F-1 1 v361894_f1.htm FORM F-1

As filed with the Securities and Exchange Commission on December 6, 2013

Registration No. 333-      

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



 

FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



 

LUMENIS LTD.

(Exact Name of Registrant as Specified in its Charter)



 

   
State of Israel   3845   Not Applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

Lumenis Ltd.
6 Hakidma Street
Yokneam Northern Industrial Park,
Yokneam 2069204, Israel
+972-4-959-9000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)



 

Lumenis Inc.
2033 Gateway Place
San Jose, CA 95110
408-764-3000

(Name, Address, including zip code, and telephone number, including area code, of agent for service)



 

Copies of all correspondence to:

     
Phyllis G. Korff, Esq.
Yossi Vebman, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, New York 10036
Tel: 212-735-3000
Fax: 212-735-2000
  Dan Shamgar, Adv.
David S. Glatt, Adv.
Jonathan M. Nathan, Adv.
Meitar Liquornik Geva Leshem Tal
16 Abba Hillel Silver Rd.
Ramat Gan 5250608, Israel
Tel: +972-3-610-3100
  Colin J. Diamond, Esq.
Joshua G. Kiernan, Esq.
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036
Tel: 212-819-8200
Fax: 212-354-8113
  Chaim Friedland, Adv.
Ari Fried, Adv.
Gornitzky & Co.
Zion House, 45 Rothschild Blvd.
Tel Aviv 6578403, Israel
Tel: +972-3-710-9191
Fax: +972-3-560-6555


 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o



 

CALCULATION OF REGISTRATION FEE

   
Title of each class of securities to be registered   Proposed maximum aggregate offering price(1)(2)   Amount of registration fee
Ordinary shares, par value NIS 0.1 per share   $ 115,000,000     $ 14,812  

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act.
(2) Includes ordinary shares that the underwriters may purchase pursuant to their option to purchase additional ordinary shares, if any.


 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 


 
 

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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, Dated December 6, 2013

      Shares

[GRAPHIC MISSING]

Ordinary Shares



 

We are offering       of our ordinary shares. While our ordinary shares are currently registered under the Securities Exchange Act of 1934, they are not listed for trading in any market. We intend to apply to have our ordinary shares listed on the NASDAQ Global Market under the symbol “LMNS.” We anticipate that the public offering price for our ordinary shares will be between $     and $     per share.



 

Investing in our ordinary shares involves a high degree of risk. See “Risk factors” beginning on page 11 for a discussion of information that should be considered in connection with an investment in our ordinary shares.

   
  Per share   Total
Public offering price   $     $  
Underwriting discounts and commissions(1)   $     $  
Proceeds, before expenses, to us   $            $         

(1) See “Underwriting” for a description of the compensation payable to the underwriters.

The underwriters may also purchase, during a 30 day option period, up to       additional shares from certain selling shareholders identified in this prospectus at the initial offering price less the underwriting discounts and commissions. We will not receive any proceeds from the sale of shares by the selling shareholders.

Neither the U.S. Securities and Exchange Commission, nor any state or other foreign regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ordinary shares against payment in New York, New York on or about                 , 2014.



 

   
Goldman, Sachs & Co.   Credit Suisse   Jefferies

Wells Fargo Securities



 

Prospectus dated           , 2014


 
 

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TABLE OF CONTENTS

 
  Page
Prospectus Summary     1  
Risk Factors     11  
Forward-Looking Statements; Cautionary Information     36  
Use of Proceeds     37  
Dividend Policy     38  
Capitalization     39  
Dilution     40  
Selected Consolidated Financial Data     42  
Management's Discussion and Analysis of Financial Condition and Results of Operations     46  
Business     79  
Management     98  
Security Ownership of Certain Beneficial Owners, Management and Selling Shareholders     117  
Certain Relationships and Related Party Transactions     120  
Description of Share Capital     123  
Shares Eligible for Future Sale     128  
Taxation     129  
Underwriting     143  
Expenses Related to this Offering     147  
Experts     147  
Legal Matters     147  
Enforceability of Civil Liabilities     148  
Where You Can Find Additional Information     149  


 

We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

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PROSPECTUS SUMMARY

This summary does not contain all of the information you should consider before investing in our ordinary shares. You should read this summary together with the more detailed information appearing in this prospectus, including “Risk Factors,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and our consolidated financial statements and the related notes included at the end of this prospectus, before making an investment in our ordinary shares. Unless the context otherwise requires, all references to “Lumenis,” “we,” “us,” “our,” the “company” and similar designations refer to Lumenis Ltd. and its wholly-owned subsidiaries.

Our Company

We are a leading global, diversified and growing provider of innovative energy-based, minimally invasive clinical solutions. We have established a strong brand and leadership position across our three segments: surgical, ophthalmic and aesthetic. We provide energy-based solutions for both medically necessary and elective procedures, primarily for the aging population. We believe that we are uniquely positioned to outpace market growth and expand our addressable markets by leveraging our innovative technology, extensive product pipeline and established global sales and service infrastructure. For the nine months ended September 30, 2013, we generated $194.3 million in revenues, growing 7%, $12.7 million in net income, growing 655%, and $18.1 million in adjusted EBITDA, growing 58%, in each case, compared to the same period in the prior year.

Our focused product offerings provide solutions for a wide range of minimally invasive procedures. The Lumenis brand is widely recognized and highly regarded among key opinion leaders, doctors and clinicians, driven by our advanced technology, improved patient outcomes and our reputation for quality and safety. Our solutions include our VersaPulse PowerSuite platform using high-powered holmium lasers for urologic applications, our M22 multi-energy, multi-application platform for the treatment of various skin conditions, and our Selecta multi-modality platform for retinal, secondary cataract and glaucoma therapies. Our solutions target end-markets, which we estimate represent a combined market opportunity of approximately $3.5 billion.

Our emphasis on product development has resulted in our strongest pipeline of new and next-generation products and applications in over a decade. We expect to launch one to two new product platforms in each of our three segments by the end of 2014. We believe our culture of innovation, along with our realigned development processes focused on physician needs and patient benefits, will serve as an engine for future growth in existing and new markets.

Our global sales and service infrastructure enables us to serve our growing customer base and successfully launch new products worldwide, with particular strength in the rapidly growing Asia-Pacific, or APAC, market. Our service organization of over 200 people supports the growth of our global customer base and provides us with an attractive recurring revenue stream. We believe we are well-positioned to capitalize on the large and growing emerging markets opportunity, specifically in the APAC region. We generated $63.2 million in revenues in the APAC region for the nine months ended September 30, 2013, representing 15% year-over-year growth and 33% of our total revenues. China represents our second largest individual market globally, which we believe will continue to be an important driver of our growth.

Since 2012, our new management team has been transforming the company with a focus on improved execution, growth and profitability. Key elements of our strategic plan include an enhanced approach to product development, targeting physician needs and patient benefits, improved operational processes and a culture of accountability. Through these and other actions, we have delivered five quarters of continuous improvement in revenue growth, gross margins and overall profitability. Specifically, we have expanded gross margins from 45.6% in 2011 to 53.2% for the nine months ended September 30, 2013. We believe that these factors provide the foundation upon which we can continue to transform and grow our company.

The Lumenis Solution

We are a leader in the development and commercialization of energy-based medical systems used in a variety of minimally invasive surgical, ophthalmic and aesthetic procedures, primarily for the aging population. For most of our current products, we utilize laser technology to deliver light energy to specific

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body tissues to achieve desired clinical outcomes. Our products are specifically designed to help physicians, clinicians and aestheticians easily deliver safe, minimally invasive and effective procedures to their patients in both office and hospital settings.

Surgical

We pioneered the development of high-powered holmium lasers for the urology application, including the enucleation procedure for the minimally invasive treatment of benign prostatic hyperplasia, or BPH, and urinary lithotripsy. HoLEP, the use of our high-powered holmium laser to perform enucleation of the prostate, has proven to be more effective than alternatives while minimizing collateral tissue damage and demonstrating the lowest recurrence rates. In addition, the high-power, high-repetition holmium laser is an effective form of treatment for a broad range of urinary and kidney stones, enabling stone dusting, which reduces the stones to minimally sized particles and allows them to be self-cleared.

Our CO2 laser-based product line is a leader in the treatment of benign and malignant lesions and inflammations in the ear, nose and throat (ENT) laser market, using innovative technology, including guidance technology, which provides advanced precision with minimal collateral tissue damage compared to other alternatives. Our CO2 laser application for vocal chords rescission provides better patient outcomes and lower overall costs to the healthcare system. We are also exploring opportunities for additional procedures and applications in which our energy-based technologies can be safely and effectively used, leveraging our technology and development expertise, as well as utilizing a number of our existing regulatory approvals.

Ophthalmic

As the first company to commercially introduce a laser-based product to treat retinal conditions, we believe we have built a strong brand and reputation in ophthalmology. Since that time, laser-based treatment has become common practice for performing various ophthalmic procedures. We treat conditions affecting both the anterior and posterior segments of the eye, including various retinal conditions, as well as different types of glaucoma and secondary cataract procedures. We also distribute a refractive laser solution and are exploring additional ophthalmic applications with diagnostic capabilities in conjunction with energy-based treatments which will provide attractive new opportunities for expansion.

Within ophthalmology, we address a number of distinct procedures and markets. In retinal applications, our product solutions provide optimized therapeutic outcomes for non-invasive and minimally invasive treatments for conditions such as diabetic retinopathy and retinal detachment. We have developed upgradable and modular platforms which are cost-effective and allow for better treatment of existing indications and treatment of additional indications, positioning us to further penetrate this market. In addition, Lumenis has pioneered the use of selective laser trabeculoplasty, or SLT, in the glaucoma market with a demonstrated success rate of 93% as primary therapy, and proven long-term clinical efficacy. We estimate that we account for approximately 50% of the global market in the SLT category.

Aesthetic

In aesthetics, we believe we have a premium brand and reputation among dermatologists, plastic surgeons, other physicians and aestheticians. Our products offer proven clinical efficacy and safety, such as our CO2-based laser, which is known for its high power and deep penetration level (4 mm) in one pulse, and our intense pulsed light, or IPL, which utilizes the Optimal Pulse Technology (OPTTM) enabling the delivery of a variety of treatment parameters and combinations. We also offer significantly more comfortable and less painful hair removal products for patients compared to our competitors, with the fastest treatment time and short treatment cycle. Beyond elective aesthetic procedures, we offer surgical scar treatments, improving both range of motion and cosmesis.

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Our Competitive Strengths

We believe that the following strengths provide us with sustainable competitive advantages:

Well-positioned across multiple attractive end markets  We believe that our company’s leadership position across multiple attractive and growing end markets will allow us to outpace market growth. Our addressable markets are driven by the growing trend towards minimally invasive procedures, favorable demographic trends, such as an aging population and the rapid growth of the middle class, and increasing health care spending in the emerging markets. We believe the diversity of our applications contributes to the stability of our business model.

Innovative technology platform with strong brand recognition  The Lumenis brand has long been associated with significant technological advances in medical lasers and has led to strong customer loyalty. We believe our solutions are differentiated from competing offerings driven by our reputation for quality and our demonstrated ability to improve clinical results combined with reduced recovery times. For example, in head to head studies with transurethral resection of the prostate, or TURP, another widely used interventional treatment for BPH, our high-powered Holmium laser (HoLEP) for treatment of BPH has been proven to show better symptomatic recovery, the lowest re-intervention rate and shorter average hospital stays.

Global reach, scale and APAC strength  We have an industry-leading global footprint with a worldwide sales and service organization of more than 450 employees and products sold in more than 85 countries around the world. Specifically, we believe we are well-positioned in a number of key markets within APAC, including China and India, where we have made significant investments over the past decade. APAC region revenues have doubled over the past five years and represented approximately one-third of our revenues for the nine months ended September 30, 2013. Notably, China represents our second largest individual market globally with our revenues growing, on average, over 20% per annum since 2009.

Diverse product portfolio with strong pipeline  We have an extensive product portfolio which includes solutions for a wide range of minimally invasive procedures across the surgical, ophthalmic and aesthetic market segments. Our solution offering includes services and consumables, which represent substantially all of our recurring revenue stream and generated approximately one-third of our revenues for the nine months ended September 30, 2013. As a result of our enhanced approach to innovation and reinvigorated product development processes, we have created our strongest pipeline of new and next generation products and applications in over a decade. We expect to launch one to two new product platforms in each of our three segments by the end of 2014.

Operating efficiencies across business model  The commonality of our technology platforms provides operating leverage as we grow our business and service our customers across market segments and geographies. For example, our global service organization can seamlessly address our entire product suite. Furthermore, our integrated research, product development and regulatory teams with expertise across multiple international jurisdictions provide us operational synergies. As of September 30, 2013, 87 Lumenis medical laser product families and their associated accessories were registered in over 50 countries. Lumenis owns more than 300 cleared 510(k) pre-market notification submissions, and more than 950 active international product registrations (including 50 in Japan and more than 140 in APAC).

Proven management team driving profitable growth  Our senior management team has successfully demonstrated its ability to transform the company, driving growth and profitability over the last five quarters. During this period, we have demonstrated accelerated top-line growth, while at the same time expanding gross margins, net income margins and adjusted EBITDA margins on a year over year basis. Management is focused on continuing to execute our business plan through a disciplined and methodical approach.

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Our Growth Strategy

We intend to continue to grow our business by pursuing the following core strategies:

Launch innovative new products  We expect to drive revenues with effective commercialization of multiple new products and next-generation technologies that address patient and physician needs to new and existing customers. In addition, we will focus on marketing our services, accessories and consumables to further supplement the new product sales. We are committed to continuing investments in a robust research and development engine to enhance the strength of our product pipeline.

Expand geographic footprint  Our global strategy is to increase the depth of penetration in and breadth of coverage of existing markets, as well as to seek out and enter new geographies. We believe that our strong footprint and brand recognition in APAC present us with an attractive growth opportunity and we believe that China, in particular, will be an important driver of our future growth. We plan to increase our global footprint by expanding our direct and distributor sales force based on the unique characteristics of each individual market.

Continue to improve profitability  We have made considerable investments in refining our manufacturing capabilities, realigning our sales and marketing organizations, as well as streamlining our research and development capabilities. Through these actions, we believe we have the infrastructure to support our growth for the foreseeable future. We believe that our profitability can be further enhanced by the introduction of new, higher margin products, as well as continued focus on execution and maximizing operating leverage. In addition, we will continue to execute on our strategic plan and identify additional ways to streamline processes and improve operational efficiencies.

Leverage our technology leadership to penetrate additional therapeutic areas  We will seek to capitalize on the increasing trends towards minimally invasive procedures. We believe we are well-positioned given our technological know-how and broad product suite to participate in and benefit from this market trend. Our existing technology platforms, FDA clearances and enhanced product development capabilities enable us to penetrate additional areas, offering us significant growth opportunities. Examples of relevant areas where we believe our technology can be further leveraged include gastroenterology, gynecology, neurology, oncology and pulmonology.

Actively pursue business development opportunities  We will seek to engage in targeted business development activities, including acquisitions and strategic partnerships, with the goal of augmenting our product and technology portfolio in our existing and potentially adjacent markets. We believe we can leverage our global infrastructure to implement a disciplined bolt-on acquisition strategy.

Risk Factors

Our business is subject to a number of risks that you should understand before deciding to invest in our ordinary shares, including those discussed under “Risk Factors.” The following is a summary of some of the principal risks we face:

The markets in which we operate are competitive, and we may not be able to compete with current or future competitors; consolidation in our industries may make it more difficult for us to compete.
The introduction of disruptive technological breakthroughs, whether pharmaceutical or other newer therapeutic solutions, may present an additional threat to our success in our target markets.
We are subject to extensive and increasing U.S. and international government regulations relating to our business and products.
Failure to obtain regulatory approval in additional foreign jurisdictions will prevent us from expanding the commercialization of our products abroad.
Our customers’ willingness to purchase our products in the surgical and ophthalmic segments depends to a significant extent on their patients’ ability to obtain reimbursement for medical procedures that our products deliver.

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Our markets are characterized by evolving technological standards and changes in customer requirements, and we may not be able to react to such changes and introduce new product platforms in a timely manner.
We may not be able to protect our proprietary technology or prevent its unauthorized use or disclosure by third parties.

Our Corporate Information

Our legal and commercial name is Lumenis Ltd., and we are a public limited company incorporated in Israel on December 21, 1991 initially under the name E.S.C. — Energy Systems Corporation Ltd. On September 13, 2001, we changed our name to Lumenis Ltd. Our ordinary shares have been registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, since prior to this offering (from the date of our initial public offering in the United States in January 1996 until April 2006, and then again since July 2007), but have not been listed on any national securities exchange or quoted on any exchange or interdealer system since April 26, 2006. Our registered office and principal place of business is located at 6 Hakidma Street, Yokneam Northern Industrial Park, Yokneam 2069204, Israel and our telephone number in Israel is +972-4-959-9000. Our website is www.lumenis.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus and is not incorporated by reference herein.

Unless the context otherwise indicates or requires, “Lumenis”, the Lumenis logo and all product names and trade names used by us in this prospectus are our trademarks and service marks in which we have proprietary rights and that may be registered in certain jurisdictions. These trademarks and service marks are important to our business. Although we have omitted the “®” and “tm” trademark designations for such marks in this prospectus, all rights to such trademarks and service marks are nevertheless reserved. This prospectus contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

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The Offering

Ordinary shares we are offering    
            ordinary shares.
Option to purchase additional       ordinary shares    
    The underwriters have a 30-day option to purchase an additional      ordinary shares from certain selling shareholders identified in this prospectus.
Ordinary shares to be outstanding immediately after this offering    
            ordinary shares.
Use of proceeds    
    We estimate that we will receive net proceeds from this offering of approximately $      million, based on an assumed initial public offering price of $      per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses.
    We expect to use the net proceeds from this offering for our operations and for other general corporate purposes, including but not limited to working capital requirements, capital expenditures, investments, research and development, product development and sales and marketing expenditures. We may also use a portion of the net proceeds for the potential acquisition of, or investment in, technologies, products or companies that complement our business, although we have no understandings, commitments or agreements to consummate any such acquisition or investment.
    We will not receive any proceeds from the sale of ordinary shares by the selling shareholders pursuant to the underwriters’ option to purchase additional ordinary shares.
Risk factors    
    Investing in our ordinary shares involves a high degree of risk and purchasers of our ordinary shares may lose part or all of their investment. See “Risk Factors” for a discussion of some of the factors you should carefully consider before deciding to invest in our ordinary shares.
Proposed NASDAQ Global Market symbol    
    We intend to apply to have our ordinary shares listed on the NASDAQ Global Market under the symbol “LMNS.”

Unless otherwise stated, the number of ordinary shares to be outstanding after this offering is based on ordinary shares outstanding as of December 1, 2013, and excludes (1) 17,878,674 ordinary shares reserved for issuance under our share option plans in respect of which we had outstanding options to purchase 17,152,079 ordinary shares at a weighted average exercise price of $1.13 per share, and (2) warrants to purchase 18,729,483 ordinary shares at a weighted average exercise price of $1.16 per share.

Unless otherwise indicated, all information in this prospectus:

assumes an initial public offering price of $     per ordinary share, the midpoint of the range on the cover of this prospectus;
gives effect to a 1-for-      reverse share split of our ordinary shares effected on       ; and
assumes no exercise by the underwriters of their 30-day option to purchase up to an additional        ordinary shares from the selling shareholders identified in this prospectus.

As used in this prospectus, the terms “NIS” and “shekel” refer to New Israeli Shekels, the lawful currency of the State of Israel, the terms “dollar,” “US$” or “$” refer to U.S. dollars, the lawful currency of the United States, and the terms “euros” or “€” refer to euros, the lawful currency of the European Union.

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Summary Consolidated Financial Data

The following table is a summary of our historical consolidated financial data, derived from our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP. The summary consolidated statements of operations data for the years ended December 31, 2010, 2011 and 2012 and for the nine months ended September 30, 2012 and 2013, and the consolidated balance sheet data as of September 30, 2013, is derived from our consolidated financial statements presented elsewhere in this prospectus. In the opinion of management, the unaudited interim information included in the consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of our financial position and operating results for these periods. Results for interim periods are not necessarily indicative of the results that may be expected for the entire year.

You should read this summary consolidated financial data in conjunction with, and it is qualified in its entirety by reference to, our historical financial information and other information provided in this prospectus including, “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. The historical results set forth below are not necessarily indicative of the results to be expected in future periods.

         
  Year ended
December 31,
  Nine months ended September 30,
     2010   2011   2012   2012   2013
     (in thousands, except per share data)
Consolidated Statements of
Operations Data:
                                            
Revenues:
                                            
Products   $ 189,149     $ 199,714     $ 198,811     $ 145,571     $ 155,500  
Services     48,581       47,268       49,779       36,750       38,762  
Total revenues     237,730       246,982       248,590       182,321       194,262  
Cost of revenues:
                                            
Products     95,532       106,240       97,150       71,543       70,655  
Services     28,207       28,226       28,174       21,254       20,303  
Total cost of revenues     123,739       134,466       125,324       92,797       90,958  
Gross profit     113,991       112,516       123,266       89,524       103,304  
Operating expenses:
                                            
Research and development, net     16,363       16,526       18,497       13,447       16,207  
Selling and marketing     69,725       72,891       75,010       55,421       59,661  
General and administrative     17,813       16,912       20,446       15,419       14,814  
Legal settlements, net     (1,981 )      766                   (6,692 ) 
Total operating expenses     101,920       107,095       113,953       84,287       83,990  
Operating income     12,071       5,421       9,313       5,237       19,314  
Finance expenses, net     3,880       3,725       1,464       1,354       4,478  
Income before taxes on income     8,191       1,696       7,849       3,883       14,836  
Taxes on income     2,446       1,006       852       2,203       2,145  
Net income   $ 5,745     $ 690     $ 6,997     $ 1,680     $ 12,691  
Earnings per share attributable to ordinary shareholders(1):
                                            
Basic   $ 0.03     $ *     $ 0.03     $ 0.01     $ 0.06  
Diluted   $ 0.03     $ *     $ 0.03     $ 0.01     $ 0.06  
Weighted average number of ordinary shares used in computing earnings per share:
                                            
Basic     215,341       215,884       218,972       218,973       218,977  
Diluted     219,719       223,066       222,031       221,859       223,861  

* Less than $0.01.
(1) Basic and diluted earnings per ordinary share is computed based on the basic and diluted weighted average number of ordinary shares outstanding during each period. For additional information, see Notes 2(r) and 17 to our consolidated financial statements included elsewhere in this prospectus.

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  As of September 30, 2013
     Actual   As adjusted(1)
     (in thousands)
Consolidated Balance Sheet Data:
                 
Cash and cash equivalents   $ 37,873           
Current assets     125,352           
Total assets     198,789           
Current liabilities     97,821           
Short-term restructured debt     17,648           
Long-term restructured debt     52,557           
Total liabilities     185,972           
Total shareholders’ equity     12,817                 

(1) As adjusted data gives effect to (i) the issuance and sale of      ordinary shares by us in this offering at an assumed public offering price of $     per ordinary share after deducting underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the payment of a cash fee of $6.0 million that will be payable to Bank Hapoalim B.M. upon the consummation of this offering under our debt restructuring agreement less any amounts already paid or accrued under that agreement based on our achievement of certain annual EBITDA levels (as of September 30, 2013 we already provided an accrual in an amount of $1.4 million on the assumption that we will meet certain EBITDA requirements in the 2013 year).

         
  As of December 31,   As of September 30,
     2010   2011   2012   2012   2013
     (in thousands)
Other financial data:
                                            
Adjusted EBITDA(1)   $ 16,515     $ 12,147     $ 17,844     $ 11,462     $ 18,116  

(1) Adjusted EBITDA is a non-GAAP financial measure. For a definition and a reconciliation of adjusted EBITDA to our net income, see “— Non-GAAP Financial Measures” below.

The following tables summarize segment data for the year ended December 31, 2012 and the nine months ended September 30, 2013, which are derived from Note 18 to our consolidated financial statements that are presented elsewhere in this prospectus and the reconciliation to adjusted EBITDA.

         
  Year ended December 31, 2012
     Surgical segment   Aesthetic segment   Ophthalmic segment   Unallocated expenses(1)   Consolidated Results of Operations
     (in thousands)
Revenues   $ 95,962     $ 90,487     $ 62,141     $     $ 248,590  
Gross profit     52,829       43,641       27,209       (413 )      123,266  
Operating expenses     42,439       41,721       26,535       3,258       113,953  
Operating income (loss)   $ 10,390     $ 1,920     $ 674     $ (3,671 )    $ 9,313  
Depreciation and amortization                                         4,866  
Stock-based compensation                                         3,285  
Legal settlements, net and other non-recurring expenses                             380  
Adjusted EBITDA(2)                             17,844  

(1) Unallocated expenses are primarily related to stock-based compensation and legal settlements and other non-recurring expenses.
(2) Adjusted EBITDA is a non-GAAP financial measure. For a definition and a reconciliation of net income to adjusted EBITDA, see “— Non-GAAP Financial Measures” below.

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  Nine months ended September 30, 2013
     Surgical segment   Aesthetic segment   Ophthalmic segment   Unallocated expenses(1)   Consolidated Results of Operations
     (in thousands)
Revenues   $ 75,907     $ 72,938     $ 45,417     $     $ 194,262  
Gross profit     44,319       39,044       19,855       86       103,304  
Operating expenses     36,169       34,206       18,971       (5,356 )      83,990  
Operating income   $ 8,150     $ 4,838     $ 884     $ 5,442     $ 19,314  
Depreciation and amortization                                       $ 4,483  
Stock-based compensation                                       $ 1,390  
Legal settlements, net and other non-recurring expenses (income)                           $ (7,071 ) 
Adjusted EBITDA(2)                           $ 18,116  

(1) Unallocated expenses are primarily related to stock-based compensation and legal settlements and other non-recurring expenses.
(2) Adjusted EBITDA is a non-GAAP financial measure. For a definition and a reconciliation of our net income to adjusted EBITDA, see “— Non-GAAP Financial Measures” below.

Non-GAAP Financial Measures

Adjusted EBITDA is a non-GAAP financial measure that we define as net income before depreciation and amortization, stock-based compensation, legal settlements, net and other non-recurring expenses, financial expenses, net and taxes on income. We have provided a reconciliation below of net income, the most directly comparable U.S. GAAP financial measures to adjusted EBITDA.

We have included adjusted EBITDA in this prospectus because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can, in our opinion, provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP as the excluded items may have significant effects on our operating results and financial condition. When evaluating our performance, you should consider adjusted EBITDA alongside other financial performance measures, including net income, operating profit and our other U.S. GAAP results.

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The following table presents a reconciliation of net income to adjusted EBITDA for each of the periods indicated:

         
  Year ended December 31,   Nine months ended September 30,
     2010   2011   2012   2012   2013
     (in thousands)
Reconciliation of Net Income to Adjusted EBITDA:
                                            
Net income   $ 5,745     $ 690     $ 6,997     $ 1,680     $ 12,691  
Taxes on income     2,446       1,006       852       2,203       2,145  
Financial expenses, net     3,880       3,725       1,464       1,354       4,478  
Income from operations     12,071       5,421       9,313       5,237       19,314  
Depreciation and amortization     5,500       4,551       4,866       3,627       4,483  
Stock-based compensation     869       747       3,285       1,991       1,390  
Legal settlements, net and other non-recurring income (expenses)     (1,925 )      1,428       380       607       (7,071 ) 
Adjusted EBITDA   $ 16,515     $ 12,147     $ 17,844     $ 11,462     $ 18,116  

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RISK FACTORS

Investing in our ordinary shares involves a high degree of risk. We operate in dynamic and rapidly changing industries that involve numerous risks and uncertainties. You should carefully consider the risks and uncertainties described below, in addition to the other information set forth in this prospectus, including the consolidated financial statements and the related notes included elsewhere in this prospectus, before deciding whether to invest in our ordinary shares. If any of the risks described below actually occurs, our business, financial condition, cash flows and results of operations could be materially adversely affected. In that case, the trading price of our ordinary shares would likely decline and you might lose all or part of your investment. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business operations.

Risks Related to our Business and Financial Condition

The markets in which we operate are competitive, and we may not be able to compete with current or future competitors.

The markets in which we operate are competitive and we expect such competition to increase. Competition arises from laser and other light-based products, as well as from other treatment modalities and alternate technologies that are not based upon laser or light-based technologies. We also face competition from companies selling accessories to, and offering services for, our products, as well as companies selling devices, particularly in the aesthetic market, for home use. Competitors range in size from small, single product companies to large, multinational corporations.

Many of our competitors enjoy competitive advantages over us, including:

greater financial, technical, marketing, human and other resources;
greater name recognition and/or longer operating histories, particularly within certain geographies or business segments;
broader product lines, which may provide the ability to offer rebates or bundle products and thereby offer discounts;
larger customer bases and more extensive or exclusive relationships with healthcare professionals, customers and third party payors;
greater experience in conducting research and development, manufacturing, preparing regulatory submissions and obtaining regulatory clearance or approval for products and marketing approved products;
greater resources for the development, promotion, sale and support of products;
greater breadth, maturity and strength of patent protection; and
location in countries with low-cost economies that are conducive to inexpensive manufacturing.

In the surgical segment, our major direct competitors are: American Medical Systems, Deka Laser Technologies, Dornier MedTech America, Karl Storz, Lisa Laser Products and OmniGuide. Our major direct competitors in the aesthetic segment are Alma Lasers, Cutera, Cynosure, Solta and Syneron. Our major direct competitors in the ophthalmic segment are Carl Zeiss Meditec, Ellex, Iridex, Nidek and Quantel Medical.

The degree of competition is amplified in part as a result of the low barriers to entry especially with respect to less sophisticated products in the aesthetic industry. This has led to us having a greater number of small competitors, particularly in the aesthetic industry.

Competition has in the past, and may in the future, result in pricing pressures, reduced sales and gross margins, loss of market share or a failure to grow our market share in existing segments and geographic markets.

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The introduction of disruptive technological breakthroughs, whether pharmaceutical or other newer therapeutic solutions, may present an additional threat to our success in our target markets.

Pharmaceutical alternative treatments compete vigorously with traditional laser procedures, such as those carried out with our products, particularly in the ophthalmic segment. Some pharmaceutical companies, academic and research institutions, or others, may develop new, noninvasive therapies that are more effective, more convenient or less expensive than our current or future products. The introduction of new technologies, along with these new therapies could result in increased competition. Any such developments could have a material adverse effect on our business, financial condition and results of operations.

Consolidation in our industries may make it more difficult for us to compete.

The trend towards consolidation has increased, and may continue to increase, the intensity of the competition in our industries. Recently, competitors such as Cynosure and Solta Medical have acquired other companies that operate within the aesthetic market. If this trend continues, we will be forced to compete primarily against larger competitors with greater resources and distribution networks. The acquisition of a competitor by a major corporation seeking to enter our markets would also have a similar effect, resulting in a competitor with substantially greater resources than ours. We cannot give assurances that we will be able to identify suitable acquisition or investment candidates, or, if we do identify suitable candidates, that we will be able to make the acquisitions or investments on commercially reasonable terms or at all. If consolidation in our industries advances further and we are unable to effect mergers or acquisitions of our own, our inability to obtain capital and other resources that are comparable to those possessed by our larger competitors, could have a material adverse effect on our business, financial condition and results of operations.

Our customers’ willingness to purchase our products in the surgical and ophthalmic segments depends to a significant extent on their patients’ ability to obtain reimbursement for medical procedures that our products deliver.

The customers for our medical products include doctors, clinics, hospitals and other healthcare providers whose willingness and ability to purchase our products depend in part upon their patients’ ability to obtain reimbursement for medical procedures that our products deliver from third-party payors, including private insurance companies, and, in the United States, from health maintenance organizations, or HMOs, and federal, state and local government programs, including Medicare and Medicaid. This is particularly the case in the surgical and ophthalmic segments, in which almost all of the treatments performed with our products are currently reimbursable in most jurisdictions. Third-party payors have been increasingly scrutinizing health care costs submitted for reimbursement and may deny coverage and reimbursement for the medical procedures made possible by our products. Additionally, we cannot predict what legislation or regulation, if any, relating to the healthcare industry or third party coverage and reimbursement may be enacted in the future, or what the effect of such legislation or regulation may have on us, if any. The inability of our customers’ patients to obtain adequate reimbursement from third-party payors for medical procedures that use our products, or changes in third-party coverage and reimbursement policies, could have a material adverse effect on our sales, financial condition and results of operations.

We depend on third-party suppliers, and, in one case, a sole source supplier, for key components used in our products, subassemblies and systems for the manufacture of our systems and products.

Certain key components used in our products, subassemblies and systems are manufactured or assembled by a limited number of suppliers or subcontractors and, in one case, are purchased by us from a single source. We do not have a long term supply agreement with this supplier. If we lose this supplier, certain of our sales may be temporarily disrupted until we replace the supplier. Components from any supplier may not be available in the future.

Additionally, due to their sophisticated nature, certain components must be ordered more than six months in advance, resulting in substantial lead time for certain production runs. In the event that such limited source suppliers are unable to meet our requirements in a timely manner, we may experience an interruption in production until we can obtain an alternate source of supply. In order to mitigate this risk, we provide our suppliers with a purchasing plan and a three- to nine-month estimate of future orders.

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There are further risks associated with suppliers, even with regards to those products, subassemblies and systems that are provided by a number of suppliers, including, among other things:

if we experience an increase in demand for our products, our suppliers may be unable to provide us with the components that we need in order to meet that increased demand;
our suppliers may encounter financial hardships unrelated to our demand for components, which could inhibit their ability to fulfill our orders and meet our requirements;
suppliers may fail to comply with regulatory requirements, be subject to lengthy compliance, validation or qualification periods, or make errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in supplying of our products to our customers;
we may experience production delays related to the evaluation and testing of products from alternative suppliers and corresponding regulatory qualifications;
we may be subject to price fluctuations due to a lack of long-term supply arrangements for key components;
we or our suppliers may lose access to critical services and components, resulting in an interruption in the manufacture, assembly and shipment of our systems; and
fluctuations in demand for components that our suppliers manufacture for others may affect their ability or willingness to deliver components to us in a timely manner.

If any of these risks materialize, the costs associated with developing alternative sources of supply or assembly could have a material adverse effect on our ability to meet demand for our products. Our ability to generate revenues would be impaired, market acceptance of our products could be adversely affected, and customers may instead purchase or use alternative products. We may not be able to find new or alternative components or reconfigure our system and manufacturing processes in a timely manner if the necessary components become unavailable. As a result, we could incur increased production costs, experience delays in deliveries of our products, suffer damage to our reputation and experience an adverse effect on our business and results of operations.

We may fail to accurately forecast component and material requirements for our products.

Our customers and potential customers, particularly in our aesthetics segment, frequently require delivery of products within a relatively short timeframe. This is due to factors such as end-of-year tax benefits, budget considerations and the timing of business opportunities. Additionally, we manufacture certain of our products within a relatively short time frame, and in certain instances, we manufacture our products to be available “on the shelf” for immediate delivery. In order to meet such deadlines, we must accurately predict the demand for our products, the product mix and the lead times required to obtain the necessary components and materials. Lead times for components and materials that we order vary significantly and depend on various factors, including the specific supplier requirements, the size of the order, contract terms and current market demand for components. However, due to the sophisticated nature of the components, some of our suppliers may need six months or more lead time. If we overestimate our component and material requirements, we may have excess inventory, which has in the past and could in the future lead to inventory obsolescence, and may increase our costs, impair our available liquidity and have a material adverse effect on our business, operating results and financial condition. We have recently been focused on reducing our inventory in order to reduce costs related to write-offs. If we underestimate our component and material requirements, we may have inadequate inventory, which could interrupt and delay delivery of our products to our customers, strain our relationship with our existing customers and damage our reputation. As a consequence, we may lose future sales to such customers or to potential customers. Any of these occurrences would negatively affect our revenues, business and operating results and could have a material adverse effect on our business, financial condition and results of operations.

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Our markets are characterized by evolving technological standards and changes in customer requirements, and we may not be able to react to such changes and introduce new product platforms in a timely manner.

Our markets, in particular the aesthetic market, are characterized by extensive research and development, technological change, frequent modifications and enhancements, innovations, new applications, evolving industry standards and changes in customer requirements. In each of our segments, we are targeting the introduction of one to two new product platforms by the end of 2014. Our future growth depends in part on our ability to introduce these products on a timely basis, as well as to introduce other product enhancements that address customer needs. These goals require us to design, develop, manufacture, assemble, test, market and support these new platforms or enhancements on a timely and cost-effective basis. It also requires continued substantial investment in research and development. Our research and development expenses were 8.3% of our total revenues in the nine months ended September 30, 2013, and 7.4% of our total revenues in the year ended December 31, 2012.

During each stage of the research and development process we encounter obstacles that may delay development and consequently increase our expenses. This may ultimately force us to abandon a potential product in which we have already invested substantial time and resources. Technologies in development could prove to be more complex than initially understood or not scientifically or commercially viable. Even if we develop new products and technologies ahead of our competitors, we will still need to obtain the requisite regulatory approvals for such products, including from public agencies, such as the FDA, before we can commercially distribute them. We cannot assure you that we will successfully identify new technological opportunities, develop and bring new or enhanced products to market, obtain sufficient or any patent or other intellectual property protection for such new or enhanced products or obtain the necessary regulatory approvals in a timely and cost-effective manner, or, if such products are introduced, that those products will achieve market acceptance. Our failure to do so or to address the technological changes and challenges in our markets could have a material adverse effect on our business, financial condition and results of operations.

We require significant cash funds for our operations, and, in addition to this offering, may need to raise additional funds in the future and we may be unable to raise capital when needed or on acceptable terms.

We believe our existing cash, cash equivalents, short-term investment balances and the net proceeds from this offering will be sufficient to meet our anticipated cash requirements through at least the next 12 months. In particular, as we continue to expand the direct distribution of our products into new territories, our working capital requirements will increase. We currently plan to fund these expenditures with cash flow generated from our operating activities. To the extent our available cash, cash equivalents and short-term investment balances (including the proceeds from this offering) are insufficient to satisfy our day-to-day operating expenses, commitments, working capital, capital expenditure and debt payment requirements, as well as to fund growth, develop new products and services or make acquisitions or other investments, we may need to seek additional sources of funds. This may be done by selling additional equity or debt securities or entering into a credit facility. However, we may be unable to obtain additional financing at commercially reasonable terms or at all. Obtaining such financing will be subject to the consent of Bank Hapoalim B.M. pursuant to the bank debt restructuring agreement. As a result, we may be required to reduce the scope of, or delay or eliminate, some or all of our current and planned research, development and commercialization activities. We also may have to reduce marketing, customer service or other resources devoted to our products. Any of these actions could materially harm our business and results of operations.

Our indebtedness subjects us to significant debt service obligations and financial and other covenants.

The total principal amount of our bank debt as of September 30, 2013, which is governed by a debt restructuring agreement, was approximately $63.6 million. Pursuant to this debt restructuring agreement and amendments thereto, we sought extensions of principal payment dates for our bank debt. The interest rate payable on our bank debt is LIBOR plus 5.25%. Until repayment of the bank debt, we are subject to certain financial ratio covenants as described under the caption “Bank Debt Restructuring Agreement, as Amended  — Financial Covenants” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” below. These financial covenants become more restrictive each year. We are also subject to certain other covenants including negative covenants that require us to refrain from certain transactions without the bank’s consent. Our ability to make payments of principal and

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interest and to comply with the financial and other covenants under the debt restructuring agreement is subject to the risk factors described herein, and any failure to comply with the covenants could have a material adverse effect on our liquidity and operations. Our substantial debt requires us to dedicate a substantial portion of our cash flow to debt service. This could impair our ability to obtain additional financing for capital expenditures or other purposes, could hinder our ability to adjust rapidly to changing market conditions and competitive pressures, and could make us more vulnerable in the event of a downturn in our business or deterioration of general economic conditions.

We have granted the bank security interests that include a floating charge on all of our assets, certain fixed charges over our assets and those of our subsidiaries (including intellectual property), certain pledges of the stock of our subsidiaries and certain subsidiary guarantees securing our debt. Therefore, a downturn in our business that causes a default by us under the debt restructuring agreement could have a material adverse effect on our company.

Continued improvements in our overall profitability will be adversely affected if we are unable to continue improving our gross margins and our operating leverage.

Our segment operating margins, which have increased in recent years, have done so primarily as a result of improvements in gross margins. To achieve these improvements, we have made considerable investments in reengineering of products in a manner that has reduced costs of products, as well as lowered service and warranty costs, due to increased emphasis on quality control, and more efficient management of our inventory levels, has resulted in lower inventory write downs over the past two years. In order to continue driving our overall profitability, we will need to continue to improve our gross margins with a particular focus on our ophthalmic and aesthetic segments. In order to achieve this, among other things, we intend to continue reducing the costs of the products and our manufacturing costs by increasingly outsourcing manufacturing when doing so is expected to produce greater efficiencies. We will also continue to focus on execution and maximizing operating leverage. There can be no assurance that our actions to continue to improve our gross margins and operating leverage will be successful. If we are unable to achieve these goals, then our overall profitability and future prospects may be harmed.

Due to the complex nature of some of our products we could be subject to product liability claims, including due to adverse treatment outcomes.

Laser and intense pulsed light systems are inherently complex in design and require ongoing scheduled maintenance. Despite pre-market testing, our products may malfunction when used by our customers, due to their technical complexity. Our products are furthermore sold in jurisdictions that vary in the specific qualifications or training required for purchasers or operators of the products. Although we provide product training to the purchasers or operators of our products, there is a risk that our products may be purchased or operated by physicians with varying levels of training, and in some cases, by practitioners such as nurses, chiropractors and technicians who may not be adequately trained. The purchase and use of our products by non-physicians or persons who lack adequate training may result in the misuse of our products, which could give rise to adverse treatment outcomes. If we are unable to prevent product malfunctions or misuse, or if we fail to do so in a timely manner, we could also experience, among other things, delays in the recognition of revenues or loss of revenues, particularly in the case of new products; legal actions by customers, patients and other third parties, which could result in substantial judgments or settlement costs; action by regulatory bodies; and diversion of development, engineering and management resources.

In addition, some of our products are combined with products from other vendors, which may contain defects. While our agreements with such other vendors generally provide for indemnification for us for liabilities arising from such defects, it may be difficult to identify the source of a defect. There are also risks of physical injury to a patient when treated with one of our products, even if a product is not defective.

Such potential adverse effects may cause a significant increase in the premiums under our insurance policies. Further, the coverage limits of our product liability insurance policies may not be adequate to cover future claims. A successful claim brought against us in excess of, or outside of, our insurance coverage could have a material adverse effect on our business, financial condition and results of operations. Even if unsuccessful, such a claim could nevertheless have an adverse impact on our company, due to damage to our reputation and diversion of management resources.

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Our products include a limited time warranty which could result in substantial additional costs to the company should we fail to monitor product quality effectively.

We generally provide a 12-month warranty on our laser systems; however, in some instances, we provide a more extended warranty on systems sold to end-users. After the warranty period, maintenance and support is provided on a service contract basis or on an individual call basis. If our products malfunction, warranty claims may become significant, which could cause a significant drain on our resources and materially adversely affect our results of operations.

In manufacturing our products, we depend on subcontractors and third-party suppliers for various components, many of which require a significant degree of technical expertise to produce. If our suppliers fail to produce components to specification, or if the suppliers, our subcontractors, or we, use defective materials or substandard workmanship in the manufacturing process, the reliability and performance of our products will be compromised. The occurrence of these defects could increase our costs associated with our warranty program and thus materially harm our business.

Our systems may not be able to meet patient expectations and there may be adverse side effects from the procedures for which our products are used.

Our future success, particularly in the aesthetic segment, depends upon patients having a positive experience with the procedures for which our products are used. This is due to the fact that we rely both on individual patients’ repeat business and word-of-mouth referrals to increase physician and clinician demand for our products. Patients may be dissatisfied with these procedures if they find them to be too painful or if they experience excessive temporary swelling or reddening of the skin as a procedural side effect. In rare instances, patients may receive burns, blisters, skin discoloration or skin depressions that would discourage a patient from having additional procedures or from recommending these procedures to others. In order to generate repeat and referral business, we also believe that patients must be satisfied with the effectiveness of the procedures. Results obtained from the procedures for which our products are used may vary and the patient reactions to those results are subjective. A product treatment may produce results that may not meet patients’ expectations. If patients are not satisfied with the procedure or feel that it is too expensive for the results obtained, our reputation and future sales could suffer. Furthermore, if patients are not satisfied with the procedures as a result of the physician not operating our products properly or otherwise not conducting the procedure properly, both of which are outside of our control, it could have a material adverse effect on our reputation and future sales.

We depend on skilled personnel to operate our business effectively in a rapidly changing market, and we may be unable to retain existing, or hire additional, skilled personnel.

Our success depends to a significant extent upon the continued service of our key senior management and sales, technical and scientific personnel. Competition for qualified personnel in our industry is intense and finding and retaining qualified personnel with experience in our industry is challenging. Further, our business could be materially adversely affected by the loss of the services of any of our existing key personnel, whether through resignation, death or injury. The technologically-intense industry in which we operate are particularly prone to the movement of employees to competitors. We cannot assure you that we will continue to be successful in hiring and retaining properly trained and experienced personnel. Our inability to attract, motivate, train and retain qualified new personnel could have a material adverse effect on our business and results of operations. Additionally, a significant portion of our compensation to our key employees is in the form of stock option grants. A prolonged depression in the price of our ordinary shares could make it difficult for us to retain our employees and recruit additional qualified personnel.

Exchange rate fluctuations between the U.S. dollar or other currencies and the shekel or other currencies may negatively affect our results of operations.

The U.S. dollar is our functional and reporting currency. Although most of our revenues are in U.S. dollars, a significant portion of our expenses, principally salaries and the related personnel expenses for Israeli employees and consultants, local vendors and subcontractors, are in shekels, and a portion of our expenses is denominated in other currencies, in particular the euro, the Japanese yen and the Chinese yuan.

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The remainder of our revenues is denominated in currencies other than U.S. dollars, in particular the euro and the Japanese yen. As a result, we are exposed to the risk that the U.S. dollar will devalue in relation to the shekel or, if the shekel instead devalues in relation to the U.S. dollar, that the rate of inflation in Israel will exceed the rate of devaluation of the shekel in relation to the U.S. dollar or other currencies or that the timing of such devaluation will lag behind inflation in Israel. Such currency fluctuations would have the effect of increasing the dollar cost of our operations and would therefore have a material adverse effect on our dollar-measured results of operations. For example, although the U.S. dollar appreciated against the shekel in 2011, the rate of devaluation of the U.S. dollar against the shekel was approximately 2.4% in 2012 and 6.4% in 2010, which was compounded by inflation in Israel at rates of approximately 1.6% and 2.7%, respectively. This had the effect of increasing the U.S. dollar cost of our operations in Israel.

Furthermore, because a material portion of our non-U.S. revenues are denominated in currencies other than the U.S. dollar, the strengthening of the U.S. dollar in relation to other currencies, in particular the euro and the Japanese yen, will negatively affect our results of operations. Through the first nine months of 2013, the U.S. dollar appreciated by 13.2% relative to the Japanese yen, thereby adversely affecting the dollar value of our Japanese-based sales and related revenues during that period. Largely as a result of this depreciation, our revenues in the nine months ended September 30, 2013 in Japan declined, particularly in the ophthalmic segment. In addition, in 2011 and 2010 the U.S. dollar appreciated in relation to the euro by 3.2% and 8.0%, respectively, thereby adversely affecting the dollar value of our euro-denominated revenues.

We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation or appreciation of the shekel or other currencies against the U.S. dollar. Although we engage in currency hedging activities, primarily with regard to the shekel, the Japanese yen and the euro, we may nevertheless be inadequately protected from adverse effects of currency fluctuations and the impact of inflation in Israel. For additional information relating to the impact of exchange rate fluctuations, see “Impact of Inflation and Currency Fluctuations” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

Our existing and planned international operations expose us to additional market and operational risks associated with the business environment in those countries.

We conduct our operations at our headquarters in Israel, as well as through our subsidiaries in Europe, the United States, Japan, China and Hong Kong, India, Singapore and Australia. Our revenues are derived primarily from international sales through our international sales subsidiaries and exports to foreign distributors and resellers. In 2012 and the nine months ended September 30, 2013, approximately 37% and 35%, respectively, of our total revenues were from the Americas with the remainder divided among the APAC region (approximately 30% and 33%, respectively); the Europe, the Middle East and Africa region, which we refer to collectively as EMEA (approximately 17% in both periods); and Japan (approximately 16% and 15%, respectively). Less than 1% of our revenues were attributable to Israel, where our company is headquartered. We anticipate that international sales, and in particular sales to APAC, will continue to account for the substantial majority of our revenues in the foreseeable future.

Our international operations and sales are subject to a number of risks, including:

the impact of earthquakes, floods and other natural disasters or occurrences adversely affecting local economies;
the impact of military or civil conflicts or other political risks;
disruption or delays in shipments caused by customs brokers or government agencies;
imposition by governments of controls that prevent or restrict the transfer of funds;
unexpected changes in regulatory requirements, tariffs, customs, duties, tax laws and other trade barriers;
difficulties in staffing and managing foreign operations;
preference for locally manufactured products;
longer accounts receivable collection periods and greater difficulties in their collection;

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difficulties in protecting or enforcing patent, trademark and other intellectual property rights in certain foreign countries (especially in the APAC region), as described below; and
potentially adverse tax consequences resulting from changes in tax laws.

If we fail to overcome the challenges that we encounter in our international sales operations, our business and results of operations could be materially adversely affected.

In addition to the general risks listed above, our operations in Israel are subject to certain country-specific risks described below under “Risks Relating Primarily to our Location in Israel”.

We face various risks associated with the manufacture of our products.

The manufacture of our lasers and the related delivery devices is a highly complex and precise process. We assemble the majority of the critical subassemblies and our final products at our facilities in Salt Lake City, Utah and Yokneam, Israel. We also have a small manufacturing and refurbishing center in China for key components of our ophthalmic products. We may experience manufacturing difficulties or disruptions, quality issues or capacity constraints, both in respect of existing products and with regard to new products that we may introduce. As a result, product shipments to our customers could be delayed or could contain products that do not conform to our production standards, which could have a material adverse effect on our business and results of operations.

Moreover, with the exception of limited outsourcing, the manufacture of all of our ophthalmic products and accessories takes place in our Salt Lake City, Utah facility and the manufacture of all of our aesthetic and surgical products and accessories takes place in our Yokneam facility. Accordingly, we are highly dependent on the uninterrupted and efficient operation of these facilities. These facilities could be subject to a catastrophic loss as a result of natural disasters such as an earthquake, flood or wildfire. Other losses to the facilities may result from fires, accidents, work stoppages, power outages, acts of war or terrorism. See “Risks Relating Primarily to Our Location in Israel-Political, economic and military instability in Israel and the Middle East may adversely affect our operations and may limit our ability to produce and sell our products.” Any such loss at our facilities could disrupt our operations, delay production, shipments and revenue and result in large expenses to repair or replace facilities, and our insurance might not be sufficient to cover such loss. Longer-term business disruptions could result in a loss of customers. Any such losses could have a material adverse effect on our business, financial condition and results of operations.

Additionally, we currently rely on a single manufacturer in Israel to manufacture and assemble products that accounted for approximately 20% of our revenues in the nine months ended September 30, 2013. If this manufacturer experiences delays, disruptions or quality control problems in manufacturing our products, or if we fail to effectively manage our relationship with this manufacturer, product shipments may be delayed and our ability to deliver these products to customers could be materially and adversely affected.

Disruptions to our IT system may disrupt our operations and materially adversely affect our business and results of operations.

Our servers and equipment may be subject to computer viruses, break-ins, and similar disruptions from unauthorized tampering with computer systems. We can provide no assurance that our current information technology (IT) system is fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats. A cyber-attack that bypasses our IT security systems causing an IT security breach may lead to a material disruption of our IT business systems and/or the loss of business information. Any such event could have a material adverse effect on our business. In addition, the continued worldwide threat of terrorism and heightened security in response to such threat may cause further disruptions and create further uncertainties or may otherwise materially harm our business. To the extent that such disruptions or uncertainties result in delays or cancellations of customer orders or the manufacture or shipment of our products, or in theft, destruction, loss, misappropriation or release of our confidential data or our intellectual property, our business and results of operations could be materially and adversely affected.

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A substantial portion of our sales are completed in the last few weeks of each calendar quarter, and such anticipated sales may not materialize.

We typically receive a disproportionate percentage of orders toward the end of each calendar quarter, including the fourth quarter, which is generally our strongest quarter. To the extent that we do not receive anticipated orders, or orders are delayed beyond the end of the applicable quarter or year, our business and results of operations could be materially adversely affected. In addition, because a significant portion of our sales in each quarter result from orders received in that quarter, we base our production, inventory and operating expenditure levels on anticipated revenue levels. Thus, if sales do not occur when expected, expenditure levels could be disproportionately high and operating results for that quarter and, potentially, future quarters would be adversely affected.

The long initial sales process for our products — which can last up to 18 months in the case of sales by our surgical business segment — may cause us to incur significant expenses without any resulting revenues.

Customers typically expend significant effort in evaluating, testing and qualifying our products before making a decision to purchase them, resulting in a lengthy initial sales cycle. While our customers are evaluating our products, we may incur substantial sales and marketing expenses. We may also expend significant management efforts, increase manufacturing capacity and order long-lead-time components or materials. Even after this evaluation process, a potential customer may not purchase our products. As a result, these long initial sales cycles may cause us to incur significant expenses without any resulting revenues and, in the aggregate, may materially adversely affect our results of operations.

Any acquisitions that we may make could harm or disrupt our business and are not assured to bring their anticipated benefits and synergies.

We have in the past made acquisitions of other businesses, technologies and/or assets, and we continue to evaluate potential strategic acquisitions. We cannot give assurances that we will be able to identify future suitable acquisition candidates, or, if we do identify suitable candidates, that we will be able to make the acquisitions on reasonable terms or at all.

Such acquisitions could also involve numerous risks, including:

problems combining the acquired operations, technologies (including information technology systems) or products with our own;
unanticipated costs or liabilities;
adverse effects on existing business relationships with distributors, suppliers and customers;
entering markets in which we may have no or limited prior experience;
diversion of management’s attention from our core businesses; and
potential loss of key employees, particularly those of the purchased organizations.

Any such acquisitions in the future could strain our managerial, operational and financial resources, as well as our financial and management controls, reporting systems and procedures. In order to integrate acquired businesses, we will have to continue to improve operating and financial systems and controls. If we fail to successfully implement these systems and controls in a timely and cost-effective manner, our business and results of operations could be materially adversely affected. Furthermore, we cannot provide any assurance that we will realize the anticipated benefits and/or synergies of any such acquisition.

In attempting to effect acquisitions, we may be limited due to the covenants under our debt restructuring agreement, thereby limiting our ability to obtain the maximal benefits from any such acquisition.

The size and manner of any acquisition that we seek to effect could be limited by our need to comply with the negative covenants contained in the debt restructuring agreement, governing our bank debt. This could prevent us from effecting a key acquisition and thereby potentially stymie our growth and also hurt our competitive position and ultimately our results of operations. For additional details concerning our bank

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covenants, see “Bank Debt Restructuring Agreement, as amended” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

We have allocated substantial sums to goodwill as a result of the acquisitions made by us over the years and we may be required to write off a material part of this goodwill.

As of each of December 31, 2012 and September 30, 2013, we had a balance of $50.2 million allocated to goodwill in connection with various acquisitions made by us in previous years. Goodwill is tested for impairment annually or more frequently if impairment indicators are present. Should this testing reveal that there has been an impairment of the value of goodwill, it would be necessary to write down or write off the amount of the impairment. A substantial impairment of goodwill could materially adversely affect our results of operations.

Global economic and social conditions have adversely affected, and may continue to adversely affect our business, financial condition and results of operations.

Negative conditions in the national and global economic environments have adversely affected, and may continue to adversely affect our business, financial condition and results of operations. The uncertain direction and strength of the global economy, continuing geopolitical uncertainties and other macroeconomic factors have harmed, and may continue to harm, our business.

The global economic downturn that began in 2008 has continued and global financial markets, particularly in Europe, which accounted for approximately 17% and 16% of our total revenues for the years ended December 31, 2011 and 2012, respectively, and 15% and 16% in the nine month periods ended September 30, 2012 and 2013, respectively, continue to be adversely affected by a multitude of factors. Adverse credit conditions, slower economic activity, increased energy costs, renewed inflation, decreased consumer confidence, reduced capital spending, adverse business conditions, liquidity concerns and other factors have mitigated the strength of economic recovery. During uncertain economic times and in tight credit markets, many of our customers and distributors may experience financial difficulties or be unable or unwilling to borrow money to fund their operations, including obtaining credit lines for leasing equipment, and may delay or reduce technology purchases or reduce the extent of their operations. The market for aesthetic procedures and the market for our premium products can be particularly vulnerable to economic uncertainty, since the end users of our products may decrease the demand for our products when they have less discretionary income or feel uneasy about spending their discretionary income. In addition, in many instances, the ability of our customers to purchase our products depends in part upon the availability of bank financing at acceptable interest rates. Furthermore, in the surgical market, in tight economic times when budget deficits are commonplace, hospitals and similar institutions may be less willing or unable to allocate the requisite budget for the purchase of our products. For example, while we have not experienced a decrease in the sales of our surgical products in 2012 or in 2013 to date, in previous years many hospitals in the United States have implemented a near freeze on the purchase of expensive capital equipment.

These factors have resulted and could continue to result in reductions in revenues from sales of our products, longer sales cycles, difficulties in collection of accounts receivable, slower adoption of new technologies and increased price competition. Payment by our customers of our receivables is dependent upon the financial stability of the economies of certain countries. In light of the current economic state of many countries outside of the United States, we continue to monitor the creditworthiness of our customers because weakness in the end-user market could negatively affect the cash flow of our distributors and resellers who could, in turn, delay paying their obligations to us. This would increase our credit risk exposure and cause delays in our recognition of revenues on current and future sales to these customers. Any of these events would likely harm our business, and could have a material adverse effect on our financial condition and results of operations.

We have an important relationship with Boston Scientific Corporation relating to our urology products in the United States.

Boston Scientific Corporation is one of the major customers for our urology products in the United States, representing less than 6% of our total revenues for the nine months ended September 30, 2013. Furthermore, in December 2011 we signed a distribution agreement with Boston Scientific for the promotion

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of our lasers and fibers in the interventional fields in the United States, pursuant to which Boston Scientific is an independent distributor. The term of the distribution agreement expires on December 31, 2016. Any termination or adverse change in this relationship or in Boston Scientific’s business may have a material adverse effect on our business and results of operations.

Risks Related to Regulatory Matters

We are subject to extensive and increasing international government regulations relating to our business and products.

Our ability to sell our products is subject to various federal, state, national and international rules, and these various processes are costly, lengthy and uncertain. Changes to existing U.S., European Union (E.U.) and other national and international rules and regulations, as discussed here and in the risk factor below, could limit our ability to comply with the regulatory requirements. For instance, the E.U., requires us to comply with the European Medical Device Directive’s criteria and obtain a CE Mark prior to the sale of our medical products in any E.U. member state. The European Medical Device Directive sets out specific requirements for each stage in the development of a medical product, from design to final inspection.

Our products are subject to additional similar regulations in most of the international markets in which we sell our products and may require, as in China, extensive and rigorous regulatory review of our products in order to obtain regulatory approval. Additionally, new or more extensive regulatory requirements in any of the countries in which we do business could adversely affect our ability to sell our current and future lines of products internationally, increase our costs and materially adversely affect our business and results of operations.

We are subject to extensive and increasing U.S. government regulations relating to our business and products.

Unless an exemption applies, each medical device that we intend to market in the United States must receive prior review by the FDA before it can be marketed. Certain products qualify for Section 510(k) clearance, under which the manufacturer provides the FDA with pre-market notification of its intention to commence marketing the product. The manufacturer must, among other things, establish that the product to be marketed is “substantially equivalent” to a previously marketed medical device. In some cases, the manufacturer may be required to support a pre-market notification submission with clinical data. Such clinical data is gathered under an investigational device exemption, to which we refer as an IDE, granted by the FDA, which allows human clinical trials and gathering of relevant clinical data in support of demonstrating substantial equivalence. The FDA’s 510(k) clearance process usually takes from three to eight months, but it can take longer. Further, in the United States, lasers are subject to an additional set of regulations beyond those that apply to other medical devices, which requires us to meet certain reporting requirements.

Products that do not qualify for the 510(k) procedure must be approved through the pre-market approval, or PMA, process. The PMA process requires that the manufacturer provide the FDA with clinical data to demonstrate that the product is both safe and effective. The PMA process requires more extensive clinical testing than the 510(k) procedure and generally involves a significantly longer FDA review process.

PMA generally requires pre-clinical laboratory and animal tests and human clinical studies conducted under an investigational device exemption, or IDE, to establish safety and effectiveness. For products subject to pre-market approval, the regulatory process generally takes from one to three years or more and involves substantially greater risks and commitment of resources than the 510(k) clearance process. We may not be able to obtain necessary regulatory approvals or clearances on a timely basis, if at all, for any of our products under development, and delays in receipt of, or failure to receive, such approvals or clearances could have a material adverse effect on our business.

The approval and clearances processes are highly uncertain and are subject to legislative and regulatory change. Even if the FDA approves a PMA or clears a product under section 510(k), the agency may limit the intended uses of the product so that it is not commercially feasible to market the product for the limited uses approved or cleared by the FDA. Moreover, any facility where the device is made must be registered with the FDA and is subject to inspection by the agency.

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In the United States, we are subject to pre-approval inspection, post-approval inspection, and market surveillance to determine compliance with regulatory requirements. Following clearance or approval, marketed products are subject to continuing regulation and facilities are subject to unannounced inspections. We are required to adhere to the FDA’s Quality System Regulation, to which we refer as QSR, and similar regulations in other countries, which include design, testing, production, quality control and documentation requirements. Ongoing compliance with QSR, labeling and other applicable regulatory requirements is monitored through periodic inspections and market surveillance by the FDA and by comparable agencies in other countries.

Our failure to comply with applicable requirements could lead to an enforcement action, which could have an adverse effect on our business. The FDA can institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions such as:

fines, injunctions and civil penalties;
recall or seizure of our products;
requiring us to repair, replace or refund the cost of our products;
the issuance of public notices or warnings;
operating restrictions, partial suspension or total shutdown of production;
delays in the introduction of products into the market;
refusal of our requests for 510(k) clearance or pre-market approval of new products;
withdrawal of 510(k) clearance or pre-market approvals already granted; and
criminal prosecution.

Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, results of operations and financial condition. These potential sanctions and the costs associated with conforming to the FDA’s rules could increase our costs and have a material adverse effect on our business.

Failure to obtain regulatory approval in additional foreign jurisdictions will prevent us from expanding the commercialization of our products abroad.

We must obtain regulatory approvals and comply with the regulations of countries where we market and sell our products. These regulations, including the requirements for approvals and the time required for regulatory review, vary from country to country. Clearance or approval by the FDA does not ensure foreign regulatory approval, and approval by one foreign regulatory authority does not ensure approval other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA clearance or approval. For example, the China Food and Drug Administration (the “CFDA”) conducts independent review of our products prior to approval, and FDA clearance or approval of the same product does not assure similar clearance or approval by the CFDA. Obtaining and maintaining foreign regulatory approvals are expensive, and we cannot be certain that we will receive regulatory approvals in any foreign country in which we plan to market our products, on a timely basis, if at all. If we fail to obtain or maintain regulatory approval on a timely basis, or at all, in any foreign country in which we plan to market our products, our ability to generate revenue will be harmed.

In addition, national and regional authorities have recently introduced environmental legislation and issued environment directives. As a result, we may be required to expend significant amounts of both time and money to ensure that we are in compliance with these requirements. For additional information concerning the environmental regulations with which we must comply, please see “— We are subject to environmental, health and safety laws and regulations.”

Our products may in the future require corrective measures to maintain their regulatory approvals, which could harm our reputation, business operations and financial results.

Manufacturers of products such as ours may independently initiate actions, including field corrections, non-reportable market withdrawals or reportable product recalls, for the purpose of, among other reasons,

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correcting a material deficiency or improving device performance. Additionally, the FDA and similar foreign health or governmental authorities have the authority to require a mandatory recall of commercialized products in the event of a violation of relevant statutory and regulatory requirements, including material deficiencies or defects in design, manufacturing or labeling or in the event that a product poses an unacceptable risk to health. In addition, foreign governmental bodies have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacture. Such actions involving any of our products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations.

Companies are required to maintain certain records of actions, even if they determine such actions are not reportable to the FDA. If we determine that certain actions do not require notification of the FDA, the FDA may disagree with our determinations and require us to formally report those actions as recalls, which requires public announcement. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report remedial actions taken by us when they were conducted or failing to timely report or initiate a reportable product action.

Depending on the corrective action, the FDA may require, or we may decide, that we need to obtain new approvals or clearances for the corrected device before we may market or distribute it. Seeking such approvals or clearances may delay our ability to replace the recalled devices in a timely manner. Moreover, if we do not adequately address problems associated with our devices, we may face additional regulatory enforcement action, including FDA warning letters, product seizure, injunctions, administrative penalties, or civil or criminal fines.

We may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or “off-label” uses.

Our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of a medical device for a use that has not been cleared or approved by the relevant regulatory authority. Use of a device outside its cleared or approved indications is known as “off-label” use. Physicians may use our products off-label, as some regulatory authorities (including the FDA) do not restrict or regulate a physician’s choice of treatment within the practice of medicine. However, if a regulatory authority (such as the FDA) determines that our promotional materials or training constitutes promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, which could have an adverse impact on our reputation and financial results.

We may be affected by healthcare policy changes, including recently passed legislation to reform the U.S. healthcare system.

Potential fundamental changes in the political, economic and regulatory landscape of the healthcare industry could substantially affect our results of operations. Government and private sector initiatives to limit the growth of healthcare costs, including price regulation, competitive pricing, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements, are continuing in many countries where we do business. These changes are causing the marketplace to put increased emphasis on the delivery of more cost-effective treatments.

In the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, to which we refer collectively as the PPACA, was enacted into law in March 2010. Certain provisions of the PPACA will not be effective for a number of years. There are many programs and requirements for which the details have not yet been fully established or consequences not fully understood, and it is unclear what the full impact of the legislation will be. Because the substantial majority of Americas revenues is generated in the United States, the PPACA may materially affect us. Beginning in 2013, the PPACA imposes on medical device manufacturers a 2.3% excise tax on the first sale or use of certain medical devices within the United States. As we are subject to such excise tax and as U.S. revenues represented the substantial majority of our total Americas revenues in 2012 and the nine months ended September 30, 2013, this tax burden may have an adverse effect on our results of operations and our

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cash flows. Other provisions of the PPACA could meaningfully change the way healthcare is developed and delivered in the United States, and may adversely affect our business and results of operations. We cannot predict what healthcare programs and regulations will ultimately be implemented at the U.S. federal or state level, or the effect of any future legislation or regulation in the United States or elsewhere. However, any changes that lower reimbursements for our products or reduce medical procedure volumes could have a material adverse effect on our business, financial condition and results of operations.

Initiatives sponsored by government agencies, legislative bodies and the private sector to limit the growth of healthcare costs, including price regulation and competitive pricing, also are ongoing in other markets where we do business.

We are subject to environmental, health and safety laws and regulations.

The use of toxic and other hazardous material in some of the production processes for products sold by us could result in claims against us that could have a material adverse affect on our business and results of operations. We and/or the manufacturers of our products use laboratory and manufacturing materials that may be considered hazardous, and we could be liable for any damage or liability resulting from accidental environmental contamination or injury. Some of the gases used in the excimer lasers that we sell may be highly toxic. The risk of accidental environmental contamination or injury from such materials cannot be entirely eliminated. In the event of an accident involving such materials, we could be liable for any damage, and such liability could exceed the amount of our liability insurance coverage and the resources of our business, and have a material adverse effect on our business and results of operations.

We may be required to expend significant amounts of both time and money to ensure that we are in compliance with environmental, health and safety laws and regulations in multiple jurisdictions governing, among other things, the use, storage, registration, handling and disposal of chemicals and waste materials, the presence of specified substances in electrical products, chemicals, air, water and ground contamination, air emissions and the cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of chemicals and waste materials. These laws and regulations could potentially require the expenditure of significant amounts for compliance and/or remediation. If we fail to comply with such laws or regulations, we may be subject to fines and other civil, administrative or criminal sanctions, including the revocation of permits and licenses necessary to continue our business activities. In addition, we may be required to pay damages or civil judgments in respect of third party claims, including those relating to personal injury (including exposure to hazardous substances used stored, handled, transported, or disposed of), property damage or contribution claims. Some environmental laws allow for strict, joint and several liability for remediation costs, regardless of comparative fault. We may be identified as a potentially responsible party under such laws. Such developments could have a material adverse effect on our business, financial condition and results of operations.

We are subject to various laws and regulations, including “fraud and abuse” laws and anti-bribery laws, which, if violated, could subject us to substantial penalties.

Medical device companies such as ours have faced lawsuits and investigations pertaining to violations of health care “fraud and abuse” laws, such as the federal False Claims Act, the federal Anti-Kickback Statute, the U.S. Foreign Corrupt Practices Act, which we refer to as the FCPA, and other state and federal laws and regulations. We also face increasingly strict data privacy and security laws in the United States and in other countries, the violation of which could result in fines and other sanctions. U.S. federal and state laws, including the federal Physician Payments Sunshine Act, or the Sunshine Act, implemented as part of the FCPA, and the implementation of Open Payments regulations under the Sunshine Act, require medical device companies to disclose certain payments made to healthcare providers and teaching hospitals or funds spent on marketing and promotion of medical device products. It is widely anticipated that public reporting under the Sunshine Act and implementing Open Payments regulations will result in increased scrutiny of the financial relationships between industry, physicians and teaching hospitals. These anti-kickback, public reporting and aggregate spend laws affect our sales, marketing and other promotional activities by limiting the kinds of financial arrangements, including sales programs, we may have with hospitals, physicians or other potential purchasers or users of medical devices. They also impose additional administrative and compliance burdens on us. In particular, these laws influence, among other things, how we structure our sales offerings, including

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discount practices, customer support, education and training programs and physician consulting and other service arrangements. If we are in violation of any of these requirements or any actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant criminal and civil fines and penalties, exclusion from federal healthcare programs or other sanctions.

The FCPA applies to companies, such as us, with a class of securities registered under the Exchange Act. The FCPA and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws, however, we operate in many parts of the world that have experienced governmental corruption to some degree and in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices or may require us to interact with doctors and hospitals, some of which may be state controlled, in a manner that is different than in the United States. We cannot assure you that our internal control policies and procedures will effectively protect us against reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our financial condition, results of operations and cash flows.

Risks Related to Our Intellectual Property.

We may not be able to protect our proprietary technology or prevent its unauthorized use or disclosure by third parties.

We rely on a combination of patent, copyright, trademark and trade secret laws, licenses, non-disclosure and confidentiality agreements, assignments of invention agreements and other restrictions on disclosure to protect our intellectual property rights.

We have obtained and now hold more than 140 patents in the United States and an additional 85 patents throughout the rest of the world and have outstanding applications for 32 patents in the United States and 40 patents outside of the United States as of September 30, 2013. Our patent portfolio alone may not provide us with a significant advantage over our competitors and thus, our competitive advantage depends on our ability to leverage our current brand strength and existing market position. Any issued patents may be challenged by third parties, and patents that we hold may be found by a judicial authority or governmental agency to be invalid or unenforceable. Furthermore, our patent applications may not be approved, and any patents that currently are or in the future may be issued may not be adequate to protect our intellectual property.

We require our employees and consultants to execute confidentiality agreements in connection with their employment or consulting relationships with us. We also require our employees and consultants to disclose and assign to us all inventions conceived during the term of their employment or engagement while using our property or which relate to our business. However, these measures may not be adequate to safeguard our proprietary intellectual property and conflicts may, nonetheless, arise regarding ownership of inventions. Such conflicts may lead to the loss or impairment of our intellectual property or to expensive litigation to defend our rights against competitors who may be better funded and have superior resources. We also have taken precautions to protect our information technology systems. However, these precautions may not be adequate to prevent unauthorized access or misappropriation of our confidential information. Additionally, our employees, consultants, contractors, suppliers, and other advisors may unintentionally or willfully disclose our confidential information to competitors. In addition, confidentiality agreements may be unenforceable or may not provide an adequate remedy in the event of unauthorized disclosure. Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable. Moreover, other parties may independently develop similar or competing technology, methods, know-how or design around any patents that may be issued to or held by us. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary. As a result, other parties may be able to use our proprietary technology or information, and our ability to compete in the market would be harmed.

We cannot be certain that the steps that we have taken will prevent the misappropriation of our intellectual property.

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If we are unable to maintain the security of our proprietary technology or other factors that protect our competitive advantage, it could materially adversely affect our competitive advantage, business and results of operations.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting, maintaining and defending patents on each of our products in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States are less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Also, it may not be possible to effectively enforce intellectual property rights in some foreign countries at all or to the same extent as in the United States and other countries. Consequently, we may be unable to prevent third parties from using our inventions in all countries, or from selling or importing products made using our inventions in the jurisdictions in which we do not have (or are unable to effectively enforce) patent protection. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop, market or otherwise commercialize their own products, and we may be unable to prevent those competitors from importing those infringing products into territories where we have patent protection but enforcement is not as strong as in the United States. These products may compete with our products and our patents and other intellectual property rights may not be effective or sufficient to prevent them from competing in those jurisdictions. Moreover, competitors or others in the chain of commerce may raise legal challenges against our intellectual property rights or may infringe upon our intellectual property rights, including through means that may be difficult to prevent or detect.

Some companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions, including China, a significant and growing market for our products. It may be difficult under the legal systems of certain countries, including China, to enforce of patents or other intellectual property rights, which could hinder us from preventing the infringement of our patents or other intellectual property rights in those countries and result in substantial risks to us.

We may become subject to litigation brought by third parties claiming infringement by us of their intellectual property rights.

The laser and light-based systems industry in which our business operates is characterized by a very large number of patents, some of which may be of questionable scope, validity or enforceability, and some of which may appear to overlap with other issued patents. As a result, there is a significant amount of uncertainty in the industry regarding patent protection and infringement, and, in recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. We have in the past been, and in the future may become, subject to claims and litigation alleging infringement by us of third party patents and other intellectual property. These claims and any resulting lawsuits, if resolved adversely to us, could subject us to significant liability for damages, impose temporary or permanent injunctions against our products, services or business operations, or invalidate or render unenforceable our intellectual property. In addition, because patent applications can take many years until the patents issue, there may be applications now pending of which we are unaware, which may later result in issued patents that our products may infringe. If any of our products infringes a valid and enforceable patent, or if we wish to avoid potential intellectual property litigation on its alleged infringement, we could be prevented from selling that product unless we can obtain a license, which may be unavailable. Alternatively, we could be forced to pay substantial royalties or redesign a product to avoid infringement. Additionally, we may face liability to our customers, business partners or the third parties for indemnification or other remedies in the event they are sued for infringement in connection with their use of our products or services.

We also may not be successful in any attempt to redesign our product to avoid any alleged infringement. A successful claim of infringement against us, or our failure or inability to develop and implement non-infringing technology, or license the infringed technology, on acceptable terms and on a timely basis, could materially adversely affect our business and results of operations. Furthermore, such lawsuits, regardless of their success, would likely be time-consuming and expensive to resolve and would divert management’s time and attention from our business, which could seriously harm our business. Also, such lawsuits, regardless of their success, could seriously harm our reputation with our customers, business partners and patients and in

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the industry at large. Some of our competitors may be able to sustain the costs of complex patent or intellectual property litigation more effectively than we can because they have substantially greater resources.

Litigation initiated by us concerning the violation by third parties of our intellectual property rights is likely to be expensive and time-consuming and could lead to the invalidation of, or render unenforceable, our intellectual property, or could otherwise have negative consequences for us.

We have been, and in the future may be, a party to claims and litigation as a result of alleged infringement by third parties of our intellectual property. Even when we sue other parties for such infringement, that suit may have adverse consequences for our business. Any such suit may be time-consuming and expensive to resolve and may divert our management’s time and attention from our business. Furthermore, it could result in a court or governmental agency invalidating or rendering unenforceable our patents or other intellectual property rights upon which the suit is based, which would seriously harm our business. Any party that we sue may be able to sustain the costs of complex patent or intellectual property litigation more effectively than we can due to greater resources that such party may possess.

Examples of intellectual property infringement actions brought by us that required a significant amount of time and expense prior to resolution include our suits against Alma Lasers Ltd. and Alma Lasers, Inc. (to which we refer, both individually and jointly, as Alma) and certain of their founders, who are former employees of our company (to which we refer as the Alma Founders). We initiated in June 2007 (in the U.S. District Court for the Northern District of Illinois) and settled, in September 2010, a lawsuit against Alma for patent infringement, resulting in Alma paying to us $6.5 million in return for a license to our patent portfolio in the aesthetic field. In 2008, we brought an additional suit, in Israel, against the Alma Founders, claiming misappropriation of our trade secrets and technology and the use of such technology in Alma’s primary Harmony products. Such suit concluded in May 2013, when it was settled, resulting in a payment to us, in exchange for a license to the trade secrets and technology.

We may be subject to damages resulting from claims that our employees or we have wrongfully used or disclosed alleged trade secrets of their former employers.

Many of our employees were previously employed at other companies, including our competitors or potential competitors. We could in the future be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending against such claims, a court could order us to pay substantial damages and prohibit us from using technologies or features that are essential to our products, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. An inability to incorporate technologies or features that are important or essential to our products would have a material adverse effect on our business, and may prevent us from selling our products. In addition, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper or prevent our ability to commercialize certain potential products, which could severely harm our business. Even if we are successful in defending against these claims, such litigation could result in substantial costs and be a distraction to management. Incurring such costs could have a material adverse effect on our financial condition, results of operations and cash flow.

Risks Relating Primarily to Our Location in Israel.

Political, economic and military instability in Israel and the Middle East may adversely affect our operations and may limit our ability to produce and sell our products.

We are incorporated in Israel, and our principal executive offices, our surgical and aesthetic business segments and one of our two principal manufacturing facilities (for our surgical and aesthetic business segments) are located in Israel. A substantial portion of our research and development activities are conducted in Israel. Furthermore, our primary subcontractors are also located in Israel. As a result, political, economic and military conditions in Israel and elsewhere in the Middle East directly affect our operations. We could be harmed by any major hostilities involving Israel, the interruption or curtailment of trade between Israel and its trading partners or a significant downturn in the economic or financial condition of Israel. In the event of war, we and our Israeli subcontractors and suppliers may cease operations, which may cause delays in the development, manufacturing or shipment of our products.

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During the Second Lebanon War of 2006, between Israel and Hezbollah, a militant Islamic movement in Lebanon supported by Iran and Syria, rockets were fired from Lebanon into Israel causing casualties and major disruption of economic activities in the north of Israel. Our Yokneam facility and the facility of our primary contract manufacturer were within the range of the rocket attacks. Operations at our facility were significantly curtailed for a period of several weeks. An escalation in tension and violence between Israel and the militant Hamas movement (which controls the Gaza Strip) and other Palestinian Arab groups, culminated with Israel’s military campaign in Gaza in December 2008 and January 2009 in an endeavor to prevent continued rocket attacks against Israel’s southern towns. In November 2012, when Hamas increased the scope and intensity of its rocket attacks against Israeli civilian targets, Israel commenced a military operation in Gaza in an attempt to prevent the rocket attacks and disrupt the capabilities of the militant organization. It is unclear whether any ongoing negotiations between Israel and the Palestinian Authority will result in an agreement. In addition, Israel faces threats from more distant neighbors, in particular, Iran, an ally of Hezbollah and Hamas.

In December 2010, a wave of demonstrations and civil protests took place throughout the Arab states of the Middle East and North Africa, which has so far resulted in regime change in several states, including Egypt, with whom Israel signed a peace treaty in 1979, and the outbreak of civil war in Syria. It is uncertain what impact these changes may have on Israel’s relations with its Arab neighbors, in general, or on our operations in the region, in particular. Were these changes to result in the establishment of new fundamentalist Islamic regimes or governments more hostile to Israel, or, for example, were the new Egyptian regime to abrogate its peace treaty with Israel, this could have serious consequences for the peace and stability in the region, place additional political, economic and military confines upon Israel and could materially adversely affect our operations and limit our ability to sell our products to countries in the region.

Furthermore, several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in the region continue or intensify. Such restrictions may seriously limit our ability to sell our products to customers in those countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturns in the economic or financial condition of Israel, could adversely affect our operations and product development, cause our revenues to decrease and adversely affect the share price of publicly traded companies having operations in Israel, such as us. Similarly, Israeli corporations are limited in conducting business with entities from several countries.

Our business insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or that such coverage will be adequate or proportional to the actual direct and indirect damages. Any losses or damages incurred by us could have a material adverse effect on our business.

Our operations could be disrupted as a result of the obligation of personnel in Israel to perform military service.

As of September 30, 2013, we had 327 employees based in Israel, certain of whom (including certain of our executive officers), may be called upon to perform up to 54 days in each three year period (and in the case of officers, up to 84 days in each three year period) of military reserve duty until they reach the age of 40 (and in some cases, depending on their specific military profession up to 45 or even 49 years of age) and, in certain emergency circumstances, may be called to immediate and unlimited active duty. In the event of severe unrest or other conflict, individuals could be required to serve in the military for extended periods of time. In response to increased tension and hostilities, there have been occasional call-ups of military reservists, as was the case in connection with Israel’s military campaigns in Gaza in December 2008, January 2009 and November 2012, and it is possible that there will be additional call-ups in the future. Our operations could be disrupted by the absence of a significant number of our employees related to military service or the absence for extended periods of one or more of our executive officers or other key employees for military service. Such disruption could materially adversely affect our business and operating results.

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The government tax benefits that we currently receive require us to meet several conditions and may be terminated or reduced in the future.

Some of our operations in Israel, referred to as “Approved Enterprises” and “Benefited Enterprises,” carry certain tax benefits under the Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law. Based on an evaluation of the relevant factors under the Investment Law, including the level of foreign (i.e. non-Israeli) investment in our company, we have determined that our effective tax rate to be paid with respect to all of our Israeli operations under these benefits programs is 0%. Substantially all of our income before taxes can be attributed to these programs. If we do not meet the requirements for maintaining these benefits or if our assumptions regarding the key elements affecting our tax rates are rejected by the tax authorities, they may be reduced or cancelled and the relevant operations would be subject to Israeli corporate tax at the standard rate, which is currently set at 25% for 2013 and at 26.5% for 2014 and thereafter. In addition to being subject to the standard corporate tax rate, we could be required to refund any tax benefits that we have already received, plus interest and penalties thereon. Even if we continue to meet the relevant requirements, the tax benefits that our current “Approved Enterprise” and “Benefited Enterprises” receive may not be continued in the future at their current levels or at all. If these tax benefits were reduced or eliminated, the amount of taxes that we pay would likely increase, as all of our operations would consequently be subject to corporate tax at the standard rate, which could adversely affect our results of operations. Additionally, if we increase our activities outside of Israel, for example, by way of acquisitions, our increased activities may not be eligible for inclusion in Israeli tax benefit programs. See “Israeli Tax Considerations and Government Programs — Law for the Encouragement of Capital Investments” in “Taxation” below for additional information concerning these tax benefits and note 16 to our consolidated financial statements for a discussion of our current tax obligations.

Grants available from the Israeli government for research and development expenditures restrict our ability to manufacture products and transfer know-how outside of Israel and require us to satisfy specified conditions.

We have received in the past, and may receive in the future, grants from the Government of Israel through the Office of the Chief Scientist of the Ministry of Economy, to which we refer to as the OCS, for the financing of a portion of our research and development expenditures in Israel.

The terms of the OCS grants that we received in the past restrict us from manufacturing products developed using those grants outside of Israel without special approvals. In addition, decreases of the percentage of manufacturing performed in Israel from that originally declared in our application to the OCS may require us to notify or to obtain a prior approval from the OCS. Even if we receive approval to manufacture our products outside of Israel, we may be required to pay significantly increased amounts of royalties, plus interest, depending on the manufacturing volume that is performed outside of Israel. In addition, know-how developed under an approved research and development program may not be transferred to any third parties, except in certain circumstances and subject to prior approval. These restrictions and requirements for payment may impair our ability to sell our technology assets outside of Israel or to outsource or transfer development or manufacturing activities with respect to any product or technology outside of Israel without an appropriate approval. Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with OCS funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the OCS. We cannot assure you that any such approval will be obtained on terms that are acceptable to us, or at all. In addition, if we fail to comply with any of the conditions imposed by the OCS, including the payment of royalties with respect to grants received, we may be required to refund any grants previously received, together with interest and penalties, and, in certain cases, may be subject to criminal charges.

We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.

We enter into assignment of invention agreements with our employees pursuant to which such individuals agree to assign to us all rights to any inventions created in the scope of their employment or engagement with us. A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by

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an employee during the scope of his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a specific agreement between employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and an employee the Israeli Compensation and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for their inventions. Recent decisions by the Committee have created uncertainty in this area, as it held that employees may be entitled to remuneration for their service inventions despite having specifically waived any such rights. Further, the Committee has not yet determined the method for calculating this Committee-enforced remuneration. Although our employees have agreed to assign to us rights, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could otherwise negatively affect our business.

It may be difficult to enforce a U.S. judgment against us, our officers and directors or the Israeli experts named in this prospectus in Israel based on U.S. securities laws claims or to serve process on our officers and directors and these experts.

We are incorporated in Israel. The majority of our executive officers and directors and the Israeli experts listed in this prospectus are not residents of the United States, and a substantial portion of our assets and the assets of these persons are located outside of the United States. Therefore, it may be difficult for a shareholder, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. securities laws in a U.S. or Israeli court against us or any of our executive officers or directors or such Israeli experts, or to effect service of process upon such persons in the United States. In addition, it may be difficult to assert U.S. securities law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws because Israel is not the most appropriate forum in which such a claim should be brought. Even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Also, certain matters of procedure will be governed by Israeli law.

Provisions of Israeli law, as well as certain negative covenants contained in our debt restructuring agreement may delay, prevent or otherwise impede a merger with, or an acquisition of, us, even when the terms of such a transaction are favorable to us and our shareholders.

Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer, unless at least 98% of the company’s outstanding shares are tendered. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer (unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek appraisal rights), may, at any time within six months following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition. See “Description of Share Capital — Acquisitions Under Israeli Law” for additional information.

Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred.

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In addition, the debt restructuring agreement governing our bank debt contains certain negative covenants that require us to refrain, among other things, from entering into or approving any merger, consolidation, or scheme of restructuring, or making certain acquisitions without obtaining prior bank consent. These provisions of Israeli corporate and tax law, as well as the negative covenants contained in the debt restructuring agreement governing our bank debt, may have the effect of delaying, preventing or making more difficult an acquisition of or merger with us, which could depress our share price.

Under current law in Israel and certain other jurisdictions, we may not be able to enforce covenants not to compete, and, therefore, we may be unable to prevent competitors from benefiting from the expertise of some of our former employees.

We have entered into non-competition agreements with certain employees. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors for a limited period. Under current law, we may be unable to enforce these agreements, and it may be difficult for us to restrict our competitors from gaining the expertise that our former employees gained while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer that have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or its intellectual property. If we cannot demonstrate that harm would be caused to our material interests, we may be unable to prevent our competitors from benefiting from the expertise of our former employees. In the past we have asserted claims for misappropriation of our trade secrets and infringement of our patents against companies founded by former employees, and we may be required to do so again in the future.

The rights and responsibilities of a shareholder will be governed by Israeli law which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.

The rights and responsibilities of the holders of our ordinary shares are governed by our memorandum of association and articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in typical U.S.-registered corporations. In particular, a shareholder of an Israeli company has certain duties to act in good faith and fairness towards the company and other shareholders, and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.

Risks Related to an Investment in Our Ordinary Shares

An active, liquid and orderly market for our ordinary shares may not develop, which may inhibit the ability of our shareholders to sell ordinary shares following this offering.

Our ordinary shares were listed on the NASDAQ National Market (now known as the NASDAQ Global Market) until February 2004 and were quoted in the over-the-counter market on the Pink Sheets Electronic Quotation Service until April 2006. As part of a settlement of civil proceedings brought by the U.S. Securities and Exchange Commission, or SEC, the SEC revoked the registration of our ordinary shares under Section 12 of the Exchange Act in April 2006. As a result of the deregistration, our ordinary shares could not be quoted or publicly traded in the United States until we re-registered our ordinary shares with the SEC. On May 1, 2007, we filed a registration statement under Section 12 of the Exchange Act, following which our ordinary shares again became eligible for quotation or trading in the United States. Prior to this offering, our ordinary shares remained unlisted and unquoted, no trading had commenced on a national securities exchange and we were not aware of any other trading in our ordinary shares.

An active, liquid or orderly trading market in our ordinary shares may not develop upon completion of this offering, and if it does develop, it may not continue. If an active trading market does not develop, you

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may have difficulty selling any of our ordinary shares that you buy at the time you wish to sell them or at a price that you consider reasonable. The public offering price of our ordinary shares has been determined through our negotiations with the underwriters and may be higher than the market price of our ordinary shares after this offering. Consequently, you may not be able to sell our ordinary shares at prices equal to or greater than the price paid by you in the offering. See “Underwriting” for a discussion of the factors that we and the underwriters considered in determining the public offering price.

An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies by using our shares as consideration.

The market price of our ordinary shares may be subject to fluctuation, whether or not due to fluctuations in our operating results and financial condition, and you could lose all or part of your investment.

The public offering price for our ordinary shares will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The price of our ordinary shares may decline following this offering. The stock market in general has been, and the market price of our ordinary shares in particular will likely be, subject to fluctuation, whether due to, or irrespective of, our operating results and financial condition. The market price of our ordinary shares on the NASDAQ Global Market may fluctuate as a result of a number of factors, some of which are beyond our control, including, but not limited to:

variations in our and our competitors’ results of operations and financial condition;
market acceptance of our products;
the mix of products that we sell, and related services that we provide, during any period;
changes in earnings estimates or recommendations by securities analysts;
development of new competitive systems and services by others;
announcements of technological innovations or new products by us;
delays between our expenditures to develop and market new or enhanced products and solutions and the generation of sales from those products and solutions;
developments concerning intellectual property rights;
changes in the amount that we spend to develop, acquire or license new products, technologies or businesses;
changes in our expenditures to promote our products and services;
changes in the cost of satisfying our warranty obligations and servicing our installed base of systems;
our sale or proposed sale or the sale by our significant shareholders of our ordinary shares or other securities in the future;
success or failure of research and development projects of us or our competitors;
the general tendency towards volatility in the market prices of shares of technology companies; and
general market conditions and other factors, including factors unrelated to our operating performance.

These factors and any corresponding price fluctuations may materially and adversely affect the market price of our ordinary shares and result in substantial losses being incurred by our investors.

Market prices for securities of technology companies historically have been very volatile. The market for these securities has from time to time experienced significant price and volume fluctuations for reasons unrelated to the operating performance of any one company. In the past, following periods of market volatility, public company shareholders have often instituted securities class action litigation. If we were

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involved in securities litigation, it could impose a substantial cost upon us and divert the resources and attention of our management from our business.

If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares, the price of our ordinary shares could decline.

The trading market for our ordinary shares will rely in part on the research and reports that equity research analysts publish about us and our business. We do not have control over these analysts and we do not have commitments from them to write research reports about us. The price of our ordinary shares could decline if one or more equity research analysts downgrades our ordinary shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

The significant share ownership positions of Viola-LM Partners L.P. and XT Hi-Tech Investments (1992) Ltd. may limit your ability to influence corporate matters.

After giving effect to this offering, Viola LM Partners L.P. and XT Hi-Tech Investments (1992) Ltd. will own or control, directly and indirectly    % and    % of our outstanding ordinary shares respectively (or    % and    % if the underwriters fully exercise their option to purchase additional ordinary shares). Although Viola-LM Partners L.P. and XT Hi-Tech Investments (1992) Ltd. purchased our ordinary shares separately and have not entered into any voting agreement between themselves with respect to our shares, if Viola-LM Partners L.P. and XT Hi-Tech Investments (1992) Ltd. vote the shares that they own or control together, they will be able to significantly influence the outcome of matters required to be submitted to our shareholders for approval, including decisions relating to the election of our board of directors and the outcome of any proposed merger or consolidation of our company. Their interests may not be consistent with those of our other shareholders. In addition, these parties’ significant interest in us may discourage third parties from seeking to acquire control of us, which may adversely affect the market price of our ordinary shares.

As a foreign private issuer, we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicable SEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.

We are a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act of 1933, as amended, or the Securities Act, and therefore, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. Under Rule 405, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2014.

As a foreign private issuer, we are permitted, and intend, to follow certain home country corporate governance practices instead of those otherwise required under the Listing Rules of the NASDAQ Stock Market, or the NASDAQ Listing Rules, for domestic U.S. issuers. For instance, we intend to follow home country practice in Israel with regard to the quorum requirement for shareholder meetings. As permitted under the Companies Law, we intend to amend our articles of association prior to the completion of this offering to provide that the quorum for any meeting of shareholders shall be the presence of at least two shareholders present in person, by proxy or by a voting instrument, who hold at least 25% of the voting power of our shares instead of 33 1/3% of the issued share capital requirement. We also intend to follow the requirements of the Companies Law with respect to shareholder approval of change of control transactions rather the NASDAQ Listing Rules that address issuances of securities that will result in a change of control of our company (as defined by NASDAQ). We may in the future elect to follow home country practices in Israel with regard to other matters, including the formation of a compensation committee, nominating of directors, separate executive sessions of independent directors and the requirement to obtain shareholder approval for certain dilutive events (such as for the establishment or amendment of certain equity-based compensation plans, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company). Following our home country governance practices as opposed to the requirements that would otherwise apply to a United States company listed on the NASDAQ Global Market may provide less protection to you than what is accorded to investors under the NASDAQ Listing Rules applicable to domestic United States issuers.

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In addition, as a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act and we are generally exempt from filing quarterly reports with the SEC under the Exchange Act. These exemptions and leniencies will reduce the frequency and scope of information and protections to which you are entitled as an investor.

We would lose our foreign private issuer status if a majority of our directors or executive officers are U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.

We may be classified as a passive foreign investment company and, as a result, our U.S. shareholders may suffer adverse tax consequences.

Generally, if (taking into account certain look-through rules with respect to the income and assets of our subsidiaries) for any taxable year 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company, to which we refer as PFIC, for U.S. federal income tax purposes. Such a characterization could result in adverse U.S. federal income tax consequences to our U.S. shareholders, including having gains realized on the sale of our ordinary shares be treated as ordinary income, as opposed to capital gain, and having interest charges apply to such sale proceeds. Because the value of our gross assets is likely to be determined in large part by reference to our market capitalization, a decline in the value of our ordinary shares may result in our becoming a PFIC. U.S. shareholders should consult with their own U.S. tax advisors with respect to the U.S. tax consequences of investing in our ordinary shares. Based upon our calculations, we believe that we were not a PFIC in 2012. However, PFIC status is determined as of the end of the taxable year and depends on a number of factors, including the value of a corporation’s assets and the amount and type of its gross income. Therefore, we cannot assure you that we will not be a PFIC for fiscal year 2013 or in any future year.

Future sales of our ordinary shares could reduce the market price of our ordinary shares.

If our existing shareholders sell a substantial number of our ordinary shares in the public market, the market price of our ordinary shares could decrease significantly. The perception in the public market that our shareholders might sell our ordinary shares could also depress the market price of our ordinary shares and could impair our future ability to obtain capital. Approximately     % of our outstanding share capital is subject to lock-up agreements with the underwriters that restrict the ability to transfer ordinary shares for at least 180 days after the date of this prospectus. Consequently, upon expiration of the lock-up agreements, an additional       of our ordinary shares will be eligible for sale in the public market. The market price of our ordinary shares may drop significantly when the restrictions on resale by our existing shareholders lapse and our shareholders are able to sell our ordinary shares into the market. In addition, a sale by the company of additional ordinary shares or similar securities in order to raise capital might have a similar negative impact on the share price of our ordinary shares. The exercise of options under our equity incentive plans and warrants and the sale of underlying shares may also have a similar negative effect. As of December 1, 2013, there were approximately 17,152,079 ordinary shares issuable upon the exercise of outstanding options under our share option plans, and there were 18,729,483 ordinary shares issuable upon the exercise of warrants (all of which warrants are currently exercisable). A decline in the price of our ordinary shares might impede our

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ability to raise capital through the issuance of additional ordinary shares or other equity securities, and may cause you to lose part or all of your investment in our ordinary shares.

Investors in this offering will experience immediate substantial dilution in net tangible book value.

The public offering price of our ordinary shares in this offering is considerably greater than the as adjusted net tangible book value per share of our outstanding ordinary shares. Accordingly, investors in this offering will incur immediate dilution of $     per share, based on an assumed public offering price of $     per share, the midpoint of the range shown on the cover of this prospectus. See “Dilution” below. Moreover, following the closing of the offering, we expect to issue options, which will be exercisable for our ordinary shares, to provide an incentive to and compensate employees, consultants and directors and may issue additional shares to raise capital, to pay for services, or for other corporate purposes. To the extent that our outstanding options are exercised at a price below the net tangible book value per share, there will be additional dilution to investors.

We have broad discretion as to the use of the net proceeds from this offering and may not use them effectively.

We cannot specify with certainty the particular uses to which we will put the net proceeds from this offering. Our management will have broad discretion in the application of the net proceeds. Our shareholders may not agree with the manner in which our management chooses to allocate the net proceeds from this offering. The failure by our management to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operation. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income.

We have never paid cash dividends on our share capital, and we do not anticipate paying any cash dividends in the foreseeable future. Therefore, if our share price does not appreciate, our investors may not gain and could potentially lose on their investment in our ordinary shares.

We have never declared or paid cash dividends on our share capital, nor do we anticipate paying any cash dividends on our share capital in the foreseeable future. Moreover, under the bank debt restructuring agreement, we are restricted from issuing dividends unless certain conditions are satisfied. As a result, we currently intend to retain all available funds and any future earnings to fund the development and growth of our business. Capital appreciation, if any, of our ordinary shares will be investors’ sole source of gain for the foreseeable future.

Under the Israeli Companies Law, 5759-1999 (or the “Companies Law”), dividends may only be paid out of our profits and other surplus funds (as defined in the Companies Law) as of the end of the most recent year or as accrued over a period of the most recent two years, whichever amount is greater, provided that there is no reasonable concern that payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. In the event that we do not meet the profit and surplus funds criteria, we are able to seek the approval of an Israeli court in order to distribute a dividend. The court may approve our request if it is convinced that there is no reasonable concern that the payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. In general, the payment of dividends may be subject to Israeli withholding taxes. In addition, because we receive certain benefits under the Israeli law relating to Approved Enterprises (as described under “Taxation — Israeli tax considerations — Tax benefits under the Law for the Encouragement of Capital Investments, 5719-1959”), our payment of dividends (out of tax-exempt income) may subject us to certain Israeli taxes to which we would not otherwise be subject.

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FORWARD-LOOKING STATEMENTS; CAUTIONARY INFORMATION

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”, contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms including “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements. The statements we make regarding the following matters are forward-looking by their nature:

our expectations regarding future growth, including our ability to develop new products and to continue to expand our presence in high growth emerging markets;
our ability to lower costs of goods sold by improved design and engineering, better sourcing for products, enhanced manufacturing efficiencies and optimized logistics network;
our ability to maintain and expand relationships with our existing customers and to develop relationships with new customers;
our ability to maintain current product lines and to develop new products and technologies;
our expectations regarding the likelihood of litigation or other legal proceedings;
our ability to maintain adequate protection of our intellectual property and to avoid infringement of the intellectual property of others;
our ability to gain and maintain regulatory approvals;
our ability to pay down the debt currently owed to our creditors; and
our intended use of proceeds of this offering;

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties, including those described in “Risk Factors.” In addition, the sections of this prospectus entitled “Prospectus Summary” and “Business” contain information obtained from independent industry sources that we have not independently verified. You should not put undue reliance on any forward-looking statements. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $    million, based on an assumed initial public offering price of $    , the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses.

We will not receive any of the proceeds from the ordinary shares to be sold by the selling shareholders pursuant to the underwriters’ option to purchase additional shares in this offering.

A $1.00 increase (decrease) in the estimated initial public offering price of $     would increase (decrease) the net proceeds that we receive from the offering by $     million, assuming that the number of ordinary shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses.

We expect to use the net proceeds from this offering for our operations and for other general corporate purposes, including but not limited to working capital requirements, capital expenditures, investments, research and development, product development and sales and marketing expenditures. We may also use a portion of the net proceeds for the potential acquisition of, or investment in, technologies, products or companies that complement our business, although we have no understandings, commitments or agreements to consummate any such acquisition or investment. Our management will have significant flexibility in applying the net proceeds. Pending the uses described above, we intend to invest the net proceeds in interest-bearing investment-grade securities or deposits.

Beyond providing us with cash proceeds, the offering will also enable us to create a public market for our ordinary shares which, we believe, will further enhance our prominence in our industry and among our customers. We also believe that a public market for our ordinary shares will provide our employees with a market in which to sell their ordinary shares (including shares underlying options) and thereby participate economically in our success, which we believe will further incentivize employee performance.

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DIVIDEND POLICY

We have never declared or paid cash or other dividends to our shareholders and we do not intend to pay cash or other dividends in the foreseeable future. We intend to reinvest any earnings in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, our strategic goals and plans to expand our business, applicable law and other factors that our board of directors may deem relevant.

The debt restructuring agreement to which we are party with Bank Hapoalim B.M. currently restricts our ability to pay dividends. There are also certain financial conditions that must be met under Israeli law for the payment of dividends, as described in the “Risk Factors” section of this prospectus.

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CAPITALIZATION

The following table presents our capitalization as of September 30, 2013:

on an actual basis;
on an adjusted basis, to give effect to the issuance of      ordinary shares in this offering, at an assumed public offering price of $    per share, the midpoint of the estimated public offering price range, after deducting underwriting discounts and commissions and estimated offering expenses.

This table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

   
  As of September 30, 2013
     Actual   As-adjusted
     (in thousands, except share data)
Debt:
                 
Short-term restructured debt     17,648           
Long-term restructured debt     52,557           
Shareholders’ equity:
                 
Ordinary shares, NIS 0.1 par value: 900,000,000 shares authorized (actual and as adjusted); 219,013,726 shares issued (actual) and shares issued (as adjusted); 218,978,199 shares outstanding (actual) and     shares outstanding (as adjusted)   $ 4,291     $  
Additional paid-in capital     545,639           
Accumulated other comprehensive income     14,498           
Accumulated deficit     (551,509 )          
Treasury shares, at cost (35,527 shares at September 30, 2013)     (102 )          
Total shareholders’ equity     12,817           
Total capitalization   $ 83,022     $        

The preceding table excludes the ordinary shares reserved for issuance under our share option plans. As of December 1, 2013, there were 17,878,674 ordinary shares reserved for issuance under our share option plans, in respect of which we had outstanding options to purchase 17,152,079 ordinary shares at a weighted average exercise price of $1.13 per share.

A $1.00 increase (decrease) in the assumed initial public offering price of $     would increase (decrease) the as adjusted amount of each of additional paid-in capital, total shareholders’ equity and total capitalization by $     million, assuming that the number of ordinary shares offered, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses.

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DILUTION

If you invest in our ordinary shares in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per ordinary share after this offering. Our net tangible book value (deficit) as of September 30, 2013 was $(37.4) million, or $(0.17) per ordinary share. Our net tangible book value per ordinary share was calculated by:

subtracting our liabilities from our total tangible assets; and
dividing the difference by the number of ordinary shares outstanding.

After giving effect to adjustments relating to this offering, our as adjusted net tangible book value on September 30, 2013 would have been approximately $     million, equivalent to $    per ordinary share. The adjustments made to determine our as adjusted net tangible book value are as follows:

an increase in total tangible assets to reflect the net proceeds of this offering received by us as described under “Use of proceeds;” and
the addition of the      ordinary shares offered in this prospectus to the number of ordinary shares outstanding.

The following table illustrates the immediate increase in our as adjusted net tangible book value of $     per ordinary share and the immediate as adjusted dilution to new investors:

 
Assumed initial public offering price per ordinary share   $         
Net tangible book value per ordinary share as of September 30, 2013         
Increase in net tangible book value per ordinary share attributable to the offering         
As adjusted net tangible book value per ordinary share as of September 30, 2013 after giving effect to the offering             
Dilution per ordinary share to new investors in this offering   $         

A $1.00 increase (decrease) in the assumed initial public offering price of $     per ordinary share (the midpoint of the range on the cover of this prospectus) would increase (decrease) the net tangible book value attributable to this offering by $     per ordinary share, the as adjusted net tangible book value after giving effect to this offering by $     per ordinary share and the dilution per ordinary share to new investors in this offering by $     , assuming that the number of ordinary shares offered remains the same and after deducting underwriting discounts and commissions and estimated offering expenses.

The table below summarizes, as of September 30, 2013, the differences for our affiliates, directors and officers, on the one hand, and new investors in this offering, on the other hand, with respect to the number of ordinary shares purchased from us, the total consideration paid and the average per ordinary share price paid before deducting fees and offering expenses.

         
  Shares purchased   Total consideration   Average price per share
     Number   %   Amount   %
Affiliates, directors and officers              %     $             %     $        
New investors                                          
Total           100 %    $             100 %       

The above discussion and tables are based on 218,978,199 ordinary shares outstanding as of September 30, 2013.

The discussion and table above assume no exercise by the underwriters of their option to purchase additional ordinary shares from the selling shareholders identified in this prospectus. If the underwriters exercise that option in full, the as adjusted number of our ordinary shares held by new investors will increase to     , or approximately     %, of the total as adjusted number of our ordinary shares outstanding after this offering, and the number of our ordinary shares held by affiliates, directors and officers will decrease to     , or approximately     %, of our ordinary shares outstanding after the offering.

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The discussion and table above also do not include      ordinary shares that we have reserved for issuance upon the exercise of outstanding options as of December 1, 2013. If all of such outstanding options were exercised, as of September 30, 2013, as adjusted net tangible book value per share would be $    , dilution per ordinary share to new investors would be $    , the number of shares held by our existing shareholders would increase to     , constituting     % of our total issued shares (while new shareholders in this offering would only hold     % of our issued shares), the total consideration amount paid by existing shareholders would increase to $    , or     % of total consideration received by us for our shares (while the percentage of consideration paid by new shareholders in this offering would drop to     %) and the average price per share paid by our existing shareholders would instead be $    .

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SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth our selected consolidated financial data, which is derived from our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The selected consolidated statements of operations data for the years ended December 31, 2010, 2011 and 2012, and the selected consolidated balance sheet data at December 31, 2012 and 2011, have been derived from our consolidated financial statements set forth elsewhere in this prospectus. The selected consolidated statements of operations data for the years ended December 31, 2008 and 2009 and the selected consolidated balance sheet data at December 31, 2008, 2009 and 2010 has been derived from previously published audited consolidated financial statements, which are not included in this prospectus. The selected consolidated statements of operations data for the nine months ended September 30, 2012 and 2013, and selected consolidated balance sheet data at September 30, 2013, have been derived from our unaudited interim information presented elsewhere in this prospectus. In the opinion of management, these unaudited interim information includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of our financial position and operating results for these periods. Results for interim periods are not necessarily indicative of the results that may be expected for the entire year.

You should read this selected consolidated financial data in conjunction with, and it is qualified in its entirety by reference to, our historical financial information and other information provided in this prospectus including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. The historical results set forth below are not necessarily indicative of the results to be expected in future periods.

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  Year ended December 31,   Nine months ended September 30,
     2008   2009   2010   2011   2012   2012   2013
     (in thousands, except per share data)
Consolidated Statements of Operations Data:
                                                              
Revenues:
                                                              
Products   $ 205,469     $ 178,705     $ 189,149     $ 199,714     $ 198,811     $ 145,571     $ 155,500  
Services     50,996       47,391       48,581       47,268       49,779       36,750       38,762  
Total revenues     256,465       226,096       237,730       246,982       248,590       182,321       194,262  
Cost of revenues:
                                                              
Products     113,158       87,199       95,532       106,240       97,150       71,543       70,655  
Services     33,504       30,050       28,207       28,226       28,174       21,254       20,303  
Total cost of revenues     146,662       117,249       123,739       134,466       125,324       92,797       90,958  
Gross Profit     109,803       108,847       113,991       112,516       123,266       89,524       103,304  
Operating expenses:
                                                              
Research and development, net     19,602       14,584       16,363       16,526       18,497       13,447       16,207  
Selling and marketing     84,590       67,443       69,725       72,891       75,010       55,421       59,661  
General and administrative     27,849       20,516       17,813       16,912       20,446       15,419       14,814  
Legal settlements, net     1,650       683       (1,981 )      766                   (6,692 ) 
Impairment of goodwill     22,637                                      
Restructuring and other related costs     1,420       3,927                                
Operating income (loss)     (47,945 )      1,694       12,071       5,421       9,313       5,237       19,314  
Finance expense (income), net     (1,664 )      1,457       3,880       3,725       1,464       1,354       4,478  
Income (loss) before taxes on income     (46,281 )      237       8,191       1,696       7,849       3,883       14,836  
Taxes on income (tax benefit)     (2,065 )      (2,452 )      2,446       1,006       852       2,203       2,145  
Net income (loss)   $ (44,216 )    $ 2,689     $ 5,745     $ 690     $ 6,997     $ 1,680     $ 12,691  
Earnings (loss) per share attributable to ordinary shareholders(1):
                                                              
Basic   $ (0.23 )    $ 0.01     $ 0.03     $ *     $ 0.03     $ 0.01     $ 0.06  
Diluted   $ (0.23 )    $ 0.01     $ 0.03     $ *     $ 0.03     $ 0.01     $ 0.06  
Weighted average number of ordinary shares used in computing earnings (loss) per share:
                                                              
Basic     196,067       208,706       215,341       215,884       218,972       218,973       218,977  
Diluted     196,067       209,402       219,719       223,066       222,031       221,859       223,861  

* Less than $0.01

           
  As of December 31,   As of September 30, 2013
     2008   2009   2010   2011   2012
     (in thousands)
Consolidated Balance Sheet Data:
                                                     
Cash and cash equivalents, short and long term bank deposits   $ 20,419     $ 41,349     $ 46,874     $ 38,498     $ 27,103     $ 37,873  
Current assets     127,476       130,921       141,979       136,602       112,922       125,352  
Total assets     198,895       200,780       216,427       207,567       185,123       198,789  
Current liabilities     102,746       81,707       98,089       103,464       82,567       97,821  
Short-term restructured debt     23,646       9,734       12,298       17,730       13,002       17,648  
Long-term restructured debt     115,159       112,860       100,449       82,714       69,503       52,557  
Total liabilities     240,141       221,229       229,367       218,168       185,321       185,972  
Shareholders’ equity (deficiency)     (41,246 )      (20,449 )      (12,940 )      (10,601 )      (198 )      12,817  

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The following tables summarize segment data for the year ended December 31, 2012 and the nine months ended September 30, 2013, which is derived from Note 18 to our consolidated financial statements presented elsewhere in this prospectus and the reconciliation to adjusted EBITDA.

         
  Year ended December 31, 2012
     Surgical business segment   Ophthalmic business segment   Aesthetic business segment   Unallocated expenses(1)   Consolidated Results of Operations
     (in thousands)
Revenues   $ 95,962     $ 62,141     $ 90,487     $     $ 248,590  
Gross profit     52,829       27,209       43,641       (413 )      123,266  
Operating expenses     42,439       26,535       41,721       3,258       113,953  
Operating income (loss)   $ 10,390     $ 674     $ 1,920     $ (3,671 )    $ 9,313  
Depreciation and amortization                                         4,866  
Stock-based compensation                                         3,285  
Legal settlements, net and other non-recurring expenses                             380  
Adjusted EBITDA(2)                             17,844  

(1) Unallocated expenses are primarily related to stock-based compensation, legal settlements and other non-recurring expenses.
(2) Adjusted EBITDA is a non-GAAP financial measure. For a definition and a reconciliation of adjusted EBITDA to our income from operations, see “— Non-GAAP Financial Measures” below.

         
  Nine months ended September 30, 2013
     Surgical business segment   Ophthalmic business segment   Aesthetic business segment   Unallocated expenses(1)   Consolidated Results of Operations
     (in thousands)
Revenues   $ 75,907     $ 45,417     $ 72,938     $     $ 194,262  
Gross profit     44,319       19,855       39,044       86       103,304  
Operating expenses     36,169       18,971       34,206       (5,356 )      83,990  
Operating income (loss)   $ 8,150     $ 884     $ 4,838     $ 5,442     $ 19,314  
Depreciation and amortization                                       $ 4,483  
Stock-based compensation                                       $ 1,390  
Legal settlements, net and other non-recurring expenses (income)                           $ (7,071 ) 
Adjusted EBITDA(2)                           $ 18,116  

(1) Unallocated expenses are primarily related to stock-based compensation, legal settlements and other non-recurring expenses.
(2) Adjusted EBITDA is a non-GAAP financial measure. For a definition and a reconciliation of net income to adjusted EBITDA to our net income, see “— Non-GAAP Financial Measures” below.

Non-GAAP Financial Measures

Adjusted EBITDA is a non-GAAP financial measure that we define as income from operations before depreciation and amortization, stock-based compensation, legal settlements, net and other non-recurring expenses, financial expenses, net and taxes on income. We have provided below a reconciliation of adjusted EBITDA to net income, the most directly comparable U.S. GAAP financial measure.

We have included adjusted EBITDA in this prospectus because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can, in our opinion, provide a useful measure for period-to-period comparisons of our business. Accordingly, we believe that adjusted EBITDA

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provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. Adjusted EBITDA also has significance to us in that it serves as a key metric under our debt restructuring agreement whereby our compliance with certain financial covenants imposed by that agreement is measured. For more information concerning our EBITDA-based covenants, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Bank debt restructuring agreement, as amended” elsewhere in this prospectus.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP as the excluded items may have significant effects on our operating results and financial condition. When evaluating our performance, you should consider adjusted EBITDA alongside other financial performance measures, including cash flow metrics, net income, operating income (loss) and our other U.S. GAAP results.

The following table presents a reconciliation of net income to adjusted EBITDA for each of the periods indicated:

   
  Year ended December 31, 2012   Nine months ended September 30, 2013
     (in thousands)
Reconciliation of net income to adjusted EBITDA:
                 
Net income   $ 6,997     $ 12,691  
Taxes on income     852       2,145  
Financial expenses, net     1,464       4,478  
Income from operations     9,313       19,314  
Depreciation and amortization     4,866       4,483  
Stock-based compensation     3,285       1,390  
Legal settlements, net and other non-recurring income (expenses)     380       (7,071 ) 
Adjusted EBITDA   $ 17,844     $ 18,116  

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly those in the “Risk factors” above.

Company Overview

We are a leading global, highly diversified and growing provider of innovative energy-based, minimally invasive clinical solutions primarily for the aging population. We have established a strong brand and leadership position across diverse end markets, consisting of our surgical, ophthalmic and aesthetic segments, and our products are utilized for both medically necessary and elective procedures. Our focused product offerings include solutions for a wide range of minimally invasive procedures across those segments.

Our focus on product development has resulted in our strongest pipeline of new products and applications in over a decade. Specifically, we expect to launch one to two product platforms in each of our three segments by the end of 2014. We believe our culture of innovation along with our realigned development processes across the organization focused on physician needs and patient benefits, will serve as an engine for future growth in existing and new markets.

The principal target markets for our products are hospitals, outpatient clinics, ambulatory surgery centers, physicians’ offices, private clinics and aesthetic chains. We market, sell and service our products primarily through our direct sales and service organization, which provides us with a strong presence in our key markets, including the United States, China, Japan, India, Germany and Australia, which generated approximately 69% of our revenues for the nine months ended September 30, 2013. We sell to the remainder of our geographies through an extensive global distributor network, consisting of over 170 independent distributors in over 70 countries worldwide. Our service organization of over 200 people supports the growth of our global customer base and provides us with an attractive recurring revenue stream. We believe we are well-positioned to capitalize on the large and growing emerging markets opportunity, specifically the APAC region, where China represents our second largest individual market globally (after the United States) and which we believe will be an important driver of our future growth. We generated $63.2 million in revenues in the APAC region for the nine months ended September 30, 2013, representing 15% year-over-year growth and 33% of our total revenues for that period.

Since 2009, we have seen year-over-year growth in our annual revenues, primarily due to increases in volume of products and services sold. These increases have been driven primarily by leveraging our existing global footprint towards further geographic expansion, and our accompanying investment in enhancing our existing sales platform, particularly in the APAC region, where we have added 132 persons to our sales and marketing teams, which totaled 206 persons as of September 30, 2013. Since the addition of our new management team in 2012, we have been undergoing a strategic transformation, with a focus on execution and growth. Key elements of our strategic plan include an enhanced product pipeline, increased focus on patient outcomes, improved operational processes and an execution-oriented management culture. Our investment in our existing sales and marketing platform has helped us to grow our revenues. Such increase in our revenues further resulted in an increase in our gross margins, in light of the fixed cost component in our costs of goods sold. We are seeking to continue to increase revenues in our existing core geographies and markets, including by the development and introduction of enhancements to existing products and new products. We also seek to grow the absolute amount of our recurring revenues, which are derived from both services and consumables, so that they remain at the same proportion or a slightly increased proportion of our total revenues. Our ability to achieve this growth may be adversely affected if we are unable to introduce product enhancements or planned new products on time, which may occur for a variety of reasons, including regulatory delays.

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Components of Our Statements of Operations

Revenues

Our revenues consist primarily of revenues from sales of our products and, secondarily, from the provision of services. Our product revenues include revenues from sales of systems and consumables. We operate in three segments: surgical, ophthalmic and aesthetic. We effect sales and deliver services both directly, through our dedicated sales force and service organization, and indirectly, through third-party distributors who purchase and resell our products and typically provide support services for our products. While in each segment we do business through both of these channels, we generally utilize only one such channel for any given country.

The following table presents our revenues by segment for the periods indicated (in thousands of U.S. dollars and as a percentage of revenues):

                   
  For the year ended December 31,   For the nine months ended September 30,
     2010   2011   2012   2012   2013
Surgical   $ 81,039       34.1 %    $ 89,801       36.4 %    $ 95,962       38.6 %    $ 69,402       38.0 %    $ 75,907       39.1 % 
Ophthalmic     60,607       25.5       62,279       25.2       62,141       25.0       46,964       25.8       45,417       23.4  
Aesthetic     96,084       40.4       94,902       38.4       90,487       36.4       65,955       36.2       72,938       37.5  
Total   $ 237,730       100.0 %    $ 246,982       100.0 %    $ 248,590       100.0 %    $ 182,321       100.0 %    $ 194,262       100.0 % 

  

Product revenues across our segments are influenced by a number of factors, including, among other things: (i) the adoption rate of our products, (ii) the capital expenditure budgets of our customers and (iii) the mix of products sold, all of which may be significantly influenced by macroeconomic and other factors. Product revenues also depend on the volume of consumables, which for purposes of this discussion includes accessories (having a longer useful life than actual consumables), that we sell. Sales of our consumables are primarily linked to the number of our products that are installed and active worldwide. In the years ended December 31, 2010, 2011 and 2012, sales of our consumables were 14.3%, 14.3% and 14.2% respectively of our product revenues in each year. We expect our recurring revenues to continue to grow in absolute terms along with our overall revenues, thereby remaining a relatively steady percentage of our revenues. Our product revenues are also driven by usage rates, which are generally a function of the type of product and the budget of the particular end-user.

Services revenues in all three of our operating segments derive mainly from service contracts and extended warranty and repair charges, and, in the nine months ended September 30, 2013, constituted 13%, 25% and 23% of the revenues from our surgical, ophthalmic and aesthetic segments, respectively.

Surgical segment

In addition to the factors listed above, product revenues in our surgical segment are influenced by a number of other factors, including, among other things, the adoption rate of procedures performed with our products, approval of government budgets and the ability of our customers to obtain reimbursement. In addition, purchases of our surgical laser systems typically involve long sales cycles, ranging from three months to 18 months in some cases. Surgical product revenues also depend on the volume of consumables that we sell, as our surgical systems generally utilize more consumables than our aesthetic and ophthalmic products. Surgical revenues derived from our distribution agreement with Boston Scientific constituted 16%, 14%, 12% and 13% of our surgical segment revenues in 2010, 2011, 2012 and the nine months ended September 30, 2013, respectively (comprising less than 6% of our total revenues in any such period).

Ophthalmic segment

In addition to the factors listed above, product revenues in our ophthalmic segment are influenced by a number of factors that are similar to those influencing product revenues in our surgical segment, including, among other things, capital expenditure budgets of our customers. Product revenues in our ophthalmic segment are further influenced by competition in the ophthalmic market, such as pharmaceutical alternatives.

Aesthetic segment

In addition to the factors listed above, product revenues in our aesthetic segment are influenced by a number of factors, including, among other things, significant competition in the aesthetic market and frequent

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introduction of new technologies and new products in the aesthetic market. Macroeconomic conditions in the global economy also impact our aesthetic products revenues, since the demand for our aesthetic products may decrease when end users have less discretionary income. Unlike in the surgical and ophthalmic segments, personal habits of end users also play a role in determining the level of demand for, and, consequently, our revenues derived from, aesthetic products.

Revenues by geographic area

We derive our revenues from four geographic areas: the Americas, APAC, EMEA and Japan.

The following table presents our revenues by geographic area for the periods indicated (in thousands of U.S. dollars and as a percentage of revenues):

                   
  For the year ended December 31,   For the nine months ended September 30,
     2010   2011   2012   2012   2013
Americas   $ 93,752       39.4 %    $ 94,161       38.2 %    $ 92,446       37.2 %    $ 67,069       36.8 %    $ 67,660       34.8 % 
APAC     46,585       19.6       60,349       24.4       74,969       30.2       54,739       30.0       63,177       32.5  
EMEA     50,095       21.1       48,157       19.5       42,536       17.1       30,154       16.5       33,584       17.3  
Japan     47,298       19.9       44,315       17.9       38,639       15.5       30,359       16.7       29,841       15.4  
Total   $ 237,730       100.0 %    $ 246,982       100.0 %    $ 248,590       100.0 %    $ 182,321       100.0 %    $ 194,262       100.0 % 

  

Cost of revenues and gross profit

Our cost of revenues consists of costs of products, which accounted for approximately 78% and 79% of our cost of revenues in each of the years ended December 31, 2012 and 2011, respectively, and 78% for the nine months ended September 30, 2013, and costs of services, which accounted for the remainder of our cost of revenues during those periods. In each of our segments, costs of products consist primarily of components and subassemblies purchased for manufacture of our products. Costs of products also include manufacturing and manufacturing-related labor costs, indirect production costs, overhead and costs of standard warranties. Our costs of services consist primarily of costs of our service personnel, which include salaries and other compensation and travel costs, as well as costs of spare parts.

Gross profit is the difference between revenues and cost of revenues. As described below, gross profit is primarily affected by volume of sales, mix of products sold between our segments and within each segment, regional mix, manufacturing costs, warranty and service related costs and inventory write downs.

The following table presents our gross profit by segment for the periods indicated (in thousands of U.S. dollars and as a percentage of revenues from each such segment):

                   
  For the year ended December 31,   For the nine months ended September 30,
     2010   2011   2012   2012   2013
Surgical   $ 42,908       37.6 %    $ 47,517       42.2 %    $ 52,829       42.7 %    $ 37,744       42.0 %    $ 44,319       43.0 % 
Ophthalmic     24,168       21.2 %      24,771       22.0 %      27.209       22.0 %      20,666       23.0 %      19,855       19.2 % 
Aesthetic     46,985       41.2 %      40,332       35.8 %      43.641       35.3 %      31,410       35.0 %      39,044       37.8 % 
Total(*)   $ 114,061       100 %    $ 112,620       100 %    $ 123,679       100 %    $ 89,820       100 %    $ 103,218       100 % 

(*) Excludes unallocated expense (income) in the amounts of $70, $104 and $413 for the years ended December 31, 2010, 2011 and 2012, respectively and $296 and $(86) for the nine months ended September 30, 2012 and 2013. For further information, please see Note 18 to our consolidated financial statements included elsewhere in this prospectus.

In general, gross profit margins are largely a function of our revenues and our ability to leverage the portion of our cost base that is fixed to increase our revenues while increasing costs at a lower rate. As part of our growth plan, we have seen an increase in gross profitability in recent periods mainly as a result of the reengineering of our products in a manner that has reduced the costs of products, as well as lower service and warranty costs, due largely to increased emphasis on quality control, and lower inventory write downs. Our inventory consists primarily of raw materials used in manufacturing and finished parts, which are subassemblies used for final manufacture of finished products. We have managed our inventory levels more efficiently over the past two years. We also intend to continue reducing the costs of the products and our

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manufacturing costs by increasingly outsourcing manufacturing when doing so is expected to produce greater efficiencies. The growth in our revenues has also been a cause of the increase in our gross profit margins, as we leverage our fixed costs. The differences in gross margin among our segments reflect the different markets in which each segment operates and the nature of the competition in such markets, both in terms of the competitors and the competing products and solutions in each industry.

Gross profit margins are also impacted by the mix of revenues generated from indirect sales through distributors as opposed to direct sales effected by our sales force, due to selling discounts provided to distributors. Because of these discounts, the gross profit from the sale of our products in our direct sales markets and in regions where we engage in those direct sales is higher than the gross profit from the sales of our products indirectly.

Sales made directly by our sales personnel amounted to 71% and 69% of our sales in the year ended December 31, 2012 and the nine months ended September 30, 2013, respectively. With respect to indirect sales, our strategy is to work with independent distributors in geographies where we believe it brings higher economic value, after taking into consideration cost and market potential. Products sold through distributors are generally non-exchangeable, nonrefundable and without rights for price protection or stock rotation. Accordingly, we generally consider distributors as end-customers and therefore recognize revenues upon shipment to distributors. In those transactions in which a right of return is granted we recognize revenues net of the provision for returns.

Our segment operating margins, which have increased in recent years, have done so primarily as a result of improvements in gross margins.

Operating expenses

Our operating expenses consist of research and development expenses, net, selling and marketing expenses, legal settlements, net and general and administrative expenses. As discussed below, we plan to continue to invest in research and development and selling and marketing activities as a driver of our revenue growth and therefore expect those expenses to increase in absolute terms. However, we also expect that investments and efforts we have made over the past two years in enhancing the management of our operating platform will enable us to leverage that platform. Specifically, we expect that our efforts in streamlining research and development, enhancing the efficiency of our sales and marketing, and emphasizing maximum execution among our general and administrative personnel, which together form the core of our operations, will enable us to maximize the return that we realize from our operating expenses.

Research and development expenses, net

Our research and development expenses consist primarily of employee salaries, development-related raw materials, clinical research expenses and payments to subcontractors. We charge all research and development expenses to operations as they are incurred. Research and development expenses are presented net of grants received from Israel’s OCS. For additional information regarding these grants, see “Taxation — Israeli Tax Considerations and Government Programs — Tax Benefits and Grants for Research and Development.”

We intend to increase the aggregate amount that we invest in research and development in absolute terms. To the extent that we are successfully able to implement our business plan and grow our revenues, we expect that our research and development expenses will remain constant or will grow as a percentage of our revenues. However, the amount that we spend on the research and development activities of any one segment in any individual year is, to a significant extent, the function of factors specifically affecting that segment, including the specific business plan of that segment.

Selling and marketing expenses

Our selling and marketing expenses consist primarily of salaries, commissions and other benefits for our marketing, sales and other sales-support personnel, advertising, promotions, trade shows and exhibition expenses, and travel expenses. Commissions consist of sales-based commissions mainly to our sales personnel. Commission rates vary, depending on the geographic location of the employee and on the achievement of certain performance targets.

We intend to invest in sales and marketing activities, including in relation to the launch of new products, and we therefore expect selling and marketing expenses to increase in absolute terms during that period.

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However, we do not expect selling and marketing expenses to change significantly as a percentage of our revenues. As we expand further — including in the APAC region — we intend to increase the number of our sales representatives. In general, we expect that the number of our sales representatives will increase in correlation with increases to our revenues.

Legal settlement, net

Our legal settlements consist primarily of income and expenses related to the outcome of specific legal proceedings, net of the related legal fees. Ongoing legal expenses, including in connection with ongoing legal proceedings, are generally recorded as general and administrative expenses, whereas expenses and legal fees incurred at the settlement or other dispositive stage of a legal proceeding are recorded in legal settlements, net.

General and administrative expenses

Our general and administrative expenses consist primarily of expenses relating to our administration, finance and general management personnel, professional fees, insurance costs, bad debts, excise taxes and other expenses. We expect an increase in our general and administrative expenses in absolute terms as a result of the additional costs related to our being listed for trading in the United States, but we do not expect those expenses to increase as a percentage of our revenues.

Financial expenses, net

Financial expenses consist primarily of interest on our long-term restructured debt, changes in the fair value of financial instruments measured at fair value through profit and loss, bank charges and exchange rate differences arising from changes in the value of monetary assets and monetary liabilities stated in currencies other than the functional currency of each of our subsidiaries.

Taxes on income

The standard corporate tax rate in Israel for the 2013 tax year is 25% and for the 2011 and 2012 tax years it was 24% and 25%, respectively. The tax rate will increase to 26.5% for 2014 and thereafter.

As discussed in greater detail below under “Taxation — Israeli Tax Considerations and Government Programs,” we are eligible for various tax benefits under the Investment Law pursuant to benefit programs. Under the Investment Law, our effective tax rate to be paid with respect to our Israeli taxable income under these benefits programs is 0%. Currently, we do not receive any actual tax benefits, as we will have to complete utilizing our net operating loss carryforwards before we start to receive any benefits under these benefit programs. The benefits that we are eligible to receive under the Investment Law are pursuant to programs of which the final one is scheduled to expire in 2019.

Under the Investment Law and other Israeli legislation, we are entitled to certain additional tax benefits, including accelerated depreciation and amortization rates for tax purposes on certain assets, deduction of public offering expenses in three equal annual installments and amortization of other intangible property rights for tax purposes.

Due to our multi-jurisdictional operations, we apply significant judgment to determine our consolidated income tax position. We estimate our effective tax rate for the coming years based on our planned future financial results in existing and new markets and the key factors affecting our tax liability, particularly our transfer pricing policy. Accordingly, we estimate that our effective tax rate will range between 13% and 16% of our income before income tax through 2013. In the long-term, we anticipate that our effective tax rate will decrease as the portion of our income attributed to Lumenis Ltd. grows. We cannot provide any assurance that our plans will be realized and that our assumptions with regard to the key elements affecting tax rates will be accepted by the tax authorities. Therefore, our actual effective tax rate may be higher than our estimate.

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Comparison of period to period results of operations

The following table presents consolidated statement of operations data as a percentage of revenues for the periods indicated.

         
  For the year ended
December 31,
  For the nine months ended
September 30,
     2010   2011   2012   2012   2013
Revenues:
                                            
Products     79.6 %      80.9 %      80.0 %      79.8 %      80.0 % 
Services     20.4       19.1       20.0       20.2       20.0  
Total revenues     100.0       100.0       100.0       100.0       100.0  
Cost of revenues:
                                            
Products     40.2       43.0       39.1       39.2       36.4  
Services     11.9       11.4       11.3       11.7       10.4  
Total cost of revenues     52.1       54.4       50.4       50.9       46.8  
Gross profit     47.9       45.6       49.6       49.1       53.2  
Operating expenses:
                                            
Research and development expenses, net     6.9