---

---

# UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
WASHINGTON, 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 June 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) | N.A.
(I.R.S. EmployerIdentification No.) 20692 (Zip Code)
|------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------

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.      
 Yesx
No o

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).       
 Yesx
No
o

The number of shares outstanding of
the registrants common stock as of August  11, 2003 was 36,942,439
Ordinary Shares, NIS 0.10 par value per share.



---

---

# LUMENIS LTD.

# FORM 10-Q

# For the Quarter Ended
June 30, 2003

# INDEX

|PART I.  FINANCIAL INFORMATION                                                                | 1 
|--------------------------------------------------------------------------------------------- | --
|ITEM 1. Financial Statements                                                                  | 1 
|1)   Independent Accountant's Review Report                                                   | 1 
|2)   Consolidated Balance Sheets                                                              | 2 
|3)   Interim Consolidated Statements of Operations                                            | 3 
|4)   Interim Consolidated Statements of Cash Flows                                            | 4 
|5)   Notes to Unaudited Interim Consolidated Financial Statements                             | 6 
|ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations | 22
|ITEM 3. Quantitative and Qualitative Disclosure about Market Risk                             | 32
|ITEM 4. Controls and Procedures                                                               | 32
|PART II. OTHER INFORMATION                                                                    | 32
|ITEM 1. Legal Proceedings                                                                     | 32
|ITEM 4. Submission of Matters to a Vote of Security Holders                                   | 37
|ITEM 6. Exhibits and Reports on Form 8-K                                                      | 39

---



---

---

# PART I. FINANCIAL
INFORMATION

# ITEM 1. FINANCIAL
STATEMENTS

Brightman Almagor 
1 Azrieli Center
Tel Aviv 67021 
P.O.B. 16593, Tel Aviv 61164
Israel

Tel: +972 (3) 6085555
Fax: +972 (3) 6094022
info@deloitte.co.ilwww.deloitte.co.il

[Deloitte & Touche LOGO]
Brightman Almagor

Independent
Accountants Review Report

The Board of Directors
Lumenis Ltd.
Yokneam

We have reviewed the accompanying
consolidated balance sheet of Lumenis Ltd. (the Company) and its subsidiaries
as of June 30, 2003, the related consolidated statements of operations for the six-month
and three-month periods ended June 30, 2003 and the statement of cash flows for the
six-month period ended June 30, 2003. These financial statements are the responsibility of
the Companys management.

We conducted our review in accordance
with standards established by the American Institute of Certified Public Accountants. A
review of financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.

Based on our review, we are not aware
of any material modifications that should be made to the accompanying financial statements
for them to be in conformity with accounting principles generally accepted in the United
States of America.

Brightman Almagor & Co.
Certified Public Accountants 
A member of Deloitte Touche Tohmatsu
Tel Aviv 
August 19, 2003

---

|Deloitte ToucheTohmatsu | Tel aviv | Jerusalem | Haifa | Eilat
|----------------------- | -------- | --------- | ----- | -----



---

---

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

|                                                   | June 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 non marketable 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 $17,979 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 LIABILITIES             |               |                  
|SHAREHOLDERS' 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 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.

2

---

---

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

|                                           | For the three
months ended | For the six
months ended
|------------------------------------------ | -------------------------- | ------------------------
|
|
|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, net                          |                            |                         
|Financing expenses, net                    |                            |                         
|                                           |                            |                         
|Loss before income taxes                   |                            |                         
|Income tax expense                         |                            |                         
|                                           |                            |                         
|Loss after income taxes                    |                            |                         
|Company's share in losses of an affiliate  |                            |                         
|                                           |                            |                         
|LOSS FROM CONTINUING 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 from continuing operation   |                            |                         
|Income (loss) from discontinuing           |                            |                         
|operations                                 |                            |                         
|                                           |                            |                         
|Net loss per share                         |                            |                         
|                                           |                            |                         
|Weighted Average Number of Shares          |                            |                         
|                                           |                            |                         

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

3

---

---

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

|                                                                          | For the six months
ended June 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                                       |                                  
|Decrease in long-term deferred income                                     |                                  
|Depreciation and amortization                                             |                                  
|Gain on purchase of Company's convertible notes                           |                                  
|Amortization of stock-based compensation                                  |                                  
|Company's shares in losses of an affiliate                                |                                  
|Amortization of other long-term assets                                    |                                  
|                                                                          |                                  
|Loss (gain) on sale of investment in an affiliate                         |                                  
|Other                                                                     |                                  
|Changes in operating assets and liabilities:                              |                                  
|Decrease (increase) in trade receivables                                  |                                  
|Decrease (increase) in prepaid expenses and other receivables             |                                  
|Decrease in inventories                                                   |                                  
|Increase (decrease) in accounts payable, accrued expenses and other       |                                  
|long-term liabilities                                                     |                                  
|                                                                          |                                  
|Net-cash - operating activities                                           |                                  
|                                                                          |                                  
|CASH FLOWS - INVESTING ACTIVITIES                                         |                                  
|Purchase of fixed assets                                                  |                                  
|                                                                          |                                  
|Investment in other long-term assets                                      |                                  
|Investments, deposits and securities, net                                 |                                  
|Proceeds from sale of subsidiary's operations                             |                                  
|                                                                          |                                  
|Proceeds from sale of an investment in an affiliate                       |                                  
|Investment in an affiliate                                                |                                  
|                                                                          |                                  
|Payment for business acquired (Appendix A)                                |                                  
|                                                                          |                                  
|Proceeds from sale of Industrial operations                               |                                  
|                                                                          |                                  
|Net-cash - investing activities                                           |                                  
|                                                                          |                                  
|CASH FLOWS - FINANCING ACTIVITIES                                         |                                  
|                                                                          |                                  
|Purchase of convertible notes                                             |                                  
|                                                                          |                                  
|Proceeds from exercise of options                                         |                                  
|Repayment of liability to Coherent                                        |                                  
|                                                                          |                                  
|Repayment of subordinated notes                                           |                                  
|Increase in short-term bank debt, net                                     |                                  
|                                                                          |                                  
|Net-cash - financing activities                                           |                                  
|                                                                          |                                  
|INCREASE (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.

4

---

---

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

|                                                           | For the six months
ended June 30,
|---------------------------------------------------------- | ---------------------------------
|
|
|Appendix A - Payments for business acquired                |                                  
|                                                          
|Current assets                                             |                                  
|Goodwill and other intangibles                             |                                  
|Liability in respect to acquisition                        |                                  
|                                                           |                                  
|                                                           |                                  
|Appendix B - Non-cash activities                           |                                  
|                                                          
|Isuuance of shares in settlement of litigation             |                                  
|                                                           |                                  
|Reprurchase of convertible notes                           |                                  
|                                                           |                                  
|Proceeds of sale of Industrial operation in Escrow Account |                                  
|                                                           |                                  
|Sales of investment in an affiliate for settlement of debt |                                  
|                                                           |                                  

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

5

---

---



# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS AS OF JUNE 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 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 June 30, 2003, amounts to $208,674. 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 and increases the amount available under
               the revolver to $50,000 until July 1, 2003 and to $35,000 thereafter, until
               December 31, 2003. On June 23, the Bank extended the commitment under the
               revolver of $50,000 until December 31, 2003. In addition, the new arrangement
               replaced a debt coverage ratio covenant with a minimum EBITDA amount, as defined
               , which will be computed at the end of each fiscal quarter
               of 2003. The Company has met the minimum EBITDA amount for the first and second
               quarter of 2003, as amended.  Based on  managements  current  estimates,
the Company does not expect to be in  compliance
with the existing  covenant for the rest of 2003 or to meet its  obligations  with respect to the  principal
payments  due to the Bank  according  to the existing  repayment  schedule.  Should the Company be unable to
modify its agreements with the Bank, the Bank could accelerate the repayment of the loans.



 In order to restore the Company to profitability and positive
               cash flow from operating activities, the Company has substantially completed a
               detailed restructuring plan to adjust significantly its expense level to the
               current revenue run rate. Additionally the Company is working on resolving
               internal supply chain issues that have had an adverse effect on revenues. Once
               the restructuring plan is complete, management is of the opinion that it will be
               able to renegotiate the terms of the loans with the Bank including revising the
               principal repayment schedule, the required level of the revolving line of credit
               and modification of the covenants.

 The Company believes that its
               restructuring plan can be effectively implemented and
will bring the Company to profitability. The Company also believes that it will be able to reach an
               agreement with the Bank and that together with its internally generated funds,
               available cash and funds available under the new Bank agreements 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.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

6

---

---

# LUMENIS LTD.
NOTES TO UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS AS OF JUNE 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 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                        | For the three
months ended | For the six
months ended
|----------------------- | -------------------------- | ------------------------
|
|
|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 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS AS OF JUNE 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 June
30, 2003 and for the three month and six 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 six month periods ended June 30, 2003 are not necessarily indicative of the results
for the entire fiscal year ending December 31, 2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 six month periods ended June 30, 2003
amounted to approximately $670.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

---

---

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

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 | For the six
months ended
|------------------------------- | -------------------------- | ------------------------
|
|
|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   |                            |                         
|                                |                            |                         

| | 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 | For the six
months ended
|-------------------------------- | -------------------------- | ------------------------
|
|Average risk-free interest rates |                            |                         
|Average expected life (in years) |                            |                         
|Volatility                       |                            |                         

9

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS AS OF JUNE 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 six
month periods ended June 30, 2003 were as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Warranty provision as of March 31, 2003                 |  |  | $ | 8,610  |  
|------------------------------------------------------- |  |  | - | ------ | -
|Payments made under warranty                            |  |  |   | (2,400 | )
|Increase in product warranty provision for current year |  |  |   | 2,730  |  
|                                                        |  | 
|                                                        | 
|Warranty provision as of June 30, 2003                  |  |  | $ | 8,940  |  
|                                                        |  | 
|                                                        | 
|Warranty provision as of December 31, 2002              |  |  | $ | 9,489  |  
|Payments made under warranty                            |  |  |   | (4,804 | )
|Increase in product warranty provision for current year |  |  |   | 4,255  |  
|                                                        |  | 
|                                                        | 
|Warranty provision as of June 30, 2003                  |  |  | $ | 8,940  |  
|                                                        |  | 
|                                                        | 

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 the
$92 extraordinary gain incurred during the six month period ended June 30, 2002 from
repurchasing its convertible notes into finance expenses.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 Company
does not expect the adoption of EITF 00-21 to have a material effect on its consolidated
financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS AS OF JUNE 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. The
Company is still evaluating the effect of this pronouncement on its consolidated financial
statements mainly with respect to its investment in Aculight UK limited.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 is not expected to have a material impact on the Companys financial
results.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 is not expected to have a material impact on the Companys financial
results.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F.       
          RECLASSIFICATION

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

Note 3  TRADE
RECEIVABLES

| | The
trade receivables as of June 30, 2003 and December 31, 2002 are presented net of allowance
for doubtful accounts of $17,834 and $17,689, respectively and provision for returns of
$2,729 and $4,550, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 4  INVENTORIES

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

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

11

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---

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

Note 5  SEGMENT
INFORMATION

A.       
          REPORTABLE SEGMENTS

| | Commencing January 1, 2002, the Company began to evaluate its business on four seperate
business units, as follows: Aesthetics, Ophthalmic, Surgical and Other. Due to several organizational changes,
commencing in January 1, 2003, the Company again reorganized its business based on three seperate business units
as follows: Aesthetics, Medial, and other. Medical includes the Surgical and Ophthalmic operations. All 2002 data
have been restated to reflect such changes. These business units are identified as operating segements in
accordance with SFAS No. 131, Disclosure 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

|                      | For the six months ended June 30, 2002 (Unaudited)
|--------------------- | --------------------------------------------------
|
|Net Revenues          |                                                   
|Gross Profit          |                                                   
|Un-allocated expenses |                                                   
|                      |                                                   
|Operating loss        |                                                   
|                      |                                                   

12

---

---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS AS OF JUNE 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 | For the six
months ended
|------------ | -------------------------- | ------------------------
|
|
|Net Revenues |                            |                         
|Americas     |                            |                         
|Europe       |                            |                         
|Asia         |                            |                         
|Israel       |                            |                         
|             |                            |                         
|Consolidated |                            |                         
|             |                            |                         

|                  | June 30,
2003 | December 31,
2002
|----------------- | ------------- | -----------------
|
|Long-Lived Assets |               |                  
|North America     |               |                  
|Europe            |               |                  
|Asia              |               |                  
|Israel            |               |                  
|                  |               |                  
|                  |               |                  
|Consolidated      |               |                  
|                  |               |                  
|                  |               |                  

C.       
ALLOCATION OF GOODWILL BETWEEN REPORTABLE SEGMENTS:

|             | June 30,
2003 | December 31,
2002
|------------ | ------------- | -----------------
|
|Aesthetics   |               |                  
|Medical      |               |                  
|Other        |               |                  
|             |               |                  
|             |               |                  
|Consolidated |               |                  
|             |               |                  
|             |               |                  

13

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---

# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS AS OF JUNE 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 June 30,
2003, amounts to $208,674.
| | --------------------------------------------------------------------------------------------------------------------

| | 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; increases the amount available under the revolver to
$50,000 until July 1, 2003 and to $35,000 thereafter, until December 31, 2003; provides
for an interest rate on the $15,000 increase of LIBOR plus 3%; defers the loan
amortization of a $10,000 principal payment due April 2003; and amends certain covenants
in the loan agreements. In addition the new 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, which will be computed at the
end of each fiscal quarter of 2003 cumulatively, as follows: Q1- $5,000, Q2- $18,400, Q3-
$30,400 and Q4- $50,100.
The Company has met the minimum EBITDA
amount for the first quarter of 2003, as amended.

In connection with the above-mentioned 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 extend the $50,000 available under its revolver until
December 31, 2003, and modify 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 is 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.
For the second quarter 2003 the cumulative minimum EBITDA amount is $5,000, for the third
quarter $17,000 and for the full year $36,700. The Company has met the minimum EBITDA
amount for the second quarter of 2003, as amended. See Note 1.A above.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 7  COMMITMENTS
AND CONTINGENT LIABILITIES

| | The
Company is a party to various legal proceedings incident to its business. Except for the
legal proceedings described below, as to which there have been developments since the
prior descriptions thereof in the Legal Proceedings section and note 13C to
the Consolidated Financial Statements in the 2002 Form 10-K, and the Legal
Proceedings section and note 7 to the Consolidated Financial Statements in the Form
10-Q for the quarterly period ended March 31, 2003 (to which reference is made for
descriptions of additional legal proceedings as to which there have been no material
changes since the filing of the 2002 Form 10-K or the Form 10-Q for the quarterly period
ended March 31, 2003), 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
or around 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 complaint generally alleges that the defendants violated
U.S. Federal securities laws by making material misrepresentations and/or omissions, and
also includes claims for common law fraud and negligence. The complaint alleges that, at
various times during the period from September 17, 2001 through February 27, 2002,
plaintiffs purchased the Companys securities in reliance on such statements, and
suffered economic loss as a result. The Company was served with a summons and complaint in
this action in June 2003, and is required to move or answer by September 2, 2003. The
Company believes that all of the allegations and claims are baseless, and the Company
intends to vigorously defend against them.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

---

---

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

Note 7  COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.)

| | 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 complaints generally allege that the defendants
violated U.S. Federal securities laws by issuing materially false and misleading
statements throughout the Class Period that had the effect of artificially inflating the
market price of the Companys securities. The complaints allege that throughout the
Class Period, defendants discounted and disputed marketplace rumors about the
Companys operations even as the Company knew it was being investigated by the SEC
and that its distributors had been contacted by the SEC.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has been served with a summons and complaint in some but not all of these actions.
By order dated June 18, 2003, the Court consolidated the nine actions, appointed a lead
plaintiff and approved selection of lead plaintiffs counsel. The plaintiffs are
presently required to file their consolidated complaint by August 29, 2003, and the
Company has until October 31, 2003 to move or answer with respect to the consolidated
complaint. Subject to review and evaluation of the consolidated complaint that is filed,
the Company currently intends to file a motion to dismiss for failure to state a claim and
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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. The complaint alleges that the defendants violated U.S.
Federal securities laws by making a series of material misrepresentations to the market
during the Extended Class Period regarding the Companys financial performance,
successful execution of its business plan and strong demand for the Companys
products, thereby artificially inflating the price of Lumenis securities. The Company has
not been served with a summons and complaint in this action. By order dated June 18, 2003,
this action was consolidated with the other purported class action lawsuits described
above.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company believes that all the allegations and claims in all of the above purported class
action lawsuits are baseless, and the Company intends to vigorously defend against them.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 11, 2002, the Company filed a petition with the Bailiffs Court of Horsholm,
Denmark, requesting that an interim injunction be granted against two competing products,
which are manufactured by Danish Dermatological Development A/S, a Danish company
(DDD). DDD filed its statement of defense in July 2002, to which the Company
answered in September 2002. Additionally, DDD has filed oppositions in the European and
Danish Patent Offices against the Companys European IPL Patent and Danish Utility
Model Patents, which are the basis for the Companys request for an interim
injunction. After a hearing on the European patent opposition on March 25, 2003, the
European Patent Office revoked the Companys European IPL Patent. The Company has
filed an appeal of this ruling. The Company currently expects that its petition for an
interim injunction against DDD in Denmark will be heard in late 2003. The parties have
held preliminary settlement discussions, and the Company presently expects to continue
those discussions.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

---

---

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

Note 7  COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.)

| | On
September 12, 2002, the Company filed a claim in the Tel Aviv  Jaffa District Court
against Syneron Medical Ltd. and Messrs. Shimon Eckhouse, Michael Kreindel, Mark
Aronovitz, and Avner Lior. (the Syneron Defendants). Hans Edel, who had
originally been named as a defendant, was struck from the claim on April 30, 2003, as per
the Companys motion to the court.. The Company alleges that the Syneron Defendants,
all former employees of the Company, used confidential business information and technology
gained during their work at the Company, for the production and distribution of products
essentially similar to the Companys products for hair removal and skin treatment
(the Copied Products). The Company also alleges that Syneron Medical Ltd. and
the Syneron Defendants (collectively the Defendants) used information with
regard to the Companys distributors and customers for the purpose of marketing the
Copied Products. The Company is seeking the following remedies against the Defendants: a
permanent injunction restraining the Defendants from using any business information or
technology or trade secrets of the Company, a mandatory injunction ordering the Defendants
to demolish all of the Copied Products that were produced by the Defendants, an order for
the delivery of accounts, the appointment of a receiver and a monetary judgment in the
amount of approximately $6,250. On October 20, 2002, the Defendants filed their Statement
of Defense in which they denied the Companys claims, pleading, inter alia, that the
Companys Intense Pulsed Light technology (the IPL Technology) is within
the public domain; that the Company has no intellectual property rights in it; and that,
consequently, the Defendants technology (the ELOS Technology) does not
breach the Companys rights in its IPL Technology. In addition, the Defendants
pleaded, that there is no similarity between the ELOS Technology and the IPL Technology.
On November 4, 2002, the Company filed its response to the Defendants Statement of
Defense. In its response, the Company claimed, inter alia, that the Defendants are
prohibited from pleading that the Company does not have any intellectual property rights
in the IPL technology, due to the fact that the Defendants themselves assisted the Company
in registering patents which constitute the Companys intellectual property in the
IPL technology. As part of the pre-trial proceedings, the parties have served on each
other numerous discovery requests. By mutual agreement, the parties completed the
aforementioned pre-trial proceedings on June 9, 2003. The Defendants have filed a motion
to dismiss the Companys claims, and the Company has filed a motion to strike certain
parts of the Defendants statement of defense. The parties motions are pending
before the court, and a pre-trial hearing is scheduled for September 7, 2003.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
September 20, 2002, Lumenis Inc. filed a lawsuit 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 for breach of contract, intentional interference with prospective economic
advantage, misappropriation of trade secrets, breach of duty of loyalty, conspiracy,
unjust enrichment, and unfair competition, seeking unspecified damages and injunctive
relief. Lumenis Inc.s request for expedited discovery was granted by the court, and
Lumenis served initial discovery demands. On or about October 22, 2002, Syneron Inc.
(Canada) filed a motion to quash service upon it for lack of personal jurisdiction. This
motion was granted by the court in January 2003, and Syneron Inc. (Canada) was dismissed
as a defendant. On or about October 25, 2002, Lumenis Inc. filed an amended complaint
adding former Lumenis Inc. employee David J. Maslowski as a defendant in the action. On or
about December 4, 2002, the defendants filed answers to the amended complaint. In
addition, Syneron Inc. (Delaware) filed a cross-complaint alleging various claims related
to unfair trade practices and competition, and two of the individual defendants filed
cross-complaints alleging various claims related to unpaid commissions. Lumenis believes
the cross-claims are wholly without merit and will vigorously defend against them.
Discovery has commenced, and the Court has ordered that the parties attend mediation not
later than August 28, 2003. A trial date has not been set.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

---

---

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

Note 7  COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.)

| | On
October 28, 2002, Lumenis Ltd. and Lumenis Inc. (collectively, Lumenis) filed
a complaint 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 is seeking 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. Oral
argument on the request for a temporary restraining order and preliminary injunction was
held on November 1, 2002. Citing the complexity of the patent issues involved, the court
declined to grant the Companys request for a temporary restraining order. The court
granted the Companys request for expedited discovery, and ordered the appointment of
an independent expert to advise the court on the patent infringement issues raised by the
lawsuit. A technical expert has been appointed to assist the court, and the Companys
request for a preliminary injunction was heard on June 16, 2003. 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 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
October 24, 2002, Lumenis Inc. filed a complaint 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). The complaint 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. The Company served its complaint on Palomar and
General on February 24, 2003. Palomar filed a motion for transfer of the Federal Action to
Massachusetts. On July 15, 2003, the court denied Palomars motion. The Markman
Hearing on claim interpretation is currently scheduled for February 3, 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection with the Federal Action, Lumenis has ceased payment of royalties under the
License Agreement. In response, Palomar filed a complaint on October 29, 2002 against
Lumenis Ltd., Lumenis Inc., ESC Medical Systems Ltd., ESC Medical Systems Inc. and
ESC/Sharplan Laser Industries Ltd. (collectively, Lumenis) in the
Superior Court of the Commonwealth of Massachusetts. The complaint alleges that Lumenis
has breached the License Agreement by failing to make certain royalty payments, that
Lumenis actions have breached the implied covenant of good faith and fair dealing
arising with respect to the License Agreement and that Lumenis actions constitute
unfair and deceptive trade practices in violation of M.G.L., Chap. 93A, Sections 2 and 11.
Palomar seeks an award of unspecified compensatory damages, a trebling of such damages,
its costs and attorneys fees and pre-judgment interest. The complaint was served on
Lumenis on May 7, 2003. The parties are continuing settlement discussions.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17

---

---

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

Note 7  COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.)

| | On
September 30, 2002, an action was filed 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. The complaint alleges, among other
things, that the Company removed Mr. Adil from these positions and terminated his
employment in retaliation for his report to the Company of alleged accounting and
disclosure irregularities. The action seeks, among other things, compensatory damages and
reinstatement of his employment. The Company believes that the claims are without merit,
and the Company intends to defend itself vigorously. On October 29, 2002, the defendants
removed the action to the United States District Court for the District of New Jersey (the
District Court). On November 13, 2002, Mr. Adil filed a first amended
complaint in the District Court, adding Lumenis Inc. as a defendant in the action. During
January 2003, the defendants moved to dismiss the first amended complaint, and Mr. Adil
filed an opposition to the defendants motion. The motion was heard April 7, 2003,
and the judge dismissed Mr. Adils claims of unemployability and his
claim that the defendants improperly refused to allow him to retain qualified counsel of
his choice in the securities class action lawsuits in which Mr. Adil is a named defendant.
In addition, the judge dismissed Adils claim of breach of his employment agreement
as to the individual defendants only (Prof. Jacob A. Frenkel, Yacha Sutton and Sagi
Genger). Mr. Adils remaining claims were 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. In June 2003, the Company and Sagi
Genger answered the first amended complaint, generally denying all of the allegations and
all of Mr. Adils claims. On August 11, 2003, Yacha Sutton and Prof. Jacob A. Frenkel
answered the first amended complaint, generally denying all of the allegations and all of
Mr. Adils claims against them. Substantive discovery has not commenced, and a trial
date has not been set.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. On May 5, 2003, Diodem filed its
First Amended Complaint containing substantially similar allegations, against Lumenis
Inc., Lumenis Ltd., American Medical Technologies, Inc., Biolase Technologies, Inc.,
OpusDent Inc., and HoyaConBio. The complaint seeks, inter alia, injunctive relief and
unspecified damages. 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. The Company believes the claims against it are without
merit, and intends to vigorously defend against them.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
July 23, 2003, William P. Young, DVM, 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 has not been served with a summons and complaint in this action. The Company
believes the claims against it are without merit, and if served with a summons and
complaint, intends to vigorously defend against them.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18

---

---

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

Note 7  COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.)

| | On
January 18, 2002, Lumenis Inc. commenced an action for patent infringement against
Trimedyne, Inc. (Trimedyne) in the United States District Court for the
Central District of California. The complaint alleges that Trimedyne has willfully
infringed and is willfully infringing two Lumenis Inc. U.S. patents. Lumenis Inc. seeks,
inter alia, an injunction enjoining Trimedynes infringement, damages, costs and
attorneys fees. On or about February 26, 2002, Trimedyne filed an answer and
counterclaims in this action denying Lumenis material allegations of infringement
and asserting counterclaims, inter alia, seeking a declaratory judgment that Trimedyne is
not infringing the Lumenis patents and a declaratory judgment that it is entitled to a
refund of an alleged overpayment of royalties by Trimedyne of approximately $130 under a
1994 patent license. Trimedyne also alleges generally that Lumenis violated certain
antitrust, trade libel and trade practices laws; and that certain Lumenis products
infringe Trimedynes patents. Trimedyne seeks, inter alia, an injunction enjoining
Lumenis Inc. from the allegedly wrongful acts, unspecified damages and a trebling of such
damages, disgorgement of profits, unspecified punitive damages, a refund of the alleged
royalty overpayment, and costs and attorneys fees. On April 29, 2002, the Company moved
to: (i) dismiss the federal and state antitrust counterclaims, the counterclaims for trade
libel and the counterclaim for tortious interference with prospective economic
relationships on the grounds that Trimedyne has failed to state a claim upon which relief
can be granted; (ii) dismiss or stay the claims related to the 1994 patent license, as
those claims are subject to a compulsory arbitration clause; and (iii) strike certain of
the affirmative defenses asserted by Trimedyne. On June 3, 2002, Trimedyne served an
amended answer and counterclaims re-asserting all of the claims from its original
complaint other than the claims relating to the 1994 patent license. On March 3, 2003, the
Court dismissed Trimedynes counterclaim for tortious interference with prospective
economic relationships, but denied the Companys motion to dismiss Trimedynes
other counterclaims. The parties submitted this dispute to mediation, and have signed a
letter of intent which resolves the parties mutual claims. The Company currently
expects to enter into a definitive settlement agreement with Trimedyne during 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. The demand for arbitration seeks an unspecified amount in damages and an
injunction against further sales of the LightSheer system. On October 3, 2002, Lumenis
Inc. filed and served an answering statement denying the material allegations of the
demand for arbitration, denying that the LightSheer system infringes the referenced
patents, denying that Lumenis Inc. owes any royalties under the license agreement and
denying that Cool Laser has any right to terminate the license agreement. Lumenis
Inc.s answering statement also asserts that the Cool Laser patents are invalid and
unenforceable and that Cool Laser is estopped from asserting them and further asserts that
the arbitrators do not have jurisdiction to hear a claim for patent infringement. Lumenis
Inc.s answering statement seeks, inter alia, the dismissal of all of Cool
Lasers claims with prejudice. The parties recently reached an agreement in principle
to settle Cool Lasers claims, and the arbitration proceeding has been stayed.. The
Company currently expects to enter into a definitive settlement agreement with Cool Laser
during 2003.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, and
the Legal Proceedings section and note 7 to the Consolidated Financial
Statements in the Form 10-Q for the quarterly period ended March 31, 2003, 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, and the Legal
Proceedings section and note 7 to the Consolidated Financial Statements in the Form
10-Q for the quarterly period ended March 31, 2003) 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19

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

Note 7  COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.)

| | 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 June 30, 2003 the Company has an accrual of $13,830, 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

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# LUMENIS LTD.NOTES TO
UNAUDITED INTERIM CONSOLIDATED 
FINANCIAL STATEMENTS AS OF JUNE 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 marketable equity
securities. Total comprehensive loss for the three month and six month periods ended June
30, 2003 and 2002 is as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | For the three
months ended | For the six
months ended
|-------------------------------- | -------------------------- | ------------------------
|
|
|Net loss                         |                            |                         
|Unrealized loss on available for |                            |                         
|sale marketable securities       |                            |                         
|Foreign currency translation     |                            |                         
|adjustments                      |                            |                         
|                                 |                            |                         
|Consolidated                     |                            |                         
|                                 |                            |                         

21

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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.

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 from April 30, 2003 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; provides for an interest rate
on the $15,000 increase of LIBOR plus 3%; deferred the semi-annual loan amortization of
$10,000 principal payment due April 2003 under a $100,000 term loan which financed, in
part, the CMG acquisition ($5,000 is to be paid in December 2003 and $5,000 in April
2004); and amended certain covenants in the loan agreements. In addition the new
arrangement waived compliance with the covenants for the quarter ended December 31, 2002
and replaced the debt coverage covenant with a minimum EBITDA amount, as defined in the
Bank agreements, for 2003 of $50,100. The Company has met the minimum EBITDA amount for
the first quarter of 2003, as amended. In connection with the new arrangement the Company re-priced
the outstanding 1,136,300 options held by the Bank from $20.25 to the then current market
price, $1.17, changed the expiration date to April 2008, and granted the Bank an
additional 275,000 five-year options exercisable at $1.17. The Company also paid the Bank
a $200 fee.

On June 23, the Company and the
Bank amended certain terms of its financing arrangements described above. The amendments
extend the $50,000 available under its revolver until December 31, 2003, and modify
certain covenants and other terms and provisions in its loan agreements. The Company also
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.

22

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Under its loan agreements as amended
the Company is 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. For the second
quarter of 2003 the cumulative minimum EBITDA amount is $5,000, for the third quarter
$17,000 and for the full year $36,700. The Company has met the minimum EBITDA amount for
the second quarter of 2003, as  amended.  Based on  managements  current  estimates,  the  Company  does not expect to be in
         compliance  with  the  existing  covenant  for the  rest of 2003 or to meet  its  obligations  with
         respect to the principal  payments due to the Bank  according to the existing  repayment  schedule.
         Should the  Company be unable to modify its  agreements  with the Bank,  the Bank could  accelerate
         the repayment of the loans.

In order to restore the Company to profitability and positive
               cash flow from operating activities, the Company has substantially completed a
               detailed restructuring plan to adjust significantly its expense level to the
               current revenue run rate. Additionally the Company is working on resolving
               internal supply chain issues that have had an adverse effect on revenues. Once
               the restructuring plan is complete, management is of the opinion that it will be
               able to renegotiate the terms of the loans with the Bank including revising the
               principal repayment schedule, the required level of the revolving line of credit
               and modification of the covenants.

 The Company believes that its
               restructuring plan can be effectively implemented and
will bring the Company to profitability. The Company also believes that it will be able to reach an
               agreement with the Bank and that together with its internally generated funds,
               available cash and funds available under the new Bank agreements 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.

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.

The discussion and analysis is based
on giving retroactive effect to the discontinued operations.

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 SIX-MONTH PERIODS ENDED
JUNE 30, 2003 COMPARED WITH THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 2002

The Company reported net revenues of $68,120
and $145,525 for the three and six months ended June 30, 2003, respectively, compared to
net revenues of $89,864 and $173,527 for the three and six months ended June 30, 2002,
respectively. The loss from continuing operations for the three and six months ended June
30, 2003 was $29,472 and $36,577, respectively, or a diluted loss per share from
continuing operations of $0.79 and $0.98, respectively, compared to a loss from continuing
operations of $2,545 and $3,703 for the three and six months ended June 30, 2002 or a
diluted loss per share from continuing operations of $0.07 and $0.10, respectively. The
net loss for the three and six months ended June 30, 2003 was $33,264 and $40,182,
respectively, or a diluted loss per share of $0.89 and $1.08 , compared with a net loss of
$2,829 and $3,472, for the three and six months ended June 30, 2002 or a diluted loss per
share of $0.08 and $0.09 per diluted share, respectively.

23

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Commencing January 1, 2002, the Company began to evaluate its business on four seperate
business units, as follows: Aesthetics, Ophthalmic, Surgical and Other. Due to several organizational changes,
commencing in January 1, 2003, the Company again reorganized its business based on three seperate business units
as follows: Aesthetics, Medial, and other. Medical includes the Surgical and Ophthalmic operations. All 2002 data
have been restated to reflect such changes. These business units are identified as operating segements in
accordance with SFAS No. 131, Disclosure 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.

Revenues.    
          The Companys net revenues decreased by 24% to $68,120 for the three months
          ended June 30, 2003 compared to $89,864 for the three months ended June 30,
          2002. The Companys net revenues decreased by 16% to $145,525 for the six
          months ended June 30, 2003 compared to $173,527 for the six months ended June
          30, 2002.By business segment, revenues for the second quarter of 2003 were
          Aesthetic $22,731, Medical $28,410 and Other $16,979 compared to the revenues in
          the second quarter of 2002 of Aesthetic $41,213, Medical $31,808 and Other
          $16,843.

The decrease in sales reflects mainly the weakness in the aesthetic business
particularly in the U.S. due to competitions, the impact of SARS in Asia, and shipment delays particularly of our
new ophthalmic products as a result of manufacturing delays and the effect from disruption we experienced in the
fourth quarter of 2002 and first quarter of 2003 for the supply of parts for manufacturing and service.

During the 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. Sales will not
commence until WaveLight receives FDA approval for the Allegretto Wave. 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 65% to $17,420 for the three months ended June 30, 2003 from $50,146 for the
three months ended June 30, 2002. As a percentage of sales the gross profit was 26% in the
three months ended June 30, 2003, compared to 56% in the same period in 2002.

Gross profit decreased by 43% to
$53,750 for the six months ended June 30, 2003 from $94,601 for the six months ended June
30, 2002. As a percentage of sales the gross profit was 37% in the six months ended June
30, 2003, compared to 55% in the same period in 2002.

As a percentage of sales, gross
profit by business segment for the three months ended June 30, 2003 was Aesthetic, 38%
Medical 21% and Others 17% compared to gross profit for the three months ended June 30,
2002 of 70%, 50% and 33% respectively. As a percentage of sales, gross profit by business
segment for the six months ended June 30, 2003 was Aesthetic 51% Medical 34% and Others
21% compared to gross profit for the six months ended June 30, 2002 of 70%, 48% and 31%
respectively.

The decrease in gross profit in the
three months ended June 30, 2003 is 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 by the lower aesthetic sales and the mix of
sales of lower margin products.

The
decrease in gross profit in the six months ended June 30, 2003 is 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, lower
aesthetic sales, mix of sales of lower margin productsand 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 six months ended June 30, 2003 and 2002 were as follows:

24

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# FOR THE THREE MONTHS
ENDED JUNE 30, 2003

|             | AESTHETICS | MEDICAL  | OTHER    | CONSOLIDATED
|------------ | ---------- | -------- | -------- | ------------
|Net Revenues | $22,731    | $28,410  | $16,979  | $68,120     
|Gross Profit | $  8,533   | $  6,015 | $  2,872 | $17,420     

# FOR THE THREE MONTHS ENDED JUNE  30, 2002

|             | AESTHETICS | MEDICAL | OTHER    | CONSOLIDATED
|------------ | ---------- | ------- | -------- | ------------
|Net Revenues | $41,213    | $31,808 | $16,843  | $89,864     
|Gross Profit | $28,825    | $15,751 | $  5,570 | $50,146     

# FOR THE SIX MONTHS ENDED JUNE 30, 2003

|             | AESTHETICS | MEDICAL | OTHER    | CONSOLIDATED
|------------ | ---------- | ------- | -------- | ------------
|Net Revenues | $52,146    | $57,014 | $36,365  | $145,525    
|Gross Profit | $26,745    | $19,500 | $  7,505 | $  53,750   

# FOR THE SIX MONTHS ENDED JUNE 30, 2002

|             | AESTHETICS | MEDICAL | OTHER   | CONSOLIDATED
|------------ | ---------- | ------- | ------- | ------------
|Net Revenues | $78,374    | $60,865 | $34,288 | $173,527    
|Gross Profit | $54,549    | $29,440 | $10,612 | $  94,601   

Research and Development, net.
Net Research and Development costs decreased by 22% to $5,148 for the three months ended
June 30, 2003 from $6,577 in the same period in 2002. As a percentage of sales, Research
and Development costs were 8% in the three-month period ended June 30, 2003 compared to 7%
in the same period in 2002. Net Research and Development costs decreased by 18% to $10,902
for the six months ended June 30, 2003 from $13,352 in the same period in 2002. As a
percentage of sales, Research and Development costs were 7% in the six-month period ended
June 30, 2003 compared to 8% in the same period in 2002.

The decrease in Research and
Development costs in the three and six months ended June 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
7% to $34,301 for the three months ended June 30, 2003 compared to $36,742 for the same
period in 2002. As a percentage of sales, Selling, Marketing and Administrative expenses
in the three months ended June 30, 2003 were 50% compared to 41% in the same period in
2002. Selling, Marketing and Administrative expenses decreased by 5% to $65,721 for the
six months ended June 30, 2003 compared to $69,372 for the same period in 2002. As a
percentage of sales, Selling Marketing and Administrative expenses in the six months ended
June 30, 2003 were 45% compared to 40% in the same period in 2002. Selling, Marketing, and
Administrative expenses for the three month period ended June 30, 2003 included $1,300 for
severance for a former executive. Selling, Marketing and Administrative expenses for the
six month period ended June 30, 2002 include 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.

The decrease in Selling, Marketing
and Administrative expenses in the three and six months ended June 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.

25

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The increase in Selling, Marketing
and Administrative expenses in the three and six months ended June 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 $1,404 and $3,058 in the
three and six months ended June 30, 2003, respectively, compared to $1,816 and $3,652 in
three and six months ended June 30, 2002, respectively.

The decrease in the amortization in
the three and six months ended June 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.

Litigation expenses.
Litigation expenses amounted to $925 for the three-month and six-month periods ended June
30, 2003, compared to $5,201 for the three and six-month periods ended June 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 six months ended June 30, 2003, financing expenses were $3,594 and $6,911,
respectively, compared to financing expenses of $3,659 and $7,244 in the same periods in
2002, respectively.

The decrease in financing expenses in
the three and six months ended June 30, 2003 is mainly due to lower interest costs of $250
and $524, respectively, from the lower balance of the long term bank loan and a loss from
hedge transaction of $2,318 and $1,824, respectively, as well as higher an exchange rate
gain of approximately $459 in the three months ended June 30, 2003. The decrease was
offset in part by an increase of $483 and $742 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 three and six months ended June 30, 2003 were
higher by $604 and 972 due to the higher rate on the $70,667 long-term loan compared to
the subordinated convertible bonds and due to higher outstanding balance and interest
rates on the revolving credit.

Income Tax expense. 
Income tax expenses in the three and six months ended June 30, 2003 was $1,062 and $2,343,
respectively, compared to $416 and $1,132 in the three and six months ended June 30, 2002
respectively. The increase in the tax expense in the three and six months ended June 30,
2003 was due mainly from a provision of $337 and $601 in the three and six months ended
June 30, 2003, respectively for the effect of the New Law in Israel.

Companys share in losses of
an affiliate. For the three and six months ended June 30, 2003, the Companys
share in Aculight (UK) Limiteds losses amounted to $483 and $492, respectively,
compared to $0 and $91 in the same period in 2002.

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
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.

Net Loss. As a result of the
foregoing factors, the Companys net loss was $33,264 and $40,182 for the three and
six months ended June 30, 2003 compared to net loss of $2,829 and $3,472 in the same
period in 2002, respectively.

26

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LIQUIDITY AND CAPITAL
RESOURCES (in thousands of dollars)

As of June 30, 2003, the Company had
cash and cash equivalents of $19,165 compared to $18,106 on December 31, 2002. The
increase of $1,059 is mainly attributable to operating activities, investing activities and financing activities as follows:

# Operating activities

For the six months ended June 30,
2003, cash used for operating activities was $2,223, attributable mainly to a $21,494 net
decrease in operating assets and liabilities that resulted from a decrease in trade
receivables of $8,016, decrease in prepaid expenses and other receivables of $5,772 and a
decrease in the inventory of $22,373 offseted by a decrease of $14,667 in accounts
payable, accrued expenses and other long-term liabilities.

# Investing Activities

For the six months ended June 30,
2003, cash provided by investing activities was approximately $2,433 representing $1,974
of investments in fixed assets offset by proceeds of $4,407 from the sale of the industrial
operations. The reminder of the proceeds from the sale of Spectron in the amount of
approximately of $1,300 will be received no later than November 2003, subject to any final
adjustments as per the sales agreement.

# Financing Activities

For the six months ended June 30,
2003, cash provided by financing activities was $849. A total of $9,145 was provided by
utilizing the available credit with the Bank offset by payments of $8,296 to repay the
Companys subordinated notes to Coherent, Inc.

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 from April 30, 2003 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; provides for an interest rate
on the $15,000 increase of LIBOR plus 3%; deferred the semi-annual loan amortization of
$10,000 principal payment due April 2003 under a $100,000 term loan which financed, in
part, the CMG acquisition ($5,000 is to be paid in December 2003 and $5,000 in April
2004); and amended certain covenants in the loan agreements. In addition the new
arrangement waived compliance with the covenants for the quarter ended December 31, 2002
and replaced the debt coverage covenant with a minimum EBITDA amount, as defined in the
Bank agreements, for 2003 of $50,100. The Company has met the minimum EBITDA amount for
the first quarter of 2003, as amended. In connection with the new arrangement the Company re-priced
the outstanding 1,136,300 options held by the Bank from $20.25 to the then current market
price, $1.17, changed the expiration date to April 2008, and granted the Bank an
additional 275,000 five-year options exercisable at $1.17. The Company also paid the Bank
a $200 fee.

On June 23, the Company and the
Bank amended certain terms of its financing arrangements described above. The amendments
extend the $50,000 available under its revolver until December 31, 2003, and modify
certain covenants and other terms and provisions in its loan agreements. The Company also
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 is 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. For the second
quarter of 2003 the cumulative minimum EBITDA amount is $5,000, for the third quarter
$17,000 and for the full year $36,700. The Company has met the minimum EBITDA amount for
the second quarter of 2003, as  amended.  Based on  managements  current  estimates,  the  Company  does not expect to be in
         compliance  with  the  existing  covenant  for the  rest of 2003 or to meet  its  obligations  with
         respect to the principal  payments due to the Bank  according to the existing  repayment  schedule.
         Should the  Company be unable to modify its  agreements  with the Bank,  the Bank could  accelerate
         the repayment of the loans.

In order to restore the Company to profitability and positive
               cash flow from operating activities, the Company has substantially completed a
               detailed restructuring plan to adjust significantly its expense level to the
               current revenue run rate. Additionally the Company is working on resolving
               internal supply chain issues that have had an adverse effect on revenues. Once
               the restructuring plan is complete, management is of the opinion that it will be
               able to renegotiate the terms of the loans with the Bank including revising the
               principal repayment schedule, the required level of the revolving line of credit
               and modification of the covenants.

 The Company believes that its
               restructuring plan can be effectively implemented and
will bring the Company to profitability. The Company also believes that it will be able to reach an
               agreement with the Bank and that together with its internally generated funds,
               available cash and funds available under the new Bank agreements 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.

27

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# 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s 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:

- The Company is being investigated by the U.S. Securities and Exchange Commission (see Part
II, Item 1- Legal Proceedings, below) and has been named as a defendant in
several class action lawsuits alleging misrepresentations made in violation of the
securities laws.
- The Company is undergoing an organizational restructuring process, in order to
                    return to positive earnings and cashflow 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 has a $15 million principal payment,
which is due by December 31, 2003.
- 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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.

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- 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.
- 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.

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- 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 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.

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.

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# CONDITIONS IN ISRAEL

# General

The Company is incorporated under the
laws of the State of Israel, and much of its research and development and significant
facilities are located in Israel. Accordingly, the Company is directly affected by
political, economic and military conditions in Israel. The Companys operations would
be materially adversely affected if major hostilities involving Israel should occur or if
trade between Israel and its present trading partners should be curtailed.

# Political Conditions

Since the establishment of the State
of Israel in 1948, a number of armed conflicts have taken place between Israel and its
neighbors. A state of hostility, varying from time to time in intensity and degree, has
led to security and economic problems for Israel. Additionally, Israel has recently
experienced intense violence and terrorism and from time to time in the past, Israel has
experienced civil unrest, primarily in the West Bank and in the Gaza Strip administered by
Israel since 1967. However, a peace agreement between Israel and Egypt was signed in 1979,
a peace agreement between Israel and Jordan was signed in 1994 and, since 1993, several
agreements between Israel and Palestinian representatives have been signed pursuant to
which certain territories in the West Bank and Gaza Strip were handed over to the
Palestinian administration. The implementation of these agreements with the Palestinian
representatives have been subject to difficulties and delays and a resolution of all of
the differences between the parties remains uncertain. Beginning in October 2000, there
was a significant increase in violence primarily in the West Bank and Gaza Strip, as well
as in Israel itself, and negotiations between Israel and the Palestinian representatives
cease from time to time. Violence in the region intensified during 2001 and 2002. As of
the date hereof, Israel has not entered into any peace agreement with Syria or Lebanon. In
November 2002 the National Unity Government was dissolved which was followed by national
elections. In January 2003 the Likud party won Israels general elections
and the partys leader, Ariel Sharon, formed the new Israeli government. The Company
cannot predict the political and economic policy to be implemented by the current Israeli
government. In May 2003 the U.S. government introduced the road map as a
starting point for initiating peace talks between Israel and the Palestinians. The Company
cannot predict whether any other agreements will be entered into between Israel and its
neighboring countries, whether a final resolution of the areas problem will be
achieved, the nature of any resolution of this kind, or whether the recent violence will
continue and to what extent this violence will have an adverse impact on Israels
economic development, on the Companys operations in the future or what other effects
it may have upon the Company.

Certain countries, companies and
organizations continue to participate in a boycott of Israeli firms and others doing
business with Israel or with Israeli companies. Although the Company is restricted from
marketing the Companys product in these countries, the Company does not believe that
the boycott has had a material adverse effect on the Companys business. However, a
prolonged continuation of the increased hostilities in the region could lead to increased
boycotts and further restrictive laws, policies or practices directed towards Israel or
Israeli businesses, and these could have a material adverse impact on the Companys
business.

Generally, all male adult citizens
and permanent residents of Israel under the age of 45 are obligated, unless exempt, to
perform up to 45 days, or longer under certain circumstances, of military reserve duty
annually. Additionally, all such residents are subject to being called to active duty at
any time under emergency circumstances and large numbers of them have been so called over
the past few months. Currently, some of the Companys senior officers and key
employees are obligated to perform annual reserve duty. While the Company has operated
effectively under these requirements since it began operations, no assessment can be made
as to the full impact of such requirements on its workforce or business if hostilities
continue, and no prediction can be made as to the effect on the Company of any expansion
or reduction of such obligations, particularly if emergency circumstances occur.

The September 11, 2001 terror attacks
on the U.S. and the military response by the U.S. and its international allies in
Afghanistan and Iraq have created additional uncertainty regarding the state of the U.S.
and the world economy. The U.S. military operation against Iraq, increased interest in
fighting terrorist activities in the Middle East and around the world, and the effects of
the military operation of the U.S. and its international allies against terror on the
State of Israel could impact the Company.

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# ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company has fixed rate debt of
approximately $1,383,000. The Company believes that a material decrease in interest rates
would not have a material impact on the fair value of this debt. The Company has floating
rate debt of approximately $208,674,000, 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.

The Company also enters 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 June 30, 2003. Based upon that evaluation, the Companys Chief Executive Officer
and Chief Financial Officer concluded 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 June 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

The Company is a party to various
legal proceedings incident to its business. Except for the legal proceedings described
below, as to which there have been developments since the prior descriptions thereof in
the Legal Proceedings section and note 13C to the Consolidated Financial
Statements in the 2002 Form 10-K, and the Legal Proceedings section and note 7
to the Consolidated Financial Statements in the Form 10-Q for the quarterly period ended
March 31, 2003 (to which reference is made for descriptions of additional legal
proceedings as to which there have been no material changes since the filing of the 2002
Form 10-K or the Form 10-Q for the quarterly period ended March 31, 2003), 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.

On or around 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
complaint generally alleges that the defendants violated U.S. Federal securities laws by
making material misrepresentations and/or omissions, and also includes claims for common
law fraud and negligence. The complaint alleges that, at various times during the period
from September 17, 2001 through February 27, 2002, plaintiffs purchased the Companys
securities in reliance on such statements, and suffered economic loss as a result. The
Company was served with a summons and complaint in this action in June 2003, and is
required to move or answer by September 2, 2003. The Company believes that all of the
allegations and claims are baseless, and the Company intends to vigorously defend against
them.

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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 complaints generally allege that the defendants violated U.S. Federal
securities laws by issuing materially false and misleading statements throughout the Class
Period that had the effect of artificially inflating the market price of the
Companys securities. The complaints allege that throughout the Class Period,
defendants discounted and disputed marketplace rumors about the Companys operations
even as the Company knew it was being investigated by the SEC and that its distributors
had been contacted by the SEC.

The Company has been served with a
summons and complaint in some but not all of these actions. By order dated June 18, 2003,
the Court consolidated the nine actions, appointed a lead plaintiff and approved selection
of lead plaintiffs counsel. The plaintiffs are presently required to file their
consolidated complaint by August 29, 2003, and the Company has until October 31, 2003 to
move or answer with respect to the consolidated complaint. Subject to review and
evaluation of the consolidated complaint that is filed, the Company currently intends to
file a motion to dismiss for failure to state a claim and 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.

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. The complaint alleges that the defendants violated U.S. Federal securities laws by
making a series of material misrepresentations to the market during the Extended Class
Period regarding the Companys financial performance, successful execution of its
business plan and strong demand for the Companys products, thereby artificially
inflating the price of Lumenis securities. The Company has not been served with a summons
and complaint in this action. By order dated June 18, 2003, this action was consolidated
with the other purported class action lawsuits described above.

The Company believes that all the
allegations and claims in all of the above purported class action lawsuits are baseless,
and the Company intends to vigorously defend against them.

On February 11, 2002, the Company
filed a petition with the Bailiffs Court of Horsholm, Denmark, requesting that an
interim injunction be granted against two competing products, which are manufactured by
Danish Dermatological Development A/S, a Danish company (DDD). DDD filed its
statement of defense in July 2002, to which the Company answered in September 2002.
Additionally, DDD has filed oppositions in the European and Danish Patent Offices against
the Companys European IPL Patent and Danish Utility Model Patents, which are the
basis for the Companys request for an interim injunction. After a hearing on the
European patent opposition on March 25, 2003, the European Patent Office revoked the
Companys European IPL Patent. The Company has filed an appeal of this ruling. The
Company currently expects that its petition for an interim injunction against DDD in
Denmark will be heard in late 2003. The parties have held preliminary settlement
discussions, and the Company presently expects to continue those discussions.

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On September 12, 2002, the Company
filed a claim in the Tel Aviv  Jaffa District Court against Syneron Medical Ltd. and
Messrs. Shimon Eckhouse, Michael Kreindel, Mark Aronovitz, and Avner Lior. (the
Syneron Defendants). Hans Edel, who had originally been named as a defendant,
was struck from the claim on April 30, 2003, as per the Companys motion to the
court.. The Company alleges that the Syneron Defendants, all former employees of the
Company, used confidential business information and technology gained during their work at
the Company, for the production and distribution of products essentially similar to the
Companys products for hair removal and skin treatment (the Copied
Products). The Company also alleges that Syneron Medical Ltd. and the Syneron
Defendants (collectively the Defendants) used information with regard to the
Companys distributors and customers for the purpose of marketing the Copied
Products. The Company is seeking the following remedies against the Defendants: a
permanent injunction restraining the Defendants from using any business information or
technology or trade secrets of the Company, a mandatory injunction ordering the Defendants
to demolish all of the Copied Products that were produced by the Defendants, an order for
the delivery of accounts, the appointment of a receiver and a monetary judgment in the
amount of approximately $6,250,000. On October 20, 2002, the Defendants filed their
Statement of Defense in which they denied the Companys claims, pleading, inter alia,
that the Companys Intense Pulsed Light technology (the IPL Technology)
is within the public domain; that the Company has no intellectual property rights in it;
and that, consequently, the Defendants technology (the ELOS Technology)
does not breach the Companys rights in its IPL Technology. In addition, the
Defendants pleaded, that there is no similarity between the ELOS Technology and the IPL
Technology. On November 4, 2002, the Company filed its response to the Defendants
Statement of Defense. In its response, the Company claimed, inter alia, that the
Defendants are prohibited from pleading that the Company does not have any intellectual
property rights in the IPL technology, due to the fact that the Defendants themselves
assisted the Company in registering patents which constitute the Companys
intellectual property in the IPL technology. As part of the pre-trial proceedings, the
parties have served on each other numerous discovery requests. By mutual agreement, the
parties completed the aforementioned pre-trial proceedings on June 9, 2003. The Defendants
have filed a motion to dismiss the Companys claims, and the Company has filed a
motion to strike certain parts of the Defendants statement of defense. The
parties motions are pending before the court, and a pre-trial hearing is scheduled
for September 7, 2003.

On September 20, 2002, Lumenis Inc.
filed a lawsuit 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 for breach of
contract, intentional interference with prospective economic advantage, misappropriation
of trade secrets, breach of duty of loyalty, conspiracy, unjust enrichment, and unfair
competition, seeking unspecified damages and injunctive relief. Lumenis Inc.s
request for expedited discovery was granted by the court, and Lumenis served initial
discovery demands. On or about October 22, 2002, Syneron Inc. (Canada) filed a motion to
quash service upon it for lack of personal jurisdiction. This motion was granted by the
court in January 2003, and Syneron Inc. (Canada) was dismissed as a defendant. On or about
October 25, 2002, Lumenis Inc. filed an amended complaint adding former Lumenis Inc.
employee David J. Maslowski as a defendant in the action. On or about December 4, 2002,
the defendants filed answers to the amended complaint. In addition, Syneron Inc.
(Delaware) filed a cross-complaint alleging various claims related to unfair trade
practices and competition, and two of the individual defendants filed cross-complaints
alleging various claims related to unpaid commissions. Lumenis believes the cross-claims
are wholly without merit and will vigorously defend against them. Discovery has commenced,
and the Court has ordered that the parties attend mediation not later than August 28,
2003. A trial date has not been set.

On October 28, 2002, Lumenis Ltd. and
Lumenis Inc. (collectively, Lumenis) filed a complaint 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 is seeking 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. Oral argument on the request for a temporary
restraining order and preliminary injunction was held on November 1, 2002. Citing the
complexity of the patent issues involved, the court declined to grant the Companys
request for a temporary restraining order. The court granted the Companys request
for expedited discovery, and ordered the appointment of an independent expert to advise
the court on the patent infringement issues raised by the lawsuit. A technical expert has
been appointed to assist the court, and the Companys request for a preliminary
injunction was heard on June 16, 2003. 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 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 $400,000 in accordance with
the Order.

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On October 24, 2002, Lumenis Inc.
filed a complaint 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). The complaint
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. The Company served its complaint on Palomar and General on February 24, 2003.
Palomar filed a motion for transfer of the Federal Action to Massachusetts. On July 15,
2003, the court denied Palomars motion. The Markman Hearing on claim
interpretation is currently scheduled for February 3, 2004.

In connection with the Federal
Action, Lumenis has ceased payment of royalties under the License Agreement. In response,
Palomar filed a complaint on October 29, 2002 against Lumenis Ltd., Lumenis Inc., ESC
Medical Systems Ltd., ESC Medical Systems Inc. and ESC/Sharplan Laser Industries
Ltd. (collectively, Lumenis) in the Superior Court of the Commonwealth
of Massachusetts. The complaint alleges that Lumenis has breached the License Agreement by
failing to make certain royalty payments, that Lumenis actions have breached the
implied covenant of good faith and fair dealing arising with respect to the License
Agreement and that Lumenis actions constitute unfair and deceptive trade practices
in violation of M.G.L., Chap. 93A, Sections 2 and 11. Palomar seeks an award of
unspecified compensatory damages, a trebling of such damages, its costs and
attorneys fees and pre-judgment interest. The complaint was served on Lumenis on May
7, 2003. The parties are continuing settlement discussions.

On September 30, 2002, an action was
filed 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. The complaint alleges, among other things, that the Company
removed Mr. Adil from these positions and terminated his employment in retaliation for his
report to the Company of alleged accounting and disclosure irregularities. The action
seeks, among other things, compensatory damages and reinstatement of his employment. The
Company believes that the claims are without merit, and the Company intends to defend
itself vigorously. On October 29, 2002, the defendants removed the action to the United
States District Court for the District of New Jersey (the District Court). On
November 13, 2002, Mr. Adil filed a first amended complaint in the District Court, adding
Lumenis Inc. as a defendant in the action. During January 2003, the defendants moved to
dismiss the first amended complaint, and Mr. Adil filed an opposition to the
defendants motion. The motion was heard April 7, 2003, and the judge dismissed Mr.
Adils claims of unemployability and his claim that the defendants
improperly refused to allow him to retain qualified counsel of his choice in the
securities class action lawsuits in which Mr. Adil is a named defendant. In addition, the
judge dismissed Adils claim of breach of his employment agreement as to the
individual defendants only (Prof. Jacob A. Frenkel, Yacha Sutton and Sagi Genger). Mr.
Adils remaining claims were 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. In June 2003, the Company and Sagi
Genger answered the first amended complaint, generally denying all of the allegations and
all of Mr. Adils claims. On August 11, 2003, Yacha Sutton and Prof. Jacob A. Frenkel
answered the first amended complaint, generally denying all of the allegations and all of
Mr. Adils claims against them. Substantive discovery has not commenced, and a trial
date has not been set.

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. On May 5, 2003, Diodem filed its First Amended Complaint containing
substantially similar allegations, against Lumenis Inc., Lumenis Ltd., American Medical
Technologies, Inc., Biolase Technologies, Inc., OpusDent Inc., and HoyaConBio. The
complaint seeks, inter alia, injunctive relief and unspecified damages. 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. The Company
believes the claims against it are without merit, and intends to vigorously defend against
them.

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On July 23, 2003, William P. Young,
DVM, 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 has not been served
with a summons and complaint in this action. The Company believes the claims against it
are without merit, and if served with a summons and complaint, intends to vigorously
defend against them.

On
January 18, 2002, Lumenis Inc. commenced an action for patent infringement against
Trimedyne, Inc. (Trimedyne) in the United States District Court for the
Central District of California. The complaint alleges that Trimedyne has willfully
infringed and is willfully infringing two Lumenis Inc. U.S. patents. Lumenis Inc. seeks,
inter alia, an injunction enjoining Trimedynes infringement, damages, costs and
attorneys fees. On or about February 26, 2002, Trimedyne filed an answer and
counterclaims in this action denying Lumenis material allegations of infringement
and asserting counterclaims, inter alia, seeking a declaratory judgment that Trimedyne is
not infringing the Lumenis patents and a declaratory judgment that it is entitled to a
refund of an alleged overpayment of royalties by Trimedyne of approximately $130,000 under
a 1994 patent license. Trimedyne also alleges generally that Lumenis violated certain
antitrust, trade libel and trade practices laws; and that certain Lumenis products
infringe Trimedynes patents. Trimedyne seeks, inter alia, an injunction enjoining
Lumenis Inc. from the allegedly wrongful acts, unspecified damages and a trebling of such
damages, disgorgement of profits, unspecified punitive damages, a refund of the alleged
royalty overpayment, and costs and attorneys fees. On April 29, 2002, the Company moved
to: (i) dismiss the federal and state antitrust counterclaims, the counterclaims for trade
libel and the counterclaim for tortious interference with prospective economic
relationships on the grounds that Trimedyne has failed to state a claim upon which relief
can be granted; (ii) dismiss or stay the claims related to the 1994 patent license, as
those claims are subject to a compulsory arbitration clause; and (iii) strike certain of
the affirmative defenses asserted by Trimedyne. On June 3, 2002, Trimedyne served an
amended answer and counterclaims re-asserting all of the claims from its original
complaint other than the claims relating to the 1994 patent license. On March 3, 2003, the
Court dismissed Trimedynes counterclaim for tortious interference with prospective
economic relationships, but denied the Companys motion to dismiss Trimedynes
other counterclaims. The parties submitted this dispute to mediation, and have signed a
letter of intent which resolves the parties mutual claims. The Company currently
expects to enter into a definitive settlement agreement with Trimedyne during 2003.

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.
The demand for arbitration seeks an unspecified amount in damages and an injunction
against further sales of the LightSheer system. On October 3, 2002, Lumenis Inc. filed and
served an answering statement denying the material allegations of the demand for
arbitration, denying that the LightSheer system infringes the referenced patents, denying
that Lumenis Inc. owes any royalties under the license agreement and denying that Cool
Laser has any right to terminate the license agreement. Lumenis Inc.s answering
statement also asserts that the Cool Laser patents are invalid and unenforceable and that
Cool Laser is estopped from asserting them and further asserts that the arbitrators do not
have jurisdiction to hear a claim for patent infringement. Lumenis Inc.s answering
statement seeks, inter alia, the dismissal of all of Cool Lasers claims with
prejudice. The parties recently reached an agreement in principle to settle Cool
Lasers claims, and the arbitration proceeding has been stayed.. The Company
currently expects to enter into a definitive settlement agreement with Cool Laser during
2003.

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, and the Legal
Proceedings section and note 7 to the Consolidated Financial Statements in the Form
10-Q for the quarterly period ended March 31, 2003, 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, and the Legal
Proceedings section and note 7 to the Consolidated Financial Statements in the Form
10-Q for the quarterly period ended March 31, 2003) 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.

36

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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 June 30, 2003 the Company has
an accrual of $13,830,000, 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.

# ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its Annual General
Meeting of the Companys shareholders on May 27, 2003 (the Annual
Meeting). The following sets forth each matter which was presented to the
Companys shareholders and voted upon at the meeting and the number of votes cast
for, against or withheld, as well as the number of abstentions and broker non-votes for
such matter:

| | 1. | To elect the directors of the Company to serve until the next Annual Meeting.
                    The nominees are Prof. Jacob A. Frenkel, Mr. Arie Genger, Mr. Avner Raz,
                    Dr. Darrell S. Rigel, Mr. Sash A. Spencer and Mr. Robert A. Mintz.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     | For        | Withhold
Authority
|-------------------- | ---------- | ------------------
|Prof. Jacob Frenkel  | 28,660,015 | 192,100           
|Mr. Arie Genger      | 28,660,015 | 192,100           
|Mr. Avner Raz        | 28,660,015 | 192,100           
|Dr. Darrell S. Rigel | 28,660,015 | 192,100           
|Mr. Sash A. Spencer  | 28,660,015 | 192,100           
|Mr. Robert A. Mintz  | 28,660,015 | 192,100           

| | 2. | To elect the following nominees to serve as Outside Directors of the Company
                    until the 2006 Annual General Meeting: Prof. Boleslaw Goldman and Mrs.
                    Leslie Eichner.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       | For        | Withhold
Authority
|---------------------- | ---------- | ------------------
|Prof. Boleslaw Goldman | 28,660,015 | 192,100           
|Mrs. Leslie Eichner    | 28,660,015 | 192,100           

| |  | On July 27, 2003, Prof. Boleslaw Goldman resigned as a Director, due to the
extension by the Israeli Ministry of Health of his assignment as a Director
of the Chaim Sheba Medical Center in Israel. Mrs Leslie Eichner continues to
serve as a Director, but does not serve as an Outside Director pursuant to
the Israeli Companies Law.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | To appoint the firm of Brightman Almagor & Co., a member firm of
     Deloitte Touche Tohmatsu, as the
     Companys independent auditors for fiscal year 2003.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

37

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|For: 28,636,632 | Against: 168,548 | Abstain: 46,935 | 
|--------------- | ---------------- | --------------- | 

|4. | To approve the compensation of the Companys directors for serving on the
          Board of Directors.
|-- | -------------------------------------------------------------------------------------------------------

|For: 8,545,081 | Against: 6,593,818 | Abstain: 39,247 | Broker Non-Votes:13,673,969
|-------------- | ------------------ | --------------- | ---------------------------

|5. | To approve the Directors and Officers
 liability insurance arrangement.
|-- | -------------------------------------------------------------------------

|For: 24,320,179 | Against: 4,437,405 | Abstain: 96,529 | 
|--------------- | ------------------ | --------------- | 

|6. | To permit a majority of the option grants under the Israel 2003 Option Plan to
                    be made to officers and directors and to ratify and approve the Plan for the
                    purpose of its operation in that manner.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|For: 10,504,840 | Against: 4,357,758 | Abstain: 315,548 | Broker Non-Votes:13,673,969
|--------------- | ------------------ | ---------------- | ---------------------------

|7. | To approve the arrangement between the Company and Dr. Darrell Rigel, a
          director of the Company.
|-- | ----------------------------------------------------------------------------------------------------------

|For: 14,624,171 | Against: 478,197 | Abstain: 75,778 | Broker Non-Votes:13,673,969
|--------------- | ---------------- | --------------- | ---------------------------

|8. | To extend the post-termination exercise period for options granted to directors
                    under the 1999 Share Option
                    Plan and to approve an amendment to the 
1999 Plan for this purpose.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|For: 8,307,735 | Against: 6,807,843 | Abstain: 62,568 | Broker Non-Votes:13,673,969
|-------------- | ------------------ | --------------- | ---------------------------

|9. | To approve the employment terms and compensation of Avner Raz as Chief Executive
                    Officer of the Company.
|-- | ----------------------------------------------------------------------------------------------------------------------------

|For: 13,869,433 | Against: 1,238,005 | Abstain: 70,708 | Broker Non-Votes:13,673,969
|--------------- | ------------------ | --------------- | ---------------------------

38

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

|(a)  | Exhibits                                                                                                                                                                                                                     
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 | Employment Agreement dated April 24, 2003 between Avner Raz and Lumenis Ltd.                                                                                                                                                 
|10.2 | Employment Agreement dated June 12, 2003 between Hai Ben Israel and Lumenis Ltd.                                                                                                                                             
|10.3 | Separation Agreement dated as of June 30, 2003 between Sagi Genger and Lumenis Ltd.                                                                                                                                          
|10.4 | Consulting Agreement dated as of June 30, 2003 between E&G Advisory Services Limited and Lumenis Inc.                                                                                                                        
|10.5 | Letter Agreement with Bank Hapoalim B.M dated June 17, 2003.                                                                                                                                                                 
|10.6 | Stock Pledge Agreement dated as of July 1, 2003 between Bank Hapoalim B.M. and Lumenis Ltd.                                                                                                                                  
|10.7 | Stock Pledge Agreement dated as of July 1, 2003 between Bank Hapoalim B.M. and Lumenis Holdings Inc.                                                                                                                         
|10.8 | Letter Agreement with Bank Hapoalim B.M dated June 9, 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
June 30, 2003, (i) on April 18, 2003 (Date of earliest event reported: April 4, 2003), the
Company filed a Current Report on Form 8-K disclosing (under Item 5) the adoption by the
Board of Directors of a shareholder rights plan; (ii) on April 30, 2003 the Company
furnished a Current Report on Form 8-K disclosing (pursuant to Item 12, under Item 9) the
Companys financial results for the quarter ended March 31, 2003; and (iii) on
May 15, 2003 the Company furnished a Current Report on Form 8-K disclosing (under Item 9)
the certification made by the Companys chief executive officer and chief financial
officer under Section 906 of the Sarbanes-Oxley Act with respect to the Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2003.

39

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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: August 14, 2003 |  | Lumenis Ltd.BY: /S/ Kevin Morano
Kevin Morano(Chief Financial Officer,
and Duly Authorized Officer)
|--------------------- |  | -----------------------------------------------------------------------------------------------------------------

40

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Exhibit 10.1

# EMPLOYMENT AGREEMENT

This Employment Agreement (this
Agreement) is made and entered into as of April 24, 2003 by and among
(i) Lumenis Ltd., a company incorporated under the laws of the State of Israel, with
offices at the New Industrial Park, Yokneam, Israel (Lumenis or the
Company) and Mr. Avner Raz (Executive).

WHEREAS, the Company wishes to
retain the Executive as its Chief Executive Officer and President; and

WHEREAS, the Company and the
Executive agreed to set forth in writing the terms and conditions of their understandings
regarding the employment of the Executive as Chief Executive Officer and President; and

WHEREAS, The Executive
represents that he has the requisite skills required for carrying out his duties hereunder
competently and professionally.

NOW, THEREFORE, in
consideration of the premises and the mutual covenants, terms and conditions hereinafter
set forth, and for other good and valuable consideration, the parties hereto agree as
follows:

|1. | EMPLOYMENT. Lumenis hereby employs the Executive in the capacity of the
               Chief Executive Officer and President, all upon the terms and subject to the
               conditions set forth below. The Executive hereby accepts employment with the
               Company in such capacity and upon the terms and subject to the conditions set
               forth below.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | DUTIES, RESPONSIBILITIES AND AUTHORITIES.
|-- | -----------------------------------------

| | a. | The Executive agrees to devote his full business time (except for certain exceptions as
approved from time to time by the Board of Directors and for his tenure as director of
Inter-Gamma Investment Ltd.), attention, best efforts and ability to the affairs of the
Company, as required to diligently and competently discharge his responsibilities
hereunder.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | The Executive shall report to the Board of Directors only, unless otherwise required under any
applicable law. Subject to any mandatory provision of applicable law to the contrary, the
Executive shall have responsibility for all aspects of the business affairs of the Company
and its subsidiaries, with the powers, authority and duties as are customarily assigned to
the chief executive officer of a publicly traded corporation and/or as may be
appropriately delegated by the Board of Directors from time to time in good faith,
provided however, that the nature of Executives authorities and responsibilities
shall be of the most senior management authorities including, inter alia, (i) all
employees of the Company, including Board members who are employees (if any), except the
Chairman of the Board, shall report to the Executive, and no other person shall have the
same authorities as the Executives, it being clarified and agreed, however, that
Board members who are employees (if any), shall report to the Executive solely in their
capacity as employees and not in their capacity as directors, (ii) no later than the
Employment Commencement Date Executive shall be appointed as a member of the Board of
Directors of the Company and shall remain as such throughout his employment hereunder
subject however to limitations or prohibitions imposed under any applicable law (and for
the duration of such limitation only) or subject to the Executives resigning from
the Board of Directors which shall not be deemed a breach of this Agreement, (iii)
Executive shall be appointed an authorized signatory of the Company with apparent and
express authority to bind the Company in matters commensurate with the Executives
position and responsibilities, as shall be determined by the Companys Board of
Directors, and (iv) Executive shall be entitled to working conditions commensurate with
his position and responsibility, in accordance with the Companys policies with
regard to a senior officer of the Executives position.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

41

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| |  | Throughout
his employment the Executive shall not engage in any activity, which may interfere, or
conflict with the proper discharge of his duties. Subject to any applicable law and to the
prior written approval of the Chairman of the Board of Directors of the Company which
approval shall not be unreasonably withheld, and without derogating in any manner from any
of Executives undertakings hereunder, Executive shall be entitled to serve as a
director of any public company whose business is not in competition with the Company or
any of its subsidiaries.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | TERM AND TERMINATION. The term of this Agreement shall commence on June
               20, 2003 (herein: Employment Commencement Date) and shall
               continue in full force and effect during a four (4) year period until June 20,
               2007 (herein the: Term), or until terminated earlier pursuant
               to the terms hereof.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | Notwithstanding anything contained herein to the contrary, but without
               derogating from the provisions of Section 22 hereof, this Agreement and the
               Executives employment may be terminated:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (1) | at any time at the option of either the Executive or the Company, upon one
               hundred and eighty (180) days prior written notice (Prior
               Notice).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | immediately upon the death of the Executive;
| | --- | --------------------------------------------

| | (3) | by the Companys written notice with immediate effect, in the event of the
               inability of the Executive to perform his duties hereunder, by reason of injury
               (mental or physical) or illness, incapacitating the Executive for a continuous
               period exceeding one hundred and twenty (120) consecutive days or a total of one
               hundred and twenty (120)non-consecutive days in any 365 days period. In
               the event of a dispute between Executive and the Company relating to
               Executives incapacitation for purposes of this subsection, such
               incapacitation shall be determined by an independent medical specialist to be
               appointed by the Companys Board;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

42

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| | (4) | by the Companys written notice with immediate effect, for Cause (as
               defined below) in the manner specified herein below. For purposes of this
               Agreement, Cause shall consist only of any of the following:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | Any breach by the Executive of his fiduciary duty to the Company adversely
               affecting the Company;
| | --- | ----------------------------------------------------------------------------------------------------------------

| | (ii) | The Executives final conviction of a crime of fraud or embezzlement of
               Companys funds, adversely affecting the Company;
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | The continued engaging by the Executive in willful misconduct which is not cured
               by Executive within 7 business days following receipt of a written notice to
               that effect executed by the Chairman of the Board of Directors of the Company,
               and which results in material loss to the Company such material loss to be
               detailed in the written notice.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Termination
for Cause shall only be effected by action of a majority of the Board of
Directors of the Company who were not employees of the Company at the time in which the
circumstances giving rise and constituting the Cause occurred. Such termination shall be
effected by notice thereof executed by the Chairman of the Board specifying in detail the
grounds for such termination, including all relevant facts, delivered by the Company to
the Executive and, except as hereinafter provided, shall be effective as of the date of
such notice. The Executive may, within fifteen (15) days following delivery of the notice
of termination, by written notice to the Board of Directors of the Company, cause the
matter of the termination by the Company to be discussed at the next meeting of the Board
of Directors, in which meeting the members of the Board shall be present and in which the
Executive shall have the right to address the Board members. If, at such meeting, it shall
be determined that termination was effected without proper Cause, the provisions of
paragraph 3(b) shall apply in which case the Executive shall be entitled to receive the
compensation and all other benefits (including bonuses) provided herein for the period
from the date of the delivery of the notice of termination through the date of such
termination, as the case may be; or
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | by the Executive, with immediate effect:
| | --- | ----------------------------------------

43

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| | (i) | in the event the Company files for bankruptcy, becomes or is declared insolvent,
               or is the subject of any proceedings related to its liquidation, insolvency or
               the appointment of a permanent receiver or similar officer for it, makes an
               assignment for the benefit of all or substantially all of its creditors, or
               enters into an agreement for the composition, extension, or readjustment of
               substantially all of its obligations, and provided the Company did not cure the
               situation within 30 business days (Allowed Curing Period).
               Notwithstanding the aforesaid, if the Company cancels or survives any of the
               aforesaid proceedings by no later than 30 business days following the Allowed
               Curing Period and the Executive has exercised his rights pertaining to the
               Guarantee, as described in Section 17 hereunder, the Executive will continue
               acting as Chief Executive Officer pursuant to the terms of this Agreement,
               unless the Company decides otherwise and all without derogating from the rights
               of the Executive hereunder, or
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | upon consummation of a Change of Control (as such term is defined in
               Exhibit A hereto.
| | ---- | -------------------------------------------------------------------------------------------------------

| | (6) | by the Executive with immediate effect upon material deterioration in
               Executives employment terms effected by the Company (hereinafter
               Material Deterioration). For purposes hereof, Material Deterioration
               shall be interpreted in accordance with applicable law (including the Severance
               Pay Law, 5723-1963) and shall include without limitation (i) the conferring upon
               Executive of duties (or authorities) that materially deviate or are limited in
               scope from those assigned to him under this Agreement, (ii) a change in
               Executives title or position without his consent, (iii) the appointment or
               removal of executive members to the management of the Company without the
               consent of the Executive, or (iv) the reduction of Executives salary or
               other employment terms with the Company without his consent.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | In the event of termination of this Agreement and/or the Executives
               employment hereunder by the Company pursuant to Sections 3(a)(1) or by the
               Executive pursuant to Sections 3(a)(5) or 3(a)(6), and concurrently with the
               Executive and the Company executing a mutual waiver and release of all actual or
               potential claims, the Company shall pay the Executive immediately upon
               termination a sum equal to the compensation (including bonuses and other
               benefits) that Executive would have been paid if he had continued working for
               the Company for the full Term through June 20, 2007. In addition, all previously
               unvested options shall be accelerated and fully vest with Executive. Upon
               termination Executive shall be entitled to exercise all options granted
               hereunder for a 8-year period, provided however, that the Executive will be
               entitled to exercise such options for a period of not less than the remaining 8
               year lifetime of the options granted following termination of employment. The
               Company shall use its best effort to approve said term of grant concurrently
               with the signing of this Agreement and shall cause and obtain all necessary
               approvals required for the approval of such terms of grant by no later than the
               Employment Commencement Date, provided, however, that if the requisite corporate
               approvals are not obtained, the Executive and the Company shall seek an amicable
               way of action to solve this matter.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

44

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|4. | BASE SALARY. As compensation for services rendered hereunder, the Company
               shall pay the Executive a base salary of U.S. $530,000 (five hundred thirty
               thousand United States Dollars) per annum, payable in twelve (12) equal monthly
               installments in US$ Dollars currency (or, per the Executives request, in
               NIS currency in accordance with the representative rate of the US$ known at the
               date of payment) in accordance with the standard payroll dates and practices for
               salaried personnel of the Company. The Board of Directors shall review the
               Executives salary level and shall consider an increase of the salary, if
               any, annually.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | BENEFITS. In addition to the compensation set forth in Section 4 above,
               the Executive shall receive the following benefits from the Company, it being
               understood that any wage-based benefits shall be calculated exclusively on the
               basis of the base salary (without consideration to any other benefit) in effect
               from time to time;
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | VACATION. The Executive shall be entitled to thirty (30) working days of
               fully paid vacation per year (based on a five days working week). Actual use of
               vacation days will be determined by the Executive and the specific dates of such
               vacations shall be coordinated in advance with the Chairman of the Board of
               Directors.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | MANAGERS INSURANCE. The Company and the Executive will obtain and
               maintain Managers Insurance (Bituach Menahalim) Policy (the Policy)
               for the benefit of the Executive. The Policy shall be the existing Policy
               maintained for and by Executive. The Company shall pay, on a monthly basis,
               contributions to the Policy in an amount equal to 13 1/3% (severance 8 1/3% and
               5% savings) of the base salary, provided that, the amount available in such fund
               in respect of severance compensation shall at all times (in particular
               immediately upon any increase of the base salary) be equal to 8 1/3% of the
               Executives then current base salary. In addition, the Company shall pay on
               a monthly basis an amount of 2.5% of the base salary in respect of disability
               coverage. The Executive shall pay, on a monthly basis, an amount equal to 5% of
               the base salary as contribution towards savings on the Policy, such amount shall
               be deducted by the Company from the base salary and transferred to the insurance
               company. The Policy and/or the proceeds thereof shall be in the Executives
               name and shall be released to the Executive without restriction immediately upon
               the expiration or termination of the employment relationship contemplated by
               this Agreement, for any reason whatsoever, except for release of the portion of
               the Managers Insurance accrued in respect of severance payments in the event
               termination is for Cause as defined herein.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | The Executive agrees and acknowledges that subject to the fulfillment by the
               Company of its above obligations, payments by the Company under this Section
               shall be in lieu of the Companys statutory obligation to pay severance
               pay, in accordance with Section 14 of the Severance Pay Law, 5723-1963.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

45

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| | (d) | ADVANCED STUDY FUND (Keren Hishtalmut). The Company shall pay, on a
               monthly basis to the Executives current advanced study fund in
               Executives name, an amount equal to 7.5% of the base salary, but not
               exceeding the highest deductible and/or credible amount for tax purposes, and
               2.5% of the base salary (but not exceeding the highest deductible and/or
               credible amount for tax purposes) shall be deducted by the Company from the base
               salary and transferred to the fund. All funds accrued in such fund shall be
               released to Executive upon termination for any reason.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | PERFORMANCE BONUS.
| | --- | ------------------

| | (i) | For fiscal year 2003 the Executive will be entitled to a minimum guaranteed
               bonus of $250,000 (two hundred and fifty thousand United States Dollars)
               unconditional upon any performance criteria payable no later than by the end of
               the first quarter of 2004. Any additional bonus for fiscal year 2003, shall be
               based on the performance criteria as set by the Board of Directors and linked to
               the performance bonuses payable to the current senior (tier 1) management team
               of the Company resulting from the performance criteria set by the Board for such
               management tier, and as may be updated in good faith, no later than by the end
               of June 2003. Payment of said second portion of the 2003 bonus shall be made no
               later than the end of the first fiscal quarter of 2004, which in any event will
               not exceed the total additional amount of $250,000 (two hundred and fifty
               thousand United States Dollars).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | For any future year, the Executive will be granted an annual cash bonus
               resulting from his guaranteed eligibility to participate in the Lumenis Bonus
               Plan for executive officers at a 100% base participation rate for meeting 100%
               of the targets as will be approved each calendar year by the Board of Directors.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | OPTIONS.
| | --- | --------

| | (i) | The Executive will be granted options to purchase up to 400,000 of the
               Companys Ordinary Shares, par value NIS 0.10 per share. The exercise price
               shall be US$1.205 per share, reflecting the 30 days average closing price of the
               Companys Ordinary Shares on the NASDAQ prior to the date of grant. The
               options will vest over 48 months as follows: 
133,336
options shall vest at the end of the first 12 months of employment following which an
additional amount of 22,222 options shall vest at the end of each 3 months period,
consecutively (the: Executives Vesting Schedule). In the event
that the Company shall grant its senior management options subject to a vesting schedule
which is shorter than the Executives Vesting Schedule or in which the relative
amount of vested options over time is greater, then the Executives Vesting Schedule
shall be respectively adjusted to such accelerated vesting schedule. The above shall not
be applicable in the event of a grant of options to an employee in a unique event related
to outstanding performance as approved by the CEO of the Company.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | (ii) | In addition, the Executive will be eligible to receive periodic grants of
               options as part of the total compensation as approved by the Board of Directors,
               consistent with Lumenis practice of compensating executive officers and as per
               stock option plans in effect from time to time. Nothing in this subsection
               (f)(ii) shall obligate the Company to grant to the Executive a specific or
               minimum number of options at or during any period of time.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | CERTAIN REIMBURSEMENTS.
| | --- | -----------------------

| | (i) | The Executive shall be entitled to full reimbursement from the Company for
               expenses incurred in connection with the performance of his duties and
               commensurate with his senior management position, upon submission of
               substantiating documents and in accordance with the Companys standard
               policies.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | The Executive will be entitled to fully paid 2 phone lines, facsimile machine
               and a cell phone (including a car phone) and shall receive a new Company vehicle
               commensurate with his position, for his use (and family use). The Company shall
               bear all fixed and variable costs related to the use and maintenance of the car.
               The Company shall gross up any applicable tax liability imposed on Executive due
               to the benefit attributed to Executive under this subsection.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | If the Executive will be required to relocate to the US as part of his position
               as Chief Executive Officer and based on the decision of the Board of Directors
               (and the recommendation of the Executive in his position as Chief Executive
               Officer), the Company shall reimburse the Executive for relocation expenses to
               the US and back, including costs associated with relocation of his family.
               Throughout the period of time in which the Executive is relocated, the Company
               shall reimburse the Executive and increase his base salary to the cost of living
               in the US. In as much as there will be a necessity to determine specific amounts
               pertaining to this provision, such amounts will be determined by the Chairman of
               the Board and the Executive in a joint decision but at any event the Company
               shall bear all costs associated with medical insurance coverage for the
               Executive and his family members including dental care insurance under the
               insurance program provided to the Companys Chief Financial Officer and
               Chief Operating Officer, as well as all costs associated with Executives
               accommodation in a location and terms commensurate with Executives
               position..
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

47

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| | (iv) | Executive shall be entitled to fully paid sick leave (without any limitation on
          accumulation) and recreation pay in respect of employees with over 20 years of
          experience with employer, all subject to and in accordance with applicable law.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (h) | SPECIAL SIGNING BONUS. In addition to all other payments in the
               Agreement, the Executive will be entitled to payment of a one-time cash amount
               of US$270,000 (two hundred and seventy thousand United States Dollars) as a
               signing bonus. This guaranteed special payment will be paid to the Executive in
               a lump sum by no later than December 31, 2003.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | INDEMNIFICATION. The Company shall insure the Executive and maintain such
               insurance throughout the course of Executives employment, under the
               Companys Directors and officers insurance as in effect from time to time,
               and shall indemnify the Executive under the terms and conditions of the
               indemnification agreement attached as Exhibit B
               hereto.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | CONFIDENTIAL INFORMATION. The Executive agrees that, without the express
               prior written consent of the Board of Directors of the Company, he will not
               divulge or use, except in furtherance of the Companys business at any time
               during his employment as well as after the termination of his employment with
               the Company, any confidential information (as defined below,
               Confidential Information) obtained at any time,
               disclosed to the Executive or developed by the Executive in the course of the
               Executives employment with the Company relating to the business of either
               the Company, its subsidiaries, any company in which the Company holds, directly
               or indirectly (i) a 5% interest (or greater) in the equity or profits thereof,
               or (ii) any right or power to appoint one or more managers, directors
               (Affiliate), Nothing herein shall limit the Executive from
               disclosing information to employees, advisors, consultants and to third parties
               of the Company, its subsidiaries and its Affiliates when and only to the extent
               specifically required to do so in connection with the performance of his duties
               hereunder. Confidential Information shall include, but not be
               limited to, trade secrets, know-how, data, technical or non-technical
               information, whether written, graphic or oral, the identity of prospective or
               existing investors, customers, supply sources, ideas, financial information,
               operations policies, marketing strategies, business development plans, corporate
               assets, financial data and forecasts, historical financial results, and any
               other information which is confidential or proprietary in nature and all as
               relating to the business of the Company. Notwithstanding the foregoing,
               Confidential Information shall not include the following: (i) information which
               becomes public (through no breach by Executive of any obligation hereunder),
               (ii) information which is previously known to the Executive (through no breach
               by Executive of any obligation hereunder) and without an obligation to keep it
               confidential, as substantiated by written documents, (iii) information which is
               expressly released in writing from the obligations of confidentiality imposed by
               this Agreement or (iv) information which is required to be disclosed pursuant to
               any mandatory applicable law, regulation, judicial or administrative order or
               decree, or request by other regulatory organization having authority pursuant to
               the law.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|7. | COVENANT NOT TO SOLICIT BUSINESS; NON-COMPETITION.
|-- | --------------------------------------------------

| | (a) | The Executive agrees that during the term hereof and for a period of one (1)
               year from the effective date of termination of this Agreement, he will not
               directly or indirectly solicit from any individuals or entities that are
               customers of the Company or its subsidiaries, at the time of termination of this
               Agreement, any business which is in competition with the business of the Company
               or any of its subsidiaries.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | During the term hereof and for a period of one (1) year from the effective date
               of termination of this Agreement, without the prior written consent of the Board
               of Directors, the Executive shall not offer to employ, or in any way directly or
               indirectly solicit or seek to obtain or achieve the employment of any person
               employed at the time of termination by (i) the Company; or (ii) the
               Companys subsidiaries;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | During the term hereof and for a period of one (1) year from the effective date
               of termination of this Agreement, without the prior written consent of the Board
               of Directors, the Executive shall not participate, directly or indirectly
               (whether as advisor, principal, agent, partner, officer, director, employee,
               stockholder, associate or consultant of), in any Business Entity (except for an
               equity interest of less than 5% in any such entity). For purposes of this
               subsection (c), the term Business Entity shall mean any person,
               partnership, corporation or other business entity that, at the time of the
               effective termination of this Agreement, is involved in any competition with the
               principal business of the Company or its subsidiaries.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | The parties hereto agree that the duration and area for which the covenant not
               to compete set forth in Section 7(c) above is to be effective, are reasonable in
               terms of geographical and temporal scope. In the event that any court determines
               that such time period and/or area are unreasonable and that such covenant is to
               that extent unenforceable, the parties hereto agree that such covenant shall
               remain in full force and effect for the greatest period of time and in the
               greatest geographical area that would not render it unenforceable. In addition,
               the Executive acknowledges and agrees that a breach of Section 6 or subsections
               (a), (b) or (c) of this Section 7 shall cause irreparable harm to the Company,
               and that the Company shall be entitled to specific performance of the provisions
               of Sections 6 and 7 herein or an injunctive relief without proof of special
               damages.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | INTELLECTUAL PROPERTY ASSIGNMENT. Any invention or know-how which shall
               be, developed or generated in any manner by the Executive during the period of
               his employment relating to the business of the Company or the use of any of its
               technologies, notwithstanding that it is perfected or reduced to specific form
               at any time thereafter provided that its pertinent conception arose
               during such period, including all rights therein and in any patent or other form
               of legal protection with respect thereto, shall become the sole property of the
               Company, without need for any specific action or notice or any consideration to
               the Executive other than as provided for by this Agreement.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|9. | DEDUCTIONS AND WITHHOLDINGS. The Company shall be entitled to deduct and
               withhold from any amount payable to the Executive, whether pursuant to this
               Agreement or otherwise, any and all taxes, withholdings or other payments as
               required under any applicable law.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. | CONDITIONS. Each of the Executive and the Company hereby respectively
               represent that each has full authority to enter into this Agreement and that the
               performance of each respective duties under this Agreement will not interfere
               with or violate the terms of any other agreement, arrangement or understanding
               to which he/it is a party or by which he/it is bound.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11. | BENEFIT. Except as otherwise expressly provided herein, this Agreement
               shall inure to the benefit of and be binding upon the parties hereto and their
               respective heirs, beneficiaries, personal representatives, and permitted
               successors and assigns.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. | NOTICES. All notices hereunder shall be in writing and delivered by hand
               or faxed or mailed to the address stated below of the party to which such notice
               is given, or to such changed address as such party shall have given to the other
               party by written notice provided, however, that any notice of change of
               address shall be effective only upon receipt by the other party.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | To the Company:
                  Lumenis Ltd.
                  375 Park Avenue
                  New York, NY  10510
                  Attention:  Chairman of the Board

                  To Executive:
                  2 Ha'yasoor St.
                  Ramat- Hasharon
                  Israel

                  With a copy to:
                  Meitar, Liquornick, Geva & Co 
                  16 Abba hillel Silver Rd.
                  Ramat- Gan,
                  Israel 52506
                  Fax: 972-3-6103111
                  Attn: Maya Liquornick, Esq.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. | SEVERABILITY OF PROVISIONS. If any of the provisions of this Agreement is
               held invalid, such provisions shall be severed and the remainder of the
               Agreement shall remain in force and shall not be affected thereby.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. | NO ORAL CHANGES. This Agreement may be changed only in writing, and must
               be signed by the party against whom enforcement of any waiver, modification,
               discharge or other change is sought.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|15. | WAIVER. Neither partys failure to insist upon strict compliance
               with any of the terms, covenants or conditions hereof shall be deemed a waiver
               of such term, covenant or condition, nor shall any waiver or relinquishment of
               any right or power hereunder at any one or more times be deemed a waiver or
               relinquishment of such right or power at any other time or times.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|16. | ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
               the parties hereto regarding the subject matter hereof, and supersedes and
               cancels any and all prior agreements between the parties hereto, express or
               implied, written or oral, relating to the subject matter hereof.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|17. | GUARANTEE.
|--- | ----------

| | (a) | The Company shall cause the issuance in favor of the Executive of an
               unconditional, irrevocable and autonomic, exercisable upon first demand in one
               time or more without limitation, without having to justify the request, to be
               paid within 3 business days, bank guarantee to secure all monetary undertakings
               of the Company as described in this Agreement to be issued by Bank
               Hapoalim Ltd. (Guarantee). The Guarantee will be issued
               on the date hereof and delivered to the Executive concurrently upon signing of
               this Agreement, at a total amount of US$3,000,000 (Three Million United States
               Dollars) (the Guaranteed Amount). The Guaranteed Amount shall
               decline according to the following percentages, amount in periods: On June 20,
               2004, the Guaranteed Amount will depreciate by US$800,000 (Eight Hundred
               Thousand United States Dollars) and will equal US$2,200,000 (Two Million Two
               Hundred Thousand United States Dollars). Thereafter, the amount of the Guarantee
               will depreciate in equal portions of 1/3 (one third) (US$733,333), each
               anniversary, i.e. June 20, 2005 and June 20, 2006, respectively. Upon issuance,
               the Guarantee shall be valid through August 5, 2007. 
In
order to remove any doubt it is hereby clarified that any correspondence relating to the
Guarantee, including the Affidavit that will have to be issued to Bank Hapoalim
pursuant to the terms of the Guarantee, shall be kept strictly confidential by all
parties, and shall not be disclosed to any third party other than Bank Hapoalim. It
is further clarified that the Affidavit, shall only be binding for purposes of this
Guarantee, and shall not be deemed as an opinion of any kind on the Companys legal,
financial or economic condition, nor could it be relied upon nor any use may be made of it
whatsoever, by any other third party. Notwithstanding anything to the contrary, nothing
herein shall derogate or limit the Executive in any way whatsoever in enforcing his rights
hereunder including inter alia the presentation of any of the above documentation in any
competent court of law or in any alternative legal proceedings.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|18. | GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement shall be
               governed by and construed in accordance with the laws of the State of Israel.
               Any litigation concerning any claims under or breach of this Agreement shall be
               brought exclusively in the competent courts of Tel-Aviv-Jaffa.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|19. | DESCRIPTIVE HEADINGS. The Section headings contained herein are for
               reference purposes only and shall not in any way affect the meaning or
               interpretation of this Agreement.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|20. | EXPENSES. Upon execution of this agreement the Company shall reimburse
               the Executive for all costs associated with the Executives legal
               representation in connection with the negotiations of the terms of this
               Agreement, at a rate as shall be determined by the Executive.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21. | COUNTERPARTS. This Agreement may be executed in counterparts, each of
               which shall be deemed an original, and all such counterparts shall constitute
               one and the same instrument.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|22. | SURVIVAL. The provisions of Sections 6, 7, 8, 17, 18 and 19 hereof shall
               survive termination or expiration of this Agreement for any reason whatsoever.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | Lumenis Ltd.BY: /S/ Arie Genger
Arie GengerChief Executive Officer
| |  | --------------------------------------------------------------------------------
| |  | BY: /S/ Avner Raz
Avner Raz                                       

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# EXHIBIT A
Change in Control

A Change in Control means
the first to occur of any of the following dates:

|(i) | An acquisition (other than directly from the Company) of any voting securities
               of the Company by any Person (as the term person is used for
               purposes of Section 13(d) or 14(d) of the Exchange Act) immediately after which
               such Person has Beneficial Ownership (within the meaning of Rule
               13d-3 promulgated under the Exchange Act) of 20% or more of the combined voting
               power of the Companys then outstanding Voting Securities, unless such
               Person has filed a Schedule 13D within the 12 month period prior to the Plan
               being first approved by the Board; provided, however, in determining whether a
               Change in Control has occurred, Voting Securities which are acquired in a
               Non-Control Acquisition (as hereinafter defined) shall not
               constitute an acquisition which would cause a Change in Control. A
               Non-Control Acquisition shall mean an acquisition by (A) an employee
               benefit plan (or a trust forming a part thereof or a trustee thereof acting
               solely in its capacity as trustee) maintained by (X) the Company or (Y) any
               corporation or other Person of which a majority of its voting power or its
               voting equity securities or equity interest is owned, directly or indirectly, by
               the Company (for purposes of this definition, a Subsidiary), (B) the
               Company or its Subsidiaries, or (C) any Person who files in connection with such
               acquisition a Schedule 13D which expressly disclaims any intention to seek
               control of the Company and does not expressly reserve the right to seek such
               control; provided, however, that any amendment to such statement of intent which
               either indicates an intention or reserves the right to seek control shall be
               deemed an acquisition of the securities of the Company reported in
               such filing as beneficially owned by such Person for purposes of this paragraph
               (i);
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(ii) | The
individuals who, as of the beginning of any two year period from July 2003, are members of
the Board of Directors (the Incumbent Board), ceasing for any reason,
during such two year period, to constitute at least a majority of the members of the Board
of Directors; provided, however, that if the election, or nomination
for election by the Companys common stockholders, of any new director was approved
by a vote of at least two-thirds of the Incumbent Board, such new director shall, for
purposes hereof, be considered a member of the Incumbent Board; or
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iii) | The
consummation of any of the following transactions as entered into by the Company:
|----- | -------------------------------------------------------------------------------------

| | (A) | A
merger, consolidation or reorganization involving the Company, unless such merger,
consolidation or reorganization is a Non-Control Transaction i.e., meets any
of the requirements described in (i) or (ii) below:
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | (i) | the
stockholders of the Company, immediately before such merger, consolidation or
reorganization, own, directly or indirectly immediately following such merger,
consolidation or reorganization, at least eighty percent (80%) of the combined voting
power of the outstanding voting securities of the corporation resulting from such merger
or consolidation or reorganization (the Surviving Corporation) in
substantially the same proportion as their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization; or
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | the
individuals who were members of the Incumbent Board immediately prior to the execution of
the agreement providing for such merger, consolidation or reorganization constitute at
least two-thirds of the members of the board of directors of the surviving corporation
immediately following the consummation of such merger, consolidation or reorganization;
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (B) | A
complete liquidation or dissolution of the Company; or
| | --- | --------------------------------------------------------

| | (C) | An agreement for the sale or other disposition of all or substantially all of the assets of
the Company to any Person (other than a transfer to a Subsidiary).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

Notwithstanding the foregoing, a
Change in Control shall not be deemed to occur solely because any Person (the
Subject Person) acquired Beneficial Ownership of more than the
permitted amount of the outstanding Voting Securities as a result of the acquisition of
Voting Securities by the Company which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares Beneficially Owned by the Subject
Persons, provided that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company, and after
such, a Beneficial Owner acquires additional Voting Securities which increase the
percentage of the then outstanding Voting Securities beneficially owned by the Subject
Person, then a Change in Control shall occur.

---

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# EXHIBIT B
FORM OF
INDEMNIFICATION AGREEMENT

This
Indemnification Agreement (Agreement) is effective as of the day of, June 20,
2003 by and between Lumenis Ltd., a company incorporated under the laws of the State of
Israel, with it principal offices at New Industrial Park, P.O. Box 240 Yokneam, 20692 (the
Company), and (Indemnitee), residing at the address set forth
beneath Indemnitees signature to this Agreement.

Whereas,
the Company and Indemnitee recognize the difficulty in obtaining full and adequate
liability insurance for directors, officers, employees, agents and fiduciaries, the
significant increases in the cost of such insurance and the general reductions in the
coverage of such insurance;

Whereas,
the Company and Indemnitee further recognize the substantial increase in corporate
litigation in general, subjecting directors, officers, employees, agents and fiduciaries
to expensive litigation risks at the same time as the availability and coverage of
liability insurance have been severely limited;

Whereas,
the Company desires to attract and retain the services of highly qualified individuals,
such as Indemnitee, to serve the Company and, in part, in order to induce Indemnitee to
continue to provide services to the Company, wishes to provide for the indemnification and
advancement of expense to Indemnitee, to exempt Indemnitee from liability to the Company,
and agree to procure reasonable insurance coverage, all of the foregoing to the maximum
extent permitted by law; and

Whereas,
in view of the considerations set forth above, the Company desires that Indemnitee shall
be indemnified and exempted by the Company, and enjoy appropriate insurance coverage, all
as set forth herein.

Now,
Therefore, the Company and Indemnitee hereby agree as follows:

1.    
          Indemnification.

a.       
          Indemnification of Expenses. The Company shall indemnify Indemnitee to the
          fullest extent permitted by law and subject to the limitations set forth in
          paragraph 1(b) if Indemnitee was or is or becomes a party to or witness or other
          participant in, any threatened, pending or completed action, suit, proceeding or
          alternative dispute resolution mechanism, or any hearing, inquiry or
          investigation that Indemnitee in good faith believes might lead to the
          institution of any such action, suit, proceeding or alternative dispute
          resolution mechanism, whether civil, criminal (unless convicted of committing an
          offense which requires proof of criminal thought), administrative, investigative
          or other (hereinafter a Claim) by reason of (or arising in part out
          of) any Indemnifiable Event (as defined below) against any and all expenses
          (including attorneys fees and all other costs, expenses and obligations
          reasonably incurred in connection with investigating, defending, being a witness
          or in participating in (including on appeal), or preparing to defend, be a
          witness in or participate in, any such action, suit, proceeding, alternative
          dispute resolution mechanism, hearing, inquiry or investigation), judgments, and
          amounts paid in settlement (if such settlement is approved in advance by the
          Company, which approval shall not be unreasonably withheld) of such Claim and
          any federal, state, local or foreign taxes imposed on the Indemnitee as a result
          of the actual or deemed receipt of any payments under this Agreement
          (collectively, hereinafter Expenses), including all interest,
          assessments and other charges paid or payable in connection with or in respect
          of such Expenses, provided that in respect of any specific Indemnifiable Event,
          the Expenses for which Indemnitee may be indemnified hereunder will not exceed,
          individually or in the aggregate, the Limit Amount (as defined below) applicable
          to such Indemnifiable Event. Such payments of Expenses shall be made by the
          Company as soon as practicable but in any event no later than five (5) days
          after written demand by Indemnitee therefor is presented to the Company.

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b.       
          Indemnifiable Event; Limit Amounts. For the purpose of this section, an
          Indemnifiable Event shall mean any event or occurrence falling all or in part
          within any one or more of the categories set forth in Exhibit A to this
          Agreement and related to the fact that Indemnitee is or was a director, officer,
          employee, agent or fiduciary of the Company, or any subsidiary of the Company
          (regardless of whether it was a subsidiary of the Company at the time of the
          event giving rise to Claim), or is or was serving at the request of the Company
          as a director, officer, employee, agent or fiduciary of another corporation,
          partnership, joint venture, trust or other enterprise, or by reason of any
          action or inaction on the part of Indemnitee while serving in such capacity. The
          Limit Amount with respect to each such category of events described in Exhibit A
          is specified following its description. Each such Limit Amount shall be subject
          to continuing review and consideration by the Company, and may be increased, but
          never decreased, if the Board of Directors, with the prior approval of the Audit
          Committee of the Company, determines that such Limit Amount is less then the
          Expenses which can be expected to be incurred by Indemnitee in connection with
          the corresponding Indemnifiable Event. The Indemnification provided herein shall
          not be subject to the foregoing limits, if and to the extent such limits are no
          longer required by Israeli law.

c.       
          Reviewing Party. Notwithstanding the foregoing: (i) the obligations of the
          Company under Section 1(a) shall be subject to the condition that the Reviewing
          Party (as described in Section 9(e) hereof) shall not have determined (in a
          written opinion, in any case in which the Independent Legal Counsel referred to
          in Section 1(d) hereof is involved) that Indemnitee would not be permitted to be
          indemnified under applicable law, and (ii) the obligation of the Company to make
          an advance payment of Expenses to Indemnitee pursuant to Section 2(a) (an
          Expense Advance) shall be subject to the condition that, if, when
          and to the extent that the Reviewing Party determines that Indemnitee should not
          be permitted to be so indemnified under applicable law, the Company shall be
          entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
          Company) for all such amounts theretofore paid; provided, however, that if
          Indemnitee has commenced or thereafter commences legal proceedings to secure a
          determination that Indemnitee should be indemnified under applicable law, any
          determination made by the Reviewing Party that Indemnitee would not be permitted
          to be indemnified under applicable law shall not be binding and Indemnitee shall
          not be required to reimburse the Company for any Expense Advance until a final
          judicial determination is made with respect thereto as to which all rights of
          appeal therefrom have been exhausted or lapsed). Indemnitees obligation to
          reimburse the Company for any Expense Advance shall be unsecured and no interest
          shall be charged thereon. If there has not been a Change in Control (as defined
          in Section 9(c) hereof), the Reviewing Party shall be selected by the Board of
          Directors, and if there has been such a Change in Control (other than a Change
          in Control which has been approved by a majority of the Companys Board of
          Directors who were directors immediately prior to such Change in Control), the
          Reviewing Party shall be the Independent Legal Counsel referred to in Section
          9(d) hereof. If there has been no determination by the Reviewing Party or if the
          Reviewing Party determines that Indemnitee substantively would not be permitted
          to be indemnified in whole or in part under applicable law, Indemnitee shall
          have the right to commence litigation seeking an initial determination by the
          court or challenging any such determination by the Reviewing Party or any aspect
          thereof, including the legal or factual basis therefor, and the Company hereby
          consents to service of process and to appear in any such proceeding. Any
          determination by the Reviewing Party otherwise shall be conclusive and binding
          on the Company and Indemnitee.

d.       
          Change in Control. The Company agrees that if there is a Change in Control of
          the Company (other than a Change in Control which has been approved by a
          majority of the Companys Board of Directors who were directors immediately
          prior to such Change in Control) then with respect to all matters thereafter
          arising concerning the rights of Indemnitee to payments of Expense and Expense
          Advances under this Agreement or any other agreement or under the Companys
          Memorandum or Articles of Association as now or hereafter in effect, the Company
          shall seek legal advice only from Independent Legal Counsel (as defined in
          Section 9(d) hereof) selected by Indemnitee and approved by the Company (which
          approval shall not be unreasonably withheld). Such counsel, among other things,
          shall render its written opinion to the Company and Indemnitee as to whether and
          to what extent Indemnitee would be permitted to be indemnified under applicable
          law and the Company agrees to abide by such opinion. The Company agrees to pay
          the reasonable fees of the Independent Legal Counsel referred to above and to
          fully indemnify such counsel against any and all expenses (including
          attorneys fees), claims, liabilities and damages arising out of or
          relating to this Agreement or its engagement pursuant hereto.

e.       
          Mandatory Payment of Expenses. Notwithstanding any other provision of this
          Agreement other than Section 8 hereof, to the extent that Indemnitee has been
          successful on the merits or otherwise, including, without limitation, the
          dismissal of an action without prejudice, in defense of any action, suit,
          proceeding, inquiry or investigation referred to in Section (1)(a) hereof or in
          the defense of any claim, issue or matter therein, Indemnitee shall be
          indemnified against all Expenses incurred by Indemnitee in connection therewith.

2.    
          Expenses; Indemnification Procedure.

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a.       
          Advancement of Expenses. The Company shall advance all Expenses incurred by
          Indemnitee. The advances to be made hereunder shall be paid by the Company to
          Indemnitee as soon as practicable, but in any event no later than five (5) days
          after written demand by Indemnitee therefor to the Company.

b.       
          Notice; Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to
          Indemnitees right to be indemnified under this Agreement, give the Company
          notice in writing as soon as practicable of any Claim made against Indemnitee
          for which Indemnification will or could be sought under this Agreement,
          provided, however, that any failure to provide such notice shall not affect
          Indemnitees rights to indemnification hereunder unless and to the extent
          such failure to provide notice materially and adversely prejudices the
          Companys right to defend against such action. Notice to the Company shall
          be directed to the Chief Executive Officer of the Company at the address shown
          on the signature page of this Agreement (or such other address as the Company
          shall designate in writing to Indemnitee), or if the Indemnitee is then the
          Chief Executive Officer of the Company, such notice shall be directed to the
          Chairman of the Companys Board of Directors, at the same address. In
          addition, Indemnitee shall give the Company such information and cooperation as
          it may reasonably require and as shall be within Indemnitees power.

c.       
          No Presumptions; Burden of Proof. For purposes of this Agreement, the
          termination of any Claim by judgment, order, settlement (whether with or without
          court approval) or conviction, or upon a plea of guilty, shall not create a
          presumption that Indemnitee did not meet any particular standard of conduct or
          have any particular belief or that a court has determined that indemnification
          is not permitted by applicable law. In addition, neither the failure of the
          Reviewing Party to have made a determination as to whether Indemnitee has met
          any particular standard of conduct or had any particular belief, nor an actual
          determination by the Reviewing Party that Indemnitee has not met such standard
          of conduct or did not have such belief, prior to the commencement of legal
          proceedings by Indemnitee to secure a judicial determination that Indemnitee
          should be indemnified under applicable law, shall be a defense against
          Indemnitees claim or create a presumption that Indemnitee has not met any
          particular standard of conduct or did not have any particular belief. In
          connection with any determination by the Reviewing Party or otherwise as to
          whether the Indemnitee is entitled to be indemnified hereunder, the burden of
          proof shall be on the Company to establish that Indemnitee is not so entitled.

d.       
          Notice to Insurers. If, at the time of the receipt by the Company of a notice of
          a claim pursuant to Section 2(b) hereof, the Company has liability insurance in
          effect which may cover such Claim, the Company shall give prompt notice of the
          commencement of such Claim to the insurers in accordance with the procedures set
          forth in the respective policies. The Company shall thereafter take all
          necessary or desirable action to cause such insurers to pay, on behalf of the
          Indemnitee, all amounts payable as a result of such action, suit, proceeding,
          inquiry or investigation in accordance with the terms of such policies.

e.       
          Selection of Counsel. In the event the Company shall be obligated hereunder to
          pay the Expenses of any Claim, and the Company shall have confirmed to
          Indemnitee in writing that the maximum amount of Expenses that Indemnitee may
          incur in connection with the Claim in question will not exceed the Limit Amount
          in respect of such Claim, the Company shall be entitled to assume the defense of
          such Claim with counsel approved by Indemnitee, which approval shall not be
          unreasonably withheld, upon the delivery to Indemnitee of written notice of its
          election to do so. After delivery of such written confirmation and such notice,
          approval of such counsel by Indemnitee and the retention of such counsel by the
          Company, the Company will not be liable to Indemnitee under this Agreement for
          any fees of counsel subsequently incurred by Indemnitee with respect to the same
          Claim; provided, that: (i) Indemnitee shall have the right to employ
          Indemnitees counsel in any such Claim at Indemnitees expense, and
          (ii) if (A) the employment of counsel by Indemnitee has been previously
          authorized by the Company, (B) Indemnitee shall have reasonably concluded that a
          potential conflict of interest between the Company and Indemnitee may arise in
          the conduct of any such defense, or (C) the Company shall not continue to retain
          such counsel to defend such Claim, then the fees and expenses of Indemnitee
          counsel shall be at the expense of the Company. The Company shall have the right
          to conduct such defense as it sees fit in its sole discretion, including the
          right to settle any claim against Indemnitee without the consent of the
          Indemnitee provided, the amount of such settlement does not exceed the Limit
          Amount and any such settlement includes (i) a complete release discharge of
          indemnity, and (ii) does not contain any admittance of wrong doing by
          Indemnitee, and (iii) is monetary only.

3.    
          Additional Indemnification Rights; Nonexclusivity.

57

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a.       
          Scope. In the event of any change after the date of this agreement of any
          applicable law, statute or rule which expands the right of a corporation of the
          Companys state of incorporation to indemnify a member of its board of
          directors or an officer, employee, agent or fiduciary, it is the intent of the
          parties hereto that Indemnitee shall enjoy by this Agreement the greater
          benefits afforded by such change. In the event of any change in any applicable
          law, statute or rule which narrows the right of a corporation of the
          Companys country or state of incorporation to indemnify a member of its
          board of directors or an officer, employee, agent or fiduciary, such change, to
          the extent not otherwise required by such law, statute or rule to be applied to
          this Agreement, shall have no effect on this Agreement or the parties
          rights and obligations hereunder except as set forth in Section 8(a) hereof.

b.       
          Nonexclusivity. The indemnification provided by this Agreement shall be in
          addition to any rights to which Indemnitee may be entitled under the
          Companys Memorandum and Articles of Association, as may from time to time
          be amended or replaced, any agreement, any vote of shareholders or disinterested
          directors, the laws of the Companys state of incorporation, or otherwise.
          The indemnification provided under this Agreement shall continue as to
          Indemnitee for any action Indemnitee took or did not take while serving in an
          indemnified capacity even though Indemnitee may have ceased to serve in such
          capacity.

4.       
          No Duplication of Payments. The Company shall not be liable under this Agreement
          to make any payment in connection with any Claim made against Indemnitee to the
          extent Indemnitee has otherwise actually received payment (under any insurance
          policy, the Articles or Memorandum of Association or otherwise) of the amounts
          otherwise Indemnifiable hereunder, except for the difference, if any, between
          the amounts received by the Indemnitee as aforesaid and the total Expenses
          incurred by Indemnitee in connection with such Claim. For the removal of any
          doubt, any amount received from D&O Insurance (as defined below) shall not
          count against any Limit Amount hereunder.

5.       
          Partial Indemnification. If Indemnitee is entitled under any provision of this
          Agreement to indemnification by the Company for some or a portion of Expenses
          incurred in connection with any Claim, but not, however, for all of the total
          amount thereof, the Company shall nevertheless indemnify Indemnitee for the
          portion of such Expenses to which Indemnitee is entitled.

6.       
          Liability Insurance. As long as the Indemnitee continues to serve as a director,
          officer, employee, agent or fiduciary of the Company and thereafter as long as
          the Indemnitee may be subject to any possible proceedings, the Company shall
          procure directors and officers liability insurance to the fullest
          extent permitted by law (D&O Insurance), in such amount (per
          claim and per period) as the Company shall deem appropriate; provided, that, the
          Company shall have no obligation to obtain or maintain D&O Insurance if the
          Company determines in good faith that such insurance is not reasonably
          available, the premium costs for such insurance are disproportionate to the
          amount of coverage provided, the coverage provided by such insurance is so
          limited by exclusions that it provides an insufficient benefit, or the
          Indemnitee is covered by similar insurance maintained by a subsidiary of the
          Company; provided, however, that the Company shall not terminate any existing
          insurance coverage without notifying the Indemnitee of its intention to do so at
          least ninety (90) days prior to the effective date of such termination (for this
          purpose the non-renewal of such coverage shall be deemed as termination thereof
          and the effective date of such termination shall then be the expiration date of
          the existing coverage).

7.       
          Exemption. To the maximum extent permitted by law, the Company hereby exempts
          and releases Indemnitee from any and all liability to the Company related to any
          breach by Indemnitee of his or her duty of care to the Company.

8.       
          Exceptions. Any other provision herein to the contrary notwithstanding, the
          Company shall not be obligated pursuant to the terms of this Agreement:

a.       
          Excluded Acts and Omissions. To indemnify, insure or exempt Indemnitee from or
          against any liability arising out of (i) Indemnitees breach of fiduciary
          duty to the Company, unless Indemnitee has acted or omitted to act in good faith
          and had reasonable ground to believe such action will not harm the
          Companys interests, (ii) intentional or reckless breach by Indemnitee of
          his or her duty of care to the Company, or (iii) an action taken with the
          intention to unduly profit therefrom and (iv) any fine or penalty payment to
          propitiate an offense.

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b.       
          Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee
          with respect to Claims initiated or brought voluntarily by Indemnitee and not by
          way of defense, except: (i) with respect to proceedings brought to establish or
          enforce a right to indemnification under this Agreement or any other agreement
          or insurance policy or under the Companys Memorandum or Articles of
          Association now or hereafter in effect relating to Claims for Indemnifiable
          Events, (ii) in specific cases if the Board of Directors has approved the
          initiation or bringing of such suit, or (iii) as otherwise required under the
          laws of the Companys state of incorporation, regardless of whether
          Indemnitee ultimately is determined to be entitled to such indemnification,
          advance expense payment or insurance recovery, as the case may be; or

c.       
          Claims Under Section 16(B). To indemnify Indemnitee for expenses and the payment
          of profits arising from the purchase and sale by Indemnitee of securities in
          violation of Section 16(b) of the Securities Exchange Act of 1934, as amended
          (the Exchange Act), or any similar successor statute.

9.       
          Construction of Certain Phrases.

a.       
          For purposes of this Agreement, references to the Company shall
          include, in addition to the resulting corporation, any constituent corporation
          (including any constituent of a constituent) absorbed in a consolidation or
          merger which, if its separate existence had continued, would have had power and
          authority to indemnify its directors, officers, employees, agents or
          fiduciaries, so that if Indemnitee is or was serving at the request of such
          constituent corporation as a director, officer, employee, agent or fiduciary of
          another corporation, partnership, joint venture, employee benefit plan, trust or
          other enterprise, Indemnitee shall stand in the same position under the
          provisions of this Agreement with respect to the resulting or surviving
          corporation as Indemnitee would have with respect to such constituent
          corporation if its separate existence had continued.

b.       
          For purposes of this Agreement, references to other enterprises
          shall include employee benefit plans; and references to serving at the
          request of the Company shall include any service as a director, officer,
          employee, agent or fiduciary of the Company which imposes duties on, or involves
          services by, such director, officer, employee, agent or fiduciary with respect
          to an employee benefit plan, its participants or its beneficiaries; and if
          Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
          be in the interest of the participants and beneficiaries of an employee benefit
          plan, Indemnitee shall be deemed to have acted in a manner not opposed to
          the best interests of the Company as referred to in this Agreement.

c.       
          For purposes of this Agreement, a Change in Control shall be deemed
          to have occurred if: (i) any person (as such term is used in
          Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other
          fiduciary holding securities under an employee benefit plan of the Company or a
          corporation owned directly or indirectly by the stockholders as a result of a
          transaction not otherwise constituting a Change of Control, is or becomes the
          beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
          directly or indirectly, of securities of the Company representing more than 20%
          of the total voting power represented by the Companys then outstanding
          voting securities, unless the person has filed a Schedule 13D twenty-four months
          preceding the date of this Agreement, (ii) during any period of two consecutive
          years, individuals who at the beginning of such period constitute the Board of
          Directors of the Company and any new director whose election by the Board of
          Directors or nomination for election by the Companys stockholders was
          approved by a vote of at least two-thirds ( 2/3) of the directors then still in
          office (other than directors whose election was approved in connection with the
          settlement of a proxy contest or consent solicitation), cease for any reason to
          constitute a majority thereof, or (iii) the Company consummates a merger or
          consolidation of the Company with any other corporation other than a merger or
          consolidation which would result in the voting securities of the Company
          outstanding immediately prior thereto continuing to represent (either by
          remaining outstanding or by being converted into voting securities of the
          surviving entity) at least 51% of the total voting power represented by the
          voting securities of the Company of the surviving entity outstanding immediately
          after such merger or consolidation, or (iv) the stockholders of the Company
          approve a plan of complete liquidation of the Company or an agreement for the
          sale or disposition by the Company of (in one transaction or a series of
          transactions) all or substantially all of the Companys assets.

d.       
          For purposes of this Agreement, Independent Legal Counsel shall mean
          an attorney or firm of attorneys, selected in accordance with the provision of
          Section 1(d) hereof, who shall not have otherwise performed services for the
          company or Indemnitee within the last three years (other than with respect to
          matters concerning the rights of Indemnitee under this Agreement, or of other
          Indemnitees under similar indemnity agreements).

59

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e.       
          For purposes of this Agreement, a Reviewing Party shall mean any
          appropriate person or body consisting of a member or members of the
          Companys Board of Directors or any other person or body appointed by the
          Board of Directors who is not party to the particular Claim for which Indemnitee
          is seeking indemnification, or Independent Legal Counsel.

10.       
          Counterparts. This Agreement may be executed in one or more counterparts, each
          of which shall constitute an original.

11.       
          Binding Effect; Successors and Assigns. This Agreement shall be binding upon and
          inure to the benefit of and be enforceable by the parties hereto and their
          respective successors, assigns, including any direct or indirect successor by
          purchase, merger, consolidation or otherwise to all or substantially all of the
          business and/or assets of the Company, spouses, heirs, and personal and legal
          representative. The Company shall require and cause any successor (whether
          direct or indirect by purchase, merger, consolidation or otherwise) to all,
          substantially all, or a substantial part, of the business and/or assets of the
          Company, by written agreement in form and substance satisfactory to Indemnitee,
          expressly to assume and agree to perform this Agreement in the same manner and
          to the same extent that the Company would be required to perform if no such
          succession had taken place. This Agreement shall continue in effect with respect
          to Claims relating to Indemnifiable Events regardless of whether Indemnitee
          continues to serve as a director, officer, employee, agent or fiduciary of the
          Company or any other enterprise at the Companys request.

12.       
          Attorneys Fees. In the event that any action is instituted by Indemnitee
          under this Agreement or under any liability insurance policies maintained by the
          Company to enforce or interpret any of the terms hereof or thereof, Indemnitee
          shall be entitled to be paid all reasonable expenses incurred by Indemnitee with
          respect to such action, regardless of whether Indemnitee is ultimately
          successful in such action, and shall be entitled to the advancement of Expenses
          with respect to such action, unless as a part of such action, a court of
          competent jurisdiction over such action determines that each of the material
          assertions made by Indemnitee as a basis for such action were not made in good
          faith or were frivolous. In the event of an action instituted by or in the name
          of the Company under this Agreement to enforce or interpret any of the terms of
          this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
          Indemnitee in defense of such action (including costs and expenses incurred with
          respect to Indemnitees counterclaims and cross-claims made in such
          action), and shall be entitled to the advancement of Expenses with respect to
          such action, unless, as a part of such action, the court having jurisdiction
          over such action determines that each of Indemnitees material defenses to
          such action were made in bad faith or were frivolous.

13.       
          Notice. All notices and other communications required or permitted hereunder
          shall be in writing, shall be effective when given and shall in any event be
          deemed to be given: (a) five (5) business days after deposit with the applicable
          postal service, if delivered by first class mail, postage prepaid,(b) upon
          delivery, if delivered by hand, (c) one business day after the business day of
          deposit with Federal Express or similar overnight courier, freight prepaid, or
          (d) one day after the business day of delivery by facsimile transmission, if
          delivered by facsimile transmission, with copy by first class mail, postage
          prepaid, and shall be addressed if to Indemnitee, at the Indemnitees
          address as set forth beneath Indemnitees signature to this Agreement and
          if to the Company at the address of its principal corporate offices or at such
          other address as such party may designate by ten days advance written
          notice to the other party hereto.

14.       
          Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably
          consent to the jurisdiction of the courts of the State of Israel for all
          purposes in connection with any action or proceeding which arises out of or
          relates to this Agreement and agree that any action instituted under this
          Agreement shall be commenced, prosecuted and continued only in the competent
          Courts of the Tel-Aviv District, which shall be the exclusive and only proper
          forum for adjudicating such a claim.

15.       
          Severability. The provisions of this Agreement shall be severable in the event
          that any of the provision hereof (including any provision within a single
          section, paragraph or sentence) are held by a court of competent jurisdiction to
          be invalid, void or otherwise unenforceable, and the remaining provisions shall
          remain enforceable, to the fullest extent permitted by law. Furthermore, to the
          fullest extent possible, the provisions of this Agreement (including, without
          limitations, each portion of this Agreement containing any provision held to be
          invalid, void or otherwise unenforceable that is not itself invalid, void or
          unenforceable) shall be construed so as to give effect to the intent manifested
          by the provision held invalid, illegal or unenforceable.

60

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16.       
          Choice of Law. This Agreement shall be governed by and its provisions construed
          and enforced in accordance with the laws of the State of Israel, as applied to
          contracts between Israeli residents, entered into and to be performed entirely
          within the State of Israel, without regard to the conflict of laws principles
          thereof or of any other jurisdiction.

17.       
          Subrogation. In the event of payment under this Agreement, the Company shall be
          subrogated to the extent of such payment to all of the rights of recovery of
          Indemnitee, who shall execute all documents required and shall do all acts that
          may be necessary to secure such rights and to enable the Company effectively to
          bring suit to enforce such rights.

18.       
          Amendment and Termination. No amendment, modification, termination or
          cancellation of this Agreement shall be effective unless it is in writing signed
          by both the parties hereto. No waiver of any of the provisions of this Agreement
          shall be deemed or shall constitute a waiver of any other provisions hereof
          (whether or not similar) nor shall such waiver constitute a continuing waiver.

19.       
          Integration and Entire Agreement. This Agreement sets forth the entire
          understanding between the parties hereto and supersedes and merges all previous
          written and oral negotiations, commitments, understandings and agreements
          relating to the subject matter hereof between the parties hereto.

20.       
          No Construction as Employment Agreement. Nothing contained in this Agreement
          shall be construed as giving Indemnitee any right to be retained in the employ
          or otherwise in the service of the Company or any of its subsidiaries.

In
Witness Whereof, the parties hereto have executed this Indemnification Agreement as of the
date first above written.

|Lumenis LTD.BY: /S/ Prof. Jacob A. Frenkel
Prof. Jacob A. FrenkelChairman of the Board of Directors |  | 
|----------------------------------------------------------------------------------------------------------------- |  | 

Address: New Industrial Park
         P.O. Box 240
         Yokneam, 20692
         Telecopier No.: 04-9599050

AGREED
TO AND ACCEPTED AS OF THE DATE FIRST WRITTEN ABOVE:

|BY: /S/ Anver Raz
Anver RazChief Executive and President |  | 
|---------------------------------------------------------------------- |  | 

61

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Exhibit A

# 

# INDEMNIFIABLE EVENTS AND LIMIT AMOUNTS

|Indemnifiable Event | Limitation Amount(In US$ Million)
|------------------- | ---------------------------------

|1. | Any claim or demand made by customers suppliers, contractors or other third
               parties transacting any form of business with the Company, its subsidiaries or
               affiliates, in the ordinary course of their respective businesses, relating to
               the negotiations or performance of such transactions, representations or
               inducements provided in connection thereto or otherwise. | 100
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---

|2. | Any claim or demand made in connection with any transaction not in the
               ordinary course of business of either the Company, its subsidiaries or
               affiliates or the party making such claim, including the sale, lease or purchase
               of any assets or business. | 100
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---

|3. | Any claim or demand made by employees, consultants, agents or other
               individuals or entities employed by or providing services to the Company
               relating to compensation owed to them or damages or liabilities suffered by them
               in connection with such employment or service. | 100
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---

|4. | Any claim or demand made under any securities laws or by reference The higher of
               (i) 250; and thereto, or related to the failure to disclose any information in
               the (ii) 50 percent (50%) of manner or time such information is required to be
               disclosed pursuant outstanding shares to such laws, or related to inadequate or
               improper disclosure of multiplied in the last information to stockholders, or
               prospective stockholders, or related reported share price at its to the
               purchasing, holding or disposition of securities of the principle exchange prior
               to Company or any other investment activity involving or affected by the
               occurrence giving rise such securities. | The higher of (i) 250; and (ii) 50 percent (50%) of outstanding shares multiplied in the last
 reported share price at its principle exchange prior to the occurrence giving rise to the
indemnifiable event
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | Any claim or demand made for actual or alleged infringement,
               misappropriation or misuse of any third partys intellectual property
               rights by the Company, its subsidiaries or affiliates. | 100
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---

|6. | Any claim or demand made by any lenders or other creditors or for moneys
               borrowed by, or other indebtedness of, the Company, its subsidiaries or
               affiliates. | 100
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---

|7. | Any claim or demand made by any third party suffering any personal injury or
               damage to business or personal property through any act or omission attributed
               to the Company, its subsidiaries or affiliates, or their respective employees,
               agents or other persons acting or allegedly acting on their behalf. | 100
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---

|8. | Any claim or demand made directly or indirectly in connection with  complete
               or partial failure, by the Company or any subsidiary or affiliate thereof, or
               their respective directors, officers and employees, to pay, report, keep
               applicable records or otherwise, of any foreign, federal, state, county, local,
               municipal or city taxes or other compulsory payments of any nature whatsoever,
               including, without limitation, income, sales, use, transfer, excise, value
               added, registration, severance, stamp, occupation, customs, duties, real
               property, personal property, capital stock, social security, unemployment,
               disability, payroll or employee withholding or other withholding, including any
               interest, penalty or addition thereto, whether disputed or not. | 100
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---

62

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|9. | Any claim or demand made by purchasers, holders, lessors or other users of
               products of the Company, or individuals treated with such products, for damages
               or losses related to such use or treatment. | 100
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---

|10. | Any administrative, regulatory or judicial actions orders, decrees, suits,
               demands, demand letters, directives, claims, liens, investigations, proceedings
               or notices of noncompliance or violation by any governmental entity or other
               person alleging potential responsibility or liability (including potential
               responsibility or liability for costs of enforcement, investigation, cleanup,
               governmental response, removal or remediation, for natural resources damages,
               property damage, personal injuries or penalties or for contribution,
               indemnification, cost recovery, compensation or injunctive relief) arising out
               of, based on or related to (x) the presence of, release, spill, emission,
               leaking, dumping, pouring, deposit, disposal, discharge, leaching or migration
               into the environment (each a Release) or threatened Release of, or
               exposure to, any hazardous, toxic, explosive or radioactive substances, wastes
               or other pollutants, including petroleum or petroleum distillates, asbestos or
               asbestos  containing material, polychlorinated biphenyls
               (PCBs) or PCB  containing materials or equipment, radon gas,
               infectious or medical wastes and all other substances or wastes of any nature
               regulated pursuant to any environmental law, at any location, whether or not
               owned, operated, leased or managed by the ESC Medical Systems Ltd. or any of its
               subsidiaries, or (y) circumstances forming the basis of any violation of any
               environmental law or environmental permit, license, registration or other
               authorization required under applicable environmental law. | 100
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---

|11. | Any administrative, regulatory or judicial actions, orders, decrees, suits,
               demands, demand letters, directives, claims, liens, investigations, proceedings
               or notices of noncompliance or violation by any governmental entity or other
               person alleging the failure to comply with any statute, law, ordinance, rule,
               regulation, order or decree of any governmental entity applicable to ESC Medical
               Systems Ltd. or any of its subsidiaries, or any of their respective businesses
               or operations, including, without limitation, the rules and regulations imposed
               or enforced by the United States Food and Drug Administration, or any similar
               governmental entity, or the terms and conditions of any operating certificate or
               licensing agreement. | 100
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---

|12. | Any claim or demand, not covered by any of the categories of events
               described above, which, pursuant to any applicable law, a director or officer of
               the Company may be held liable to any government or agency thereof, or any
               person or entity, in connection with actions taken by such director or officer
               in such capacity. | 100
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---

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|To:                       | Haifa Main Office (700)
|------------------------- | -----------------------
|Avner Raz, ID no.67450460 | 18thHaneviim St., Haifa
|Hayasur 2 St              | Date 28/4/03           
|Ramat Hasharon            | Tel.: 04-8612020       
|                          | Fax.: 04-8671018       

# Re: Bank guarantee
number 11145/2

|1. | According
to a request by Lumenis Ltd. (hereinafter: the Obligee) we hereby
guarantee to pay any amount, in NIS equivalent, up to an amount of $3,000,000 (three
million US Dollars) (hereinafter: the Guarantee Amount), that you may
demand from the Obligee under the contract dated April 24, 2003 (hereinafter: theAgreement).
The Guarantee Amount will decrease as follows:
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a. | Commencing
June 20, 2004, the Guarantee Amount shall depreciate in an NIS amount equal to $800,000
(eight hundred thousand US Dollars) which shall leave an amount in NIS equivalent to
$2,200,000 (two million two hundred thousand US Dollars) as a remainder.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Commencing
June 20, 2005, the Guarantee Amount shall depreciate in an NIS amount equal to $733,333
(Seven hundred thirty three thousand, three hundred and thirty three US Dollars), which
shall leave an amount in NIS equivalent to $1,466,667 (One million four hundred sixty six
thousand six hundred sixty seven, US Dollars) as a remainder.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Commencing
June 20, 2006, the Guarantee Amount shall depreciate in an NIS amount equal to $733,333
(Seven hundred thirty three thousand, three hundred thirty three US Dollars), which shall
leave an amount in NIS equivalent to $733,333 (Seven hundred thirty three thousand, three
hundred thirty three US Dollars) as a remainder.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Guarantee Amount shall be linked to the US Dollar exchange rate (hereinafter: the
Foreign Currency), according to the following link conditions:

| | d. | The foreign currency exchange rate shall mean the representative rate published by the Bank of
Israel.
| | -- | ------------------------------------------------------------------------------------------------------

| | e. | If
at the time of payment of the Guarantee Amount the exchange rate of the Foreign Currency
last published by the Bank of Israel (hereinafter: the New Exchange Rate
) is higher than the exchange rate published on the day of issuing the guarantee,
namely an exchange rate of 4.583 NIS for every 1 US Dollar (hereinafter: the
Basic Exchange Rate), then the Guarantee Amount shall be deemed
increased by an amount equal to the difference between rate of the NewExchange
Rate in comparison to the Basic Exchange Rate. If the New Exchange Rate shall descend in
comparison to the Basic Exchange Rate, the Guarantee Amount shall not be changed.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|2. | At
your first written demand, no later than ten days from the date we received, to our
aforementioned address, we shall pay any amount stipulated in your demand, provided that
it does not exceed the Guarantee Amount, including currency link differences as
aforementioned and without imposing on you any duty to explain or prove your demand and
without you having an obligation to demand the payment from the Obligee first.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | This
bank guarantee note and your signed affidavit in which you declare that the request to
materialize this guarantee is presented since the Obligee can not stand up to its
obligations according to the Agreement, shall be attached to any request of
materialization of this guarantee.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | This
guarantee shall remain in force only until August 5th, 2007 (inclusive). After this date
it shall be void. Any demand in accordance with this guarantee has to be accepted by us in
writing no later that the abovementioned date.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | A
written demand as mentioned in this guarantee does not mean a demand which is received in
the Bank via facsimile, telex or telegram. A demand of such nature shall not be regarded
as such according to this bank guarantee note.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | This
guarantee is not transferable or endorsable.
|-- | -------------------------------------------------

| |  | Respectfully yours,Bank Hapoalim Ltd.Haifa Main OfficeBY: /S/ Anat Hershkowitz
Anat Hershkowitz
| |  | -------------------------------------------------------------------------------------------------------------
| |  | BY: /S/ Shay Dayan
Shay Dayan                                                                  

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Exhibit 10.2 
Date: June 12, 2003

To Hai Ben-Israel

# EMPLOYMENT AGREEMENT

We are pleased to inform you that you have been accepted to work at Lumenis Ltd.
(hereinafter: the Company)
in the full-time position of EVP for Planning and Resources, commencing July 1st, 2003.

In carrying out your duties, you will
be subordinate to the CEO of the Company.

The division of this Agreement into
clauses and headings is for convenience only, and applies to males and females alike.

# Terms of your employment:

# 1.   
 Your salary

| | In
return for your services, the Company will pay you the global gross, annual sum of
$200,000 (dollars) (hereinafter: the Salary). The monthly base salary
(1/12) shall be paid each month no later than the 1st of each month following
the month for which the Salary is due, according to the normal exchange rate which is
customary in the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 2.   
Company car/telephone

| | 2.1 | You will be entitled to a Company car, with a minimum of 2,000 cm3 as customary to
EVPs in the Company and in accordance with Company practice
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | 2.2 | The Company shall maintain on your behalf a cellular phone as well as a telephone line in
your home for your ongoing managing activities.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------

# 3.    Work hours

| | 3.1 | Your hours of work will be customary hours which are usually worked by officer of your
position and rank.
| | --- | ---------------------------------------------------------------------------------------------------------

| | 3.2 | It is hereby clarified that the Salary constitutes the total remuneration for your work,
and in light of your position and rank you will not be entitled to any additional
remuneration whatsoever in respect of any work performed which may be expected of you
outside of normal working hours, at weekends or on holidays.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# 4.     Directors
insurance / pension fund and severance pay

| | The
Company, in accordance with the General Permit Regarding Employers Payments to
Pension Fund and Insurance Fund in Lieu of Severance Pay (hereinafter: theGeneral Permit) shall set aside payments into a Officers insurance /
pension fund policy (hereinafter: Pension Plans), which are owned by
the Company and which shall be managed in your name. The Company shall set aside into the
agreed upon Pension Plans an amount equal to the rate of 8 1/3% of the Salary in respect
of severance pay and the rate of 5% of the Salary in respect of compensatory payments.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.1 | In addition, the Company will set aside on your behalf the appropriate sums in respect of
disability insurance at the rate of 2.5% of your Salary.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.2 | The Company waive in advance any right to which it may be entitled for reimbursement of
sums out of the Pension Plans, excluding where your right to severance pay is prevented by
a court ruling pursuant to sections 16 and 17 of the Severance Pay Law.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.3 | Sums set aside by the Company into the Pension Plans shall be in lieu of the full amount
of severance pay, should you be entitled to, in light of the General Permit a copy of
which is attached herewith as Appendix A.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 5.     Professional study fund

| | The
Company shall set aside on your behalf 7.5% of the Salary into a professional study fund,
up to the maximum allowed by law, of your choice amongst the study funds offered by the
Company (hereinafter: the Fund). The Company will deduct your
share at the rate of 2.5% of the Salary and transfer the same to the Fund.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 6.     Leave

You
will be entitled to a maximum of 22 working days of annual leave per year.

Leave
may not be accumulated and/or exchanged for any reason.

| | 6.1 | Leave shall be coordinated with the Company CEO and shall accord with Company policy.
| | --- | -------------------------------------------------------------------------------------

# 7.     Share options

| | 7.1 | You will be granted options for the purchase of 100,000 ordinary shares in the Company to
vest within three years, which you shall be entitled to purchase in accordance with the
terms of the Option Plan at market value, as the same shall be at the date on which you
join the Company (33,333 in year 2004, 33,333 in year 2005, 33,334 in year 2006).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | 7.2 | The right to purchase the shares shall be subject to the terms of the options plan
for employees as approved by the Board of Directors.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------

# 8.     Annual bonus

| | 8.1 | A bonus at the rate of up to 100% of your gross annual salary, shall be awarded in return
for full compliance by you with the goals of the Company, your goals and the assessment of
your supervisor.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 8.2 | For the 2003 year of employment, you will be awarded a bonus for your personal
achievements, relative to your term of employment during the year 2003.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------

# 9.     Sick pay / reserve
duty

| | Pursuant
to the Sick Pay Law, you will be entitled to a maximum of 18 days of sick leave each year
against a certificate of illness.
| | ------------------------------------------------------------------------------------------------------------------------------------

| | 9.1 | Days of sick leave may be accumulated up to a maximum of 90 days; however, they may never
be redeemed.
| | --- | ------------------------------------------------------------------------------------------------------

# 10.     Convalescence pay

| | At
the end of your first year of employment, you will be entitled to the customary amount of
convalescence pay paid by the Company.
Convalescence pay shall be paid once annually, in the salary for the month of July.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 11.     Professional ethics

| | Throughout
the period of your employment with the Company, you undertake to conduct yourself with
integrity, dedication, professionalism and loyalty.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | 11.1 | You undertake to act in accordance with the Companys guidelines in force from time
to time, which shall be brought to your attention.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------

| | 11.2 | During the period of your employment with the Company, you shall not be entitled to have
any additional work outside of the Company, other than with the prior written consent of
the Company.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 11.3 | You agree to notify the Company without delay of any matter or issue which you have a
personal interest and/or which is liable to create a conflict of interests with your
duties at the Company.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# 12.     Term of employment
and termination thereof

| | You
will be employed by the Company commencing from the date stipulated in this Agreement.
Your employment at the Company shall be for an unlimited period, subject to the terms
below.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 12.1 | Each party may terminate the engagement pursuant to this Agreement at any time and for any
reason, by giving a three months advance notice.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------

| | 12.2 | You must continue to work during such advance notice period. At the same time, the Company
reserves the right not to utilize the advance notice period, whether in whole or in part,
and even to terminate the working relationships between the parties, provided it pays you
in lieu of the advance notice.
Where
you terminate your position at the Companys initiative, in addition to the
aforementioned advance notice period, you shall be entitled to an adaptation period of 6
further months, for pay and the accompanying benefits.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 12.3 | Notwithstanding the foregoing the Company is entitled to dismiss you forthwith, without
any advance notice, in any event in which an employee may be deprived in whole or in part
of his entitlement to severance pay according to the prevalent law in Israel, including in
the event that you breach the confidentiality and non-competition provisions and/or breach
your fiduciary duties.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 12.4 | You undertake to act in the following manner, immediately upon termination of your
employment with the Company for any reason:
| | ---- | ------------------------------------------------------------------------------------------------------------------------------

| | 12.4.1 | You will deliver and/or return to the Company all the documents, diskettes or any other
magnetic media, the letters, records, reports and any other documents in your possession
and which are connected to your employment with the Company, as well as any equipment
and/or other property of the Company placed at your disposal, including Company car,
telephone, workers badge or any other equipment.
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 12.4.2 | You will withdraw from the Company in coordination with your overseers, including transfer
of your position in an orderly manner, in a reasonable time frame which shall be set by
your overseers, and you will transfer, in an orderly manner and in accordance with the
Companys guidelines, your position, the documents and all the affairs with which you
have been entrusted to whomsoever the Company shall direct.
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# 13.     No limitation on the
workers employment

| | You
affirm, authorize and undertake that you are entitled to enter into this Agreement and to
accept upon yourself all the undertakings thereunder, that there is no limitation, under
this Agreement or in any other manner, to your entering into this Agreement and your
employment by the Company, and that by entering into this contract you are not breaching
any other agreement or undertaking to which you are or were a party.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 14.     Confidentiality and
Preservation of Intellectual Property

| | As
a fundamental condition to entering into this Agreement, you undertake to comply with
everything stated in Appendix B of this Agreement.
| | -------------------------------------------------------------------------------------------------------------------------------------------

# 15.     Exclusivity of the
Agreement

| | This Agreement is personal and the terms of your employment will follow only by the provisions
of this Agreement
| | ----------------------------------------------------------------------------------------------------------------

| | 15.1 | Beyond the provisions of this Agreement, the parties relationships shall not be
governed by any collective agreement, collective arrangement or practice of any sort.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 15.2 | This Agreement expresses and exhausts all the understandings that exist between you and
the Company, and any arrangements, representations, letters or understandings which
existed in the course of the negotiations leading up to your joining the Company, to the
extent that these do not receive explicit express mention in this Agreement, are null and
void, and have no force.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 16.     General

| | You will bear all taxes deriving from your rights and benefits under this Agreement. It is
hereby clarified that all the amounts stipulated in this Agreement are gross sums, and
that they shall be deducted from your rights and benefits received under this Agreement,
tax according to law and any other mandatory payments, including insurance premiums and
national insurance premiums.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 16.1 | Any modification of the provisions of this Agreement and its Appendices shall be made only
in writing and by both partys signature.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------

| | 16.2 | This Agreement, including its Appendices, constitutes notice to the employee, as defined
in the Employees Notice (Terms of Employment) Law, 5762-2002.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | 16.3 | This Agreement does not detract from your rights under any law and/or extension orders, to
the extent that this Agreement grants you rights that are similar and/or better to those
afforded by law.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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We are delighted to welcome you
into the team of the Companys employees; we wish you success in your position and we
hope to see you integrated and assimilated in its team of employees.

| |  | Wishing you every success,BY: /S/ Avner Raz
Avner RazLumenis President
| |  | ------------------------------------------------------------------------------------

I have read in depth this Agreement
and the Appendices thereto, I understand their content, and I agree to the conditions
therein and undertake to comply with all the undertakings therein.

|Signature: /s/ Hai Ben Israel     | Date: 12/6/03
|--------------------------------- | -------------
|Name of employee: Hai Ben Israel. | I.D. 51049187

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# Appendix A
General Approval with regard to Employers' Payments to a Pension Fund and
 an Insurance Fund instead of Severance Pay191

Pursuant to the
Severance Pay Law, 5723-1963

By virtue of my authority under
section 14 of the Severance Pay Law, 5723-1963 (hereafter  the Law), I confirm
that payments made by an employer starting on the date of publication of this Approval, on
behalf of his employee for a comprehensive pension in a pension provident fund which is
not an insurance fund within the meaning thereof in the Income Tax Regulations (Rules for
Approval and Management of Provident Funds), 5724-1964 (hereafter  a Pension
Fund), or for managers insurance which includes a pension option in an insurance
fund as aforesaid (hereafter  an Insurance Fund), including payments that the
employer made in combination with payments to a Pension Fund and an Insurance Fund
(hereafter  the Employers Payments), will replace severance pay payable
to said employee for the salary from which said payments were paid and for the period that
they were paid (hereafter  the Exempted Salary), provided that all of the
following are fulfilled:

|(1) | The Employers Payments 
|--- | -------------------------

| | (a) | To a Pension Fund are not less than 141/3% of the Exempted Salary or 12% of the
                    Exempted Salary if the employer is paying for his employee, in addition thereto,
                    payments to supplement severance pay to a severance pay provident fund or to an
                    Insurance Fund in the name of the employee at a rate of 21/3% of the Exempted
                    Salary. If the employer does not pay in addition to the 12% also 21/3% as
                    indicated herein, its payments shall replace 72% of the severance pay of the
                    employee, only;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | To an Insurance Fund not less than one of the following:
| | --- | --------------------------------------------------------

| | (1) | 131/3% of the Exempted Salary, if the employer is paying for his employee, also
               payments for ensuring a monthly income in case of loss of working capacity, in a
               program approved by the Director of the Capital Market, Insurance and Savings at
               the Ministry of Finance, at the rate required to ensure at least 75% of the
               exempted salary or at a rate of 21/2% of the Exempted Salary, whichever is
               the lower (hereafter  Payment for Loss of Work Capacity Insurance);
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|191 | The general permit was published in
Yalkut Pirsumim 4659, 5758, on p. 4394 (Published on 30 June
1998). A previous notice, with regard to standard terms for granting a permit, was published in
Yalkut Pirsumim 2787, 5742, on p. 993, and was amended in Yalkut Pirsumim 2847, 5742,
on p. 2939, in Yalkut Pirsumim 4193, 5744, on p. 2349, and in Yalkut Pirsumim 4803,
5759, p. 5, on 19 September
1999.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | (2) | 11% of the Exempted Salary, if the employer also paid, a Payment for Loss of
               Work Capacity Insurance, and in this case the Employers Payments will
               replace 72% of the employees severance pay, only; if the employer paid, in
               addition to these also supplemental severance payments to a severance pay
               provident fund or to an Insurance Fund for the benefit of the employee at a rate
               of 21/3% of the Exempted Wages, the Employers Payments will replace 100% of
               the severance pay of the employee.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | No later than three months from the beginning of the Employers Payments, a
               written agreement is made between the employer and the employee, which
               contains 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | The consent of the employee to an arrangement pursuant to this Approval with
          wording that sets out the Employers Payments and the Pension Fund and the
          Insurance Fund, as applicable; in the said agreement, the text of this Approval
          shall also be included;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | A waiver by the employer in advance, of any reimbursement right that he may have
          from Employers Payments, unless the right of the employee to severance pay is
          denied in a judgment pursuant to section 17 of the Law, and in the event that it
          is denied or if the employee withdrew amounts from the Pension Fund or the
          Insurance Fund other than on account of an entitling event; for this purpose,
          an entitling event  death, disability or retirement at
          the age of sixty or after;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Nothing in this Approval shall derogate from an employees right to
               severance pay under the Law, a collective agreement, an extending order or an
               employment contract, for wages above the Exempted Wages.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15 Sivan 5758 (9 June 1998)

Eliyahu Yishai

Minister of Labor and Social Affairs

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# Appendix BEmployment Contract

# Undertaking Letter for
the Protection of Confidentiality and Intellectual Property

I
am aware that in the course of my employment with Lumenis Ltd. (hereinafter: the
Company) I will be exposed to and/or there will come to my knowledge
Information (as defined below). Since it has been made clear to me that the said
Information is one of the primary and vital assets of the Company, I, the undersigned,
I.D. 51049187, hereby affirm and undertake towards the Company and towards any of your
subsidiary companies and/or affiliated companies, anywhere in Israel and oversees, as
follows:

|1. | To keep completely confidential and not to disclose and/or to transfer, whether
               directly or indirectly, to any individual and/or entity whatsoever, including
               employees of the Company to whom the Information is not necessary for the
               purpose of fulfilling their positions, any information which has been and/or
               which shall be placed at my disposal, whether orally, in writing and/or in any
               other form and/or media, as part of my employment with the Company and/or in
               connection with my employment at the Company, whether directly or indirectly,
               including information of which I have received from others connected directly or
               indirectly with the Company.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | In this Undertaking Letter, Information means all the
               information and know how, which are currently and/or which may in the future be
               in the Companys position, or in the position of anyone on its behalf,
               which are connected and/or which relate in any manner whatsoever to the Company
               and/or its businesses and/or its activities and/or to companies and/or
               corporations and/or entity which are connected thereto. 
Information,
includes, purely for demonstration purposes, and without derogating from the generality of
the foregoing, inter alia: any information connected directly or indirectly to research
and development in relation to existing or future products, inventions, hardware,
software, production processes, discoveries, improvements, developments, innovations,
models, drawing, sketches, designing, calculations, diagrams, formulae, computer files,
computer software, data, planning processes, list of clients, list of suppliers, costing,
prices, payment terms, plans, trade secrets, business plans, names of clients, sales,
prices and any other information connected with the business of the Company and/or
subsidiaries and/or affiliated company and/or its clients, including clients with whom the
Company is engaged in negotiations and including present and future affiliated company
and/or subsidiary companies. All the above shall apply whether or not the Information is
capable of protection by patent or other intellectual property right.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | I am aware of the fact that the Company is committed to confidentiality under
               agreements signed by it with suppliers, clients and third parties, and I
               undertake to faithfully comply with the Companys undertakings to these
               third parties for the protection of confidentiality and non-competition.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|4. | In any event of termination of the engagement between us, I undertake that all
               information, of whatever media, in my possession or control, shall be returned
               to the Company immediately upon the grant of notice of the termination of the
               engagement between us.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | I undertake not to deliver and/or to transfer, whether directly or indirectly,
               to any individual and/or entity whatsoever, material and/or raw material and/or
               any product and/or part of a product and/or model and/or document and/or
               diskette and/or other media for storing Information and/or printed and/or copied
               and/or duplicated item and the like, which contains such information, in whole
               or in part, and not to make any use, including duplication, production, sale,
               transfer, imitation and dissemination, modification, deletion or replication of
               all or part of the Information, save for use needed for the purpose of executing
               the Companys requirements, performed on behalf of the Company and for its
               benefit alone.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | I undertake to notify, to disclose and to bring to the Companys knowledge
               any information of which I shall be disclose to in any manner, including
               information which is the outcome of an idea or development of mine during the
               employment term with the Company, whether or not the same is capable of
               protection by patent, capable of protection by copyright or other intellectual
               property right, registrable or not.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | By signing this Undertaking Letter, I hereby assign to the Company and undertake
               herewith to assign in the future all my rights, if any exist, to any
               information, development, product, improvement, innovation, discovery, idea,
               creation, formula, code, finding, research, conclusions, whether or not the same
               is capable of protection by copyright or other intellectual property rights or
               other property rights, or is registrable or not, which I have created/shall
               create, have developed/shall develop, have discovered/shall discover, by myself
               or together with others, in the course of and/or in connection with my
               employment at the Company (hereinafter: theProducts of My
               Employment). I confirm that the Company shall have the exclusive
               intellectual property rights to the Products of My Employment in Israel and
               abroad, and that I shall not be entitled to any additional remuneration in
               respect thereof beyond the wage for my employment.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | I undertake to collaborate in order to deliver any item necessary for the
               performance of any registration and to assist in the preparation and the
               registration of patents and/or any other property rights in favor of the Company
               and/or subsidiary companies and/or affiliated companies in Israel and/or abroad,
               and to sign any document required for the purpose of registration in Israel
               and/or abroad. I similarly undertake to collaborate and to assist the Company in
               protecting and enforcing its rights. This undertaking of mine shall apply even
               after the termination of the working relationship between us in respect of those
               matters in which I was engaged during the term of my employment, provided that
               if I am required to assist, the Company shall bear my expenses in this respect.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | I am aware of the fact that my Salary and/or the options allocated to me also
               contain compensation in respect of my undertaking that in the event of any
               termination of employment, whether in case of dismissal and/or resignation, I
               shall not be employed and/or work in any business and/or employment which
               directly competes in the manufacture of products for medical and aesthetic
               treatments using lazer. Nothing in this clause restricts my right to engage in
               the production of goods for consumption and/or security and/or industry on the
               basis of lazer. This undertaking shall remain in force for a period of one year
               from the date of termination of my employment.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|10. | I am conscious of the fact that the relationship of trust between me and the
               Company mandates that in the event of any termination of my employment I will
               not solicit the Companys employees to leave their employment; I will not
               employ them either directly or indirectly; and I will not assist them in finding
               work via competing entities; and I undertake to preserve these relationships of
               trust. At the same time, the Company will afford me the possibility of applying
               to receive written certification in respect of the employment of these workers.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11. | I hereby declare and affirm that I am aware of the fact that a breach of any or
               all of the aforesaid undertakings is liable to cause the Company and/or its
               entities, corporations and/or affiliated companies, severe and irreversible
               damages, which cannot be adequately compensated in financial terms, and I
               therefore agree and undertake herewith not to oppose, in the event of a breach
               of any of my undertakings under this Undertaking Letter, the issuance by an
               authorized Court of a temporary injunction and/or other orders against me with
               the aim of preventing and/or ceasing the said breach.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. | Without derogating from the provisions of clause 11 above, I undertake to
               compensate and indemnify the Company in respect of any damage and/or expense
               caused to it or to affiliated companies, in consequence of a breach of my
               aforesaid undertakings, including court costs and attorneys fees, loss
               and/or injury to goodwill. None of this shall derogate from any relief and/or
               remedy available to you under any law.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. | My undertakings pursuant to this Undertaking Letter shall remain in force for a
               period of three years from termination of my employment with the Company,
               whatever the reason for such termination.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. | I hereby affirm and authorize that I am aware of the fact that the Company would
               not engage with me and exposed any information to me, were it not for my
               undertaking under this Undertaking Letter.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

WHEREFORE, I HAVE HERETOFORE SET MY
HANDS:

Signature: /s/ Hai Ben
IsraelWitness to signature: ___________

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Exhibit 10.3

# SEPARATION AGREEMENT

This Separation Agreement (this
Agreement) is made and entered into on June 30, 2003 by and among (i)
Lumenis Ltd., a company incorporated under the laws of the State of Israel, with offices
at P.O.B. 240, Yokneam Industrial Park, Yokneam, Israel (Lumenis or the
Company) and (ii) Mr. Sagi Genger (SG).

|WHEREAS, | the Company has decided to eliminate the position of the Chief Operating Officer in
the Company (COO); and
|-------- | ------------------------------------------------------------------------------------------------------------

|WHEREAS, | The Company and SG have further agreed that upon the elimination of the COO position,
SGs employment with the Company will be terminated effective July 1, 2003; and
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|WHEREAS, | TheCompany, Lumenis Inc. and SG, have entered on January 21, 2003 into an
employment agreement (Employment Agreement) pursuant to which the terms
and conditions relating to severance will enter into force upon termination of SGs
employment with the Company under the circumstances described above, and
|-------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|WHEREAS, | the Company and SG agreed to set forth in writing the terms and conditions of their
understandings regarding the termination of employment of SG in the Company and his
appointment as a consultant to the Company.
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOW, THEREFORE, in
consideration of the premises and the mutual covenants, terms and conditions hereinafter
set forth, and for other good and valuable consideration, the parties hereto agree as
follows:

|1. | TERMINATION DATE. Following the elimination of the position of the COO,
               it is hereby agreed that the employment of SG with the Company and the
               employer-employee relations between the parties will terminate, effective July
               1, 2003.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | SPECIAL SEVERANCE.
|-- | ------------------

| | 2.1. | Upon termination of employment of SG with the Company, SG will be entitled to a
               special severance payment of the total amount of US $1,000,000 (one million
               United States Dollars) (Severance Payment).
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2.2. | The Severance Payment will be paid to SG as follows:
| | ---- | ----------------------------------------------------

| | 2.2.1. | A total amount of US $600,000 (six hundred thousand United States Dollars) will
               be paid to SG by no later than December 31, 2003; and
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | 2.2.2. | A total amount of US $400,000 (four hundred thousand United States Dollars) will
               be paid to SG in quarterly equal installments of US $50,000 (fifty thousand
               United States Dollars) each, over a 2-year period. The first installment will be
               paid to SG at the beginning of the fourth (4) fiscal quarter of 2003.
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | 2.3. | The Severance Payment shall be paid to SG, among others, in lieu of all amounts
               due to him under Section 3 of the Employment Agreement, including 90 (ninety)
               days prior notice period payments (including  life insurance, accidental
               death benefits, Blue Shield medical coverage, Metlife Dental coverage and
               Metlife long term Disability benefit), any severance amounts due to SG under the
               principles set forth in the Israeli Severance Law, 5723-1963, and a special
               severance payment, as determined in Section 3 of the Employment Agreement.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2.4. | SG will return the Company car and other Company property and equipment within
               ninety (90) days from the date of termination of employment. Additionally, the
               Company will continue to pay SG his medical insurance for an additional 12
               (twelve) month period following termination of employment, and shall grant SG a
               2-year option to purchase the medical insurance policy from the Company at
               Company cost.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | GRANT OF OPTIONS. Notwithstanding the acceleration provisions described
               in Section 3 of the Employment Agreement, SG will be entitled to exercise
               398,667 Company Options held by him at the date of termination of his
               employment. Said options will become immediately vested as of the date hereof,
               and will remain exercisable for a five (5) year period after the date of
               grant. Other terms of the Options will be as defined in the Share Option Plan
               under which said options will be granted.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | NON COMPETE, CONFIDENTIALITY. The parties hereby agree that (A) all the
               terms and conditions relating to (i) confidential information of the Company and
               non-disclosure, (ii) non-competition by SG, (iii) non-solicitation by SG, and
               (iv) intellectual property and inventions, assignment thereof and ownership
               therein, all as contained in the Employment Agreement, including without
               limitation all the terms and conditions set forth in Sections 6, 7 and 8 of the
               Employment Agreement, shall continue to apply in full force and effect, for such
               time periods as set forth in the Employment Agreement, provided, however, that
               the non-compete undertakings of SG will continue to exist for a five (5) year
               period from the date hereof.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | LEGAL MATTERS. SG will assist the Company and cooperate on any legal
               matter as requested by the Company, arising directly or indirectly, in
               connection with the term of his employment in the Company and/or Companys
               business activity in which, at the Companys discretion, he has the
               professional knowledge and expertise.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | RELEASE. The parties hereto release and discharge each other (including
               any subsidiary or affiliated company of the Company, and any and all of their
               officers, directors and employees) from any and all claims, rights, demands,
               actions, obligations, liabilities, and causes of action in connection with the
               termination of SGs employment with the Company, under or pursuant to any
               law, statute, or regulation.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

78

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| | Notwithstanding
the foregoing, the above waiver and release shall not include any claims based on this
Agreement or any other undertaking entered into by each party hereto towards the other
party directly or indirectly, as of the date hereof. In order to remove any doubt it is
hereby clarified that any amounts due, in whole or in part, will serve to set off any
amounts due to the Company as a result of breach of any undertaking by SG (directly or
indirectly) as has been entered into on the date hereof.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | NO ORAL CHANGES. This Agreement may be changed only in writing, and must
               be signed in advance by the party against whom enforcement of any waiver,
               modification, discharge or other change is sought.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | WAIVER. Neither partys failure to insist upon strict compliance
               with any of the terms, covenants or conditions hereof shall be deemed a waiver
               of such term, covenant or condition, nor shall any waiver or relinquishment of
               any right or power hereunder at any one or more times be deemed a waiver or
               relinquishment of such right or power at any other time or times.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
               the parties hereto regarding the subject matter hereof, and supersedes and
               cancels any and all prior agreements between the parties hereto, express or
               implied, written or oral, relating to the subject matter hereof, except for (i)
               the terms of the Employment Agreement, unless specifically indicated herein and
               (ii) any other undertakings entered into by the parties as of the date hereof.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. | CORPORATE APPROVALS. This Agreement will enter into force and become
               effective upon the approval of the Companys Board of Directors.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|11. | GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement shall be
               governed by and construed in accordance with the laws of the State of Israel.
               Any litigation concerning any claims under or breach of this Agreement shall be
               brought exclusively in the competent courts of Tel-Aviv-Jaffa.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. | DESCRIPTIVE HEADINGS. The Section headings contained herein are for
               reference purposes only and shall not in any way affect the meaning or
               interpretation of this Agreement.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. | COUNTERPARTS. This Agreement may be executed in counterparts, each of
               which shall be deemed an original, and all such counterparts shall constitute
               one and the same instrument.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|23. | IN WITNESS WHEREOF, the Company and SG have executed this Separation
               Agreement, as of the day and year first above written.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|Lumenis Ltd.BY: /S/ Kevin R. Morano
Kevin R. MoranoChief Financial Officer |  | 
|---------------------------------------------------------------------------------------- |  | 
|BY: /S/ Sagi Genger
Sagi Genger                                            |  | 

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Exhibit 10.4

# CONSULTING AGREEMENT

This Consulting Agreement (this
Agreement) is made and entered into as of June 30, 2003 by and among
(i) Lumenis Inc., 375 Park Avenue, New York New York, 10152 (Lumenis or
the Company) and (ii) E&G Advisory Services Limited
(Consultant).

|WHEREAS, | the Company operates in the field of design, manufacture and marketing of laser, light and
other energy emitting systems for aesthetic, ophthalmic, surgical and dental applications,
and
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|WHEREAS, | Consultant has the skills and experience  required to  appropriately  render to the Company
                    consulting services as provided herein, and
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|WHEREAS, | the Company wishes to retain the services of the Consultant, in light of its knowledge and
expertise in the Companys activities, and Consultant wishes to provide the Company
with such services, all pursuant to the terms and conditions set forth herein; and
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|WHEREAS, | the Company and Consultant agreed to set forth in writing the terms and conditions of
their understandings regarding his appointment as a consultant to the Company.
|-------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOW, THEREFORE, in
consideration of the premises and the mutual covenants, terms and conditions hereinafter
set forth, and for other good and valuable consideration, the parties hereto agree as
follows:

|1. | RETENTION OF CONSULTANT. The Company hereby engages Consultant and
          Consultant hereby agrees to accept the engagement by the Company in accordance
          with the terms and conditions hereof.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | THE SERVICES. Consultant will provide the Company consulting services in activities the
Company engages in, from time to time. Such consulting services shall include reports on
international and strategic options for the Company based on a work plan as shall be
submitted by Consultant no later than October 1, 2003 (the Services).
Mr. Sagi Genger will lead the team providing the Services on behalf of Consultant.
Consultant shall be required to provide the Services on such dates as may be agreed upon
by the Company and for an unlimited amount of hours per month, provided, however, that
Services rendered by SG on behalf of Consultant will total no more than 25 hours per
month. Consultant shall participate in at least one international Company conference a
year, unless waived by the Company and will submit to the Company interim reports as shall
be prescribed in the work plan. Consultant shall make its best efforts, and shall devote
his expertise in rendering the Services to the Companys full satisfaction and in
full compliance with the requirements set forth herein. Consultant shall report to the
Companys CEO or such other person as the Company may determine from time to time.
The Services hereunder are anticipated to be rendered outside the U.S. Consultant will be
entitled to administrative and secretarial services from the Company.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|3. | TERM. 
               The consulting services shall commence on the date hereof and shall continue
               until the report on international and strategic options for the Company will be
               completed, provided that the Agreement will be for a term of 2-years from the
               date hereof and until June 30, 2005 (Term).
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | COMPENSATION.
|-- | -------------

| | 4.1. | In
consideration of the performance of the Services, as defined in Section 4 hereunder,
Consultant shall be entitled to compensation in the aggregate amount of US$ 575,000 (five
hundred seventy five thousand United States Dollars) for the whole Term
(Compensation) that will be paid to it as a lump sum by no later than
December 31, 2003.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.2. | Company
will reimburse the Consultant for out of pocket expenses in an amount that shall not
exceed US$25,000 (twenty five thousand United States Dollars) for the whole Term, paid
against a valid receipt.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.3. | The
foregoing Compensation shall constitute the entire compensation to which Consultant shall
be entitled for the Services and no further compensation, payments or rights shall be due
by the Company to Consultant pursuant hereto.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | PAYMENT. 
               The Compensation will be paid to Consultant after it shall furnish to the
               Company a duly issued invoice in the amount in US Dollars equal to the
               Compensation due to it. The Compensation shall be paid to Consultant within 10
               days following receipt by the Company of the invoice. To the extent services
               provided by Consultant is rendered outside the U.S. the Company shall not deduct
               or withhold any payments therefrom. To the extent services by the Consultant are
               rendered in the U.S., the Company shall be entitled to deduct from any amounts
               paid to Consultant hereunder, any taxes required to be deducted or withheld
               under applicable law, unless Consultant furnishes the Company in advance with an
               appropriate tax exemption certificate.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | CONFIDENTIAL
INFORMATION. Consultant agrees not to divulge or use, except in furtherance of the
Companies business at any time during the Term as well as after the termination of
the Term, any confidential and other proprietary information (as further defined below,
Confidential Information) obtained at any time, disclosed to the
Consultant or developed by the Consultant during the Term or regarding the business of the
Company, its subsidiaries, any company in which the Company hold, directly or indirectly
(i) a 5% interest (or greater) in the equity or profits thereof, or (ii) any right or
power to appoint one or more managers, directors or other individual(s) performing similar
functions (Affiliate), or any of its customers, except that the
Consultant may disclose certain necessary information to co-workers employed at the
Company and to third parties when required to do so in connection with the performance of
his duties hereunder. Confidential Information shall include information which
is not known to the public and shall include, but not be limited to, trade secrets,
know-how, data, technical or non-technical information, whether written, graphic or oral,
the names and addresses of prospective or existing investors, customers, supply sources,
ideas, financial information, operations policies, marketing strategies, business
development plans, corporate assets, financial data and forecasts, and historical
financial results.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|7. | COVENANT
NOT TO SOLICIT BUSINESS. The Consultant agrees that for a period of one (1) year from
the effective date of termination of this Agreement, it will not directly or indirectly
solicit any business from individuals or entities that are customers of the Company, its
subsidiaries or Affiliates, at the time of termination of this Agreement, without the
prior written consent of the Companys Board of Directors.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | For a period of one (1) year from the effective date of termination of this
          Agreement, without the prior written consent of the CEO, the Consultant shall
          not employ, offer to employ, or in any way directly or indirectly solicit or
          seek to obtain or achieve the employment of any person employed by the Company,
          its subsidiaries, any Affiliate, or any successors or assigns thereof, except
          for persons who were not employees of the Company or who were terminated by the
          Company, its subsidiaries or any Affiliate on the effective date of termination
          of this Agreement.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | The Consultant acknowledges and agrees that a breach of Section 6 or 7 shall
          cause irreparable harm to the Company, its subsidiaries, and/or Affiliates, and
          that the Company shall be entitled to specific performance of this Agreement or
          an injunction without proof of special damages, together with costs and
          reasonable attorneys fees and disbursements incurred by the Company in
          enforcing their rights under Section 6 and this Section 7.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | INTELLECTUAL
PROPERTY ASSIGNMENT. Any invention or know-how which shall occur to the Consultant
during the Term relating to the business of the Company or the use of any of its
technologies, notwithstanding that it is perfected or reduced to specific form at any time
thereafter provided that its conception arose during such period, including all
rights therein and in any patent or other form of legal protection with respect thereto,
shall become the sole property of the Company, without need for any specific action or
notice or any consideration to the Consultant other than as provided for by this
Agreement.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | TERMINATION. Either party may terminate this Agreement with immediate
          effect in the event of (1) a material breach of this Agreement by the other
          party; or (2) any other breach of this Agreement by the other party that has not
          been cured within seven (7) days following a written notice thereto.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. | INDEPENDENT CONTRACTOR. It is understood and agreed that
          Consultant is and shall at all times remain an independent contractor and not an
          employee of the Company. Consultant will not be eligible for any employee
          benefits of any type or nature. This Agreement is not intended by the parties
          to, and shall not, constitute or create a joint venture, partnership or other
          business organization.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11. | NO
ORAL CHANGES. This Agreement may be changed only in writing, and must be signed in
advance by the party against whom enforcement of any waiver, modification, discharge or
other change is sought.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. | NO CONFLICTING OBLIGATION. Consultant represents that his
               performance of this Agreement and the Services does not and will not breach any
               agreement to which Consultant is a party, any other undertaking or obligation of
               Consultant or any applicable law, and Consultant undertakes not to enter into
               any agreement, undertaking or obligation, either written or oral, in conflict
               with the terms hereof or that may derogate from the Companys rights
               hereunder.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|13. | NO IMPROPER USE OF MATERIALS. Consultant agrees not to use
               in the performance of Services any third party confidential or proprietary
               information subject to a duty on Consultants part to maintain the
               confidentiality of such information and/or to use it only for certain limited
               purposes, unless such information is generally available to the public or
               Consultant has an authorization from such third party for the possession and
               unrestricted use of such information. Without limiting the generality of Section
               6 above, Consultant undertakes not to breach any obligation of confidentiality
               that Consultant may have to any third party, and agrees to fulfill all such
               obligations during the Term of this Agreement.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. | PUBLICATIONS. Consultant will not hold any discussions or make any
               publications, directly or indirectly, in connection with the Company, including
               its business activity, with any third party press without the prior written
               approval of the Chief Executive Officer of the Company.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|15. | WARRANTIES.
|--- | -----------

| | 15.1 | Without prejudice to any of Consultants representations, warranties and
               undertakings hereunder, Consultant hereby represents and warrants that it has
               the ability and expertise to diligently and appropriately perform all his duties
               hereunder.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 15.2 | The Company makes hereunder no warranties, express or implied.
| | ---- | --------------------------------------------------------------

|16. | WAIVER.
               Neither partys failure to insist upon strict compliance with any of the
               terms, covenants or conditions hereof shall be deemed a waiver of such term,
               covenant or condition, nor shall any waiver or relinquishment of any right or
               power hereunder at any one or more times be deemed a waiver or relinquishment of
               such right or power at any other time or times.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|17. | CORPORATE APPROVALS. This Agreement will enter into force and become effective upon the approval of
Lumenis Ltd. Board of Directors.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|18. | ENTIRE
AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto
regarding the subject matter hereof, and supersedes and cancels any and all prior
agreements between the parties hereto, express or implied, written or oral, relating to
the subject matter hereof.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|19. | LEGAL AND EQUITABLE REMEDIES. Because Consultants
               Services are personal and unique and because Consultant may have access to and
               become acquainted with confidential and proprietary information of the Company,
               the Company shall have the right to enforce this Agreement and any of its
               provisions by injunction, specific performance or other equitable relief, all
               without prejudice to any other rights and remedies that the Company may have
               hereunder or under applicable law.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|20. | INDEMNIFICATION.Consultant shall defend, indemnify, and
               hold the Company and its respective affiliates, employees, directors and agents
               harmless against and from any losses, liability, damages, expenses, claims,
               proceedings, or investigations arising out of or in connection with any act or
               omission by Consultant hereunder, including, without limitation, amounts paid in
               settlement of claims, proceedings, or investigations, and agrees to bear all
               costs and expenses, including, without limitation, reasonable attorneys
               fees, incurred in connection with the defense or settlement of any such claim,
               proceeding or investigation.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|21. | GENERAL TERMS.
|--- | --------------

| | 21.1. | For purposes of this Agreement, the Company shall include all
               subsidiaries and affiliates of Lumenis Ltd.
| | ----- | --------------------------------------------------------------------------------------------------------------------------

| | 21.2. | This Agreement is considered a personal services contract and under no
               circumstances may any of Consultants rights and/or obligations hereunder
               be assigned or delegated to any person or entity, either directly or indirectly.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 21.3. | In case any one or more of the provisions of this Agreement is, for any reason,
               held to be invalid, illegal or unenforceable in any respect, such invalidity,
               illegality or unenforceability shall not affect the other provisions of this
               Agreement, and this Agreement shall be construed as if such invalid, illegal or
               unenforceable provision had never been contained herein. In addition, if any one
               or more of the provisions of this Agreement is, for any reason, held to be
               excessively broad as to duration, geographical scope, activity or subject, it
               shall be construed by limiting and reducing it, so as to be enforceable to the
               extent compatible with applicable law.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 21.4. | No failure or delay on part of any party hereto in exercising any right or power
               hereunder shall operate as a waiver thereof. No single or partial exercise of
               any right or power hereunder shall preclude any other or further exercise
               thereof or the exercise of any other right or power hereunder.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 21.5. | Section headings in this Agreement are included herein for convenience of
               reference only and shall not be considered or used in construing or interpreting
               this Agreement.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 21.6. | This Agreement may be executed in any number of counterparts, all of which shall
               be taken together and constitute one and the same instrument; any of the parties
               hereto may execute this Agreement by signing any such counterpart.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 21.7. | Any notices required or permitted hereunder shall be given to the relevant party
               at the address specified in the preamble to this Agreement or at such other
               address as to which the party shall have notified the other party in writing.
               Such notices shall be deemed given upon personal delivery, or, if sent by
               certified or registered mail, postage prepaid, three (3) days after the date of
               mailing.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|22. | GOVERNING
LAW; SUBMISSION TO JURISDICTION. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. Any litigation concerning any claims
under or breach of this Agreement shall be brought exclusively in the competent courts of
the State of New York.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|24. | IN WITNESS WHEREOF, the Company and Consultant have executed this
               Consulting Agreement, as of the day and year first above written.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|Lumenis Inc.BY: /S/ Kevin R. Morano
Kevin R. MoranoChief Financial Officer |  | 
|---------------------------------------------------------------------------------------- |  | 

|E&G Advisory Services LimitedBY: /S/ David Parnes
David Parnes |  | 
|---------------------------------------------------------------------------- |  | 

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Exhibit 10.5

June 17, 2003

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

# ToLumenis Ltd.

Reference is made to the following
documents made between Lumenis Ltd. (the Borrower) and/or Lumenis Holdings
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), and (iv) Loan Agreement dated
March 26, 2002 as amended (the 2002 Loan Agreement). The Letter, the 2001 Loan
Agreement, the Letter of Undertaking and the 2002 Loan Agreement shall jointly be referred
to as the Loan Documents.

Per the request of Borrower the Bank
issued on April 28, 2003 a bank guarantee in favor of Avner Raz in the sum of $3,000,000
(Three Million US Dollars) (the Bank Guarantee);

It
is agreed as follows:

|One) | the sum of the Bank Guarantee will not be part of the Short Term Credit Line or
               the Additional Amount.
|---- | ---------------------------------------------------------------------------------------------------------------------

|Two) | all Collaterals and\or Security Documents created under the Loan Documents shall
               serve also as collaterals to secure the repayment of the Borrower obligations in
               connection with the Bank Guarantee.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

This letter constitutes an integral
part of the Loan Documents.

| |  | Very truly yours,BANK HAPOALIM B.M.BY: /S/ R. Arbel
R. Arbel
| |  | --------------------------------------------------------------------------
| |  | BY: /S/ L. Ben Ami
L. Ben Ami                               

We agree to the above:

|Lumenis Ltd.            | Lumenis Holdings Inc.   | Lumenis Inc.           
|----------------------- | ----------------------- | -----------------------
|By: /s/ Kevin R. Morano | By: /s/ Kevin R. Morano | By: /s/ Kevin R. Morano
|Name: Kevin R. Morano   | Name: Kevin R. Morano   | Name: Kevin R. Morano  

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# Exhibit 10.6

# STOCK PLEDGE AGREEMENT 
(Lumenis Ltd.)

THIS
STOCK PLEDGE AGREEMENT (this Agreement) is made and entered into as of
July 1, 2003, by LUMENIS LTD. (f/k/a ESC Medical Systems Ltd.), a company organized and
existing under the laws of the State of Israel (Pledgor), in favor of
BANK HAPOALIM B.M., an Israeli banking corporation (Lender).

RECITALS

WHEREAS,Lender heretofore has made certain loans and/or granted other extensions of credit to
Pledgor, including, without limitation, pursuant to a certain Short Term Credit Line
Letter dated April 24, 2001, between Lender and Pledgor (as heretofore and/or hereafter
amended, the Credit Line Letter); and

WHEREAS,
Pledgor has requested that certain borrowing availability under the Credit Line Letter be
extended until December 31, 2003; and

WHEREAS,
Lender is willing to agree to such extension under the Credit Line Letter upon the
condition, among others, that Pledgor execute and deliver this Agreement in favor of
Lender and

WHEREAS,
Pledgor has also agreed to execute and deliver this Agreement in favor of Lender as
collateral security for any and all indebtedness, obligations and liabilities owing by
Pledgor and/or any of its respective Subsidiaries to Lender, whether now existing or
hereafter incurred.

NOW,
THEREFORE, in consideration of the Recitals and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Pledgor hereby agrees as
follows:

|25. | Defined Terms. (a) Terms used but not defined herein shall have the
               meanings given to them in the UCC (defined below), provided that, if a
               term is defined in Article 9 of the UCC differently than in another Article of
               the UCC, then such term shall have the meaning specified in Article 9 of the
               UCC.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Bankruptcy
Default: means the occurrence, initiation or filing of any voluntary or
involuntary bankruptcy action or proceeding or any similar types of actions, proceedings
or events, after giving effect to any cure or grace period applicable thereto, set forth
in any document or instrument that evidences or secures the Secured Obligations.

Collateral:
means the Pledged Stock and all Proceeds.

Contractual
Obligation: means as to any Person, any provision of any security issued by such
Person or of any agreement, instrument or other undertaking to which such Person is a
party or by which it or any of its property is bound.

86

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Event
of Default: means any event of default occurring and continuing under any
document or instrument that evidences or secures the Secured Obligations, provided
that any requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.

Governmental
Authority: means any nation or government, any state or other political
subdivision thereof and any entity exercising executive, legislative, judicial, regulatory
or administrative functions of, or pertaining to, government.

Holdings or Issuer:
 means Lumenis  Holdings  Inc., a Delaware  corporation  and a wholly
owned Subsidiary of Pledgor, or any successor entity thereto as the issuer of the Pledged Stock.

Holdings
Loan Agreement: means the Loan Agreement dated as of April 30, 2001, between
Holdings (formerly named Energy Systems Holdings Inc.) and Lender, as heretofore and/or
hereafter amended.

Lien:
means any mortgage, deed of trust, pledge, hypothecation, security interest, assignment,
encumbrance, claim, lien, lease, charge or any preferential, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever, whether
voluntarily incurred or arising by operation of law or otherwise, affecting any assets or
property, including, without limitation, any agreement to give or grant any of the
foregoing, any conditional sale or other title retention agreement, any financing lease
having substantially the same economic effect as any of the foregoing, and the filing of,
or agreement to give, any financing statement with respect to any assets or property under
the UCC or comparable law of any jurisdiction.

Material
Adverse Effect: means a material adverse effect on (a) the business, operations,
property, condition (financial or otherwise) or prospects of Pledgor and its subsidiaries
taken as a whole, (b) the validity or enforceability of this or any of the other documents
made, delivered or given in connection with this Agreement or any other document or
instrument that evidences or secures the Secured Obligations, or (c) the rights or
remedies of Lender hereunder, or under any document or instrument that evidences or
secures the Secured Obligations, or any of the other agreements or documents made,
delivered or given in connection therewith.

Person:
means an individual, partnership, corporation, limited liability company, business trust,
joint stock company, trust, estate, unincorporated organization or association, joint
venture, Governmental Authority or other entity of whatever nature.

Pledged
Stock: means the shares of capital stock listed on Schedule 1 attached
hereto, whether now owned or hereafter acquired, together with all stock certificates,
options, warrants, debentures, other shares or securities or rights of any nature
whatsoever, in each case of the Issuer, that may be issued to or acquired by the holder or
holders thereof, whether in substitution therefor, by way of bonus shares, rights or
otherwise, together with all existing and future rights and benefits attaching to the
aforesaid shares and conferred thereby, and all additions and substitutions thereto and
therefor.

87

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Pledgor
Letter of Undertaking: means the Agreement dated as of April 30, 2001, between
Pledgor and Lender, as heretofore and/or hereafter amended.

Pledgor
Loan Agreement: means the Loan Agreement dated as of March 26, 2002, between
Pledgor and Lender, as heretofore and/or hereafter amended.

Proceeds:
means all proceeds as such term is defined in Section 9-102 of the UCC and, in
any event, shall include, without limitation, all dividends or other income from the
Pledged Stock, collections thereon or distributions with respect thereto.

Requirement
of Law: means as to any Person, the articles or certificate of incorporation,
certificate of formation, operating agreement, and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to which such Person
or any of its property is subject.

Secured
Obligations: means any and all indebtedness, obligations and liabilities owed by
Pledgor and/or any of its Subsidiaries to Lender, whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, including,
without limitation, (i) all unpaid principal of, and accrued interest (before and/or after
maturity, acceleration or demand, including, without limitation, any interest which
accrues after the commencement of any case, proceeding or other action relating to the
bankruptcy, insolvency or reorganization of Pledgor and/or any of its Subsidiaries,
whether or not allowed or allowable as a claim in any such proceeding) on, any loans made
and/or other credit granted to Pledgor and/or any of its Subsidiaries by Lender,
including, without limitation, all loans made and other credits granted pursuant to the
Credit Line Letter, Pledgor Letter of Undertaking, Pledgor Loan Agreement and/or Holdings
Loan Agreement, and (ii) any other amount payable from time to time to Lender by Pledgor
and/or any of its Subsidiaries under or in connection with any of the foregoing and/or any
guarantee, reimbursement obligation, indemnity, agreement, instrument or otherwise,
including, without limitation, all costs, fees and expenses (including all fees and
disbursements of counsel to Lender) incurred by Lender in connection with any of the
foregoing.

Securities
Act: means the Securities Act of 1933, as amended.

Subsidiary:
means, as to any Person, a corporation, partnership or other entity of which shares of
stock or other ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, directly or indirectly
through one or more intermediaries, or both, by such Person. Unless otherwise qualified,
all references to a Subsidiary or to Subsidiaries in this
Agreement shall refer to a Subsidiary or Subsidiaries of Pledgor, including, without
limitation, Holdings.

Termination
Date: means the date on which all commitments, if any, of Lender to make loans
and/or grant other extensions of credit to Pledgor and/or any of its Subsidiaries have
been terminated, and the Secured Obligations have been indefeasibly paid in full, other
than any indemnification obligations not then due and payable.

UCC:
means the Uniform Commercial Code from time to time in effect in the State of New York or
in any other state to the extent the same is applicable by law to any portion of the
Collateral.

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| | (c) | The words hereof, herein 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 and paragraph references are to this Agreement unless otherwise
               specified.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|26. | Pledge; Grant of Security Interest. Pledgor hereby delivers to Lender all
               of the Pledged Stock, and hereby transfers, pledges, assigns, and charges by way
               of a first ranking fixed pledge in favor of Lender, and grants to the Lender a
               perfected first priority lien and security interest in, the Pledged Stock and
               all other Collateral 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|27. | Stock Powers. The certificate(s) evidencing the shares of the Pledged
               Stock delivered to Lender shall be registered in the name of Lender. However, if
               at any time required or requested by Lender in order (i) to perfect its lien and
               fixed charge on, and security interest in, each certificate representing one or
               more shares of the Pledged Stock, or (ii) to transfer its interests in any
               certificate representing one or more shares of the Pledged Stock in accordance
               with this Agreement, then Pledgor shall deliver an undated stock power covering
               such certificate, duly executed in blank by Pledgor.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|28. | Representations and Warranties. Pledgor represents and warrants that:
|--- | ---------------------------------------------------------------------

| | (a) | Pledgor is a corporation duly organized, validly existing and in good standing
               under the laws of the State of Israel and has the corporate power and authority
               and the legal right to own and operate its property, to lease the property it
               operates and to conduct the business in which it is currently engaged.
               Pledgors exact legal name is as set forth in the first paragraph of this
               Agreement.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Pledgor has the corporate power and authority and the legal right to execute and
               deliver, to perform its obligations under, and to grant the fixed charge and
               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 fixed charge and security interest in the
               Collateral pursuant to, this Agreement.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | This Agreement constitutes a legal, valid and binding obligation of Pledgor,
               enforceable in accordance with its terms against Pledgor and all creditors of
               Pledgor, 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.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | (d) | Its chief executive office and principal place of business is located at Yokneam
               Industrial Park, Yokneam, Israel 20692.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------

| | (e) | The execution, delivery and performance of this Agreement will not violate any
               provision of any Requirement of Law or Contractual Obligation of Pledgor and
               will not result in the creation or imposition of any Lien on any of the
               properties or revenues of Pledgor pursuant to any Requirement of Law or
               Contractual Obligation of Pledgor, except the fixed charge and security
               interests created by this Agreement in favor of Lender in the Collateral.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | No consent or authorization of, filing with, or other act by or in respect of,
               any arbitrator or Governmental Authority and no consent of any other Person
               (including, without limitation, any stockholder or creditor of Pledgor), is
               required 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.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | No litigation, investigation or proceeding of or before any arbitrator or
               Governmental Authority which could reasonably be expected to have a Material
               Adverse Effect is pending or, to the knowledge of Pledgor, threatened by or
               against Pledgor or against any of its properties or revenues with respect to
               this Agreement or any of the transactions contemplated hereby, except as has
               been previously disclosed in writing to Lender or disclosed in Pledgors
               reports filed with the Securities and Exchange Commission.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (h) | The shares of Pledged Stock pledged by Pledgor constitute 100% of the issued and
               outstanding shares of the capital stock of Issuer.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | All the shares of the Pledged Stock have been duly and validly issued and are
               fully paid and nonassessable.
| | --- | --------------------------------------------------------------------------------------------------------------------------

| | (j) | Pledgor has rights in or the power to transfer the Pledged Stock, and Pledgor
               is, and until the Secured Obligations are indefeasibly paid in full will be, the
               beneficial owner of, and has, and until the Secured Obligations are indefeasibly
               paid in full will have, good and marketable title to, the Pledged Stock free of
               any and all Liens or options in favor of, or claims of, any other Person, except
               the security interests created by this Agreement.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (k) | This Agreement is effective to create in favor of Lender a valid security
               interest in the Pledged Stock securing the payment and performance of the
               Secured Obligations. Upon delivery to Lender of the stock certificate(s)
               registered in the name of Lender evidencing the Pledged Stock, and assuming that
               value has been given, this Agreement will constitute a valid and perfected
               security interest in the Pledged Stock, and assuming further that Lender has no
               notice of any adverse claim to the Pledged Stock, Pledgor shall have a perfected
               security interest in the Pledged Stock, free of any adverse claim.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Pledgor
agrees that the foregoing representations and warranties shall be deemed to have been made
by Pledgor on the date of each borrowing of a Secured Obligation on and as of such date of
borrowing as though made hereunder on and as of such date.

|29. | Covenants. Pledgor covenants and agrees with Lender that from and after
               the date of this Agreement until the Termination Date:
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | Notwithstanding section 3 hereof, if Pledgor shall, as a result of its
               beneficial ownership of the Pledged Stock, become entitled to receive or shall
               receive any stock certificate (including, without limitation, any certificate
               representing a stock dividend or a distribution in connection with any
               reclassification, increase or reduction of capital or any certificate issued in
               connection with any reorganization), option or rights, whether in addition to,
               in substitution of, as a conversion of, or in exchange for any shares of the
               Pledged Stock, or otherwise in respect thereof, Pledgor shall accept the same as
               the agent of Lender, hold the same in trust for Lender and deliver the same
               forthwith to Lender in the exact form received, duly indorsed by Pledgor to
               Lender, if required, together with an undated stock power covering such
               certificate duly executed in blank by Pledgor. Upon receipt of same, Lender
               shall hold same in pledge in accordance with the terms and conditions of this
               Agreement as additional Collateral for the Secured Obligations, or Lender may,
               at its option, deliver same to Issuer with a request to re-register same in the
               name of Lender (or its nominee) and thereafter, such re-registered stock
               certificate, option or rights shall be held by Lender (or its nominee) in pledge
               in accordance with the terms and conditions of this Agreement as additional
               Collateral for the Secured Obligations. Any sums paid upon or in respect of the
               Pledged Stock upon the liquidation or dissolution of Issuer shall be paid over
               to Lender to be held by it hereunder as additional Collateral for the Secured
               Obligations, and in case any distribution of capital shall be made on or in
               respect of the Pledged Stock or any property shall be distributed upon or with
               respect to the Pledged Stock pursuant to the recapitalization or
               reclassification of the capital of Issuer or pursuant to the reorganization
               thereof, the property so distributed shall be delivered to Lender to be held by
               it hereunder as additional Collateral for the Secured Obligations. If any sums
               of money or property so paid or distributed in respect of the Pledged Stock
               shall be received by Pledgor, Pledgor shall, until such money or property is
               paid or delivered to Lender pursuant to this Agreement, hold such money or
               property in trust for Lender, segregated from other funds of Pledgor, as
               additional Collateral for the Secured Obligations.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | (b) | Without the prior written consent of Lender, Pledgor will not (1) permit, vote
               to enable, or take any other action to permit, Issuer to issue, allot or grant
               any stock or other equity securities, options or other rights, privileges or
               preferences relating thereto of any nature, or to issue any other securities
               convertible into or granting the right to purchase or exchange for any stock or
               other equity securities, options or other rights, privileges or preferences
               relating thereto of any nature of Issuer, or to issue and distribute any
               non-cash dividend, unless same are pledged to Lender pursuant to the terms of
               this Agreement as additional Collateral for the Secured Obligations, (2) sell,
               assign, transfer, exchange, or otherwise dispose of, or grant any option with
               respect to, the Collateral, (3) create, incur or permit to exist any Lien or
               option in favor of, or any claim of any Person with respect to, any of the
               Collateral, or any interest therein, except for the security interests created
               by this Agreement, (4) enter into any agreement or undertaking restricting the
               right or ability of Pledgor or Lender to sell, assign or transfer any of the
               Collateral, or (5) without giving Lender at least ten (10) days prior written
               notice thereof, change the state where it is located, or change its name,
               identity or organizational structure to such an extent that any financing
               statement filed by Lender in connection with this Agreement would become
               seriously misleading.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Pledgor shall maintain the pledge, charge, lien and security interest created by
               this Agreement in the Collateral as a first ranking fixed charge and a
               perfected, first priority lien and security interest in favor of Lender, and
               shall defend such pledge, charge lien and security interest against claims and
               demands of all Persons whomsoever. At any time and from time to time, upon the
               written request of Lender, and at the sole expense of Pledgor, Pledgor will
               promptly and duly execute and deliver such further instruments and documents and
               take such further actions as Lender may reasonably request for the purposes of
               obtaining or preserving the full benefits of this Agreement and of the rights
               and powers herein granted. If any amount payable under or in connection with any
               of the Collateral shall be or become evidenced by any promissory note, other
               instrument or chattel paper, such note, instrument or chattel paper shall be
               immediately delivered to Lender, duly endorsed in a manner satisfactory to
               Lender, to be held as Collateral pursuant to this Agreement.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Pledgor shall pay, and hold Lender harmless from, any and all liabilities with
               respect to, or resulting from any failure or delay in paying by Issuer or
               Pledgor, any and all stamp, excise, sales or other taxes, levies, imposts,
               duties, charges, fees, deductions or withholdings which may be payable or
               determined to be payable at any time under applicable law, regulation or
               regulatory requirement of any governmental authority, monetary agency or central
               bank with respect to any of the Collateral or in connection with any of the
               transactions contemplated by this Agreement (including, without limitation, any
               dividend or distribution paid or made with respect to the Pledged Stock). The
               covenant in this subsection 5(d) shall survive the termination of this
               Agreement, the payment of the Secured Obligations and the release of
               Lenders Lien in the Collateral.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|30. | Cash Dividends; Voting Rights. Unless an Event of Default has occurred
               and is continuing and Lender shall have given notice to Pledgor of Lenders
               intent to exercise its corresponding rights pursuant to Section 7 below (except
               in the case of a Bankruptcy Default, in which case no such notice shall be
               required), (1) subject to Section 5(a) hereof, Pledgor shall be permitted to
               receive all cash dividends paid by the Issuer, and (2) Pledgor shall exercise
               all voting and corporate rights with respect to the Pledged Stock, Lender having
               given Pledgor a proxy in the form of Exhibit A hereto concurrently with
               Pledgors execution hereof; provided, however, that no vote
               shall be cast or corporate right exercised or other action taken which could
               reasonably be expected to impair the Collateral or the rights and remedies of
               Lender with respect thereto, or which would be inconsistent with or result in
               any violation of any provision of this Agreement, or any other document or
               instrument that evidences or secures the Secured Obligations, or any other
               agreement or document made, delivered or given in connection therewith.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|31. | Rights of Lender. (a) Subject to the right of Pledgor to receive cash
               dividends pursuant to subsection 6 above, all other cash and non-cash Proceeds
               received by Lender hereunder (or by Pledgor in trust for Lender and thereafter
               delivered promptly to Lender to be held as Collateral in accordance with this
               Agreement) shall continue to be held as Collateral for all of the Secured
               Obligations and shall not constitute payment thereof until applied as provided
               in subsection 8(a) hereof.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | If an Event of Default has occurred and Lender shall have given notice of its
               intent to exercise such rights to Pledgor (except in the case of a Bankruptcy
               Default, in which case no such notice shall be required), then Lender shall have
               the right (1) to apply any cash dividends or other sums then held as Collateral
               to the payment of the Secured Obligations in such order as Lender may determine,
               and (2) to exercise (A) all voting, corporate and other rights pertaining to the
               shares of the Pledged Stock at any meeting of the shareholders of the Issuer or
               otherwise, and (B) any and all rights of sale, conversion, exchange,
               subscription and any other rights, privileges or options pertaining to such
               shares of the Pledged Stock as if it were the absolute owner thereof (including,
               without limitation, the right to exchange at its discretion any and all of the
               Pledged Stock upon the merger, consolidation, reorganization, recapitalization
               or other fundamental change in the corporate structure of Issuer, or upon the
               exercise by Pledgor or Lender of any right, privilege or option pertaining to
               such shares of the Pledged Stock, and in connection therewith, the right to
               deposit and deliver any and all of the Pledged Stock with any committee,
               depositary, transfer agent, registrar or other designated agency upon such terms
               and conditions as Lender may determine), all without liability (to the extent
               permitted by law) except to account for property actually received by it, but
               Lender shall have no duty to Pledgor to exercise any such right, privilege or
               option and shall not be responsible for any failure to do so or delay in so
               doing.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | In order to permit Lender to exercise the voting and other rights which it is
               entitled to exercise pursuant to subsections 6 and 7(b)(2) hereof and to receive
               the dividends and distributions which it is authorized to receive and retain
               pursuant to this Agreement during the continuance of an Event of Default,
               Pledgor shall from time to time execute and deliver (or cause to be executed and
               delivered) to Lender all such proxies, dividend payment orders and other
               instruments as Lender may reasonably request.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | The rights of Lender hereunder shall not be conditioned or contingent upon the
               pursuit by Lender of any right or remedy against Issuer or against any other
               Person which may be or become liable in respect of all or any part of the
               Secured Obligations or against any collateral security therefor, guarantee
               thereof or right of offset with respect thereto. Lender shall not be liable for
               any failure to demand, collect or realize upon all or any part of the Collateral
               or for any delay in doing so, nor shall Lender be under any obligation to sell
               or otherwise dispose of any Collateral upon the request of Pledgor or any other
               Person or to take any other action whatsoever with regard to the Collateral or
               any part thereof.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|32. | Remedies. (a) If an Event of Default has occurred and is continuing, at
               any time at Lenders election, Lender may apply all or any part of Proceeds
               in payment of the Secured Obligations in such order as Lender may elect.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | If an Event of Default has occurred and is continuing, Lender may exercise, in
               addition to all other rights and remedies granted 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 UCC or other
               applicable law. Without limiting the generality of the foregoing, Lender,
               without demand of performance or other demand, presentment, protest,
               advertisement or notice of any kind (except any notice required by applicable
               law) to or upon Pledgor 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, 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, in the over-the-counter market, at any
               exchange, brokers board or office of Lender 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. Lender 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 Pledgor, which right or equity is hereby waived or released.
               Lender shall apply any Proceeds from time to time held by it and the net
               proceeds of any such collection, recovery, receipt, appropriation, realization
               or sale (after deducting all costs and expenses of every kind incurred in
               respect thereof or incidental to the care or safekeeping of any of the
               Collateral or in any way relating to the Collateral or the rights of Lender
               hereunder, including, without limitation, attorneys fees and disbursements
               of counsel to Lender), to the payment in whole or in part of the Secured
               Obligations, in such order as Lender may elect, and only after such application
               and after the payment by Lender of any other amount required by any provision of
               applicable law, including, without limitation, Sections 9-610 and 9-615 of the
               UCC, need Lender account for the surplus, if any, to Pledgor. To the extent
               permitted by applicable law, Pledgor waives all claims, damages and demands it
               may acquire against Lender arising out of the exercise by it of any rights
               hereunder other than claims based on Lenders gross negligence or willful
               misconduct. If any notice of a proposed sale or other disposition of Collateral
               shall be required by applicable law, such notice shall be deemed reasonable and
               proper if given at least ten (10) days before such sale or other disposition.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|33. | Private Sales. (a) Pledgor recognizes that Lender may be unable to effect
               a public sale of any or all the Pledged Stock, by reason of certain prohibitions
               contained in the Securities Act, applicable state securities laws, applicable
               law or otherwise, and may be compelled to resort to one or more private sales
               thereof to a restricted group of purchasers which will be obliged to agree,
               among other things, to acquire such securities for their own account for
               investment and not with a view to the distribution or resale thereof. Pledgor
               acknowledges and agrees that any such private sale may result in prices and
               other terms less favorable than if such sale were a public sale and,
               notwithstanding such circumstances, agrees that any such private sale shall be
               deemed to have been made in a commercially reasonable manner. Lender shall be
               under no obligation to delay a sale of any of the Pledged Stock for the period
               of time necessary to permit Issuer to register such securities for public sale
               under the Securities Act, or under applicable state securities laws or
               applicable law, even if Issuer would agree to do so. To the extent that
               applicable law imposes duties on Lender to exercise remedies in a commercially
               reasonable manner, Pledgor acknowledges and agrees that it is not commercially
               unreasonable for Lender to disclaim disposition warranties on sale of any
               Pledged Stock.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Pledgor further agrees to use its best efforts to do or cause to be done all
               such other acts as may be necessary to make such sale or sales of all or any
               portion of the Pledged Stock pursuant to this Section valid and binding and in
               compliance with any and all other applicable Requirements of Law. Pledgor
               further agrees that a breach of any of the covenants contained in this Section
               will cause irreparable injury to Lender, and that Lender has no adequate remedy
               at law in respect of such breach and, as a consequence, that each and every
               covenant contained in this Section shall be specifically enforceable against
               Pledgor, and Pledgor hereby waives and agrees not to assert any defenses against
               an action for specific performance of such covenants, except for a defense that
               no Event of Default had occurred at the time that Lender gave notice pursuant to
               subsection 7(b) hereof.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|34. | Irrevocable Authorization and Instruction to Issuer. Pledgor hereby
               authorizes and instructs Issuer to comply with any instruction received by it
               from Lender in writing that (a) states that an Event of Default has occurred,
               and (b) is otherwise in accordance with the terms of this Agreement, without any
               other or further instructions from Pledgor, and Pledgor agrees that Issuer shall
               be fully protected in so complying.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|35. | Lenders Appointment as Attorney-in-Fact. (a) Pledgor hereby
               irrevocably constitutes and appoints Lender and any officer or agent of Lender,
               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 Pledgor and in
               the name of Pledgor or in Lenders own name, from time to time in
               Lenders discretion, for the sole 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, including, without limitation, any financing
               statements, endorsements, assignments or other instruments of transfer. Pledgor
               agrees to furnish to Lender, promptly upon its request, any information required
               by part 5 of Article 9 of the UCC for the sufficiency or filing office
               acceptance of any financing statement or amendment. Pledgor also ratifies its
               authorization for Lender to have filed in any UCC jurisdiction any like initial
               financing statements or amendments thereto authorized by any document or
               instrument that evidences or secures the Secured Obligations if filed prior to
               the date hereof.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | (b) | Pledgor hereby ratifies all that said attorneys shall lawfully do or cause to be
               done pursuant to and in compliance with the power of attorney granted in
               subsection 11(a) 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.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|36. | Duty of Lender. Lenders sole duty with respect to the custody,
               safekeeping and physical preservation of the Collateral in its possession, under
               Section 9-207 of the UCC or otherwise, shall be to deal with it in the same
               manner as Lender deals with similar securities and property for its own account.
               Neither Lender nor any of its directors, officers, 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 Pledgor or any other Person or to
               take any other action whatsoever with regard to the Collateral or any part
               thereof. The powers conferred on Lender hereunder are solely to protect
               Lenders interests in the Collateral and shall not impose any duty upon
               Lender to exercise any such powers. Lender 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 Pledgor for any act or failure to act hereunder, except for their
               own gross negligence or willful misconduct.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|37. | Filing of Financing Statements. Pledgor authorizes Lender to file
               financing statements with respect to the Collateral in such form and in such
               filing offices as Lender reasonably determines appropriate to perfect the
               security interests of Lender under this Agreement.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|38. | Notices. All notices, requests and demands to or upon Lender or Pledgor
               to be effective shall be in writing (including by facsimile transmission) and
               shall be deemed to have been duly made or given or made (a) in the case of
               delivery by hand, when delivered, (b) in the case of delivery by mail, three (3)
               days after being deposited in the mails, postage prepaid; or (c) in the case of
               delivery by facsimile transmission, when sent (and thereafter promptly confirmed
               in writing by delivery to the recipient by hand or by mail, postage prepaid, by
               the party sending such facsimile) and receipt has been confirmed or addressed as
               follows:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | if to Lender: 
Bank Hapoalim B.M.    
1177 Avenue of the Americas
New York, New York  10036      
Attention: Maxine Levy, Vice President

Facsimile No.: (212) 782-2170
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | (ii) | if to a Pledgor, at its address or transmission number for notices set forth
               under its signature below.
| | ---- | ----------------------------------------------------------------------------------------------------------------------

Lender and Pledgor may change their
addresses and transmission numbers for notices by notice in the manner provided in this
Section.

|39. | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|40. | Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the
               terms or provisions of this Agreement may be waived, amended, supplemented or
               otherwise modified except by a written instrument executed by Pledgor and
               Lender, provided that, any provision of this Agreement may be waived by
               Lender in a letter or agreement executed by Lender or by facsimile transmission
               from Lender.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Lender shall not by any act (except by a written instrument pursuant to
               subsection 16(a) hereof), delay, indulgence, omission or otherwise be deemed to
               have waived any right or remedy hereunder or under any other document or
               instrument that evidences or secures the Secured Obligations, or to have
               acquiesced in any Event of Default or in any breach of any of the terms and
               conditions hereof or in any other document or instrument that evidences or
               secures the Secured Obligations. No failure to exercise, nor any delay in
               exercising, on the part of Lender, any right, power or privilege hereunder or
               under any other document or instrument that evidences or secures the Secured
               Obligations, shall operate as a waiver thereof. No single or partial exercise of
               any right, power or privilege hereunder or under any other document or
               instrument that evidences or secures the Secured Obligations shall preclude any
               other or further exercise thereof or the exercise of any other right, power or
               privilege. A waiver by Lender of any right or remedy hereunder or under any
               other document or instrument that evidences or secures the Secured Obligations
               on any one occasion shall not be construed as a bar to any right or remedy which
               Lender would otherwise have on any future occasion.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | 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.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|41. | Section Headings. The section 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|42. | Successors and Assigns. This Agreement shall be binding upon the
               successors and assigns of Pledgor and shall inure to the benefit of Lender and
               its successors and assigns; provided, however, Pledgor may not assign any of its
               rights, interests or obligations under this Agreement without Lenders
               prior written consent.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|43. | GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
               INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|44. | Pledgor hereby irrevocably and unconditionally:
|--- | -----------------------------------------------

| | (a) | submits for itself and its property in any legal action or proceeding relating
               to this Agreement, or for recognition and enforcement of any judgment in respect
               thereof, to the non-exclusive general jurisdiction of the Courts of the State of
               New York, the courts of the United States of America sitting in the State of New
               York, and appellate courts from any thereof;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | consents that any such action or proceeding may be brought in such courts and
               waives any objection that it may now or hereafter have to the venue of any such
               action or proceeding in any such court or that such action or proceeding was
               brought in an inconvenient court and agrees not to plead or claim the same;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | agrees that service of process in any such action or proceeding may be effected
               by mailing a copy thereof by registered or certified mail (or any substantially
               similar form of mail), postage prepaid, to Pledgor at the address set forth in
               subsection 14 of this Agreement or at such other address of which Lender shall
               have been notified; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | agrees that nothing herein shall affect the right to effect service of process
               in any other manner permitted by law or shall limit the right to sue in any
               other jurisdiction.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|45. | Return of Collateral and Termination. Lender shall, at the request and
               reasonable expense of Pledgor, (i) return, release and reassign to Pledgor,
               without recourse, representation or warranty of any kind, all Collateral and
               Proceeds otherwise remaining subject to this Agreement, if any, and (ii) execute
               and deliver such documents to accomplish such return, release or reassignment,
               without recourse, as Pledgor may reasonably request, immediately following the
               Termination Date.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|46. | Recitals. The recitals to this Agreement form an integral part of this
               Agreement.
|--- | ------------------------------------------------------------------------------------------------

98

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

| |  | LUMENIS LTD.BY: /S/ Avner Raz
Avner RazChief Executive Officer                                                                                                                                                                                                                                                                                                                          
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | BY: /S/ Kevin R. Morano
Kevin R. MoranoExecutive Vice President and Chief Financial Officer                                                                                                                                                                                                                                                                                             
| |  | Address for Notices:
        Lumenis Ltd.
        Yokneam Industrial Park
        P.O.Box 240
        Yokneam, Israel 20692
        Attention: Chief Executive Officer
        Facsimile No.: 972-4-959-9070
        With copy to:
        Lumenis Ltd. 
        375 Park Ave., 11thFloor 
        New York, NY 10152 
        Attention: Chief Financial Officer 
        Facsimile No.: 212-750-3336

99

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Schedule 1

to Stock Pledge Agreement (Lumenis Ltd.)

DESCRIPTION OF PLEDGED STOCK

|Pledgor      | Issuer                | Class of Stock | Stock Cert. No.* | No. of Shares
|------------ | --------------------- | -------------- | ---------------- | -------------
|Lumenis Ltd. | Lumenis Holdings Inc. | Common         | 1                | 400          

[*
 Stock certificate to be registered in the name of Lender]

100

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# BANK HAPOALIM B.M.

Date: as of July 1, 2003

Lumenis Ltd.
P.O. Box 240
Yokneam 
ISRAEL

Re:   Proxy

Ladies and Gentlemen:

Whereas,
we hold as pledgee under a Stock Pledge Agreement, dated as of July 1, 2003 (the
Pledge Agreement), from you as pledgor to us, as pledgee, 400 shares of
common stock of Lumenis Holdings Inc. (the Issuer) evidenced by certificate
number 2 (the Pledged Stock);

NOW,
THEREFORE, we hereby appoint you as our proxy to exercise all voting and corporate rights
with respect to the Pledged Stock and to attend and to vote on our behalf, at any meeting
of the shareholders of the Issuer, and to give any written consent of shareholders
whenever action is being taken by shareholders of the Issuer by written consent in lieu of
a meeting, all pursuant and subject to the terms and conditions set forth in the Pledge
Agreement.

However,
it is further provided that you will not use this proxy to vote or take action by
written consent which could reasonably be expected to impair the Collateral (as defined in
the Pledge Agreement) or our rights and remedies with respect thereto, or which would be
inconsistent with or result in any violation of any provision of the Pledge Agreement, or
any other document or instrument that evidences or secures the Secured Obligations (as
defined in the Pledge Agreement), or any other agreement or document made, delivered or
given in connection therewith.

If
an Event of Default (as defined in the Pledge Agreement) has occurred and is continuing,
this proxy (i) may be cancelled by a written notice of cancellation provided by the
undersigned to you at the abovementioned address, and (ii) shall be automatically
cancelled upon the occurrence of a Bankruptcy Default (as defined in the Pledge Agreement)
applicable to you. Such cancellation shall be effective from the date of your receipt of
such notice, or in the case of a Bankruptcy Default, such cancellation shall be effective
immediately prior to the occurrence of such Bankruptcy Default.

| |  | Faithfully yours,BANK HAPOALIM B.M.BY: /S/ Rachel Arbel
Rachel Arbel
| |  | ----------------------------------------------------------------------------------
| |  | BY: /S/ Liora Ben Ami
Liora Ben Ami                                 

101

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Exhibit 10.7

# STOCK PLEDGE AGREEMENT 
(Lumenis Holdings Inc.)

THIS
STOCK PLEDGE AGREEMENT (this Agreement) is made and entered into as of
July 1, 2003, by LUMENIS HOLDINGS INC. (f/k/a Energy Systems Holdings Inc.), a company
organized and existing under the laws of the State of Delaware
(Pledgor), in favor of BANK HAPOALIM B.M., an Israeli banking
corporation (Lender).

# RECITALS

WHEREAS,Lender heretofore has made certain loans and/or granted other extensions of credit to
Lumenis Ltd. (Lumenis), the sole shareholder of the Pledgor, including,
without limitation, pursuant to a certain Short Term Credit Line Letter dated April 24,
2001, between Lender and Lumenis (as heretofore and/or hereafter amended, the
Lumenis Credit Line Letter); and

WHEREAS,
Lumenis has requested that certain borrowing availability under the Lumenis Credit Line
Letter be extended until December 31, 2003; and

WHEREAS,
Lender is willing to agree to such extension under the Lumenis Credit Line Letter upon the
condition, among others, that Pledgor execute and deliver this Agreement in favor of
Lender; and

WHEREAS,
Pledgor has also agreed to execute and deliver this Agreement in favor of Lender as
collateral security for any and all indebtedness, obligations and liabilities owing by
Lumenis, Pledgor and/or any of their respective Subsidiaries to Lender, whether now
existing or hereafter incurred.

NOW,
THEREFORE, in consideration of the Recitals and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Pledgor hereby agrees as
follows:

|47. | Defined Terms. (a) Terms used but not defined herein shall have the
               meanings given to them in the UCC (defined below), provided that, if a
               term is defined in Article 9 of the UCC differently than in another Article of
               the UCC, then such term shall have the meaning specified in Article 9 of the
               UCC.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Bankruptcy
Default: means the occurrence, initiation or filing of any voluntary or
involuntary bankruptcy action or proceeding or any similar types of actions, proceedings
or events, after giving effect to any cure or grace period applicable thereto, set forth
in any document or instrument that evidences or secures the Secured Obligations.

Collateral:  means the Pledged Stock and all Proceeds.

102

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Contractual
Obligation: means as to any Person, any provision of any security issued by such
Person or of any agreement, instrument or other undertaking to which such Person is a
party or by which it or any of its property is bound.

Event
of Default: means any event of default occurring and continuing under any
document or instrument that evidences or secures the Secured Obligations, provided
that any requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.

Governmental
Authority: means any nation or government, any state or other political
subdivision thereof and any entity exercising executive, legislative, judicial, regulatory
or administrative functions of, or pertaining to, government.

Holdings
Loan Agreement: means the Loan Agreement dated as of April 30, 2001, between
Pledgor and Lender, as heretofore and/or hereafter amended.

Issuer:
means Lumenis Inc. (f/k/a ESC Medical Systems Inc.), a Massachusetts corporation and a
wholly owned Subsidiary of Pledgor, or any successor entity thereto as the issuer of the
Pledged Stock.

Lien:
means any mortgage, deed of trust, pledge, hypothecation, security interest, assignment,
encumbrance, claim, lien, lease, charge or any preferential, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever, whether
voluntarily incurred or arising by operation of law or otherwise, affecting any assets or
property, including, without limitation, any agreement to give or grant any of the
foregoing, any conditional sale or other title retention agreement, any financing lease
having substantially the same economic effect as any of the foregoing, and the filing of,
or agreement to give, any financing statement with respect to any assets or property under
the UCC or comparable law of any jurisdiction.

Lumenis
Letter of Undertaking: means the Agreement dated as of April 30, 2001, between
Lumenis and Lender, as heretofore and/or hereafter amended.

Lumenis
Loan Agreement: means the Loan Agreement dated as of March 26, 2002, between
Lumenis and Lender, as heretofore and/or hereafter amended.

Material
Adverse Effect: means a material adverse effect on (a) the business,
operations, property, condition (financial or otherwise) or prospects of Pledgor and its
Subsidiaries taken as a whole, (b) the validity or enforceability of this or any of
the other documents made, delivered or given in connection with this Agreement or any
other document or instrument that evidences or secures the Secured Obligations, or
(c) the rights or remedies of Lender hereunder, or under any document or instrument
that evidences or secures the Secured Obligations, or any of the other agreements or
documents made, delivered or given in connection therewith.

Person:
means an individual, partnership, corporation, limited liability company, business trust,
joint stock company, trust, estate, unincorporated organization or association, joint
venture, Governmental Authority or other entity of whatever nature.

Pledged
Stock: means the shares of capital stock listed on Schedule 1 attached
hereto, whether now owned or hereafter acquired, together with all stock certificates,
options, warrants, debentures, other shares or securities or rights of any nature
whatsoever, in each case of the Issuer, that may be issued to or acquired by the holder or
holders thereof, whether in substitution therefor, by way of bonus shares, rights or
otherwise, together with all existing and future rights and benefits attaching to the
aforesaid shares and conferred thereby, and all additions and substitutions thereto and
therefor.

Proceeds:
means all proceeds as such term is defined in Section 9-102 of the UCC and, in
any event, shall include, without limitation, all dividends or other income from the
Pledged Stock, collections thereon or distributions with respect thereto.

103

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Requirement
of Law: means as to any Person, the articles or certificate of incorporation,
certificate of formation, operating agreement, and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to which such Person
or any of its property is subject.

Secured
Obligations: means any and all indebtedness, obligations and liabilities owed by
Lumenis, Pledgor and/or any of their respective Subsidiaries to Lender, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or hereafter
incurred, including, without limitation, (i) all unpaid principal of, and accrued
interest (before and/or after maturity, acceleration or demand, including, without
limitation, any interest which accrues after the commencement of any case, proceeding or
other action relating to the bankruptcy, insolvency or reorganization of Lumenis, Pledgor
and/or any of their respective Subsidiaries, whether or not allowed or allowable as a
claim in any such proceeding) on, any loans made and/or other credit granted to Lumenis,
Pledgor and/or any of their respective Subsidiaries by Lender, including, without
limitation, all loans made and other credits granted pursuant to the Lumenis Credit Line
Letter, Lumenis Letter of Undertaking, Lumenis Loan Agreement and/or Holdings Loan
Agreement, and (ii) any other amount payable from time to time to Lender by Lumenis,
Pledgor and/or any of their respective Subsidiaries under or in connection with any of the
foregoing and/or any guarantee, reimbursement obligation, indemnity, agreement, instrument
or otherwise, including, without limitation, all costs, fees and expenses (including all
fees and disbursements of counsel to Lender) incurred by Lender in connection with any of
the foregoing.

Securities Act:  means the Securities Act of 1933, as amended.

Subsidiary:
means, as to any Person, a corporation, partnership or other entity of which shares of
stock or other ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, directly or indirectly
through one or more intermediaries, or both, by such Person. Unless otherwise qualified,
all references to a Subsidiary or to Subsidiaries in this
Agreement shall refer to a Subsidiary or Subsidiaries of Lumenis and/or Pledgor,
including, without limitation, Issuer.

Termination
Date: means the date on which all commitments, if any, of Lender to make loans
and/or grant other extensions of credit to Lumenis, Pledgor and/or any of their respective
Subsidiaries have been terminated, and the Secured Obligations have been indefeasibly paid
in full, other than any indemnification obligations not then due and payable.

UCC:
means the Uniform Commercial Code from time to time in effect in the State of New York or
in any other state to the extent the same is applicable by law to any portion of the
Collateral.

| | (c) | The words hereof, herein 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 and paragraph references are to this Agreement unless otherwise specified.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

104

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|48. | Pledge; Grant of Security Interest. Pledgor hereby delivers to Lender all
               of the Pledged Stock, and hereby transfers, pledges, assigns, and charges by way
               of a first ranking fixed pledge in favor of Lender, and grants to the Lender a
               perfected first priority lien and security interest in, the Pledged Stock and
               all other Collateral 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|49. | Stock Powers. The certificate(s) evidencing the shares of the Pledged
               Stock delivered to Lender shall be registered in the name of Lender. However, if
               at any time required or requested by Lender in order (i) to perfect its
               lien and fixed charge on, and security interest in, each certificate
               representing one or more shares of the Pledged Stock, or (ii) to transfer
               its interests in any certificate representing one or more shares of the Pledged
               Stock in accordance with this Agreement, then Pledgor shall deliver an undated
               stock power covering such certificate, duly executed in blank by Pledgor.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|50. | Representations and Warranties. Pledgor represents and warrants that:
|--- | ---------------------------------------------------------------------

| | (a) | Pledgor is a corporation duly organized, validly existing and in good standing
               under the laws of the State of Delaware and has the corporate power and
               authority and the legal right to own and operate its property, to lease the
               property it operates and to conduct the business in which it is currently
               engaged. Pledgors exact legal name is as set forth in the first paragraph
               of this Agreement.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Pledgor has the corporate power and authority and the legal right to execute and
               deliver, to perform its obligations under, and to grant the fixed charge and
               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 fixed charge and security interest in the
               Collateral pursuant to, this Agreement.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | This Agreement constitutes a legal, valid and binding obligation of Pledgor,
               enforceable in accordance with its terms against Pledgor and all creditors of
               Pledgor, 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.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Its chief executive office and principal place of business is located at 1209
               Orange Street, Wilmington, Delaware 19801.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------

| | (e) | The execution, delivery and performance of this Agreement will not violate any
               provision of any Requirement of Law or Contractual Obligation of Pledgor and
               will not result in the creation or imposition of any Lien on any of the
               properties or revenues of Pledgor pursuant to any Requirement of Law or
               Contractual Obligation of Pledgor, except the fixed charge and security
               interests created by this Agreement in favor of Lender in the Collateral.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | No consent or authorization of, filing with, or other act by or in respect of,
               any arbitrator or Governmental Authority and no consent of any other Person
               (including, without limitation, any stockholder or creditor of Pledgor), is
               required 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.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

105

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| | (g) | No litigation, investigation or proceeding of or before any arbitrator or
               Governmental Authority which could reasonably be expected to have a Material
               Adverse Effect is pending or, to the knowledge of Pledgor, threatened by or
               against Pledgor or against any of its properties or revenues with respect to
               this Agreement or any of the transactions contemplated hereby, except as has
               been previously disclosed in writing to Lender or disclosed in Lumenis
               reports filed with the Securities and Exchange Commission.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (h) | The shares of Pledged Stock pledged by Pledgor constitute 100% of the issued and
               outstanding shares of the capital stock of Issuer.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | All the shares of the Pledged Stock have been duly and validly issued and are
               fully paid and nonassessable.
| | --- | --------------------------------------------------------------------------------------------------------------------------

| | (j) | Pledgor has rights in or the power to transfer the Pledged Stock, and Pledgor
               is, and until the Secured Obligations are indefeasibly paid in full will be, the
               beneficial owner of, and has, and until the Secured Obligations are indefeasibly
               paid in full will have, good and marketable title to, the Pledged Stock free of
               any and all Liens or options in favor of, or claims of, any other Person, except
               the security interests created by this Agreement.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (k) | This Agreement is effective to create in favor of Lender a valid security
               interest in the Pledged Stock securing the payment and performance of the
               Secured Obligations. Upon delivery to Lender of the stock certificate(s)
               registered in the name of Lender evidencing the Pledged Stock, and assuming that
               value has been given, this Agreement will constitute a valid and perfected
               security interest in the Pledged Stock, and assuming further that Lender has no
               notice of any adverse claim to the Pledged Stock, Pledgor shall have a perfected
               security interest in the Pledged Stock, free of any adverse claim.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pledgor
agrees that the foregoing representations and warranties shall be deemed to have been made
by Pledgor on the date of each borrowing of a Secured Obligation on and as of such date of
borrowing as though made hereunder on and as of such date.

|51. | Covenants. Pledgor covenants and agrees with Lender that from and after
               the date of this Agreement until the Termination Date:
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

106

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| | (a) | Notwithstanding section 3 hereof, if Pledgor shall, as a result of its
               beneficial ownership of the Pledged Stock, become entitled to receive or shall
               receive any stock certificate (including, without limitation, any certificate
               representing a stock dividend or a distribution in connection with any
               reclassification, increase or reduction of capital or any certificate issued in
               connection with any reorganization), option or rights, whether in addition to,
               in substitution of, as a conversion of, or in exchange for any shares of the
               Pledged Stock, or otherwise in respect thereof, Pledgor shall accept the same as
               the agent of Lender, hold the same in trust for Lender and deliver the same
               forthwith to Lender in the exact form received, duly indorsed by Pledgor to
               Lender, if required, together with an undated stock power covering such
               certificate duly executed in blank by Pledgor. Upon receipt of same, Lender
               shall hold same in pledge in accordance with the terms and conditions of this
               Agreement as additional Collateral for the Secured Obligations, or Lender may,
               at its option, deliver same to Issuer with a request to re-register same in the
               name of Lender (or its nominee) and thereafter, such re-registered stock
               certificate, option or rights shall be held by Lender (or its nominee) in pledge
               in accordance with the terms and conditions of this Agreement as additional
               Collateral for the Secured Obligations. Any sums paid upon or in respect of the
               Pledged Stock upon the liquidation or dissolution of Issuer shall be paid over
               to Lender to be held by it hereunder as additional Collateral for the Secured
               Obligations, and in case any distribution of capital shall be made on or in
               respect of the Pledged Stock or any property shall be distributed upon or with
               respect to the Pledged Stock pursuant to the recapitalization or
               reclassification of the capital of Issuer or pursuant to the reorganization
               thereof, the property so distributed shall be delivered to Lender to be held by
               it hereunder as additional Collateral for the Secured Obligations. If any sums
               of money or property so paid or distributed in respect of the Pledged Stock
               shall be received by Pledgor, Pledgor shall, until such money or property is
               paid or delivered to Lender pursuant to this Agreement, hold such money or
               property in trust for Lender, segregated from other funds of Pledgor, as
               additional Collateral for the Secured Obligations.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Without the prior written consent of Lender, Pledgor will not (1) permit,
               vote to enable, or take any other action to permit, Issuer to issue, allot or
               grant any stock or other equity securities, options or other rights, privileges
               or preferences relating thereto of any nature, or to issue any other securities
               convertible into or granting the right to purchase or exchange for any stock or
               other equity securities, options or other rights, privileges or preferences
               relating thereto of any nature of Issuer, or to issue and distribute any
               non-cash dividend, unless same are pledged to Lender pursuant to the terms of
               this Agreement as additional Collateral for the Secured Obligations,
               (2) sell, assign, transfer, exchange, or otherwise dispose of, or grant any
               option with respect to, the Collateral, (3) create, incur or permit to
               exist any Lien or option in favor of, or any claim of any Person with respect
               to, any of the Collateral, or any interest therein, except for the security
               interests created by this Agreement, (4) enter into any agreement or
               undertaking restricting the right or ability of Pledgor or Lender to sell,
               assign or transfer any of the Collateral, or (5) without giving Lender at
               least ten (10) days prior written notice thereof, change the state where it is
               located, or change its name, identity or organizational structure to such an
               extent that any financing statement filed by Lender in connection with this
               Agreement would become seriously misleading.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | (c) | Pledgor shall maintain the pledge, charge, lien and security interest created by
               this Agreement in the Collateral as a first ranking fixed charge and a
               perfected, first priority lien and security interest in favor of Lender, and
               shall defend such pledge, charge lien and security interest against claims and
               demands of all Persons whomsoever. At any time and from time to time, upon the
               written request of Lender, and at the sole expense of Pledgor, Pledgor will
               promptly and duly execute and deliver such further instruments and documents and
               take such further actions as Lender may reasonably request for the purposes of
               obtaining or preserving the full benefits of this Agreement and of the rights
               and powers herein granted. If any amount payable under or in connection with any
               of the Collateral shall be or become evidenced by any promissory note, other
               instrument or chattel paper, such note, instrument or chattel paper shall be
               immediately delivered to Lender, duly endorsed in a manner satisfactory to
               Lender, to be held as Collateral pursuant to this Agreement.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Pledgor shall pay, and hold Lender harmless from, any and all liabilities with
               respect to, or resulting from any failure or delay in paying by Issuer or
               Pledgor, any and all stamp, excise, sales or other taxes, levies, imposts,
               duties, charges, fees, deductions or withholdings which may be payable or
               determined to be payable at any time under applicable law, regulation or
               regulatory requirement of any governmental authority, monetary agency or central
               bank with respect to any of the Collateral or in connection with any of the
               transactions contemplated by this Agreement (including, without limitation, any
               dividend or distribution paid or made with respect to the Pledged Stock). The
               covenant in this subsection 5(d) shall survive the termination of this
               Agreement, the payment of the Secured Obligations and the release of
               Lenders Lien in the Collateral.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|52. | Cash Dividends; Voting Rights. Unless an Event of Default has occurred
               and is continuing and Lender shall have given notice to Pledgor of Lenders
               intent to exercise its corresponding rights pursuant to Section 7 below (except
               in the case of a Bankruptcy Default, in which case no such notice shall be
               required), (1) subject to Section 5(a) hereof, Pledgor shall be permitted
               to receive all cash dividends paid by the Issuer, and (2) Pledgor shall
               exercise all voting and corporate rights with respect to the Pledged Stock,
               Lender having given Pledgor a proxy in the form of Exhibit A hereto concurrently
               with Pledgors execution hereof; provided, however, that no
               vote shall be cast or corporate right exercised or other action taken which
               could reasonably be expected to impair the Collateral or the rights and remedies
               of Lender with respect thereto, or which would be inconsistent with or result in
               any violation of any provision of this Agreement, or any other document or
               instrument that evidences or secures the Secured Obligations, or any other
               agreement or document made, delivered or given in connection therewith.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|53. | Rights of Lender. (a) Subject to the right of Pledgor to receive cash
               dividends pursuant to subsection 6 above, all other cash and non-cash Proceeds
               received by Lender hereunder (or by Pledgor in trust for Lender and thereafter
               delivered promptly to Lender to be held as Collateral in accordance with this
               Agreement) shall continue to be held as Collateral for all of the Secured
               Obligations and shall not constitute payment thereof until applied as provided
               in subsection 8(a) hereof.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | (b) | If an Event of Default has occurred and Lender shall have given notice of its
               intent to exercise such rights to Pledgor (except in the case of a Bankruptcy
               Default, in which case no such notice shall be required), then Lender shall have
               the right (1) to apply any cash dividends or other sums then held as
               Collateral to the payment of the Secured Obligations in such order as Lender may
               determine, and (2) to exercise (A) all voting, corporate and other
               rights pertaining to the shares of the Pledged Stock at any meeting of the
               shareholders of the Issuer or otherwise, and (B) any and all rights of
               sale, conversion, exchange, subscription and any other rights, privileges or
               options pertaining to such shares of the Pledged Stock as if it were the
               absolute owner thereof (including, without limitation, the right to exchange at
               its discretion any and all of the Pledged Stock upon the merger, consolidation,
               reorganization, recapitalization or other fundamental change in the corporate
               structure of Issuer, or upon the exercise by Pledgor or Lender of any right,
               privilege or option pertaining to such shares of the Pledged Stock, and in
               connection therewith, the right to deposit and deliver any and all of the
               Pledged Stock with any committee, depositary, transfer agent, registrar or other
               designated agency upon such terms and conditions as Lender may determine), all
               without liability (to the extent permitted by law) except to account for
               property actually received by it, but Lender shall have no duty to Pledgor to
               exercise any such right, privilege or option and shall not be responsible for
               any failure to do so or delay in so doing.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | In order to permit Lender to exercise the voting and other rights which it is
               entitled to exercise pursuant to subsections 6 and 7(b)(2) hereof and to receive
               the dividends and distributions which it is authorized to receive and retain
               pursuant to this Agreement during the continuance of an Event of Default,
               Pledgor shall from time to time execute and deliver (or cause to be executed and
               delivered) to Lender all such proxies, dividend payment orders and other
               instruments as Lender may reasonably request.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | The rights of Lender hereunder shall not be conditioned or contingent upon the
               pursuit by Lender of any right or remedy against Issuer or against any other
               Person which may be or become liable in respect of all or any part of the
               Secured Obligations or against any collateral security therefor, guarantee
               thereof or right of offset with respect thereto. Lender shall not be liable for
               any failure to demand, collect or realize upon all or any part of the Collateral
               or for any delay in doing so, nor shall Lender be under any obligation to sell
               or otherwise dispose of any Collateral upon the request of Pledgor or any other
               Person or to take any other action whatsoever with regard to the Collateral or
               any part thereof.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|54. | Remedies. (a) If an Event of Default has occurred and is continuing, at
               any time at Lenders election, Lender may apply all or any part of Proceeds
               in payment of the Secured Obligations in such order as Lender may elect.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | (b) | If an Event of Default has occurred and is continuing, Lender may exercise, in
               addition to all other rights and remedies granted 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 UCC or other
               applicable law. Without limiting the generality of the foregoing, Lender,
               without demand of performance or other demand, presentment, protest,
               advertisement or notice of any kind (except any notice required by applicable
               law) to or upon Pledgor 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, 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, in the over-the-counter market, at any
               exchange, brokers board or office of Lender 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. Lender 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 Pledgor, which right or equity is hereby waived or released.
               Lender shall apply any Proceeds from time to time held by it and the net
               proceeds of any such collection, recovery, receipt, appropriation, realization
               or sale (after deducting all costs and expenses of every kind incurred in
               respect thereof or incidental to the care or safekeeping of any of the
               Collateral or in any way relating to the Collateral or the rights of Lender
               hereunder, including, without limitation, attorneys fees and disbursements
               of counsel to Lender), to the payment in whole or in part of the Secured
               Obligations, in such order as Lender may elect, and only after such application
               and after the payment by Lender of any other amount required by any provision of
               applicable law, including, without limitation, Sections 9-610 and 9-615 of the
               UCC, need Lender account for the surplus, if any, to Pledgor. To the extent
               permitted by applicable law, Pledgor waives all claims, damages and demands it
               may acquire against Lender arising out of the exercise by it of any rights
               hereunder other than claims based on Lenders gross negligence or willful
               misconduct. If any notice of a proposed sale or other disposition of Collateral
               shall be required by applicable law, such notice shall be deemed reasonable and
               proper if given at least ten (10) days before such sale or other disposition.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|55. | Private Sales. (a) Pledgor recognizes that Lender may be unable to effect
               a public sale of any or all the Pledged Stock, by reason of certain prohibitions
               contained in the Securities Act, applicable state securities laws, applicable
               law or otherwise, and may be compelled to resort to one or more private sales
               thereof to a restricted group of purchasers which will be obliged to agree,
               among other things, to acquire such securities for their own account for
               investment and not with a view to the distribution or resale thereof. Pledgor
               acknowledges and agrees that any such private sale may result in prices and
               other terms less favorable than if such sale were a public sale and,
               notwithstanding such circumstances, agrees that any such private sale shall be
               deemed to have been made in a commercially reasonable manner. Lender shall be
               under no obligation to delay a sale of any of the Pledged Stock for the period
               of time necessary to permit Issuer to register such securities for public sale
               under the Securities Act, or under applicable state securities laws or
               applicable law, even if Issuer would agree to do so. To the extent that
               applicable law imposes duties on Lender to exercise remedies in a commercially
               reasonable manner, Pledgor acknowledges and agrees that it is not commercially
               unreasonable for Lender to disclaim disposition warranties on sale of any
               Pledged Stock.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

110

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| | (b) | Pledgor further agrees to use its best efforts to do or cause to be done all
               such other acts as may be necessary to make such sale or sales of all or any
               portion of the Pledged Stock pursuant to this Section valid and binding and in
               compliance with any and all other applicable Requirements of Law. Pledgor
               further agrees that a breach of any of the covenants contained in this Section
               will cause irreparable injury to Lender, and that Lender has no adequate remedy
               at law in respect of such breach and, as a consequence, that each and every
               covenant contained in this Section shall be specifically enforceable against
               Pledgor, and Pledgor hereby waives and agrees not to assert any defenses against
               an action for specific performance of such covenants, except for a defense that
               no Event of Default had occurred at the time that Lender gave notice pursuant to
               subsection 7(b) hereof.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|56. | Irrevocable Authorization and Instruction to Issuer. Pledgor hereby
               authorizes and instructs Issuer to comply with any instruction received by it
               from Lender in writing that (a) states that an Event of Default has
               occurred, and (b) is otherwise in accordance with the terms of this
               Agreement, without any other or further instructions from Pledgor, and Pledgor
               agrees that Issuer shall be fully protected in so complying.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|57. | Lenders Appointment as Attorney-in-Fact. (a) Pledgor hereby
               irrevocably constitutes and appoints Lender and any officer or agent of Lender,
               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 Pledgor and in
               the name of Pledgor or in Lenders own name, from time to time in
               Lenders discretion, for the sole 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, including, without limitation, any financing
               statements, endorsements, assignments or other instruments of transfer. Pledgor
               agrees to furnish to Lender, promptly upon its request, any information required
               by part 5 of Article 9 of the UCC for the sufficiency or filing office
               acceptance of any financing statement or amendment. Pledgor also ratifies its
               authorization for Lender to have filed in any UCC jurisdiction any like initial
               financing statements or amendments thereto authorized by any document or
               instrument that evidences or secures the Secured Obligations if filed prior to
               the date hereof.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Pledgor hereby ratifies all that said attorneys shall lawfully do or cause to be
               done pursuant to and in compliance with the power of attorney granted in
               subsection 11(a) 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.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

111

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|58. | Duty of Lender. Lenders sole duty with respect to the custody,
               safekeeping and physical preservation of the Collateral in its possession, under
               Section 9-207 of the UCC or otherwise, shall be to deal with it in the same
               manner as Lender deals with similar securities and property for its own account.
               Neither Lender nor any of its directors, officers, 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 Pledgor or any other Person or to
               take any other action whatsoever with regard to the Collateral or any part
               thereof. The powers conferred on Lender hereunder are solely to protect
               Lenders interests in the Collateral and shall not impose any duty upon
               Lender to exercise any such powers. Lender 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 Pledgor for any act or failure to act hereunder, except for their
               own gross negligence or willful misconduct.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|59. | Filing of Financing Statements. Pledgor authorizes Lender to file
               financing statements with respect to the Collateral in such form and in such
               filing offices as Lender reasonably determines appropriate to perfect the
               security interests of Lender under this Agreement.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|60. | Notices. All notices, requests and demands to or upon Lender or Pledgor
               to be effective shall be in writing (including by facsimile transmission) and
               shall be deemed to have been duly made or given or made (a) in the case of
               delivery by hand, when delivered, (b) in the case of delivery by mail,
               three (3) days after being deposited in the mails, postage prepaid; or
               (c) in the case of delivery by facsimile transmission, when sent (and
               thereafter promptly confirmed in writing by delivery to the recipient by hand or
               by mail, postage prepaid, by the party sending such facsimile) and receipt has
               been confirmed or addressed as follows:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | if to Lender: 
Bank Hapoalim B.M.      
1177 Avenue of the Americas  
New York, New York  10036    
Attention: Maxine Levy, Vice President
Facsimile No.: (212) 782-2170
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | if to a Pledgor, at its address or transmission 
number for notices set forth
               under its signature below.
| | ---- | -----------------------------------------------------------------------------------------------------------------------

Lender and Pledgor may change their
addresses and transmission numbers for notices by notice in the manner provided in this
Section.

|61. | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

112

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|62. | Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the
               terms or provisions of this Agreement may be waived, amended, supplemented or
               otherwise modified except by a written instrument executed by Pledgor and
               Lender, provided that, any provision of this Agreement may be waived by
               Lender in a letter or agreement executed by Lender or by facsimile transmission
               from Lender.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Lender shall not by any act (except by a written instrument pursuant to
               subsection 16(a) hereof), delay, indulgence, omission or otherwise be deemed to
               have waived any right or remedy hereunder or under any other document or
               instrument that evidences or secures the Secured Obligations, or to have
               acquiesced in any Event of Default or in any breach of any of the terms and
               conditions hereof or in any other document or instrument that evidences or
               secures the Secured Obligations. No failure to exercise, nor any delay in
               exercising, on the part of Lender, any right, power or privilege hereunder or
               under any other document or instrument that evidences or secures the Secured
               Obligations, shall operate as a waiver thereof. No single or partial exercise of
               any right, power or privilege hereunder or under any other document or
               instrument that evidences or secures the Secured Obligations shall preclude any
               other or further exercise thereof or the exercise of any other right, power or
               privilege. A waiver by Lender of any right or remedy hereunder or under any
               other document or instrument that evidences or secures the Secured Obligations
               on any one occasion shall not be construed as a bar to any right or remedy which
               Lender would otherwise have on any future occasion.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | 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.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|63. | Section Headings. The section 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|64. | Successors and Assigns. This Agreement shall be binding upon the
               successors and assigns of Pledgor and shall inure to the benefit of Lender and
               its successors and assigns; provided, however, Pledgor may not assign any of its
               rights, interests or obligations under this Agreement without Lenders
               prior written consent.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|65. | GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
               INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|66. | Pledgor hereby irrevocably and unconditionally:
|--- | -----------------------------------------------

| | (a) | submits for itself and its property in any legal action or proceeding relating
               to this Agreement, or for recognition and enforcement of any judgment in respect
               thereof, to the non-exclusive general jurisdiction of the Courts of the State of
               New York, the courts of the United States of America sitting in the State of New
               York, and appellate courts from any thereof;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

113

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| | (b) | consents that any such action or proceeding may be brought in such courts and
               waives any objection that it may now or hereafter have to the venue of any such
               action or proceeding in any such court or that such action or proceeding was
               brought in an inconvenient court and agrees not to plead or claim the same;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | agrees that service of process in any such action or proceeding may be effected
               by mailing a copy thereof by registered or certified mail (or any substantially
               similar form of mail), postage prepaid, to Pledgor at the address set forth in
               subsection 14 of this Agreement or at such other address of which Lender shall
               have been notified; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | agrees that nothing herein shall affect the right to effect service of process
               in any other manner permitted by law or shall limit the right to sue in any
               other jurisdiction.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|67. | Return of Collateral and Termination. Lender shall, at the request and
               reasonable expense of Pledgor, (i) return, release and reassign to Pledgor,
               without recourse, representation or warranty of any kind, all Collateral and
               Proceeds otherwise remaining subject to this Agreement, if any, and
               (ii) execute and deliver such documents to accomplish such return, release
               or reassignment, without recourse, as Pledgor may reasonably request,
               immediately following the Termination Date.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|68. | Recitals. The recitals to this Agreement form an integral part of this
               Agreement.
|--- | ------------------------------------------------------------------------------------------------

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

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

114

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| |  | Address for Notices:
         Lumenis Holdings Inc.
         1209 Orange Street
         Wilmington, Delaware 19801
         Attention: Chief Executive Officer
         Facsimile No.: 212-750-3336
         With copy to: 
         Lumenis Ltd. 
         375 Park Ave., 11thFloor
         New York, NY 10152
         Attention: Chief Financial Officer 
         Facsimile No.: 212-750-3336
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

115

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Schedule 1

to 
Stock Pledge Agreement (Lumenis Holdings Inc.)

DESCRIPTION OF PLEDGED STOCK

|Pledgor               | Issuer       | Class of Stock | Stock Cert. No.* | No. of Shares
|--------------------- | ------------ | -------------- | ---------------- | -------------
|Lumenis Holdings Inc. | Lumenis Inc. | Common         | 1                | 100          

[*
 Stock certificate to be registered in the name of Lender]

116

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Final version

# BANK HAPOALIM B.M.

Date:  as of July 1, 2003

Lumenis Holdings Inc.1209
Orange Street Wilmington, Delaware 19801

Re:   Proxy

Ladies and Gentlemen:

Whereas,
we hold as pledgee under a Stock Pledge Agreement, dated as of July 1, 2003 (the
Pledge Agreement), from you as pledgor to us, as pledgee, 100 shares of
common stock of Lumenis Inc. (the Issuer) evidenced by certificate number 2
(the Pledged Stock);

NOW,
THEREFORE, we hereby appoint you as our proxy to exercise all voting and corporate rights
with respect to the Pledged Stock and to attend and to vote on our behalf, at any meeting
of the shareholders of the Issuer, and to give any written consent of shareholders
whenever action is being taken by shareholders of the Issuer by written consent in lieu of
a meeting, all pursuant and subject to the terms and conditions set forth in the Pledge
Agreement.

However,
it is further provided that you will not use this proxy to vote or take action by
written consent which could reasonably be expected to impair the Collateral (as defined in
the Pledge Agreement) or our rights and remedies with respect thereto, or which would be
inconsistent with or result in any violation of any provision of the Pledge Agreement, or
any other document or instrument that evidences or secures the Secured Obligations (as
defined in the Pledge Agreement), or any other agreement or document made, delivered or
given in connection therewith.

If
an Event of Default (as defined in the Pledge Agreement) has occurred and is continuing,
this proxy (i) may be cancelled by a written notice of cancellation provided by the
undersigned to you at the abovementioned address, and (ii) shall be automatically
cancelled upon the occurrence of a Bankruptcy Default (as defined in the Pledge Agreement)
applicable to you. Such cancellation shall be effective from the date of your receipt of
such notice, or in the case of a Bankruptcy Default, such cancellation shall be effective
immediately prior to the occurrence of such Bankruptcy Default.

| |  | Faithfully yours,BANK HAPOALIM B.M.BY: /S/      
| |  | --------------------------------------------------------------
| |  | BY: /S/                                         

117

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Final version

Exhibit 10.8

9 June, 2003

# Bank Hapoalim B.M. 
Head OfficeCorporate Banking Division
41-45 Rothschild Boulevard
Tel Aviv 
ToLumenis Ltd.

Reference is made to the following
documents made between Lumenis Ltd. (the Borrower) and/or Lumenis Holdings
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), and (iv) Loan Agreement dated
March 26, 2002 as amended (the 2002 Loan Agreement). The Letter, the 2001 Loan
Agreement, the Letter of Undertaking and the 2002 Loan Agreement shall jointly be referred
to as the Loan Documents.

Per the request of Borrower the Bank
hereby agrees as follows:

The minimum EBITDA to be achieved by Borrower
at the end of each fiscal quarter of 2003, cumulatively for all 2003 quarters theretofore
ended, shall be amended to the following:

Q1  US$ 5 Million
Q2  US$ 5 Million
Q3  US$ 17 Million
Q4  US$ 36.7 Million

The agreement of the Bank hereunder
is subject to payment of a sum of $50,000 (Fifty Thousand United States Dollars) as a fee
for rendering the above waiver.

Except for the above all of the
Banks rights according to the documents signed by Borrower in the Banks favor
shall be maintained.

This letter constitutes an integral
part of the Loan Documents.

| |  | Very truly yours,BANK HAPOALIM B.M.BY: /S/ R. Arbel
R. Arbel
| |  | --------------------------------------------------------------------------
| |  | BY: /S/ L. Ben Ami
L. Ben Ami                               

We agree to the above:

|Lumenis Ltd.            | Lumenis Holdings Inc.  
|----------------------- | -----------------------
|By: /s/ Kevin R. Morano | By: /s/ Kevin R. Morano
|Name: Kevin R. Morano   | Name: Kevin R. Morano  

118

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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: August 14, 2003

| |  | BY: /S/ Avner Raz
Avner RazChief Executive Officer
| |  | ----------------------------------------------------------------

119

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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: August 14, 2003

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

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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 2002
Relating to the Quarterly Report on Form 10-Q for the Quarterly Period Ended
 June 30, 2003

|In
connection with the Quarterly Report on Form 10-Q of Lumenis Ltd. (the
Company) for the quarterly period ended June 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; 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 Officer
Date:  August 14, 2003       |  | 
|--------------------------------------------------------------------------------------------- |  | 
|BY: /S/ Kevin Morano
Kevin MoranoChief Financial Officer
Date:  August 14, 2003 |  | 

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