise. Payment for such Option
Shares shall be made in U.S. dollars by check payable to the order of LUMENIS or by wire
transfer to an account designated by LUMENIS. Payment made after 14:00, Israel time, shall
be deemed made on the subsequent Business Day. With respect to each such exercise of this
Option, simultaneous with Optionees payment of the Purchase Price for the number of
Option Shares indicated in the related Notice of Exercise, LUMENIS shall issue and deliver
to Optionee a certificate or certificates evidencing such Option Shares registered in the
name of Optionee or its designee. Upon receipt by LUMENIS of this Option at its office in
proper form for exercise, Optionee shall be deemed to be the holder of record of the
Option Shares transferable upon such exercise. If this Option should be exercised in part
only, LUMENIS shall concurrently with the delivery of the certificates for purchased
Option Shares, execute and deliver to the Optionee a new Option, on the same terms and
conditions as this Option, evidencing the rights of the Optionee thereof to purchase the
balance of the Option Shares. Furthermore, Lumenis undertakes to cooperate with Holder in
good faith to effect any exercise of the Option and any permitted Transfer of the Option
and/or the Option Shares.

# 7. Cashless Exercise.

The
Holder may elect to receive, without the payment by the Holder of any additional
consideration, shares equal to the value of this Option or any portion hereof by the
surrender of this Option or such portion to LUMENIS, with the net issue election notice
annexed hereto duly executed, at the office of LUMENIS. Thereupon, LUMENIS shall issue to
the Holder such number of fully paid Option Shares as is computed using the following
formula:

|    |        
|--- | -------
|X = | Y (A-B)
|    |        
|    | A      

|where | X
= | the number of Option Shares to be issued to the Holder pursuant to
                                    this Section 7.
|----- | --- | ----------------------------------------------------------------------------------------------------------------------

| | Y
= | the number of Option Shares covered by this Option in respect of which the net issue
election is made pursuant to this Section 7,
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

| | A = | the fair market value of one Option Share.
| | --- | ------------------------------------------

6

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| | The
Fair market value of an ordinary share shall mean:
| | --------------------------------------------------------

| | I). | If
LUMENIS ordinary shares are listed on a national securities exchange or
                    quoted on the National Association of Securities Dealers, Inc.
Automated                     Quotation/National Market System (NASDAQ/NMS), then the
closing or last sale price, respectively, reported for the Exercise Date.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | II). | If
LUMENIS ordinary shares are not listed on a national securities
                    exchange or quoted on NASDAQ/NMS, but traded in the over the counter
market,                     then the mean of the closing bid and asked prices as reported
for the exercise                     date.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | III). | If
LUMENIS ordinary shares are not publicly traded, then as determined by
                    an appraiser the identity of whom would be determined by the parties
hereto. The                     costs and fees of the appraiser shall be borne solely by
LUMENIS.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | IV). | If
the exercise date is the date of closing of a public offering of
                    LUMENIS ordinary shares pursuant to an effective registration
statement                     under the Securities Act, then the public offering price
(before deduction of                     discounts, commissions or expenses) in such
offering.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | B = | the Purchase Price in effect under this Option at the time the net issue election is made
pursuant to this Section 7.
| | --- | ---------------------------------------------------------------------------------------------------------------------

| | For
the removal of any doubt, it is agreed that section 5 hereof shall apply also to cashless
exercise.
| | -------------------------------------------------------------------------------------------------------

8. Investment
Representation.Optionee, and each of its subsidiaries           who is issued
Option Shares pursuant to this Agreement, represent that (i) it is           an accredited
investor, as that term is defined in Rule 501(a) of           Regulation D under
the Securities Act, or any successor federal statute, and           (ii) any and all
Option Shares purchased hereunder shall be acquired for           investment only and
without a view to the resale or distribution thereof, except           in any case
pursuant to the registration of such Option or Option Shares under           the
Securities Act or pursuant to a valid exemption from such registration
          requirement. If the Option Shares are not so registered, certificates for the
          Option Shares shall bear the legend set forth in Paragraph 12 hereof.

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# 9. Exchange, Transfer,
Assignment or Loss of Option.

(a)       
          For purposes of this Agreement, Transfer, as to this Option,
          the Option Shares or any shares of LUMENIS Stock, means any transfer, sale,
          exchange, assignment, the creation of any Lien, option or right to purchase, and
          any other disposition of any kind, whether voluntary or involuntary, affecting
          title to, possession of or voting rights with respect thereto. Optionee and each
          of its subsidiaries who is issued Option Shares pursuant to this Agreement
          acknowledges that the Option and the Option Shares issuable upon exercise
          thereof have not been registered under the Securities Act, and agree that it
          will not Transfer any this Option or the Option Shares except upon the terms and
          conditions specified herein, and that it will cause any transferee thereof to
          agree to take and hold the same subject to the terms and conditions specified
          herein, provided that, Optionee or any holder of the Option Shares may
          sell Option Shares purchased upon exercise of this Option in one or more private
          transactions not requiring registration under the Securities Act or in one or
          more public sales in compliance with Rule 144 under the Securities Act. Prior to
          any Transfer of any Option Shares (other than a Transfer among Optionee and/or
          any of its affiliates), the holder thereof shall give written notice to LUMENIS
          of such holders intention to effect such Transfer and the identity of the
          proposed transferee. Each holder wishing to effect such a Transfer of the Option
          Shares shall also furnish to LUMENIS an agreement by the transferee thereof that
          it is taking and holding the same subject to the terms and conditions specified
          herein and, unless the transferee is an affiliate of such holder, a written
          opinion of such holders counsel, in form reasonably satisfactory to
          LUMENIS, to the effect that the proposed Transfer may be effected without
          registration under the Securities Act. The restrictions set forth in Paragraphs
          8, 9 and 12 shall terminate and cease to be effective with respect to any Option
          Shares that are registered under the Securities Act or upon receipt by LUMENIS
          of an opinion of counsel, reasonably satisfactory to LUMENIS, to the effect that
          compliance with such restrictions is not necessary in order to comply with the
          Securities Act with respect to the Transfer of the Option Shares.

(b)       
          Subject to the restrictions set forth herein, this Option is exchangeable,
          without expense, at the option of the Optionee, upon presentation and surrender
          hereof to LUMENIS or at the office of its stock transfer agent, if any, for
          other options of different denominations entitling the holder thereof to
          purchase in the aggregate the same number of Option Shares purchasable
          hereunder; Upon surrender of this Option to LUMENIS at its principal office or
          at the office of its stock transfer agent, if any, with the Assignment Form
          annexed hereto duly executed and funds sufficient to pay any transfer tax,
          LUMENIS shall, without charge, execute and deliver a new Option in the name of
          the assignee named in such instrument of assignment and this Option shall
          promptly be canceled; The term Option as used herein includes
          any Options into which this Option may be divided or exchanged. Upon receipt by
          LUMENIS of evidence satisfactory to it of the loss, theft, destruction or
          mutilation of this Option, and (in the case of loss, theft or destruction) of
          reasonably satisfactory indemnification, and upon surrender and cancellation of
          this Option, if mutilated, LUMENIS will execute and deliver a new Option of like
          tenor and date.

8

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(c)       
          Notwithstanding anything in this Agreement to the contrary, if at any time prior
          to the occurrence of an Event of Default under the Debt Previously Contracted
          the Bank effects a Transfer of all or any part of the Option or Option Shares
          pursuant to this Agreement to a Person who is not a subsidiary of the Bank (a
          Third-Party Transferee), then such Transfer shall exclude all
          Demand registration rights under Section 14(b) of this Agreement; provided,
          however, (i) prior to the occurrence of an Event of Default under the Debt
          Previously Contracted, the Bank and any transferee who is a subsidiary of the
          Bank shall have all Demand registration rights as set forth in Sections 14(b) and 14(c) of
          this Agreement, and (ii) if at any time on and after the occurrence of an Event
          of Default under the Debt Previously Contracted, the Bank effects a Transfer of
          all or any part of the Option or Option Shares pursuant to this Agreement to a
          Third-Party Transferee, then such Transfer shall include all Demand registration
          rights then available and unused under Sections 14(b) and 14(c) of this Agreement.

10. Representations,
Warranties and Covenants of LUMENIS.LUMENIS           hereby represents and
warrants to Optionee that:

(a)       
          There has been reserved, and LUMENIS shall at all times keep reserved so long as
          the Option remains outstanding, out of its authorized LUMENIS Stock, such number
          of shares of LUMENIS Stock as shall be subject to purchase under the Option, and
          LUMENIS will supply every transfer agent for LUMENIS Stock and other securities
          of LUMENIS issuable upon exercise of the Option with duly executed stock and
          other certificates, as appropriate, for such purpose;

(b)       
          Upon delivery of, and payment for the Option Shares as contemplated by this
          Agreement, the Optionee will acquire duly authorized, validly issued, fully paid
          and nonassessable Option Shares.

11. Legend.Except as provided in Paragraph 9(a) hereof, each           stock certificate
evidencing the Option Shares issued to the Optionee or to any           other Person in
connection with a transfer pursuant to this Agreement shall           include the
following legend:

| | THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR UNDER ANY STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED UNLESS AND UNTIL REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT AND
UNDER SUCH LAWS, OR UNLESS AN EXEMPTION FROM REGISTRATION AND QUALIFICATION IS AVAILABLE.
THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN OPTION AGREEMENT DATED NOVEMBER __,
2003 TO WHICH THE ISSUER IS SUBJECT. A COPY OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN
REQUEST TO THE SECRETARY OF THE ISSUER.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

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12. Fractional
Interest.No fractional shares will be issued in           connection with any
exercise hereunder, but in lieu of such fractional shares           LUMENIS shall round
up the number of Option Shares to be issued.

13. No
Rights in Option Shares.Optionee shall have none of the rights           of a
shareholder with respect to the Option Shares unless and until the Option
          Shares are issued to it upon exercise of the Option.

14.
Registration Rights.

(a)       
          If LUMENIS effects a registration with respect to the public resale by
          shareholders of any LUMENIS Stock under the Securities Act, or any other
          relevant securities laws of any other jurisdiction, the Optionee shall have the
          right to have included in such registered offering the Option Shares, on a pro
          rata basis with the other selling shareholders participating in such registered
          offering, in proportion to the respective holdings of Optionee and all such
          other selling shareholders.

(b)       
          Optionee shall have the right, upon its written demand to LUMENIS (a
          Demand) at any time and from time to time thereafter (not to exceed
          a maximum aggregate of two (2) Demands; it being understood that the second
          Demand cannot be made prior to twelve (12) months after the first Demand was
          made by Optionee) to request LUMENIS to effect the registration under the
          Securities Act of the Option Shares (but not less than thirty-five percent (35%)
          of such Option Shares then owned by Optionee). Upon LUMENIS receipt of a
          Demand, LUMENIS shall be obligated to effect each such demand registration, and
          LUMENIS shall bear all expenses other than underwriting discounts and
          commissions, if any, in connection therewith, including, without limitation, all
          registration filing and qualification fees, printers and accounting fees,
          the fees and disbursements of one counsel for Optionee, provided that, (i) a
          registration will not constitute a demand registration under this Section 14
          until it has been declared effective under the Securities Act, and (ii) no
          Person other than Optionee shall have any right to have securities included in
          any registration under this Section 14. Upon receipt of each Demand, LUMENIS
          shall as expeditiously as possible subject to applicable law, prepare and file
          with the United States Securities and Exchange Commission a registration
          statement on the appropriate form with respect to such Option Shares and use
          reasonable commercial efforts to cause such registration statement to become
          effective as soon as practicable after such filing.

10

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(c)       
          If the Board of Directors of LUMENIS, in its good faith judgment, reasonably
          determines that any registration of Option Shares should not be made because it
          would reasonably be expected to materially interfere with any material
          financing, acquisition, corporate reorganization or merger or other similar
          material transaction (other than in the ordinary course of business) involving
          LUMENIS or any of its subsidiaries or would not then comply with applicable
          securities regulations (a Valid Business Reason), LUMENIS may
          postpone filing a registration statement relating to a Demand until such Valid
          Business Reason no longer exists, but in no event for more than 90 days from the
          date of such Demand (such period of postponement, the Postponement
          Period); and LUMENIS shall give written notice of its determination to
          postpone a registration statement and of the fact that the Valid Business Reason
          for such postponement no longer exists, in each case, promptly after the
          occurrence thereof; provided, however, LUMENIS shall not be
          permitted to postpone a registration statement within 12 months after the
          expiration of any Postponement Period.

15. Expenses.LUMENIS shall pay Israeli Stamp Duty, if any, on the           issue of the Option
Shares, and will notify the Israeli Companies Registrar of           such issue within
the time period required by law. The Stamp Duty on this           Option, if any, will be
paid in full by LUMENIS.

16. Notices.All notices, requests and other communications to any           party under this
Option shall be in writing and shall be given to such party, by           mail, telecopy,
telex, personal delivery, fax, e-mail, or other customary means           of delivery,
addressed to it as set forth below or such other address or telex           number as
such party may in the future specify for such purpose by notice to the           other
party. Each such notice, request or communication shall be effective, if           given
by telex, fax or e-mail, after the date of dispatch of such communication           is
transmitted to the respective number specified below and the appropriate
          answerback is received, if given by mail, two days after such communication is
          deposited in the United States mails and sent by certified or registered mail,
          return receipt requested, with first class postage prepaid, addressed as
          aforesaid or if given by fax, e-mail, telecopy personal delivery, on the
          Business Day when received at the address specified below. Business
          Daymeans  a day on which banks are open for business in New
          York and in Israel.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Party                              
                  If to LUMENIS:                              
                                                              
                                                              
                                                              
                                                              
                                                              
                  With a copy to: |  | Address
LUMENIS Ltd.
Yokneam Industrial Park,
P.O.B. 240, Yokneam 20692
Attention:  President
Telephone:  04-9599000
Telecopier:  04-9599070
Zellermayer, Pelossof & Co.
Rubinstein House
20 Lincoln Street
Tel Aviv 67134
Attention:  Dr. Avraham Ortal,
Advocate
Telephone:  03-6255555
Telecopier:  03-6255500

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|                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|If to the Optionee:                         
                                                
                                                              
                                                              
                                                              
                                                              
                  with a copy to: |  | Bank Hapoalim B.M.
63 Yehuda Halevy St
Tel Aviv
Attention:  Mr. Ori Shalev
Telephone:  03-5674791
Telecopier:  03-5676008
Shaw Pittman
335 Madison Ave., 26th floor
New York, New York  10017-4605
Attention:  John C. Simons, Esq.
Telephone:  (212) 603-6848
Telecopier:  (212) 603-6801

Notice
to any other Optionee shall be sent to the address indicated on the applicable Assignment
Form.

17.
Governing Law/Submission to Jurisdiction.

(a)              This
Agreement shall be governed by the laws of the State of Israel. For the
          purposes of this Agreement LUMENIS hereby irrevocably submits to the exclusive
          jurisdiction of the competent courts in Tel-Aviv  Jaffa, Israel.

(b)       
          LUMENIS agrees that any summons, notice or judgment or other legal process or
          document in connection with any proceedings referred to in sub-clause (a) hereof
          may be served upon it by delivering same to LUMENIS at its address set forth in
          Paragraph 16 and a copy to Zellermayer, Pelossof & Co., Advocates, 20
          Lincoln Street, Tel Aviv, Israel 67134.

18.
Miscellaneous.

This
Agreement cannot be changed or terminated orally. This Agreement contains the entire
agreement between the parties relating to the subject matter hereof. The paragraph
headings herein are intended for reference only and shall not affect the interpretation
hereof. This Agreement may be executed in any number of counterparts and by telecopier,
each of which shall constitute an original, and all of which taken together shall
constitute one and the same agreement. Except as specifically stated herein as
constituting an explicit waiver or modification of any provision of a loan agreement or
other document evidencing indebtedness owing from LUMENIS to the Optionee, nothing
contained herein shall constitute a waiver or modification by the Optionee of any of the
covenants, representations or agreements under such loan or other document. The invalidity
or unenforceability of any provision of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, each of which shall remain in
full force and effect.

12

---

---

19. Successors
and Assigns. This Agreement will inure to the benefit           of and be binding
upon the parties hereto and their respective successors and           permitted assigns.

20. Availability
of Public Information.With a view to making           available to the Optionee
and any subsequent holder of the Option Shares the           benefits of certain rules
and regulations of the United States Securities           Exchange Commission (the SEC)
(including, without limitation,           Rules 144 and 144A under the Securities Act),
which may permit the sale of the           Option Shares to the public or certain other
institutions without registration,           LUMENIS agrees to take any and all such
actions as may be required of it to make           available to the Optionee and such
subsequent holders such benefits, including,           without limitation, to:

| | (i)       
               make and keep public information available, as those terms are understood and
               defined in Rule 144 under the Securities Act or any successor provision thereto
               from and after the date LUMENIS first becomes subject to the provisions of
               Section 13 or 15(d) of the United States Securities Exchange Act of 1934, as
               amended, or any successor federal statute (the Exchange Act);
               and
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii)       
               file with the SEC in a timely manner all reports and other documents required of
               LUMENIS under the Securities Act and the Exchange Act from and after the date
               LUMENIS first becomes subject to the provisions of Section 13 or 15(d) of the
               Exchange Act; and
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii)       
               so long as the Optionee or any affiliate of the Optionee owns any Option or
               Option Shares, furnish to the Optionee forthwith upon request a written
               statement by LUMENIS as to compliance with the reporting requirements of Rule
               144 or any successor provision thereto, and of the Securities Act and the
               Exchange Act, a copy of the most recent annual or quarterly report of LUMENIS
               filed with the SEC, in each case from and after the date LUMENIS first becomes
               subject to the provisions of Section 13 or 15(d) of the Exchange Act, and such
               other reports and documents of LUMENIS and other information in the possession
               of or reasonably obtainable by LUMENIS as the Optionee and its affiliates and
               subsequent holders of the Option Shares may reasonably request in availing
               itself of any rule or regulation of the SEC allowing the Optionee and its
               affiliates and subsequent holders of the Option Shares to sell any such
               securities without registration.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# [SIGNATURE PAGE TO
FOLLOW]

13

---

---

IN
WITNESS WHEREOF, the parties have executed this Option Agreement as of the day and
year first above written.

| |  | BANK HAPOALIM B.M.BY: /S/ Rachel Arbel
R. Arbel Bank Hapoalim B.M
| |  | -------------------------------------------------------------------------------

| |  | BY: /S/ Liora Ben-Ami
 L. Ben Ami Bank Hapoalim B.M
| |  | -----------------------------------------------------------------

| |  | LUMENIS LTD.BY: /S/ Avner Raz 
 Avner Raz President and Chief Executive Officer
| |  | ---------------------------------------------------------------------------------------------

| |  | BY: /S/ Kevin Morano
Kevin MoranoChief Financial Officer
| |  | ----------------------------------------------------------------------

14

---

---

# NOTICE OF EXERCISE

# To:

|1. | The
undersigned hereby elects to purchase _________ Option Shares, pursuant to the terms of
the attached Option, and tenders herewith payment of the purchase price for such shares in
full / requests Cashless Exercise of _______ Option Shares.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | In
exercising this Option, the undersigned hereby confirms and acknowledges that the Option
Shares are being acquired solely for the account of the undersigned (and not as a nominee
for any other party) for investment, and that the undersigned will not offer, sell or
otherwise dispose of any such Option Shares except under circumstances that will not
result in a violation of the Securities Act or any state securities laws.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Please
issue a certificate representing said Option Shares in the name of the undersigned and
deliver such certificate to the undersigned.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------

|       |  |             
|------ |  | ------------
|       |  |             
|(Date) |  | (Print Name)
|       |  |             
|       |  |             
|       |  |             
|       |  | (Signature) 

15

---

---

# ASSIGNMENT FORM

FOR
VALUE RECEIVED,_________________________hereby sells, assigns and transfers unto

Name

(Please typewrite or print in block
letters)

Address

and the above transferee hereby
acquires and assumes the right to purchase Option Shares represented by this Option to the
extent of ______Option Shares as to which such right is exercisable and agrees to
be bound by the terms and conditions of the Option.

Date

---

Transferor Signature

---

Transferee Signature

16

---

---

Exhibit 10.3

November 19, 2003

Bank Hapoalim B.M.Head
Office 
Corporate Banking Division
41-45 Rothschild Boulevard
Tel Aviv, Israel 6100

Re:
Cash Fee  Ltd Stock Side Letter

Reference is made to the Loan
Agreement dated March 26, 2002, as amended (the 2002 Loan Agreement),
between Lumenis Ltd. (Ltd) and Bank Hapoalim B.M. (the
Bank). The 2002 Loan Agreement, together with all notes, guarantees,
debentures, security agreements, pledge agreements and other collateral documents related
thereto, as any of the foregoing may hereafter be further amended, are hereinafter
collectively referred to as the LoanDocuments). Unless otherwise
defined herein, capitalized terms defined in the Loan Documents and used herein shall have
the meanings given to such terms in the Loan Documents.

In consideration of the Bank granting
certain waivers and/or amendments in connection with the Loan Documents, Ltd hereby agrees
to pay the Bank, in addition to any other fees heretofore agreed to be paid to the Bank by
Ltd and/or any of its subsidiaries, a cash fee as follows:

1.       
          The Bank shall receive a cash fee based upon the average of the Closing Price of
          Ltd Stock over fifteen (15) consecutive trading days (the Fixed Price
          Average). The term Closing Price means, as of any
          day, the last traded price regular way reported on the NASDAQ National market
          System for a share of Ltd Stock. The term Ltd Stock means the
          ordinary shares, par value NIS 0.1 per share, issued by Ltd. During the term of
          this agreement, the fee specified below is earned whenever the Fixed Price
          Average is equal to or higher than the amount set forth opposite such fee below:

|Amount of Fee Earned | Fixed Price Average
|-------------------- | -------------------
|$7,000,000           | $6.00              
|$7,500,000           | $7.00              

2.       
          The maximum aggregate amount of cash fees that can be earned and are payable
          during the term of this agreement is $14,500,000. The cash fees are payable by
          Ltd to the Bank in cash on or before ninety (90) days after being earned, and if
          any such cash fee is not paid to the Bank by the Banks close of business
          on the tenth (10th) business days after the date such fee is due and
          payable, then such past due fee amount shall be added to the unpaid principal of
          the loans then outstanding under the 2002 Loan Agreement, and amortised and
          repaid pro rata with the principal installments of the loans in
          accordance with the regular principal amortisation schedule then in effect under
          the 2002 Loan Agreement. Any such pro rata unpaid past due fee amount
          shall earn interest prior to its scheduled amortisation payment date at the
          regular stated interest rate provided in the 2002 Loan Agreement, and on and
          after its scheduled amortisation payment date until paid in full, any such
          pro rata past due amount shall earn interest at the default interest rate
          provided in the 2002 Loan Agreement.



---

---

3.       
          The undersigned parties to this letter agree (i) that the Loan Documents are
          hereby deemed amended to the extent necessary to include Ltds payment
          obligations under this letter as obligations secured by the Collateral described
          in the Loan Documents, and (ii) promptly to execute and/or deliver such
          additional instruments, documents and/or opinions, and/or make such additional
          filings and/or recordings, and/or take such further actions, all at the expense
          of the undersigned parties (other than the Bank), as the Bank may deem necessary
          or desirable in order to give the Bank the same lien priority and protection as
          to the Collateral with respect to Ltds obligations under this letter as
          the Bank has as to the Collateral with respect to the existing loan obligations
          under the Loan Documents.

4.       
          This agreement has a term of ten (10) years, ending on the close of business
          (New York time) on the tenth anniversary of the date hereof.

5.       
          This agreement shall be governed by and construed in accordance with the laws of
          the State of Israel.

| |  | Very truly yours,LUMENIS LTD.BY: /S/ Avner Raz 
 Avner Raz President and Chief Executive Officer
| |  | --------------------------------------------------------------------------------------------------------------

| |  | BY: /S/ Kevin Morano
Kevin MoranoChief Financial Officer
| |  | ----------------------------------------------------------------------

2

---

---

ACCEPTED AND AGREED TO as of the date
first above written:

|BANK HAPOALIM B.M.BY: /S/ Rachel Arbel
R. Arbel Bank Hapoalim B.M. |  | 
|-------------------------------------------------------------------------------- |  | 

|BY: /S/  Liora Ben-Ami
 L. Ben Ami Bank Hapoalim B.M. |  | 
|------------------------------------------------------------------- |  | 

3

---

---

Exhibit 10.4

November 19, 2003

Bank Hapoalim B.M.Head
Office 
Corporate Banking Division
41-45
Rothschild Boulevard Tel Aviv, Israel 6100

Re:
Cash Fee - Ltd Stock Side Letter

Reference is made to the Loan
Agreement dated as of April 30, 2001, as amended (the 2001 Loan
Agreement), between Lumenis Holdings Inc. (Holdings) and Bank
Hapoalim B.M. (the Bank). The 2001 Loan Agreement, together with all
notes, guarantees, debentures, security agreements, pledge agreements and other collateral
documents related thereto, as any of the foregoing may hereafter be further amended, are
hereinafter collectively referred to as the Loan Documents). Unless
otherwise defined herein, capitalized terms defined in the Loan Documents and used herein
shall have the meanings given to such terms in the Loan Documents.

In consideration of the Bank granting
certain waivers and/or amendments in connection with the 2001 Loan Agreement, including,
without limitation, postponing and/or extending one or more scheduled principal payments
for the loans made thereunder, Holdings hereby agrees to pay the Bank, in addition to any
other fees heretofore agreed to be paid to the Bank by Holdings, Lumenis Ltd
(Ltd) and/or any of its subsidiaries, a cash fee as follows:

1.       
          The Bank shall receive a cash fee based upon the average of the Closing Price of
          Ltd Stock over fifteen (15) consecutive trading days (the Fixed Price
          Average). The term Closing Price means, as of any
          day, the last traded price regular way reported on the NASDAQ National market
          System for a share of Ltd Stock. The term Ltd Stock means the
          ordinary shares, par value NIS 0.1 per share, issued by Ltd. During the term of
          this agreement, the fee specified below is earned whenever the Fixed Price
          Average is equal to or higher than the amount set forth opposite such fee below:

|Amount of Fee Earned | Fixed Price Average
|-------------------- | -------------------
|$3,000,000           | $5.00              

2.       
          The maximum aggregate amount of cash fees that can be earned and are payable
          during the term of this agreement is $3,000,000. The cash fee is payable by
          Holdings to the Bank in cash on or before ninety (90) days after being earned,
          and if any such cash fee is not paid to the Bank by the Banks close of
          business on the tenth (10th) business days after the date such fee is
          due and payable, then such past due fee amount shall be added to the unpaid
          principal of the loans then outstanding under the 2001 Loan Agreement, and
          amortised and repaid pro rata with the principal installments of the
          loans in accordance with the regular principal amortisation schedule then in
          effect under the 2001 Loan Agreement. Any such pro rata unpaid past due
          fee amount shall earn interest prior to its scheduled amortisation payment date
          at the regular stated interest rate provided in the 2001 Loan Agreement, and on
          and after its scheduled amortisation payment date until paid in full, any such
          pro rata past due amount shall earn interest at the default interest rate
          provided in the 2001 Loan Agreement.



---

---

3.       
          The undersigned parties to this letter agree (i) that the Loan Documents are
          hereby deemed amended to the extent necessary to include Holdings payment
          obligation under this letter as an obligation secured by such partys
          respective Collateral described in the Loan Documents and/or as an obligation
          guaranteed under the Loan Documents, as the case may be, and (ii) promptly to
          execute and/or deliver such additional instruments, documents and/or opinions,
          and/or make such additional filings and/or recordings, and/or take such further
          actions, all at the expense of the undersigned parties (other than the Bank), as
          the Bank may deem necessary or desirable, in order to give the Bank the same
          lien priority, protection and/or benefit as to the Collateral and guarantees
          with respect to Holdings obligations under this letter as the Bank has as
          to the Collateral and guarantees with respect to the existing loan obligations
          under the Loan Documents.

4.       
          This agreement has a term of ten (10) years, ending on the close of business
          (New York time) on the tenth anniversary of the date hereof.

5.       
          This agreement shall be governed by and construed in accordance with the laws of
          the State of Israel.

| |  | Very truly yours,LUMENIS HOLDINGS INC.BY: /S/ Kevin Morano 
  Kevin Morano
| |  | ----------------------------------------------------------------------------------------

2

---

---

ACCEPTED AND AGREED TO 
as of the date
first above written:

|BANK HAPOALIM B.M.BY: /S/ Rachel Arbel
R. Arbel |  | 
|------------------------------------------------------------- |  | 

|BY: /S/ Liora Ben-Ami
 L. Ben Ami |  | 
|----------------------------------------------- |  | 

|LUMENIS LTD.BY: /S/ Avner Raz
Avner RazPresident and Chief Executive Officer |  | 
|------------------------------------------------------------------------------------------ |  | 

|BY: /S/ Kevin Morano
Kevin MoranoChief Financial Officer |  | 
|---------------------------------------------------------------------- |  | 

|LUMENIS INC.BY: /S/  Kevin Morano
 Kevin MoranoChief Financial Officer |  | 
|------------------------------------------------------------------------------------ |  | 

|LUMENIS BVBY: /S/ Kevin Morano 
 Kevin Morano |  | 
|----------------------------------------------------------- |  | 

|BY: /S/ Franz Krammer 
 Franz Krammer |  | 
|--------------------------------------------------- |  | 

|LASER INDUSTRIES LTD.BY: /S/ Avner Raz 
Avner Raz Chief Executive Officer |  | 
|--------------------------------------------------------------------------------------- |  | 

3

---

---

Exhibit 10.5

# Bank Hapoalim B.M.Head
Office 
Corporate Banking
Division 
41-45 Rothschild Boulevard 
Tel Aviv

November
19, 2003

To: 
Lumenis Ltd. 
Lumenis Holdings Inc.
Lumenis
Inc.

Re:
Side Letter  Covenants

Reference is made to the following
documents made between Lumenis Ltd. (Ltd), Lumenis Holdings Inc.
(Holdings) and/or Lumenis Inc. (Inc) and Bank
Hapoalim B.M. (the Bank): (i) Short Term Credit Line Letter dated April
24, 2001, as amended (the Letter), (ii) Loan Agreement dated April 30,
2001, as amended (the 2001 Loan Agreement), (iii) Agreement dated April
30, 2001, as amended (the Letter of Undertaking), (iv) Loan Agreement
dated Match 26, 2002, as amended (the 2002 Loan Agreement), and
(v) Loan Agreement dated as of November 13, 2003 (the Inc Loan
Agreement). The Letter, the 2001 Loan Agreement, the Letter of Undertaking, the
2002 Loan Agreement and the Inc Loan Agreement, together with all notes, guarantees,
debentures, security agreements, pledge agreements and other collateral documents related
thereto, as any of the foregoing may hereafter be further amended, are hereinafter
collectively referred to as the Loan Documents.

In consideration of the Bank granting
certain waivers and/or amendments in connection with the Loan Documents, including,
without limitation, postponing and/or extending the scheduled principal payment dates for
certain loans made thereunder, Ltd, Holdings, Inc and the Bank hereby agree as follows:

1.    
          So long as any indebtedness is owing by Ltd, Holdings, Inc, or any other
          subsidiaries of Ltd, to the Bank, including, without limitation, any
          indebtedness owing under the Loan Documents, Ltd covenants and undertakes that
          it will not, without the prior written consent of the Bank:

(a)    
          Consolidated EBITDA. Permit, for any of the Test Periods set
          forth below, its Consolidated EBITDA to equal less than the amount set forth
          opposite such period below:



---

---

|                                                                                                               |                                                                                                                                           
|-------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------
|
|
|
|                                                                                                               |                                                                                                                                           
|Test Period Ending:                                                                                            | Amount                                                                                                                                    
|                                                                                                               |                                                                                                                                           
|For the three month period ending 3/31/04                                                                      | $     100,000                                                                                                                             
|For the six month period ending 6/30/04                                                                        | $  3,100,000                                                                                                                              
|For the nine month period ending 9/30/04                                                                       | $  8,600,000                                                                                                                              
|For the twelve month period ending 12/31/04                                                                    | $16,100,000                                                                                                                               
|For the three month period ending 3/31/05                                                                      | $     110,000                                                                                                                             
|For the six month period ending 6/30/05                                                                        | $  3,410,000                                                                                                                              
|For the nine month period ending 9/30/05                                                                       | $  9,460,000                                                                                                                              
|For the twelve month period ending 12/31/05                                                                    | $17,710,000                                                                                                                               
|For each 3, 6, 9 and 12 month period ending 3/31,  6/30, 9/30 and 12/31, respectively, of each year thereafter | An  amount  that  is 10%
higher  than the  amount
calculated    for   such
period       in      the
immediately    preceding
calendar year
|                                                                                                               |                                                                                                                                           

| | The term Consolidated EBITDA means, in respect of any relevant
          period, the consolidated operating profits of Ltd before taking into account (i)
          any amount attributable to depreciation or amortization of tangible or
          intangible assets (including goodwill), and (ii) any items treated as
          exceptional or extraordinary items relating to the Restructuring Plan of Ltd up
          to an aggregate amount of $6,000,000 for calendar year 2004, all as such amounts
          appear in Ltds books and reflected in Ltds reviewed quarterly
          financial statements and audited annual financial statements, as applicable.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
foregoing Consolidated EBIDTA covenant replaces Section 13.02 of the 2002 Loan Agreement.
| | ---------------------------------------------------------------------------------------------

|(b) | Capital Expenditures. Permit, (A) for calendar year ending December 31,
          2004, Capital Expenditures of Ltd and its subsidiaries on a consolidated basis
          to exceed $6,000,000, and (B) for calendar year ending December 31, 2005,
          Capital Expenditures of Ltd and its subsidiaries on a consolidated basis to
          exceed $6,600,000.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
term Capital Expenditures means, with respect to any period, the aggregate of
all expenditures (whether paid in cash or accrued as liabilities and including
expenditures for the capitalized lease obligations amortizable in the fiscal period of
measurement) by Ltd and its subsidiaries during such period that are required by generally
accepted accounting principles in the United States as in effect from time to time to be
included in or reflected by the property, plant, or equipment or similar fixed asset
accounts in the balance sheet of Ltd or any of its subsidiaries.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | A breach of any covenant described in subsection 1(a) or 1(b) above shall be
          deemed to be an immediate Event of Default under the Loan Documents.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

Except as expressly amended by this
letter, all rights and remedies of the Bank under the Loan Documents, are and shall
continue to be in full force and effect and are hereby in all respects ratified and
confirmed.

This letter constitutes an integral
part to the Loan Documents, and shall be deemed to be a Loan Document as such
term is used and defined in the Loan Documents.

This letter may be executed in any
number of counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original and all of which when
taken together shall constitute but one and the same agreement.

2

---

---

Very truly yours,BANK HAPOALIM B.M.

|BY: /S/ Rachel Arbel 
R. Arbel |  | BY: /S/ Liora Ben-Ami
L. Ben Ami
|-------------------------------------------- |  | ----------------------------------------------

We agree to the above:

|LUMENIS LTD.BY: /S/ Avner Raz
Avner RazPresident and Chief Executive Officer |  | 
|------------------------------------------------------------------------------------------ |  | 

|BY: /S/ Kevin Morano
Kevin MoranoChief Financial Officer |  | 
|---------------------------------------------------------------------- |  | 

|LUMENIS HOLDINGS INC.BY: /S/ Kevin Morano 
 Kevin Morano |  | 
|---------------------------------------------------------------------- |  | 

|LUMENIS INC.BY: /S/  Kevin Morano
 Kevin MoranoChief Financial Officer |  | 
|------------------------------------------------------------------------------------ |  | 

3

---

---

Exhibit
10.6

# Bank Hapoalim B.M.
Head Office 
Corporate Banking
Division 41-45 Rothschild Boulevard
Tel Aviv

November
19, 2003

To: 
Lumenis Ltd. 
Lumenis Holdings Inc. 
Lumenis Inc. 
and to each Material Subsidiary
signatory hereto

Re:
Side Letter  Material Adverse Change

Reference is made to the following
documents made between Lumenis Ltd. (Ltd), Lumenis Holdings Inc.
(Holdings) and/or Lumenis Inc. (Inc and together with Ltd
and Holdings, the Borrowers) and Bank Hapoalim B.M. (the
Bank): (i) Short Term Credit Line Letter dated April 24, 2001, as
amended (the Letter), (ii) Loan Agreement dated April 30, 2001, as
amended (the 2001 Loan Agreement), (iii) Agreement dated April 30,
2001, as amended (the Letter of Undertaking), (iv) Loan Agreement dated
Match 26, 2002, as amended (the 2002 Loan Agreement), and (v) Loan
Agreement dated as of November 13, 2003 (the Inc Loan Agreement). The
Letter, the 2001 Loan Agreement, the Letter of Undertaking, the 2002 Loan Agreement and
the Inc Loan Agreement, together with all notes, guarantees, debentures, security
agreements, pledge agreements and other collateral documents related thereto, as any of
the foregoing may hereafter be further amended, are hereinafter collectively referred to
as the Loan Documents.

In consideration of the Bank granting
certain waivers and/or amendments in connection with the Loan Documents, including,
without limitation, postponing and/or extending the scheduled principal payment dates for
certain loans made thereunder, the undersigned parties of and the Bank hereby agree as
follows:

|1. | Material
Adverse Change.
|-- | ------------------------

| | (a)      Without
limiting the existing provisions of, or any of the existing rights of
                    the Bank under, any of the Loan Documents, if the Bank at any time
and from time                     to time in its sole discretion determines that a
Material Adverse Change                     (defined below) has occurred, then an Event
of Default shall be                     deemed to have occurred under all of the
Loan Documents  and the Borrowers hereby agree not to contest or oppose such determination by the Bank
 in any legal procceding or otherwise. For purposes of the                     foregoing, the term Material
Adverse Change means (a) a material adverse                     change to (i) the
business, operations, property, condition (financial or                     otherwise) or
prospects of Ltd. or any of its subsidiaries , or (ii)                     the
validity or enforceability of, or the rights or remedies of the Bank under,
                    any of the Loan Documents and (b) the parties  hereto  agree that a Material  Adverse  Change  shall be deemed to have
         immediately  occurred under all of the Loan Documents if the actual financial  results of Ltd
         and its subsidiaries  would materially  deviate from Ltds  projections  which were presented
         to the Bank.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

---

|2. | Cross-Collateralisation
of Loans.
|-- | ---------------------------------

| | The
undersigned parties to this letter agree (i) that the Loan Documents are hereby deemed
amended to the extent necessary to provide that the obligations and liabilities of the
Borrowers under the Loan Documents, whether now existing or hereafter incurred and owing
to the Bank, shall be cross-collateralised and secured by all Collateral described in the
Loan Documents, whether now existing or hereafter acquired or existing, in the same manner
and priority as set forth in the Loan Documents securing the loans and other indebtedness
described therein immediately prior to the signing of this letter by the parties hereto,
and (ii) promptly to execute and/or deliver such additional instruments, documents and/or
opinions, and/or make such additional filings and/or recordings, and/or take such further
actions, all at the expense of the undersigned parties (other than the Bank), as the Bank
may deem necessary or desirable in order to effect the foregoing.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Monthly
and Quarterly Financial Statements and/orReports.
|-- | ---------------------------------------------------------

| | So
long as any indebtedness is owing by a Borrower under any of the Loan Documents, Ltd
agrees to furnish to the Bank such monthly and quarterly consolidated financial statements
and/or reports of Ltd and its subsidiaries, at the times, in the form and covering such
matters, as the Bank may request from time to time; provided, however that the quarterly statements and reports shall be
 certified by the chief financial
officer of Ltd stating, to the best of his/her knowledge, (i) that such financial
statements fairly present the financial position and results of operations of Ltd and its
subsidiaries on a consolidated basis, (ii) that such financial statements have been
prepared in accordance with generally accepted accounting practices in effect in the
United States as of the date thereof consistently applied, and (iii) stating, whether,
since the date of the most recent previous delivery of financial statements pursuant to
this subsection 3, there has been a Material Adverse Change (as defined in subsection 1
above).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2

---

---

Except as expressly amended by this
letter, all rights and remedies of the Bank under the Loan Documents, are and shall
continue to be in full force and effect and are hereby in all respects ratified and
confirmed.

This letter constitutes an integral
part to the Loan Documents, and shall be deemed to be a Loan Document as such
term is used and defined in the Loan Documents.

This letter may be executed in any
number of counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original and all of which when
taken together shall constitute but one and the same agreement.

Very truly yours,

# BANK HAPOALIM B.M.

|BY: /S/ Rachel Arbel 
R. Arbel |  | BY: /S/ Liora Ben-Ami
L. Ben Ami
|-------------------------------------------- |  | ----------------------------------------------

We agree to the above:

|LUMENIS LTD.BY: /S/ Avner Raz
Avner RazPresident and Chief Executive Officer |  | 
|------------------------------------------------------------------------------------------ |  | 

|BY: /S/ Kevin Morano
Kevin MoranoChief Financial Officer |  | 
|---------------------------------------------------------------------- |  | 

|LUMENIS HOLDINGS INC.BY: /S/ Kevin Morano
 Kevin Morano |  | 
|--------------------------------------------------------------------- |  | 

|LUMENIS INC.BY: /S/  Kevin Morano
 Kevin MoranoChief Financial Officer |  | 
|------------------------------------------------------------------------------------ |  | 

|LUMENIS BVBY: /S/ Kevin Morano 
 Kevin Morano |  | 
|----------------------------------------------------------- |  | 

|BY: /S/ Franz Krammer 
 Franz Krammer |  | 
|--------------------------------------------------- |  | 

|LASER INDUSTRIES LTD.BY: /S/ Avner Raz 
Avner Raz Chief Executive Officer |  | 
|--------------------------------------------------------------------------------------- |  | 

3

---

---

Exhibit 10.7

# Bank Hapoalim B.M.
Head Office 
Corporate Banking
Division 
41-45 Rothschild Boulevard 
Tel-Aviv 65784, Israel

November
19, 2003

Re: Waiver for Postponement of 2004-2006 Payments on $90 Million Loan

To: Lumenis Holdings
Inc.

Reference is made to the following
documents made between Lumenis Ltd. (Ltd.), and/or Lumenis Holdings
Inc. (Holdings) and/or Lumenis Inc. (Inc.)
(Holdings and/or Ltd. and/or Inc.
as the case may be, will be referred to as jointly and severally, the
Borrower) and Bank Hapoalim B.M. (the Bank): (i)
Short Term Credit Line Letter dated April 24, 2001 as amended (the Short Term
Credit Line), (ii) Loan Agreement dated as of April 30, 2001 as amended (the
2001 Loan Agreement), (iii) Agreement dated as of April 30, 2001 as amended
(the Letter of Undertaking), (iv) Loan Agreement dated March 26, 2002
as amended (the 2002 Loan Agreement), (v) Loan Agreement
dated as of November 13, 2003 (the 2003 Loan Agreement), and (vi) Waiver Letter dated the date hereof regarding postponement of 2003 payments on $90 million loan
(the Waiver). The Short Term Credit
Line, the 2001 Loan Agreement, as amended by the Waiver, the Letter of Undertaking, the 2002 Loan Agreement and the
2003 Loan Agreement, together with all notes, guarantees, debentures, security agreements,
pledge agreements and other collateral documents related thereto, as any of the foregoing
may hereafter be further amended, are hereinafter collectively referred to as the
Loan Documents;

Per the request of Holdings, with
regard to the 2001 Loan Agreement, after giving effect to the Waiver, the Bank hereby agrees as follows:

|1. | The
semi-annual installment in the amount of US$30,000,000 payable on April 30,
          2004, shall be postponed and paid on April 30, 2007.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------

|2. | The
semi-annual installment in the amount of US$10,000,000 payable on October           31,
2004, shall be postponed and paid on April 30, 2007.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------

|3. | The
semi-annual installment in the amount of US$10,000,000 payable on April 30,
          2005, shall be postponed and paid on April 30, 2007.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------



---

---

|4. | The
semi-annual installment in the amount of US$10,000,000 payable on October           31,
2005, shall be postponed and paid on April 30, 2007.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The
semi-annual installment in the amount of US$10,000,000 payable on April 30,
          2006, shall be postponed and paid on April 30, 2007.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------

|6. | The
semi-annual installment in the amount of US$10,000,000 payable on October           31,
2006, shall be postponed and paid on April 30, 2007.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------

The Banks above agreement is
subject to the fulfillment of the terms agreed upon under Loan Documents to the
Banks full satisfaction and that no Event of Default as defined in the Loan
Documents, has occurred, for any reason whatsoever, whether such occurrence shall be
voluntary or involuntary.

Except as expressly set forth above,
all rights and remedies of the Bank under the Loan Documents, are and shall continue to be
in full force and effect and are hereby in all respects ratified and confirmed, including,
without limitation, the right of the Bank in its sole discretion to consider that a
material adverse change in the financial or business condition of the Borrower shall have
occurred.

This Letter constitutes an integral
part to the Loan Documents, and shall be deemed to be a Loan Document
as such term is used and defined in the Loan Documents.

This letter may be executed in any
number of counter parts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original and all of which when
taken together shall constitute but one and the same agreement.

Very
truly yours,

BANK
HAPOALIM B.M.

|BY: /S/ Rachel Arbel 
R. Arbel |  | BY: /S/ Liora Ben-Ami
L. Ben Ami
|-------------------------------------------- |  | ----------------------------------------------

We agree to the above:

|LUMENIS HOLDINGS INC.BY: /S/ Kevin Morano 
 Kevin Morano |  | 
|---------------------------------------------------------------------- |  | 

2

---

---

Exhibit 10.8

# Bank Hapoalim B.M. Head
Office 
Corporate Banking
Division 41-45 Rothschild Boulevard Tel-Aviv 65784, Israel

November
19, 2003

To: Lumenis Ltd.

Reference is made to the following
documents made between Lumenis Ltd. (Ltd.), and/or Lumenis Holdings
Inc. (Holdings) and/or Lumenis Inc. (Inc.)
(Holdings, and/or Ltd. and/or
Inc. as the case may be, will be referred to as jointly and severally,
the Borrower) and Bank Hapoalim B.M. (the Bank): (i)
Short Term Credit Line Letter dated April 24, 2001 as amended (the Short Term
Credit Line), (ii) Loan Agreement dated April 30, 2001 as amended (the
2001 Loan Agreement), (iii) Agreement dated April 30, 2001 as amended
(the Letter of Undertaking), (iv) Loan Agreement dated March 26, 2002
as amended (the 2002 Loan Agreement), and (v) Loan Agreement
dated November 13, 2003 (the 2003 Loan Agreement). The Short Term
Credit Line, the 2001 Loan Agreement, the Letter of Undertaking, the 2002 Loan Agreement
and the 2003 Loan Agreement, together with all notes, guarantees, debentures, security
agreements, pledge agreements and other collateral documents related thereto, as any of
the foregoing may hereafter be further amended, are hereinafter collectively referred to
as the Loan Documents.

Per the request of Ltd. and subject to the fulfillment of the conditions  hereinafter  set forth,  the
Bank hereby agrees to the following:

|1. | The
interest payable under the 2002 Loan Agreement will be reduced on September           30,
2003 until August 15, 2006, from LIBOR plus 7.055% to LIBOR plus 4.02%.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | On
the maturity date of the 2002 Loan Agreement, August 15, 2006, the Bank will
          grant Ltd. a New Loan in the amount of US$55,667,000 (the 55 Million
          Loan).  Subject to the fulfillment of the provisions of Section 3 herein to the full satisfaction of the Bank, the
55 Million Loan would be granted in accordance with the following terms and conditions:
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | (i)
The interest will be paid in semi-annual payments on April 30 and October 31
                    of each year, commencing on April 30, 2006 until April 30, 2014.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii)
                    The interest rate will be LIBOR plus 7.055% from August 15, 2006
until October                     30, 2007, LIBOR plus 7.805% from October 30, 2007 until
October 30, 2009 and                     LIBOR plus 2.75% from October 30, 2009 until
April 30, 2014.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

---

| | (b) | The
principal will be payable in 14 semi-installments in the sum of US$3,825,000
               each, on April 30 and October 30 of each year, commencing on April 30,
2007                until October 30, 2013 and a final installment in the sum of
US$2,117,000 on                April 30, 2014.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | On
the disbursement date of the 55Million Loan in addition to a sum of
          US$15,000,000 provided by Ltd. by its own sources, Ltd. will use the proceeds
          received from the 55 Million Loan, together with the above-mentioned $15 million, solely to repay all the sums due under the
          2002 Loan Agreement, to the Banks full satisfaction.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | On
the maturity date of the 2001 Loan Agreement, April 30, 2007, the Bank will
          grant Ltd. A new loan in the amount of US$90,000,000 (the 90 Million
          Loan). Subject to the fulfillment of the provisions of Section 5 herein to the full satisfaction of the Bank, the
90 Million Loan would be granted in accordance with the following terms and conditions:
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | The
interest rate will be LIBOR plus 2.75%. Semi-annual installments, payable on
               April 30 and October 30 of each year, commencing on April 30,2007 until
April                30, 2014.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | The
principal will be payable in 14 semi-annual installments in the sum of
               US$6,175,000 each, on April 30 and October 30 of each year, commencing on
April                30, 2007 until October 30, 2013, and a final installment in the sum
of                US$3,550,000 on April 30, 2014.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | On
the disbursement date of the 90 Million Loan, Ltd. will use the proceeds
          received from the 90 Million Loan solely to repay all the sums due under the
          2001 Loan Agreement to the Banks full satisfaction.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Banks above consent is
subject to the fulfillment of the terms agreed upon under Loan Documents to the Banks full
satisfaction and that no Event of Default specified in the Loan Documents has occurred,
for any reason whatsoever, whether such occurrence shall be voluntary or involuntary.

Except as expressly set forth above,
all rights and remedies of the Bank under the Loan Documents, are and shall continue to be
in full force and effect and are hereby in all respects ratified and confirmed, including,
without limitation, the right of the Bank in its sole discretion to consider that a
material adverse change in the financial or business condition of the Borrower shall have
occurred.

The 55 Million Loan and the 90
Million Loan will be granted subject that all collateral and securities created under the
Loan Documents shall be amended to serve and secure the 55 Million Loan and the 90 Million
Loan to the Banks full satisfaction.

This Letter constitutes an integral
part to the Loan Documents, and shall be deemed to be a Loan Document
as such term is used and defined in the Loan Documents.

This letter may be executed in any
number of counter parts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original and all of
which when taken together shall constitute but one and the same agreement.

2

---

---

Very truly yours,

# BANK HAPOALIM B.M.

|BY: /S/ Rachel Arbel 
R. Arbel |  | BY: /S/ Liora Ben-Ami
L. Ben Ami
|-------------------------------------------- |  | ----------------------------------------------

We agree to the above:

|LUMENIS LTD.BY: /S/ Avner Raz
Avner RazPresident and Chief Executive Officer |  | 
|------------------------------------------------------------------------------------------ |  | 

|BY: /S/ Kevin Morano
Kevin MoranoChief Financial Officer |  | 
|---------------------------------------------------------------------- |  | 

3

---

---

Exhibit 10.9

# Bank Hapoalim B.M.Head
Office
Corporate Banking
Division 41-45 Rothschild Boulevard Tel-Aviv 65784, Israel

November
19, 2003

To: Lumenis Ltd.

Re: Side Letter Regarding Renewal of Short Term Credit Line

Reference is made to the following
documents made between Lumenis Ltd. (Ltd.) and/or Lumenis Holdings Inc.
(Holdings) and/or Lumenis Inc. (Inc.)
(Holdings, and/or Inc. and/ or
Ltd., as the case may be, will be referred to as jointly and severally,
the Borrower) and Bank Hapoalim B.M. (the Bank): (i)
Short Term Credit Line Letter dated April 24, 2001 as amended (the Short Term
Credit Line), (ii) Loan Agreement dated April 30, 2001 as amended (the
2001 Loan Agreement), (iii) Agreement dated as of April 30, 2001 as amended
(the Letter of Undertaking), (iv) Loan Agreement dated March 26, 2002
as amended (the 2002 Loan Agreement),and (v) Loan Agreement
dated as of November 13, 2003 (the 2003 Loan Agreement). The Short Term
Credit Line, the 2001 Loan Agreement, the Letter of Undertaking, the 2002 Loan Agreement
and the 2003 Loan Agreement, together with all notes, guarantees, debentures, security
agreements, pledge agreements and other collateral documents related thereto, as any of
the foregoing may hereafter be further amended, are hereinafter collectively referred to
as the Loan Documents;

and whereas you have applied to us to
extend the Short Term Credit Line until March 31, 2005 (the Request).

Now therefore, we hereby inform you
that subject to the fulfillment of the terms agreed upon under the Loan Documents to the
Banks full satisfaction, and that no Event of Default as defined in the Loan
Documents, has occurred, for any reason whatsoever, whether such occurrence shall be
voluntary or involuntary, we will renew the Short Term Credit Line, until March 31,
2005, and without taking any commitment whatsoever upon the Bank, we will be willing to
consider renewing the Short Term Credit Line for one further year until March 31, 2006,
subject to our solely discretion and with out the Bank being obliged to do so for any
reason.

Except as expressly set forth above,
all rights and remedies of the Bank under the Loan Documents, are and shall continue to be
in full force and effect and are hereby in all respects ratified and confirmed, including,
without limitation, the right of the Bank in its sole discretion to consider that a
material adverse change in the financial or business condition of the Borrower shall have
occurred.



---

---

The Short Term Credit Line will be
provided subject to all collateral and securities created under the Loan Documents shall
be amended to serve and secure the Short Term
Credit Line to the Banks full satisfaction. 
This Letter constitutes an integral
part to the Loan Documents, and shall be deemed to be a Loan Document
as such term is used and defined in the Loan Documents.

This letter may be executed in any
number of counter parts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original and all of which when
taken together shall constitute but one and the same agreement.

Very
truly yours,

BANK
HAPOALIM B.M.

|BY: /S/ Rachel Arbel 
R. Arbel |  | BY: /S/ Liora Ben-Ami
L. Ben Ami
|-------------------------------------------- |  | ----------------------------------------------

We agree to the above:

|LUMENIS LTD.BY: /S/ Avner Raz
Avner RazPresident and Chief Executive Officer |  | 
|------------------------------------------------------------------------------------------ |  | 

|BY: /S/ Kevin Morano
Kevin MoranoChief Financial Officer |  | 
|---------------------------------------------------------------------- |  | 

2

---

---

Exhibit 10.10

# Bank Hapoalim B.M.
Head Office 
Corporate Banking
Division41-45 Rothschild BoulevardTel-Aviv 65784, Israel

November
19, 2003

To: Lumenis Ltd.

# Re: Side Letter
Regarding Short Term Credit Line  Waiver of Financial Ratio

Reference is made to the following
documents made between Lumenis Ltd. (Ltd.) and/or Lumenis Holdings Inc.
(Holdings) and/or Lumenis Inc. (Inc.)
(Holdings and/or Inc. and/ or
Ltd., as the case may be, will be referred to as jointly and severally,
the Borrower) and Bank Hapoalim B.M. (the Bank): (i)
Short Term Credit Line Letter dated April 24, 2001 as amended (the Short Term
Credit Line), (ii) Loan Agreement dated April 30, 2001 as amended (the
2001 Loan Agreement), (iii) Agreement dated as of April 30, 2001 as
amended (the Letter of Undertaking), (iv) Loan Agreement dated March
26, 2002 as amended (the 2002 Loan Agreement) and (v) Loan
Agreement dated as of November 13, 2003 (the 2003 Loan Agreement). The
Short Term Credit Line, the 2001 Loan Agreement, the Letter of Undertaking, the 2002 Loan
Agreement and the 2003 Loan Agreement, together with all notes, guarantees, debentures,
security agreements, pledge agreements and other collateral documents related thereto, as
any of the foregoing may hereafter be further amended, are hereinafter collectively
referred to as the Loan Documents;

Per the request of Borrower, the Bank
hereby agrees to waive Section 2 of the Short Term Credit Line under which Ltd. has
undertaken an obligation to maintain in its consolidated financial statements a certain
financial ratio.

Except as expressly set forth above,
all rights and remedies of the Bank under the Loan Documents, are and shall continue to be
in full force and effect and are hereby in all respects ratified and confirmed, including,
without limitation, the right of the Bank in its sole discretion to consider that a
material adverse change in the financial or business condition of the Borrower shall have
occurred.

This Letter constitutes an integral
part to the Loan Documents, and shall be deemed to be a Loan Document
as such term is used and defined in the Loan Documents.

Very truly yours,

# BANK HAPOALIM B.M.

|BY: /S/ Rachel Arbel 
R. Arbel |  | BY: /S/ Liora Ben-Ami
L. Ben Ami
|-------------------------------------------- |  | ----------------------------------------------



---

---

Exhibit 10.11

|DATED | 3 NOVEMBER 2003
|----- | ---------------

LARS THOMAS RYDSTROM

REUBEN LEONARD BERG

SHARPLAN LASERS (UK) LIMITED

ACULIGHT (UK) LIMITED

VANISHING POINT LIMITED

LUMENIS (UK) LIMITED

LUMENIS LIMITED

DEED OF TERMINATION

---

---

CONTENTS

|1          | Definitions and
interpretation                                                       | 2                                 
|---------- | ------------------------------------------------------------------------------------ | ----------------------------------
|2          | Condition precedent                                                                  | 4                                 
|3          | Waiver of, credit against, the Debt and
assignment of the Goodwill and the Trademark | 5                                 
|4          | Non-solicitation                                                                     | 6                                 
|5          | Liability and warranty                                                               | 6                                 
|6          | Termination of the Joint Venture
Agreement                                           | 7                                 
|7          | Termination of the Option Agreement                                                  | 8                                 
|8          | Termination of the Supply Agreement                                                  | 8                                 
|9          | Future supply of products                                                            | 8                                 
|10         | Release                                                                              | 8                                 
|11         | Further assurance                                                                    | 8                                 
|12         | Counterparts                                                                         | 8                                 
|13         | Third parties                                                                        | 9                                 
|14         | Confidentiality                                                                      | 9                                 
|15         | Entire Agreement                                                                     | 9                                 
|16         | Governing Law                                                                        | 9                                 
|17         | Notices                                                                              | 9                                 
|           |                                                                                      |                                   
|           |                                                                                      |                                   
|SCHEDULE 1 |                                                                                      | Trademark                         
|SCHEDULE 2 |                                                                                      | Terms of future supply of products
|SCHEDULE 3 |                                                                                      | Return of Machines by:            
|           |                                                                                      |                                   

---

---

|DATED | 3 NOVEMBER 2003
|----- | ---------------

PARTIES

|1 | Rydstrom        | LARS THOMAS RYDSTROM of Third and
Fourth Floor Flat, 62 Wimpole Street, London, W1G 8AJ;                                                                                        
|- | --------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                 |                                                                                                                                                                                 
|2 | Berg            | REUBEN LEONARD BERG of 14 Broadway,
Hale, Altrincham, Cheshire WA15 0PG;                                                                                                        
|  |                 |                                                                                                                                                                                 
|3 | SLUK            | SHARPLAN LASERS (UK) LIMITED
(company number 3456397) having its registered office at First Floor, Merit
House, Edgware Road, Colindale, London NW9 5AF;                        
|  |                 |                                                                                                                                                                                 
|4 | Aculight        | ACULIGHT (UK) LIMITED (company
number 4060785) having its registered office at 12 York Gate, Regents
Park, London NW1 4QS;                                                      
|  |                 |                                                                                                                                                                                 
|5 | Vanishing Point | VANISHING POINT LIMITED (company
  number 3599611) having its registered office at 31 Queenswood Avenue, Hutton,
  Brentwood, Essex, CM13 1HU;                                  
|  |                 |                                                                                                                                                                                 
|6 | LUK             | LUMENIS (UK) LIMITED (company number
  4187725) having its registered office c/o Sharplan (UK) Limited, First Floor,
  Merit House, Edgware Road, Colindale, London NW9 5AF; and
|  |                 |                                                                                                                                                                                 
|7 | Lumenis         | LUMENIS LIMITED (company number
  520042557) having its registered office at P O Box 240, Yokneam 20692,
  Israel.                                                              

BACKGROUND

|A | The parties (other than Lumenis and LUK)
  entered into a joint venture agreement dated 14 May 2001 (Joint
  Venture Agreement) in respect of Aculight.  SLUK has agreed to transfer its shares in
  the capital of Aculight to Cosmetic, Berg and Wager.  As a result, the parties now wish to
  terminate the Joint Venture Agreement and SLUK and Aculight now wish to
  terminate the Option Agreement (as defined below) and the Supply Agreement
  (as defined below) on the terms set out in this deed.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1

---

---

|B                    | SLUK and Aculight entered into an option
  agreement dated 2 May 2001 (Option Agreement) granting SLUK the
  option to subscribe for 440 new B Shares in the capital of Aculight.                                                                                                                                                                                                                                                                
|-------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|C                    | SLUK and Aculight entered into a supply
  agreement dated 2 May 2001 (Supply Agreement) under which Aculight
  was appointed exclusive representative of SLUK in the salon and health spa
  market operating in the United Kingdom, Republic of Ireland and the Channel
  Isles for the sale of the intense pulsed light device (Product) manufactured by
  SLUKs parent company, Lumenis Limited (formerly known as ESC Medical Systems
  Ltd).
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|D                    | On 8 September 2003 Vanishing Point
  transferred 500 A ordinary shares of £1.00 each in the capital of Aculight
  to the following persons:                                                                                                                                                                                                                                                                                                       
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                     | Cosmetic (as defined below)                                                                                                                                                                                                                                                                                                                                                                                                                          
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                     | Berg                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                     | Wager (as defined below)                                                                                                                                                                                                                                                                                                                                                                                                                             
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|E                    | The parties (other than Lumenis and LUK)
  have agreed to terminate the Joint Venture Agreement, the Option Agreement
  (as defined below) and the supply Agreement (as defined below) on the terms
  set out in this deed.                                                                                                                                                                                                                          
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|F                    | Pursuant to the Supply Agreement (as
  subsequently amended) SLUK has sold 115units of the Product to Aculight and
  loaned to Aculight a further 48 units of the product.  Aculight has agreed to return, in total,
  68 units of the Product to SLUK, of which 28 have already been returned as at
  the date of this deed.                                                                                                                        
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|G                    | As at the date of this deed, Aculight
  owes SLUK £3,674,500 (the Debt) (as defined below).  SLUK has agreed to waive or credit (as
  appropriate) £3,674,500 of this sum on the basis and on the terms set out in
  this deed.                                                                                                                                                                                                                    
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|OPERATIVE PROVISIONS
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|1                    | Definitions and interpretation                                                                                                                                                                                                                                                                                                                                                                                                                       
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|1.1                  | Unless the contrary intention appears, the following definitions apply:                                                                                                                                                                                                                                                                                                                                                                              
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                     | Berg                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                     | Condition                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      

2

---

---

| | Cosmetic                | Cosmetic Surgery Innovation Team Limited (company
  number 243595);                                                                                                                                                              
| | ----------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                         |                                                                                                                                                                                                                                  
| | Debt                    | the sum owed by Aculight to SLUK of £3,674,500 as
  at the Termination Date immediately prior to the waiver or credit (as
  appropriate) of the Waived Debt;                                                                     
| |                         |                                                                                                                                                                                                                                  
| | Goodwill                | the exclusive right to carry on business under the
  name Aculight;                                                                                                                                                            
| |                         |                                                                                                                                                                                                                                  
| | LUK                     | Lumenis (UK) Limited (company number 4187725);                                                                                                                                                                                   
| |                         |                                                                                                                                                                                                                                  
| | Outstanding Obligations | all outstanding services and refurbishment
  obligations (if any) of SLUK in respect of the Product supplied to Aculight
  under the Supply Agreement up until the Termination Date;                                             
| |                         |                                                                                                                                                                                                                                  
| | Residual Debt           | that part of the Debt being £1,674,500 owed by
  Aculight to SLUK immediately following the waiver or credit (as appropriate)
  of the Waived Debt, less such amounts paid by Aculight to SLUK in accordance
  with clause 2.1.2;
| |                         |                                                                                                                                                                                                                                  
| | SLUK Shares             | the 60 B ordinary shares of £1 each in the
  capital of Aculight held by SLUK;                                                                                                                                                 
| |                         |                                                                                                                                                                                                                                  
| | Termination Date        | 30 September 2003;                                                                                                                                                                                                               
| |                         |                                                                                                                                                                                                                                  
| | Trademark               | the trade marks, service marks, logos, trade names,
  certification marks, whether registered or not, in the name of Lumenis,
  details of which are set out in schedule 1;                                                      
| |                         |                                                                                                                                                                                                                                  
| | Wager                   | Nils Barton Wager; and                                                                                                                                                                                                           
| |                         |                                                                                                                                                                                                                                  
| | Waived Debt             | that part of the Debt owed by Aculight to SLUK,
  namely £2,000,000, which SLUK will waive or cancel as appropriate in
  accordance with clause 3.                                                                               

3

---

---

|1.2 | In this
  deed, any reference to:                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                            
|    | 1.2.1                                                                                                                                                                                                      
|    |                                                                                                                                                                                                            
|    | 1.2.2                                                                                                                                                                                                      
|    |                                                                                                                                                                                                            
|    | 1.2.3                                                                                                                                                                                                      
|    |                                                                                                                                                                                                            
|1.3 | The headings
  are for convenience only and shall not affect the interpretation of this
  deed.                                                                                                            
|    |                                                                                                                                                                                                            
|2   | Condition precedent                                                                                                                                                                                        
|    |                                                                                                                                                                                                            
|2.1 | The waiver
  of the Residual Debt referred to in clause 3 below by SLUK and the assignment
  of the Trademark referred to in clause 3 below to Aculight by Lumenis shall
  be conditional on the following:
|    |                                                                                                                                                                                                            
|    | 2.1.1                                                                                                                                                                                                      
|    |                                                                                                                                                                                                            
|    | 2.1.2                                                                                                                                                                                                      
|    |                                                                                                                                                                                                            
|    |                                                                                                                                                                                                            
|    |                                                                                                                                                                                                            
|    |                                                                                                                                                                                                            
|    |                                                                                                                                                                                                            
|    |                                                                                                                                                                                                            
|    |                                                                                                                                                                                                            
|    |                                                                                                                                                                                                            
|    |                                                                                                                                                                                                            
|    | 2.1.3                                                                                                                                                                                                      

4

---

---

|2.2 | The waiver
  (or cancellation as appropriate) of the Residual Debt is further conditional
  on Aculight not transferring  any part
  of its business or undertaking nor (save in the ordinary course of business)  its assets, nor its board approving a
  transfer of shares in Aculight or the grant of an option over its shares
  without Aculight first giving SLUK 10 days written notice of the same,
  setting out in reasonable detail the proposed transaction(s) and details and
  identity of transferee(s)
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2.3 | If the Condition
  in its entirety is not satisfied on or before 28 February 2004, SLUK may, in
  its absolute discretion, refuse to waive or credit (as appropriate)
  the Residual Debt and will be entitled to pursue all rights and remedies
  available to it to recover the Residual Debt.                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|3   | Waiver of,
  credit against, the Debt and assignment of the Goodwill and the Trademark                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|3.1 | With effect
  from the Termination Date SLUK shall be deemed to have irrevocably and
  unconditionally waived or credited (as appropriate) any rights
  which it had at the  Termination Date
  against Aculight in respect of the Waived Debt and released and discharged
  Aculight from all obligations in respect of and up to the amount of payment
  of the Waived Debt;                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|3.2 | Upon the
  signing of this agreement SLUK shall deliver to Berwin Leighton Paisner an
  executed assignment of the Trademark but the form set out in Schedule 1 to be
  held in escrow on an agreed form basis between Berwin Leighton Paisner and
  Berg &Co.                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|3.3 | Subject to
  satisfaction of the Condition in its entirety, SLUK shall on or before 28
  February 2004:                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | 3.3.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | 3.3.2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

5

---

---

|3.4 | Pending satisfaction of the Condition
  Lumenis will procure the grant of licence to Aculight to use the Trademark on
  the Product and at Aculights reasonable expense grant sub-licences, subject
  to provisions for revocation of such licence and sub-licences if Aculight
  shall act in breach of this agreement or if this agreement terminates.                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|3.5 | The waiver or credit of the Waived Debt
  may to the extent SLUK considers necessary, be effected in part by issue of
  credit note to Aculight.                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4   | Non-solicitation                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.1 | SLUK will refer to Aculight all leads,
  orders, prospects and inquiries in relation to sales of the Product that are
  directed to SLUK from Aculights customers for the Product as at the
  Termination Date (Current Customers).                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.2 | Notwithstanding clause 4.1, neither SLUK
  nor LUK shall be prevented from offering to sell any of its own products to
  Current Customers where a Current Customer wishes to purchase a machine
  similar to the Product on the open market provided that such Current Customer
  has indicated that it does not wish to purchase the Product from Aculight or
  Aculight has declined to sell the Product to that Current Customer.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|5   | Liability and warranty                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|5.1 | Aculight acknowledges and agrees that
  SLUK shall have no liability for any claims, demands, actions, costs and/or
  expenses incurred (whatsoever and howsoever arising) by Aculight in removing
  any Product from any of its customers and/or reducing the number of Products
  Aculight utilises in its business.                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|5.2 | Aculight shall indemnify and hold
  harmless SLUK from any claims, demands, actions, damages, fines, penalties,
  costs and/or expenses incurred by SLUK arising out of:                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 5.2.1                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 5.2.2                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 5.2.3                                                                                                                                                                                                                                                                                                                                                                                                                                

6

---

---

|5.3 | Aculight warrants that, at the date of
  this agreement, there are no proposals, plans or pending understandings, or
  discussions or agreements to effect a transfer, sale, merger or encumbrance
  or other dealing over any part of Aculights business or undertaking or save
  in the ordinary course of business, its assets nor for the transfer, sale,
  encumbrance or grant of option over or change in the voting rights of the
  share capital of Aculight.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|6   | Termination of the Joint Venture Agreement                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|6.1 | For the sake of completeness, the parties
  confirm they and their successors as shareholders have waived all rights of
  pre-emption in respect of the transfer of the shares in Aculight (whether by
  the Articles of Association of the Company, the Joint Venture Agreement or
  otherwise) and have consented to the transfer of the SLUK shares by SLUK as
  set out in clause 6.2.                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|6.2 | The parties acknowledge that with effect
  from the Termination Date:                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | 6.2.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | 6.2.2                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | 6.2.3                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | 6.2.4                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | 6.2.5                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | 6.2.6                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | (together the Termination Events).                                                                                                                                                                                                                                                                                                                                                                                                                                   

7

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---

|7   | Termination of the Option Agreement                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | SLUK and Aculight agree that the Option
  Agreement shall terminate automatically and be of no further force or effect
  immediately on the Termination Events being completed.                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|8   | Termination of the Supply Agreement                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|8.1 | SLUK and Aculight agree that the Supply
  Agreement shall be deemed to have terminated automatically on the Termination
  Date.                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|8.2 | Notwithstanding the termination of the
  Supply Agreement, SLUK will continue to be responsible for the Outstanding
  Obligations.                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|9   | Future supply of products                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Subject to fulfilment of all terms of
  dealing LUK will supply products and related consumables and services to
  Aculight on the basis of the terms set out in schedule 2.                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|10  | Release                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Except as expressly set out in this deed,
  with effect from the Termination Date, the parties shall be deemed to have
  irrevocably and unconditionally released each other from all guarantees,
  obligations and liabilities and waived any claims whatsoever and howsoever
  arising under the Joint Venture Agreement, the Option Agreement and/or the
  Supply Agreement, whether in contract or otherwise.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|11  | Further assurance                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Each party will at the request of the
  other and at the expense of that other party execute any document and do any
  thing reasonably necessary to implement this deed and shall use all
  reasonable endeavours to procure that any third party executes any document
  and does any thing reasonably necessary in connection with the same.                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|12  | Counterparts                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | This deed may be executed in any number
  of separate counterparts each of which when executed and delivered shall be
  an original, but all the counterparts together shall constitute one and the
  same instrument.                                                                                                                                                                                           

8

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---

|13   | Third parties                                                                                                                                                                                                                                                                                                                                                                                                                
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | None of the parties intend that any term
  of this deed shall, by virtue of the Contracts (Rights of Third Parties) Act
  1999, be enforceable by any person who is not a party to this deed.                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                              
|14   | Confidentiality                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | The provisions of clause 18.6
  (Confidentiality) of the Joint Venture Agreement and clause 8
  (Confidentiality) of the Supply Agreement shall continue to apply in relation
  to the Joint Venture Agreement and the Supply Agreement respectively and
  shall be deemed also to apply in relation to this deed.                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                              
|15   | Entire Agreement                                                                                                                                                                                                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                              
|15.1 | This deed, and the documents referred to
  in it, constitute the entire agreement and understanding of the parties and
  supersede any previous agreements made or existing between the parties or any
  of them before or simultaneously with this deed and relating to the subject
  matter of this deed (all of which shall be deemed to have been terminated by
  mutual consent with effect from the date of this deed).
|     |                                                                                                                                                                                                                                                                                                                                                                                                                              
|15.2 | Each of the parties acknowledges and agrees
  that on entering into this deed, and the documents referred to in it, it does
  not rely on, and shall have no remedy in respect of, any statement,
  representation, warranty or understanding (whether negligently or innocently
  made) of any person (whether party to this deed or not) other than as
  expressly set out in this deed.                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                              
|15.3 | Nothing in this clause 15 shall, however,
  operate to limit or exclude any liability for fraud.                                                                                                                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                              
|16   | Governing Law                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                              
|16.1 | The construction, validity and
  performance of this deed shall be governed by English law and the parties
  submit to the exclusive jurisdiction of the English courts.                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                              
|17   | Notices                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                              
|17.1 | Any notice under or in connection with
  this agreement shall be in writing and shall be delivered by hand or courier
  or sent by first class post (or by express air mail if sent abroad) to the
  intended recipient at its address above or as otherwise notified by any party
  in writing to all other parties from time to time.                                                                                      

9

---

---

|17.2 | A properly addressed notice shall be deemed
  to have been duly given if sent by first class post, three working days after
  posting, provided there are no postal strikes affecting the relevant areas or
  if sent by express air mail, seven working days after posting providing there
  are no postal strikes affecting the relevant areas.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                  
|17.3 | A working day is any day except Saturday
  or Sunday or except a day upon which the clearing banks are not open in the
  City of London.                                                                                                                                                                                                         

Delivered as a
deed on the date of this document.

10

---

---

SCHEDULE 1

Trademark

THIS ASSIGNMENT is made
the                    day
of                                        2003

B E T W E E N:

|(1) | LUMENIS LIMITED (formerly known as ESC Medical Systems Ltd) (Company No: 520042557)
  whose registered office is at P O Box 240, Yokneam 20692, Israel (the
  Assignor); and
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                               
|(2) | ACULIGHT (UK) LIMITED (Company No:
  4060785) whose registered office is at 12 York Gate, Regents Park, London NW1
  4QS (the Assignee).                                    

RECITALS:

|(A) | The Assignor is the registered proprietor
  of the Registered Trade Mark, the particulars of which are set out in the
  Schedule (the Trade Mark).                                                                             
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                  
|(B) | In an agreement of even date entered into
  between the parties (the Deed of Termination), the Assignor agreed to
  assign to the Assignee the Trade Mark together with the Goodwill (as defined
  in the Deed of Termination).

OPERATIVE PROVISIONS:

|1   | Assignment                                                                                                                                                                                                                                                                                                                                                                                       
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                  
|1.1 | In pursuance of the Deed of Termination
  the Assignor with full title guarantee hereby assigns unto the Assignee all
  property, right, title and interest in the Trade Mark registered in the UK
  and elsewhere (if applicable) and the full and exclusive benefit of it
  together with the Goodwill (as defined in the Deed of Termination) to hold
  the same unto the Assignee absolutely.
|    |                                                                                                                                                                                                                                                                                                                                                                                                  
|1.2 | To the extent the Trade Mark is held by
  another company in the Assignors group, the Assignor will procure such party
  fulfils the obligations set out in clause 1.1.                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                  
|2   | Assignors obligations and warranties                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                  
|2.1 | The Assignor shall at the discretion and
  expense of the Assignee execute any further document and do any such thing as
  the Assignee may reasonably require to enable the Assignee to become
  registered as the proprietor of the Trade Mark and to secure the benefits of
  the rights hereby assigned.                                                                                     

11

---

---

|2.2 | The Assignor hereby warrants that:-                                           
|--- | ------------------------------------------------------------------------------
|    |                                                                               
|    | 2.2.1                                                                         
|    |                                                                               
|    | 2.2.2                                                                         
|    |                                                                               
|    | 2.2.3                                                                         
|    |                                                                               
|    | 2.2.4                                                                         
|    |                                                                               
|3   | This Deed shall
  be governed by and construed in accordance with English law.

IN WITNESS of which this Assignment
has been executed as a Deed and delivered the date and year first above
written.

SCHEDULE

|MARK     |  | Number  |  | Date   |  | Classes |  | Goods and Services in respect of which registered                                                                          
|-------- |  | ------- |  | ------ |  | ------- |  | ---------------------------------------------------------------------------------------------------------------------------
|         |  |         |  |        |  |         |  |                                                                                                                            
|ACULIGHT |  | 2261071 |  | 9.2.01 |  | 3,42    |  | Cosmetic preparations for use in the
  field of cosmetic and/or aesthetic treatments.                                      
|         |  |         |  |        |  |         |  |                                                                                                                            
|         |  |         |  |        |  |         |  | Medical, hygienic and beauty care
  services; services relating to the provision of cosmetic and/or aesthetic
  treatments.

12

---

---

|SIGNED as a DEED         | ) | 
|------------------------ | - | 
|by LUMENIS LIMITED       | ) | 
|acting by                | ) | 
|                         |   | 
|                         |   | 
|                         |   | 
|                         |   | 
|                         |   | 
|                         |   | 
|                         |   | 
|SIGNED as a DEED         | ) | 
|by ACULIGHT (UK) LIMITED | ) | 
|acting by                | ) | 
|                         |   | 
|                         |   | 
|                         |   | 
|                         |   | 
|                         |   | 
|                         |   | 

13

---

---

SCHEDULE 2

Terms of future supply of products

|1 | LUK will supply Aculight with the Product
  and the Quantum HR/SR product at a discount of 25% from LUKs end user price
  list in the United Kingdom (as varied from time to time).                                                              
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                   
|2 | Subject to the prices agreed in paragraph
  3 below, LUK will supply Aculight with accessories and consumables related to
  the Product at a discount of 25% from LUKs end user price list in the United
  Kingdom (as varied from time to time).
|  |                                                                                                                                                                                                                                                   
|3 | LUK will supply the following items to
  Aculight at the following prices:                                                                                                                                                                        

| | Treatment heads                                                                                                                                                                                                                                                                                                               | £875            
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------
| |                                                                                                                                                                                                                                                                                                                               |                 
| | 1 litre gel                                                                                                                                                                                                                                                                                                                   | £5              
| |                                                                                                                                                                                                                                                                                                                               |                 
| | Service/maintenance contract                                                                                                                                                                                                                                                                                                  | £2,600 per annum
| |                                                                                                                                                                                                                                                                                                                               |                 
| | Extra 6 months warranty                                                                                                                                                                                                                                                                                                      | £1,170          
| |                                                                                                                                                                                                                                                                                                                               |                 
| | Systems refurbishment                                                                                                                                                                                                                                                                                                         | £500            
| |                                                                                                                                                                                                                                                                                                                               |                 
| | All of the above prices are exclusive of
  transportation costs, which LUK shall charge Aculight in addition.  All of the above prices are fixed until 31
  December 2004, when a review by LUK shall be conducted of them. LUK
  undertakes to Aculight that prices following such review will not exceed  LUKs list price.

|4 | LUK will charge (and Aculight will pay)
  value added tax (VAT) at the applicable rate in addition to all of the
  purchase prices set out in this schedule.                                                 
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                
|5 | Heads, gel, and
  system refurbishment costs will be paid by cheque with each order and cheques
  may be post-dated up to seven days. 
  Service and maintenance contracts will be paid quarterly in
  advance.
|  |                                                                                                                                                                                                                
|6 | The standard system warranty given by LUK
  in respect of the Product and the Quantum HR/SR product is for 12 months.                                                                                          

14

---

---

|7 | The warranty given by LUK in respect of
  treatment heads is for 10,000 shots per head.  If a head fails within this warranty, LUK will supply (and
  Aculight will pay for) a new head and LUK will upon receipt back by LUK of
  the failed head provide Aculight with a credit note against the price of the
  new head which shall be calculated as the number of shots remaining on the
  failed head at the date of failure divided by 10,000 multiplied by the cost
  of a new head.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|8 | LUK will include standard software
  updates within the price of the service and maintenance contract set out at
  paragraph 3 above.  Optional available software upgrades will be
  charged for separately.                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|9 | LUK will 
  sell Aculight  spare parts for
  the Product and the Quantum HR/SR product on a when needed basis.                                                                                                                                                                                                                                                                                                                                                                           

15

---

---

SCHEDULE 3

Return of Machines by:

Return
of units of Product

|Date              |  | Number
|----------------- |  | ------
|                  |  |       
|Already returned  |  | 20    
|30 September 2003 |  | 7     
|31 October 2003   |  | 2     
|30 November 2003  |  | 6     
|31 December 2003  |  | 8     
|31 January 2004   |  | 14    
|28 February 2004  |  | 11    

16

---

---

|EXECUTED as a deed by        | )                           
|---------------------------- | ----------------------------
|by LARS
  THOMAS RYDSTROM    | ) /S/ Lars
  Thomas Rydstrom
|in the presence of:          | )                           
|                             |                             
|                             |                             
|Signature of Witness:        |                             
|                             |                             
|Name:                        |                             
|                             |                             
|Address:                     |                             
|                             |                             
|                             |                             
|                             |                             
|Occupation:                  |                             
|                             |                             
|                             |                             
|EXECUTED as a deed by        | )                           
|by REUBEN LEONARD BERG       | ) /S/ Reuben Leonard Berg   
|in the presence of:          | )                           
|                             |                             
|                             |                             
|Signature of Witness:        |                             
|                             |                             
|Name:                        |                             
|                             |                             
|Address:                     |                             
|                             |                             
|                             |                             
|                             |                             
|Occupation:                  |                             
|                             |                             
|                             |                             
|EXECUTED as a deed by        | )                           
|SHARPLAN LASERS (UK) LIMITED | )                           
|                             | /S/ Franz Krammer           
|                             | Director                    
|                             |                             
|                             |                             
|                             | Director/Secretary          
|                             |                             
|                             |                             
|EXECUTED as a deed by        | )                           
|ACULIGHT (UK) LIMITED        | )                           
|                             | /S/ Reuben Leonard Berg     
|                             | Director                    
|                             |                             
|                             | /S/ Lars
  Thomas Rydstrom  
|                             | Director/Secretary          

17

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|EXECUTED as a deed by   | )                         
|----------------------- | --------------------------
|VANISHING POINT LIMITED | )                         
|                        |                           
|                        | /S/ Reuben Leonard Berg   
|                        | Director                  
|                        |                           
|                        | /S/ Lars
  Thomas Rydstrom
|                        | Director/Secretary        
|                        |                           
|                        |                           
|EXECUTED as a deed by   | )                         
|LUMENIS (UK) LIMITED    | )                         
|                        |                           
|                        | /S/ Kevin Morano          
|                        | Director                  
|                        |                           
|                        |                           
|                        | Director/Secretary        
|                        |                           
|                        |                           
|EXECUTED as a deed by   | )                         
|LUMENIS LIMITED         | )                         
|                        | /S/ Kevin Morano          
|                        | Director                  
|                        |                           
|                        |                           
|                        | Director/Secretary        

18

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Exhibit 31.1

# CERTIFICATIONS

I, Avner Raz, certify that:

|1. | I
have reviewed this quarterly report on Form 10-Q of Lumenis Ltd;
|-- | ------------------------------------------------------------------

|2. | Based
on my knowledge, this report does not contain any untrue statement of a
                    material fact or omit to state a material fact necessary to make the
statements                     made, in light of the circumstances under which such
statements were made, not                     misleading with respect to the period
covered by this report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based
on my knowledge, the financial statements, and other financial information
                    included in this report, fairly present in all material respects the
financial                     condition, results of operations and cash flows of the
registrant as of, and                     for, the periods presented in this report;
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The
registrants other certifying officer(s) and I are responsible for
                    establishing and maintaining disclosure controls and procedures (as
defined in                     Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a)
Designed such disclosure controls and procedures, or caused such disclosure
          controls and procedures to be designed under our supervision, to ensure that
          material information relating to the registrant, including its consolidated
          subsidiaries, is made known to us by others within those entities, particularly
          during the period in which this report is being prepared;
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)
[paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];
| | --------------------------------------------------------------------------

| | (c)
Evaluated the effectiveness of the registrants disclosure controls and
          procedures and presented in this report our conclusions about the effectiveness
          of the disclosure controls and procedures, as of the end of the period covered
          by this report based on such evaluation; and
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d)
Disclosed in this report any change in the registrants internal control
          over financial reporting that occurred during the registrants most recent
          fiscal quarter (the registrants fourth fiscal quarter in the case of an
          annual report) that has materially affected, or is reasonably likely to
          materially affect, the registrants internal control over financial
          reporting; and
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The
registrants other certifying officer(s) and I have disclosed, based on
                    our most recent evaluation of internal control over financial
reporting, to the                     registrants auditors and the audit committee
of the registrants                     board of directors (or persons performing
the equivalent functions):
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a)
All significant deficiencies and material weaknesses in the design or operation
          of internal control over financial reporting which are reasonably likely to
          adversely affect the registrants ability to record, process, summarize
and           report financial information; and
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)
 Any fraud, whether or not material, that involves management or other employees
          who have a significant role in the registrants internal control over
          financial reporting.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 19, 2003

| |  | BY: /S/ Avner Raz
Avner RazChief Executive Officer
| |  | ----------------------------------------------------------------

- 40 -

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Exhibit 31.2

CERTIFICATIONS

I, Kevin Morano, certify that:

|1. | I
have reviewed this quarterly report on Form 10-Q of Lumenis Ltd;
|-- | ------------------------------------------------------------------

|2. | Based
on my knowledge, this report does not contain any untrue statement of a
                    material fact or omit to state a material fact necessary to make the
statements                     made, in light of the circumstances under which such
statements were made, not                     misleading with respect to the period
covered by this report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based
on my knowledge, the financial statements, and other financial information
                    included in this report, fairly present in all material respects the
financial                     condition, results of operations and cash flows of the
registrant as of, and                     for, the periods presented in this report;
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The
registrants other certifying officer(s) and I are responsible for
                    establishing and maintaining disclosure controls and procedures (as
defined in                     Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a)
Designed such disclosure controls and procedures, or caused such disclosure
          controls and procedures to be designed under our supervision, to ensure that
          material information relating to the registrant, including its consolidated
          subsidiaries, is made known to us by others within those entities, particularly
          during the period in which this report is being prepared;
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)
[paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];
| | --------------------------------------------------------------------------

| | (c)
Evaluated the effectiveness of the registrants disclosure controls and
          procedures and presented in this report our conclusions about the effectiveness
          of the disclosure controls and procedures, as of the end of the period covered
          by this report based on such evaluation; and
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d)
Disclosed in this report any change in the registrants internal control
          over financial reporting that occurred during the registrants most recent
          fiscal quarter (the registrants fourth fiscal quarter in the case of an
          annual report) that has materially affected, or is reasonably likely to
          materially affect, the registrants internal control over financial
          reporting; and
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The
registrants other certifying officer(s) and I have disclosed, based on
                    our most recent evaluation of internal control over financial
reporting, to the                     registrants auditors and the audit committee
of the registrants                     board of directors (or persons performing
the equivalent functions):
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a)
All significant deficiencies and material weaknesses in the design or operation
          of internal control over financial reporting which are reasonably likely to
          adversely affect the registrants ability to record, process, summarize
and           report financial information; and
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)
Any fraud, whether or not material, that involves management or other employees
          who have a significant role in the registrants internal control over
          financial reporting.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 19, 2003

| |  | BY: /S/ Kevin Morano
Kevin MoranoChief Financial Officer
| |  | ----------------------------------------------------------------------

- 41 -

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Exhibit 32.1

CERTIFICATIONS

| | Certification
of CEO and CFO Pursuant to                   18 U.S.C. Section 1350,                   as
Adopted Pursuant to                 Section 906 of the Sarbanes-Oxley Act of 2002Relating
to the Quarterly Report on Form 10-Q for the Quarterly Period Ended September 30, 2003
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection with the Quarterly Report on Form 10-Q of Lumenis Ltd. (the Company)
for the quarterly period ended September 30, 2003, as filed with the Securities and
Exchange Commission on the date hereof (the Report), Avner Raz, as President
and Chief Executive Officer of the Company, and Kevin Morano, as Chief Financial Officer
of the Company, each hereby certifies, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (1)        
The Report fully complies with the requirements of Section 13(a) or 15(d) of
          the Securities Exchange Act of 1934, as amended (except that, as described in
          the Report, the independent auditors have not conducted a review of the
          financial statements of the Company as required by Section 10-01(d) of
          Regulation S-X; see Explanatory Note and Note 7 to the financial
          statements of the Company included in the Report); and
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2)        
 The information contained in the Report fairly presents, in all material
          respects, the financial condition and results of operations of the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | BY: /S/ Avner Raz
Avner RazChief Executive OfficerNovember 19, 2003
| |  | ---------------------------------------------------------------------------------

| |  | BY: /S/ Kevin Morano
Kevin MoranoChief Financial OfficerNovember 19, 2003
| |  | ---------------------------------------------------------------------------------------

- 42 -

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