20-F

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

FORM 20-F

o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

OR

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

OR

o SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report.............................

For the transition period from ____________ to ______________

Commission file number 000-27974

CIMATRON LTD.
(Exact name of Registrant as specified in its charter)

Israel
(Jurisdiction of incorporation or organization)

11 Gush Etzion St.,
Givat Shmuel 54030, Israel
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act: NONE

Securities registered or to be registered pursuant to Section 12(g) of the Act: Ordinary shares, par value
NIS 0.10 per share

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE

Indicate the number of outstanding shares of each of the registrant’s classes of capital or common stock as of the close of the period covered by the Annual Report:

7,887,682 Ordinary Shares, par value NIS 0.10 per share

Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes     x No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o Yes     x No

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

x Yes     o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer: o     Accelerated filer: o     Non-accelerated filer: x

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

x U.S. GAAP	o International Financial Reporting Standards as issued	o Other
	by the International Accounting Standards Board

Indicate by check mark which financial statement item the registrant has elected to follow.

o Item 17     x Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes     x No

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

x Yes     No o

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Table Of Contents

PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS	4
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE	4
ITEM 3. KEY INFORMATION	4
ITEM 4. INFORMATION ON THE COMPANY	18
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS	34
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	51
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	61
ITEM 8. FINANCIAL INFORMATION	65
ITEM 9. THE OFFER AND LISTING	66
ITEM 10. ADDITIONAL INFORMATION	67
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	80
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	81
PART II
ITEM 13. DEFAULTS, DIVIDEND AVERAGES AND DELINQUENCIES	82
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	82
ITEM 15. CONTROLS AND PROCEDURES	82
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT	82
ITEM 16B. CODE OF ETHICS	82
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES	83
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	84
ITEM 16E. REPURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	84
PART III.
ITEM 17. FINANCIAL STATEMENTS	84
ITEM 18. FINANCIAL STATEMENTS	84
ITEM 19. EXHIBITS	85
SIGNATURES	86

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PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not Applicable

Item 2. Offer Statistics and Expected Timetable

Not Applicable

Item 3. Key Information

Selected Financial Data

Our historical consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and are presented in U.S. dollars. The selected historical consolidated financial information as of December 31, 2006 and 2007 and for each of the three years ended December 31, 2005, 2006 and 2007 have been derived from, and should be read in conjunction with, the consolidated financial statements of Cimatron Ltd. and notes thereto appearing elsewhere in this annual report. The selected financial data as of December 31, 2003, 2004 and 2005 and for each of the years ended December 31, 2003 and 2004 have been derived from the audited financial statements of Cimatron Ltd. not included in this annual report.

The information presented below is qualified by the more detailed historical consolidated financial statements set forth in this annual report, and should be read in conjunction with those consolidated financial statements, the notes thereto and the discussion under Item 5 - - Operating and Financial Review and Prospects - included elsewhere in this annual report.

	December 31,
	2003			2004			2005			2006			2007
	(In thousands of US$, except per share data)
Statement of Income Data:
Revenue:
Products		10,448			11,370			8,968			9,642			14,331
Services		11,161			11,793			11,957			11,817			14,309
Total		21,609			23,163			20,925			21,459			28,640
Cost of revenue:
Products		3,056			2,923			3,367			2,154			3,867
Services		1,562			1,678			1,568			1,469			1,573
Total		4,618			4,601			4,935			3,623			5,440
Gross profit		16,991			18,562			15,990			17,836			23,200
Research and development
costs, net		5,210			5,554			4,815			4,426			4,281
Restructuring costs		-			-			-			-			-
Selling, general and
administrative expenses		12,645			13,962			15,650			13,362			17,243
Operating profit (loss)		(864	)		(954	)		(4,475	)		48			1,676
Financial income (expenses), net		369			445			(148	)		574			353
Other income (expenses)		203			144			1			(5	)		(3	)
Income (loss) before taxes		(292	)		(365	)		(4,622	)		617			2,026
Taxes on income		(9	)		(23	)		(2	)		(27	)		-
Income (loss) after income taxes		(301	)		(388	)		(4,624	)		590			2,026
Company's equity in results of
affiliated company		-			-			(5	)		(105	)		(52	)
Minority interest in results
of subsidiary		-			-			36			29			(51	)
Net income (loss)		(301	)		(388	)		(4,593	)		514			1,923
Net income (loss) per share		(0.04	)		(0.05	)		(0.59	)		0.07			0.24
Weighted average number of
shares outstanding		7,838			7,835			7,835			7,835			7,866

* Less than $ 0.01

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	December 31,
	2003		2004		2005		2006		2007
	(In thousands of US$)
Balance Sheet Data
Cash and cash equivalents.		3,124		1,711		2,708		5,597		9,026
Short-term investments		6,358		6,381		2,167		-		-
Total cash, cash equivalents and
short-term investments		9,482		8,092		4,875		5,597		9,026
Working capital		10,639		10,306		4,328		5,342		6,121
Total assets		22,386		20,804		16,442		17,907		27,327
Total liabilities.		8,865		7,956		8,456		9,062		16,357
Shareholders' equity		13,521		12,848		7,982		8,845		10,970

Risk Factors

        This annual report and statements that we may make from time to time may contain forward-looking information. There can be no assurance that actual results will not differ materially from our expectations, statements or projections. Factors that could cause actual results to differ from our expectations, statements or projections include the risks and uncertainties relating to our business described below. The risks described below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business operations.

Risks Related to our Business

We face intensive competition in our industry.

        The CAD/CAM software industry, characterized by rapid advances in technology and changing customer requirements, is highly competitive. We design, develop, manufacture, market and support a family of modular, high performance, fully integrated, computer-aided design/computer aided manufacturing, or CAD/CAM, software products. Traditionally, our competitors in the CAD/CAM market are at both the high and low end of the market. The lower end of the market consists of dedicated Numerical Control, or NC, programming systems offerings, which have limited or no modeling capability, while the high end of the market, including our Cimatron E and GibbsCAM product families, consists of integrated CAD/CAM systems, Mill/Turn and Multi Task Machining software. Many high-end market products are roughly similar to our Cimatron E product.

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        As the CAD/CAM software industry is highly fragmented and characterized by many relatively small and privately owned companies, we face competition from numerous companies in relation to all of our products. In addition, some of our competitors are more established, benefit from greater market recognition and have greater financial, production and marketing resources than us. We believe that, due to the large number of companies that operate in this market, we do not have a single major competitor or a group of competitors. The principal factors permitting our products to compete successfully against our competitors’ products are:

— the compatibility of our products with other software applications and existing and emerging industry standards;

— our ongoing product and feature development;

— the offering of unique innovative products to the tooling industry;

— the level of our product breadth and integration;

— the technical expertise and support that we provide;

— the flexibility of our products;

— the reputation we maintain among certain independent distributors of our products, to which we refer as Providers; and

— the relatively low overall price and total cost of ownership of our products combined with the high-end capabilities of our products.

        Although we believe that the attributes of our products provide us with a competitive advantage over our competitors, there can be no assurance that the marketplace will consider Cimatron E and/or GibbsCAM to be superior to existing competing products. In addition, new competitors may arise in each of the markets in which we currently operate. Furthermore, as we enter new geographic markets, we may encounter significant competition from companies that are more established in such markets. Accordingly, there can be no assurance that our existing or future products will successfully compete against our competitors’ products.

We are heavily reliant on the sale of two families of products.

        Sales and services related to the Cimatron E product family have historically accounted for substantially all of our revenue. While we have introduced the GibbsCAM product family following our merger with Gibbs System, Inc., if sales of the Cimatron E family and/or the GibbsCAM family were to decline, or fail to grow, or the profit margin on these products were to decrease significantly, our business, financial condition and results of operations would be materially and adversely affected.

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Our business depends significantly upon sales by our customers of products in the consumer market. This market is extremely competitive and is highly susceptible to fluctuations in demand.

        Our products are designed for use by manufacturers of consumer products or consumer product components. The consumer products market is intensely competitive and price sensitive. Sales of consumer products have historically been dependent upon discretionary spending by consumers. Consumers may defer or alter purchasing decisions based on economic conditions or other factors, and accordingly could cause a reduction in demand for products manufactured by our customers. Softening consumer demand for consumer products has in the past caused a decline in the demand for our products. Current global economic conditions, especially inflation and the credit crisis in the U.S., may cause a decrease in demand for our products in the near term and possibly longer. Any softening in demand for consumer products could cause uncertainty with respect to our expected revenues or adversely affect our revenues and operating results.

Increases in oil prices may significantly increase our customers’ costs of operations, which could decrease demand for our products.

        Many of our customers use oil-based products as an integral part of their manufacturing processes, including as components of their products.  Increases in the cost of crude oil, which are subject to many economic and political factors that are beyond their control, have resulted in global increases in the price of oil-based products. These increases have caused and may continue to cause increases in the operating expenses of our customers. To the extent that these customers accordingly increase their prices, demand for their products may decrease, thereby causing them to purchase less of our products.  In addition, these customers may respond to the increases in the price of oil by placing pressure on the prices they are willing to pay for our products.  In that event, our business and results of operation may be adversely affected.

Unfavorable economic and market conditions and reduced consumer spending may lead to a decreased demand for our products and services and may harm our business, financial condition and results of operations.

        We are subject to the effects of global, economic and market conditions. Recent changes in global and U.S. macroeconomic conditions such as inflation and the weakening of the U.S. dollar in relation to many world currencies which make it more expensive to import consumer products into the U.S., as well as changes in microeconomic conditions such as tightening of local credit markets which could negatively impact the ability of manufacturers to obtain growth and working capital from local lenders, may negatively impact our enterprise business.To the extent that our business suffers as a result of such unfavorable economic and market conditions, our operating results may be materially adversely affected.

One of our shareholders beneficially owns a substantial amount of our ordinary shares and may therefore influence our affairs.

        DBSI Investments Ltd. or DBSI, beneficially owns approximately 45.6% of our share capital. Accordingly, DBSI effectively has the ability to control the outcome of most matters submitted to a vote of our shareholders, including the election of members of our board of directors and approval of significant corporate transactions. The concentration of ownership of our Ordinary Shares by DBSI could delay or prevent proxy contests, mergers, tender offers, open-market purchase programs or other purchases of our Ordinary Shares that might otherwise give you the opportunity to realize a premium over the then-prevailing market price of our Ordinary Shares. This concentration of ownership may also adversely affect our share price, especially if this shareholder sells substantial amounts of our ordinary shares under its registration rights. See “Item 7. Major Shareholders and Related Party Transactions” for additional details.

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Integration of recent acquisitions and any future acquisitions of companies or technologies may distract our management and disrupt our business. In addition, the issuance by us of securities as consideration payable in such acquisitions could be dilutive to our existing shareholders.

        One of our strategies is to acquire or make investments in complementary businesses, technologies, services or products if appropriate opportunities arise. For instance, in July 2005 we acquired 27.5% of the shares of our Italian distributor and an option to purchase the remaining outstanding shares of that company from its stockholders, and granted the distributor’s shareholders an option to require us to purchase 49% of the distributor’s share capital under specific circumstances. In July 2007 we exercised our option to increase our holdings in our Italian distributor to 51%. During August 2006, we acquired the remaining 69.83% of the outstanding shares of our Korean provider, which thereafter became a wholly owned subsidiary. In January 2008 we completed the merger of Gibbs into a wholly owned subsidiary – Cimatron Gibbs LLC. As consideration for the merger with Gibbs, we paid cash in the amount of approximately $5 million and we issued 1,500,000 of our Ordinary Shares, which represent approximately 16% of our issued and outstanding share capital. See “Item 5. Operating and Financial Review and Prospects – Overview” for additional details. We may in the future engage in discussions and negotiations with companies about our acquiring or investing in those companies’ businesses, products, services or technologies. We cannot give assurances that we will be able to identify future 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 acceptable terms or at all. In addition, in the context of our merger with Gibbs or any future acquisition or investment in another company, we could experience difficulties assimilating that company’s personnel, operations, technology or products and service offerings into our own or in retaining and motivating key personnel from these businesses. Any such difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations. Furthermore we cannot provide assurance that we will realize the benefits and/or synergies of any business combination with another company. In addition, we may incur indebtedness or dilute our existing shareholders by issuing equity securities to pay for any future acquisitions.

We are subject to several risks as a result of our international sales.

        To date, our products have been sold primarily in Europe, the Far East, North America and Israel. We expect that international sales will continue to represent a substantial portion of our business. Companies that engage in international sales are subject to a number of risks, such as:

— agreements may be difficult to enforce through a foreign company's legal system;

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— foreign countries could impose additional withholding or other taxes on our income;

— foreign countries could impose tariffs or adopt other restrictions on foreign trade;

— fluctuations in exchange rates;

— changes in general economic conditions in one or more countries could affect product demand;

— the protection of intellectual property rights in foreign countries may be limited or more difficult to enforce; and

— difficulties in managing overseas subsidiaries and international operations, including difficulty in retaining or replacing local management.

        There can be no assurance that these and similar factors will not have a material adverse effect on our future international sales and, consequently, on our business, future prospects and results of operations.

Many customers of the CAD/CAM industry have migrated their operations to the Far East. In order to remain competitive in the industry, we need to penetrate the Far East markets; operation in these markets subjects us to specific risks.

        Many mold, tool, die and fixture makers have migrated or intend to migrate their operations to markets in the Far East, such as China, in order to take advantage of the relatively lower cost of labor available in those markets for their manufacturing activities. We anticipate that this migration will continue. In order to continue to compete in the CAD/CAM software industry, we will need to increase our penetration of these markets. Many of those markets, including China, are characterized by lower prices and by higher usage of pirated copies of software products. While those markets are also often much larger than a number of our traditional markets in Europe, to the extent that we cannot offset the effects of lower prices and higher incidents of pirated software usage, our revenues and profitability may be materially adversely affected.

We are reliant upon independent distributors to market and support our products.

        We rely on independent distributors, to whom we refer as Providers, to market, sell, service and support our products worldwide. Generally, our relationships with our Providers are based on agreements with two-year terms (subject to rolling two-year extensions) and which enable Providers to purchase our products at a discounted price. While we have exclusive relationships with certain of our Providers, there can be no assurance that these Providers will give high priority to the marketing and support of our products. In July 2005 we acquired 27.5% of the shares of MicroSystem, our Italian Provider, and an option to purchase its remaining outstanding shares from its shareholders and granted the Provider’s shareholders an option to require us to purchase 49% of the Provider’s share capital under specific circumstances. In July 2007, we exercised our option to increase our holdings in the Italian Provider to 51%. See “Item 5. Operating and Financial Review and Prospects – Overview” for additional details regarding the transaction with our Italian Provider and the options received both by us and the Provider’s shareholders. The results of our operations could be adversely affected by changes in the financial condition of a Provider, which could occur rapidly, or to other changes in our current Providers’ business or marketing strategies. There can be no assurance that we will retain our current Providers, nor can there be any assurance that, in the event that we lose any of our Providers, we will be successful in recruiting other highly professional and technically competent Providers to represent us. Any such changes in our distribution channels, especially those in the Far East and Europe, could materially adversely affect our business, operating results and financial condition. Whereas approximately 90% of Gibbs’ total revenues in 2007 resulted from sales made by Gibbs’ independent distributors, whom we refer to as Resellers, the merger with Gibbs has increased our reliance on independent distributors. See “Item 4 – Information on the Company – Business Overview.”

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Following our acquisition of 51% of MicroSystem, its results of operations may have a material impact on our results of operations.

        Following the exercise of our option to increase our holdings in MicroSystem, our Italian Provider, to 51%, which increase took effect during July 2007, we have fully consolidated the results of Microsystem as of the 3^rd quarter of 2007. Therefore, Microsystem’s results of operation, including revenues, gross margins and operating income, could have a material effect on our results of operation including revenues, gross margins and operating income. The consolidation of Microsystem’s financial statements will also increase the impact of changes in the Euro – dollar exchange rate on our revenues and expenses, as substantially all of Microsystem’s revenues and expenses are Euro-denominated.

We cannot assure you that we will continue to remain profitable on an annual basis or remain profitable on a quarterly basis in the future.

        We incurred a net loss of approximately $4.6 million in 2005. Although we had net income of $0.5 million in 2006 and net income of $1.9 million in 2007, we incurred a net loss of approximately $0.3 million in the first quarter of 2008, and we cannot be certain that we will maintain profitability on a quarterly or annual basis.

We may experience significant fluctuations in our quarterly results, which makes it difficult for investors to make reliable period-to-period comparisons and may contribute to volatility in the market price for our ordinary shares.

        Our quarterly revenues, gross profits and results of operations have fluctuated significantly in the past and may be subject to continued fluctuation in the future. The following events may cause such fluctuations:

— changes in timing of orders, especially large orders, for our products and services;

— changes in the prices for our products and services;

— adverse economic conditions and international exchange rate and currency fluctuations;

— delays in the implementation of our solutions by customers;

— changes in the proportion of service and license revenues;

— timing of product releases;

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— changes in the economic conditions of the various industries in which our customers operate;

— price and product competition;

— increases in selling and marketing expenses, as well as other operating expenses;

— technological changes; and

— political instability in the Middle East.

        A substantial portion of our expenses, including most product development, selling and marketing expenses, must be incurred in advance of when revenue is generated. If our projected revenue does not meet our expectations, we are likely to experience a shortfall in our operating profit relative to our expectations. As a result, we believe that period-to-period comparisons of our historical results of operations are not necessarily meaningful and that you should not rely on them as an indication for future performance. Also, our quarterly results of operations have, on separate occasions, been below the expectations of public market analysts and investors and the price of our ordinary shares subsequently decreased. If that would happen in the future, the price of our ordinary shares will likely decrease again.

Because of our international operations, changes in exchange rates against the U.S. dollar have and could continue to have a significant effect on our results of operations. In addition, local economic conditions or currency fluctuations could cause customers to decrease or cancel orders or default on payment.

        Although part of our revenues are denominated and paid in U.S. dollars, the majority are not so denominated and paid. Therefore inflation and fluctuations in the U.S. dollar exchange rate have and may continue to have a material effect on our revenue. In addition, a significant portion of our international sales is denominated in Euros, and in the future additional sales may be denominated in currencies other than U.S. dollars, thereby exposing us to gains and losses on non-U.S. currency transactions.  We may choose to limit this exposure by entering into hedging transactions.  However, hedging transactions may not prevent exchange-related losses, and our business may be harmed by exchange rate fluctuations.  Furthermore, as we seek to expand our sales to regions throughout the world, we might be exposed to risks of customers located in countries suffering from uncertain economic environments such as high inflation and solvency problems. Those issues and devaluation in local currencies of our customers relative to the U.S. dollar where our sales are denominated in U.S. dollars could cause customers to decrease or cancel orders or default on payment. To the extent that the value of the New Israeli Shekel increases against the U.S. dollar, our expenses on a U.S. dollar cost basis increase. We cannot predict any future trends in the rate of devaluation of the NIS against the U.S. dollar. If the U.S. dollar cost of our operations in Israel continues to increase, our U.S. dollar-measured results of operations will be adversely affected. If the U.S. dollar cost of our operations in Israel continues to increase, our dollar-measured results of operations will be adversely affected. The New Israeli Shekel revaluation (devaluation) in relation to the U.S. dollar amounted to (6.8%), 8.2% and 8.9% for the years ended December 31, 2005, 2006 and 2007, and to (7.6%) for the first quarter of 2008. We are also exposed to the risk that the rate of inflation in Israel will exceed the rate of devaluation of the NIS in relation to the U.S. dollar or that the timing of this devaluation lags behind inflation in Israel. The Israeli rate of inflation (deflation) amounted to 2.4%, (0.1)% and 3.4% for the years ended December 31, 2005, 2006 and 2007, respectively.

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Prior to 2006 we experienced decreases in our revenues from products. If this trend will return, it will likely adversely affect our gross margins and profitability.

        Although our revenues from the sales of products increased to approximately $14.3 million in 2007 from approximately $9.6 million in 2006 and from approximately $9.0 million in 2005, product revenues in 2006 and in 2005 decreased from approximately $11.4 million in 2004. At the same time, revenues from maintenance and services increased in 2007 to $14.3 million from approximately $11.8 million in 2006 and approximately $12.0 million in 2005. Our gross margin from most of our products is higher than our gross margin from services. This is because our cost of services, which includes expenses of salaries and related benefits of the employees and subcontractors engaged in providing the services, is relatively higher than our cost of products. If our overall percentage of revenues comprised by maintenance and service revenues will increase, our gross margins and profitability will likely be adversely affected. In addition, if our revenues from the sale of products will decrease, such decrease may adversely affect our future maintenance and service revenues, as it may result in a smaller user base to purchase maintenance and service contracts from us.

If we are unable to accurately predict and respond to market developments or demands, or if our products are not accepted in the marketplace, our business will be adversely affected.

        It is difficult to predict demand and CAD/CAM market acceptance for our solutions and products. We cannot guarantee that the market for our solutions and products will grow or that they will become widely accepted. If the market for our solutions and products does not develop as quickly as we expect, our future revenues and profitability will be adversely affected. Changes in technologies, industry standards, client requirements and new product introductions by existing or future competitors could render our existing offerings obsolete and unmarketable, or require us to develop new products. If our solutions and products do not achieve or maintain market acceptance or if our competitors release new products that achieve quicker market acceptance, have more advanced features, offer better performance or are more price competitive, our revenues may not grow and may even decline. In addition, if a product we develop and introduce does not achieve market acceptance, we may not be able to recover the costs associated with developing the product, which would have a negative effect on our profitability.

If we are unable to attract, train and retain qualified personnel, we may not be able to achieve our objectives and our business could be harmed.

        Our future success depends on our ability to absorb and retain senior employees and to attract, motivate and retain highly qualified professional employees. Competition for these employees can be intense, especially in a number of our key markets and locations. The process of locating, training and successfully integrating qualified personnel into our operations can be lengthy and expensive. The market for the qualified personnel we require is very competitive because of the limited number of people available with the necessary technical and sales skills and understanding of our products and technology. This is particularly true for the markets in which the majority of our research and development personnel are located, namely Israel and in the State of California, as competition for qualified personnel is intense in those markets. We may not be able to compete effectively for the personnel we need. Any loss of members of senior management or key technical personnel, or any failure to attract or retain highly qualified employees as needed, could materially adversely affect our ability to achieve our research and development and sales objectives.

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Under current Israeli and California laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.

        We have entered into non-competition agreements with substantially all of our employees in Israel and in California. These agreements prohibit our employees, during the term of their employment with us and after they cease working for us, from competing directly with us or working for our competitors for a limited period. However, under current Israeli and California laws, we may be unable to enforce these agreements and it may be difficult for us to restrict our competitors from gaining the expertise our former employees gained while working for us.

We are affected by volatility in the securities markets.

        Securities markets have in recent years experienced volatility that has particularly affected the securities of many high-technology companies. This volatility has often been unrelated to the operating performance of these companies, including Cimatron. As a result, we may experience difficulties in securing the additional financing required to effectively operate and grow our business due to the volatility in the price of our shares, resulting in a material adverse affect on our business and results of operations.

Risks Related to Licenses and Intellectual Property

We rely, to a certain extent, on third parties’ software. If we lose the ability to continue to license that software, our business could be materially adversely affected.

        To date, most of the software relating to the Cimatron E family of products has been developed internally by our research and development staff. However, to accelerate our product development and improve our time to market, we also review opportunities to acquire or license products or technologies from third parties. Mainly, we utilize software tools and engines that we acquire from Spatial Corp., a subsidiary of Dassault Systems, and D-Cubed, for the representation and processing of three dimensional objects and surfaces in order to expedite the continued development of our new Cimatron E product family. In addition, we use software from ModuleWorks GmbH, a German company, for advanced 5-Axis NC calculations, and advanced metal forming software from Forming Technologies Incorporated (FTI), a Canadian company. We rely, to a certain extent, upon such third parties’ abilities to enhance their current products and develop new products on a timely and cost-effective basis that will meet changing customer requirements and emerging industry standards or other technological changes. Our business would be disrupted if functional versions of the third party software we rely on were either no longer available to us or no longer offered to us on commercially reasonable terms and we may, as a result, suffer a material adverse effect on our business and operations. Most of the software relating to GibbsCAM has also been developed internally, however, Gibbs, like Cimatron, also relies on certain third party software and tools embedded in GibbsCAM product.

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We may not be successful in protecting our intellectual proprietary technology and this could result in the loss of revenue.

        We primarily rely on a combination of trade secret, copyright and trademark laws, together with non-disclosure agreements and trademark measures (such as software protection “locks”), to establish and protect proprietary rights in our products. The measures afford only limited protection and, accordingly, there can be no assurance that the steps that we take to protect these proprietary rights will be adequate to provide misappropriation of the technology or independent development of similar technology by others. This is particularly a problem in foreign countries where the laws may not protect our proprietary rights as fully as the laws of the United States do. For instance, we have encountered significant piracy problems in certain jurisdictions, including in Brazil, Taiwan, Israel and China, where we face significant competition from pirated copies of our products. These problems may increase as many of our customers and their competitors migrate their businesses to lower cost labor markets in the Far East. Despite our best efforts to protect proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary.

We may be subject to litigation to determine the scope of proprietary rights of others.

        Significant and protracted litigation may be necessary to protect our intellectual property rights, to determine the scope of the proprietary rights of others or to defend against claims of infringement. We believe that our systems do not infringe upon any existing third-party proprietary rights, and to our knowledge there have been no claims of infringement by us of third-party proprietary rights to date; however, there can be no assurance that any such claims will not be asserted against us in the future. If infringement is alleged, we could be required to discontinue the use of certain software codes or processes, to cease the manufacture, use and sale of infringing products, to incur significant litigation damages, costs and expenses and to develop non-infringing technology or to obtain licenses to the alleged infringing technology. There can be no assurance that we would be able to develop alternative technologies or to obtain such licenses on terms commercially acceptable to us, if at all.

Risks Related to our Operations in Israel

We may be adversely affected if the rate of inflation in Israel exceeds the rate of devaluation of the New Israeli Shekel against the U.S. dollar.

        Our functional currency is the U.S. dollar while a portion of our expenses, principally salaries and the related personnel expenses, are in new Israeli shekels, or NIS. As a result, we are exposed to the risk that the rate of inflation in Israel will exceed the rate of devaluation of the NIS in relation to the U.S. dollar or that the timing of this devaluation lags behind inflation in Israel. We cannot predict any future trends in the rate of inflation/ deflation in Israel. If the U.S. dollar cost of our operations in Israel increases, our U.S. dollar-measured results of operations will be adversely affected. The Israeli rate of inflation (deflation) amounted to 2.4% (0.1)% and 3.4% for the years ended December 31, 2005, 2006 and 2007, respectively.

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Security, political and economic instability in Israel may impede our ability to operate and harm our financial results.

        Our principal executive offices and research and development facilities are located in Israel. In addition, a portion of our sales is made to customers in Israel. Accordingly, security, political and economic conditions in Israel may directly affect our business. Over the past several decades, a number of armed conflicts have occurred between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could affect adversely our operations. From October 2000 until recently, terrorist violence in Israel increased significantly and negotiations between Israel and Palestinian representatives effectively ceased. In February 2006, Hamas, a radical Islamic organization, won the Palestinian Parliament elections. In July and August 2006, significant fighting took place between Israel and Hezbollah in Lebanon, resulting in rockets being fired from Lebanon into northern Israel. There can be no assurance that the recent relative calm will continue. Increased hostilities, future armed conflicts, political developments in other states in the region, or continued or increased terrorism could make it more difficult for us to conduct our operations in Israel, which could increase our costs and adversely affect our financial results. Furthermore, several countries still restrict business with Israel and Israeli companies. These restrictive laws and policies may limit our ability to sell our products in those countries.

Our operations may be disrupted by the obligation of our personnel to perform military service.

        Many of our officers and employees in Israel are obligated to perform annual military reserve duty and may be called to active duty under emergency circumstances. At various times over the last five years, there have been significant call-ups of military reservists, and it is possible that there will be additional call-ups in the future. While we have operated effectively despite these conditions in the past, we cannot assess what impact these conditions may have in the future, particularly if emergency circumstances arise. Our operations could be disrupted by the absence for a significant period of one or more of our executive officers or key employees or a significant number of our other employees due to military service. Any disruption in our operations would harm our business.

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The government programs and tax benefits that we currently receive require us to meet several conditions and may be terminated or reduced in the future, which would increase our costs and taxes.

        We benefit from certain government programs and tax benefits, particularly as a result of tax exemptions and reductions resulting from the approved enterprise status of our manufacturing facilities in Israel. To be eligible for these programs and tax benefits, we must continue to meet conditions, including making specified investments in property and equipment and financing a percentage of investments with share capital. If we fail to meet such conditions in the future, the tax benefits would be canceled and we could be required to refund the tax benefits already received, together with an adjustment based on the Israeli consumer price index and an interest factor. These programs and tax benefits may not be continued in the future at their current levels or at any level. From time to time, the Israeli Government has discussed reducing or eliminating the availability of these grants, programs and benefits and there can be no assurance that the Israeli Government’s support of grants, programs and benefits will continue. If grants, programs and benefits available to us or the laws, rules and regulations under which they were granted are eliminated or their scope is further reduced, or if we fail to meet the conditions of existing grants, programs or benefits and are required to refund grants or tax benefits already received (together with interest and certain inflation adjustments) or fail to meet the criteria for future “Approved or Privileged Enterprises,” our business, financial condition and results of operations could be materially adversely affected including an increase in our provision for income taxes.

        In connection with research and development grants received from the Office of the Chief Scientist of Israel, or the OCS, we must pay royalties to the OCS on the revenue derived from the sale of products, technologies and services developed with the grant from the OCS. The terms of the OCS grants and the law pursuant to which grants are made may impair our ability to manufacture products or transfer technologies developed using OCS grants outside of Israel. The transfer to a non-Israeli entity of technology developed with OCS funding, including pursuant to a merger or similar transaction, and the transfer of rights related to the manufacture of more than ten percent of a product developed with OCS funding are subject to approval by an OCS committee and to various conditions, including payment by us to the OCS of a percentage of the consideration paid to us or our shareholders in the transaction in which the technology is transferred. In connection with a merger or similar transaction, the amount payable would be a fraction of the consideration equal to the relative amount invested by the OCS in the development of the relevant technology compared to the total investment in our company, net of financial assets that we have at the time of the transaction, but in no event less than the amount of the grant. In addition, in the event that the committee believes that the consideration to be paid in a transaction requiring payment to the OCS pursuant to the provisions of the law described above does not reflect the true value of the technology or the company being acquired, it may determine an alternate value to be used as the basis for calculating the requisite payments. These restrictions may impair our ability to enter into agreements for those products or technologies, without OCS approval. We cannot be certain that any approval of the OCS will be obtained on terms that are acceptable to us, or at all. Furthermore, in the event that we undertake a transaction involving the transfer to a non-Israeli entity of technology developed with OCS funding pursuant to a merger or similar transaction, the consideration available to our shareholders may be reduced by the amounts we are required to pay to the OCS.

        In connection with our grant applications, we have made certain representations, including information provided in periodical performance reports, and we have committed to certain performance-based covenants. The funding from the OCS is subject to the accuracy of these representations and covenants and to our compliance with the conditions and restrictions imposed by the OCS. If we fail to comply with any of these conditions or restrictions, we could be required to repay any grants previously received, together with an adjustment based on the Israeli consumer price index and an interest factor in addition to certain other penalties. In addition, if we fail to comply with any of these conditions or restrictions, we would likely be ineligible to receive OCS grants in the future. The inability to receive these grants would result in an increase in our research and development expenses.

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We may be required to pay royalties to the OCS in respect of sales since January 1, 2005.

        We believe that the majority of products that we have sold since January 1, 2005 are not based on technology developed with funds provided by the OCS and that, accordingly, such sales should not be subject to the payment of royalties to the OCS. Therefore, the royalty reports we submitted to the OCS for the period starting January 1, 2005 and thereafter have reflected significantly reduced royalty obligations in comparison to our royalty reports for the years prior to 2005. In addition, during the second half of 2005 we initiated a process with the OCS in an attempt to obtain the agreement of the OCS with our position and to the cessation of our obligation to pay future royalties. This process is still ongoing. Although we believe we have strong arguments to support our position, we have accrued royalty expenses in our financial reports for the periods from January 1^st, 2005 to March 31^st, 2008 in the amount of $2.3 million, but we have not paid any royalties associated with the products mentioned above to the OCS. In light of the above-mentioned facts, we intend to consider our next steps with the OCS and whether further royalty expenses accruals will be necessary. A determination that we are in fact obligated to pay royalties in respect of sales after January 1, 2005, could negatively impact our liquidity and if that determination is made after we cease to accrue for any such royalties on our financial statements or if the amount that we become obligated to pay exceeds the amounts for which we have accrued in our financial statements, such payments would negatively impact our earnings.

It may be difficult to effect service of process and enforce judgments against directors or officers in Israel.

        We are incorporated in Israel. The majority of our executive officers and directors are located outside the United States, and a majority of our assets and the assets of these persons are located outside the United States. Therefore, a judgment obtained against us or any of them in the United States, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. Further, if a foreign judgment is enforced by an Israeli court, it generally will be payable in Israeli currency. It also may be difficult for you to assert U.S. securities law claims in original actions instituted in Israel since Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agreed to hear such 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. Certain matters of procedure will also be governed by Israeli law.

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Item 4. Information on the Company

History and development of the Company

        We design, develop, manufacture, market and support a family of modular, high-performance, CAD/CAM software products. Our products provide an integrated design through manufacturing solution for small-to-medium-sized companies and manufacturing divisions of large corporations, and interface easily with other CAD/CAM systems. They offer high-end functionality, especially in the areas of design for manufacturing and manufacturing, at an attractive price/performance ratio. These attributes have made our CAD/CAM products especially popular in the design and manufacturing segments of the CAD/CAM market, particularly among mold, tool, die and fixture makers, as well as discrete part manufacturers. We focus our research and development efforts on providing complete design through manufacturing solutions to the specific needs of this market segment. We are committed to providing mold, tool, die and fixture makers and discrete part manufacturers with comprehensive, cost-effective CAD/CAM solutions that streamline manufacturing cycles, enable collaboration with outside vendors and shorten delivery time. Following our merger with Gibbs, we have enhanced our product offering for discrete part manufacturers.

        In July 2005 we acquired 27.5% of the shares of Microsystem Srl, our Italian distributor, for 575,000 Euro. Under the agreement, we also received an option to acquire up to 100% of Microsystem from Microsystem’s shareholders and Microsystem’s shareholders received an option to require us to purchase 49% of Microsystem’s share capital under specific circumstances. In July 2007 we exercised our option to increase our holdings in Microsystem to 51%. See “Item 5. Operating and Financial Review and Prospects – Overview” for additional details regarding the transaction with Microsystem and the options received both by us and Microsystem’s shareholders. The transaction was designed to significantly enhance Microsystem’s financial position and balance sheet, and to strengthen our leading position in Italy, one of our key markets in Western Europe. Under the terms of the agreement, Microsystem’s marketing, sales, and support groups remained in their current offices throughout Italy, nevertheless, in the last two years Microsystem went through a comprehensive restructuring and turnaround.

        During August 2006, we acquired the remaining 69.83% of the outstanding shares of KCT Co. Ltd, our South Korean provider for approximately $225,000 plus an additional payment subject to collection of certain receivables, following which such provider became our wholly owned subsidiary.

        During January 2008, we merged Gibbs System, Inc., also known as Gibbs & Associates, with and into a newly established US subsidiary (Cimatron Gibbs LLC) of Cimatron Technologies Inc, our US subsidiary. In consideration for the transaction, Cimatron paid to Mr. William F. Gibbs, founder, Chairman and CEO of Gibbs System, and its sole shareholder, cash consideration of approximately $5 million, as well as 1,500,000 newly issued Ordinary Shares of Cimatron.

        Our full name is Cimatron Ltd. and we were incorporated under Israeli law in 1982. Our corporate headquarters are located at 11 Gush Etzion Street, Givat Shmuel 54030, Israel. Our telephone number is 972-3-531-2121 and our web site is located at www.cimatron.com. Our U.S. agent is Cimatron Technologies, Inc., with an address at 26800 Meadowbrook Road, Suite 113, Novi, Michigan 48377

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Industry Background

        Manufacturers worldwide face ever-increasing pressures to produce high-quality and increasingly complex products in the shortest time possible and at minimum cost. To meet these demands and keep pace with market changes, production commitments and the need for product differentiation, companies are increasing their reliance on CAD/CAM software tools to automate the designing, drafting and manufacturing of their products.

        The development process for the mechanical design and manufacturing of products generally includes the following steps:

— conceptual design of the product and its components;

— tool design and detailed design for manufacturing;

— creating the toolpath data in the form of numerical control, or NC, codes that provide the instructions for a machine to cut a part according to specifications received; and

— manufacturing the product.

        The earliest users of CAD/CAM systems were dedicated design and engineering departments of large organizations that could afford the cost and complexity of “high-end” CAD/CAM systems. These systems were used by highly trained designers and engineers, who were responsible for a particular portion of the manufacturing process. The systems also generally operated on mainframe computers or high-end workstations which often required many months to master. To improve efficiency, large corporations that operate with high-cost, highly complex CAD/CAM systems have increasingly outsourced a portion of the design and manufacturing process to subcontractors.

        This created a large market need for easier-to-use, less programming-intensive CAD/CAM solutions that operate on different hardware and operating systems and interface with a variety of software systems. In addition, as a result of continuing market pressure and technological changes, including personal computers offering improved price and performance, divisions of large companies also shifted towards CAD/CAM software providing more cost-effective solutions and shorter learning curves which could co-exist in the corporate design and manufacturing environment. However, while many of these systems were designed to provide advanced conceptual design capabilities, they were more limited in their detailed design for manufacturing and toolpath creation capabilities. As a result, they did not meet the needs of users involved in manufacturing the process, such as mold, tool, die and fixture makers.

        At the other end of the market were low-cost, dedicated toolpath creation software products, which were limited in their design capabilities. These limitations caused the process of taking data regarding the conceptual design of the product and creating a detailed design for manufacturing to remain largely manual. As a result, subcontractors and manufacturing divisions of large corporations were hampered in their ability to take complex conceptual designs received from the design departments of the manufacturer and produce appropriate molds, tools, dies or fixtures in a timely manner. As a result, an increasing number of these subcontractors and manufacturing divisions have begun or are continuing to seek comprehensive design through manufacturing automation solutions to compete more effectively.

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        These trends have created a market for an integrated CAD/CAM system which is geared towards small-to medium-sized subcontractors or divisions of large corporations involved in the manufacturing process, particularly mold, tool, die and fixture makers. These users have a unique set of needs that have generally not been met by traditional CAD/CAM systems.

        The CAD/CAM software industry that developed in response to these needs is highly fragmented and characterized by many relatively small and privately owned companies. We believe that, due to the large number of companies that operate in this market, we do not have a single major competitor or a group of competitors. The principal factors permitting our products to compete successfully against our competitors’ products are:

— the compatibility of our products with other software applications and existing and emerging industry standards;

— our ongoing product and feature development;

— the offering of unique innovative products to the tooling and manufacturing industries;

— the level of our product breadth and integration;

— the technical expertise and support that we provide;

— the flexibility of our products;

— the reputation we maintain among certain independent distributors of our products, to which we refer as Providers; and

— the relatively low overall price and total cost of ownership of our products combined with the high-end capabilities of our products.

Business Overview

Principal Operations, Products and Developments

        Cimatron E

Cimatron E, our current generation of CAD/CAM solutions for the tooling and production industries, was initially released in September 2001. We released our newest major version of the Cimatron E (Version 8.0) in March 2007. Cimatron E provides comprehensive tools, applications and process-automation solutions for the tooling and manufacturing industries.

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With Version 8 of Cimatron E, Cimatron helps toolmakers and manufacturers of complex discrete parts step up to new levels of productivity, introducing breakthrough improvements such as:

– A new application for progressive die design, covering the entire spectrum of quoting, strip design, tool design, and manufacturing, compressing weeks of work into days;

– New automated drilling capabilities, reducing programming time by up to 80%;

– NC-Preview functionality, presenting machining results in a matter of seconds and eliminating NC programming errors early in the process;

– Concurrent mold design and the ability to handle mega-size molds, allowing multiple users to work on the same assembly with increased speed and ease; and

– New enhancements in 5-Axis Production, delivering higher performance and better user control.

        Cimatron E encompasses a set of powerful and easy-to-use 3D design tools. The unified solid-surface-wireframe environment allows the user to manipulate important data or create conceptual part designs with equal ease. In the design process, Cimatron E integrates tools to split part geometry, find and implement changes, create electrodes and inserts, and detail tooling components. During manufacturing, Cimatron E implements 2.5 to 5 axis toolpaths using high-speed machining, knowledge of stock remaining and templates to reduce programming and machine time. The mission critical tasks of splitting the model, applying engineering changes, and extracting electrodes and inserts are all handled by Cimatron’s “Quick Tooling” wizard-based applications.

        Cimatron E communicates with most other CAD/CAM systems, runs on personal computers, as well as engineering workstations employing Windows based operating systems (which are the primary operating systems used for the personal computer and workstation platforms on which our products are used) and transfers data easily and reliably among different hardware and software environments.

        Cimatron E is built around a set of compatible “modules” using a unified database, which can be accessed and modified for all applications. Users can move easily among wireframe, surface and solid models choosing the application most appropriate for a specific job. Cimatron E enables the user to work top-down (i.e., beginning at the conceptual level and moving down to subassemblies and individual parts) or bottom-up (i.e., modeling elements first and then grouping them into assemblies), and permits the user to combine the two approaches. Cimatron E stores product data hierarchically to ensure overall structural integrity of the product and the ability to interface with engineering data management systems. Cimatron E’s CAM applications operate directly on the design model to generate intelligent toolpaths for NC manufacturing processes and enable fast and accurate graphic simulation of NC operations. In addition, Cimatron E includes advanced data exchange interfaces, which enable the transfer of CAD/CAM data between ourselves and other CAD/CAM systems through industry standard interfaces, as well as several dedicated interfaces. Cimatron E offers an intuitive and consistent user interface throughout all applications (e.g., design, drafting and NC). Since all applications have the same look and feel, there is no need for the user to relearn the operation of the system with each module. Cimatron E’s architecture is based upon a software kernel, which includes database utilities, the graphic sub-system and the user interface, which provide the operating environment for all applications. Applications are separate from the software kernel, which facilitates enhancement of the applications, reduces development and maintenance costs and enables efficient technological updates to the system’s components, without affecting the application base.

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        The Cimatron E product family includes the following basic modules:

Designer Solution

Designer Solution is a CAD-only solution. It provides users with full 3D design and modeling capabilities, as well as fully associative 2D drawing and sketching functions. Designer Solution includes a hybrid 3D wireframe, surfaces and solid modeler, with full assembly support. Designer Solution includes SAT, STL, PFM and one DI optional module (DWG, DXF or VDA).

NC Solution

NC Solution is a manufacturing-only solution. This base solution offers comprehensive milling, drilling, simulation and verification capabilities up to 2.5 axes + 2X Positioning. NC Solution provides access to a wide range of CAD capabilities necessary to undertake any NC job. The system includes tool libraries and a post processor. NC Solution includes SAT, STL, PFM and one DI optional module (DWG, DXF or VDA).

Master Solution

Master Solution includes all features of the Designer Solution and the NC Solution integrated into an end-to-end system, providing the tools and capabilities users need for designing and manufacturing complex CAD/CAM projects. Master Solution includes SAT, STL, PFM and one DI optional module (DWG, DXF or VDA)

Electrode Solution

Electrode Solution includes all the tools necessary to create and design EDM electrodes out of a given part model, including the industry leading QuickElectrode application. Electrode Solution comes complete with a choice of one DI optional module (IGES, STEP or VDA). The Electrode Solution is competitively priced in comparison with a similar general purpose configuration.

Electrode Pro Solution

Electrode Pro Solution includes the tools necessary to create, design and manufacture EDM electrodes, including the industry leading QuickElectrode application and full 3X milling tools. Electrode Pro Solution comes complete with a choice of one DI module (IGES, STEP or VDA). The Electrode Pro Solution is competitively priced in comparison with a similar general purpose configuration.

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Student Package

The Cimatron Student Package is a limited Cimatron package for students’ home use. The package covers most of Cimatron E’s capabilities, and enables execution of small non-commercial projects. CAD modules include the following: Wire-frame, Surfacing and Solid part Modeling; Assembly; Drafting; Sketcher; Catalog Tools; QuickSplit; QuickCompare; QuickElectrode; and MoldDesign. CAM modules include 2.5X – 3X milling and 3X simulator. The system includes read-only Data Interface for IGES, VDA, STEP, DXF, and DWG. The package is protected via software mechanism and does not require a hardware protection plug.

View Only System

View Only System provides tools to view and check CAD/CAM projects. The system includes powerful 3D modeling and drafting capabilities, as well as key Cimatron modules, such as QuickSplit, QuickElectrode and viewing of 2.5X – 3X milling, including the 3X simulator. No “save” is possible with a View Only system. The system includes read-only translators to all leading standard formats: DXF, DWG, IGES, STEP, VDA, SAT, STL, and PFM.

        In addition, the Cimatron E product family includes the following optional vertical applications, optimized for manufacturing:

Mold Design

A complete Mold Design vertical application based on hybrid 2D/3D technology. Mold Design automates the mold base and component design process, and offers an innovative parametric and fully associative approach to the mold housing design process. Optimized applicative tools support the various mold design sub-systems, such as Cooling, Ejection, Sliders and Lifters and Inserts.

Die Design

The Die Design application allows the user to create complex strips for progressive dies, as well as transfer dies. It offers analysis tools, nesting and strip layout tools, and many advanced forming tools (bend, unbend, twist, unfold and more) that allow the creation of intermediary shapes that form the strip. In addition it includes a set of tools that help the user create and locate a complex array of trimming punches on the strip.

Following Strip Design, the application allows the user to build the die tool around the strip. It includes tools for creation of die sets as well as trimming and forming punches and other die components.

Quick Electrode

QuickElectrode is an EDM electrode design package used to automate the whole electrode process. QuickElectrode is used for burn area selection, electrode design, management, documentation and manufacturing. It also includes the generic EDM Setup utility, which exports burning parameters from Quick Electrode.

ECO Manager

This is a complete Change Management application. It contains interactive tools that automatically compare between two geometry sets to identify engineering changes. It marks and displays the differences and changes, and saves the results in different file levels, supporting multiple ECO handling.

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5 Axes Production

Complete package for 5X milling and drilling, including 5X Rough, finish and local operations. Ideal for complex tasks, such as milling inlets and impelers, 5X Production is mainly used for discrete part manufacturing in demanding industries, such as Aerospace.

Micro-Milling

Dedicated NC application for milling miniature high precision parts, with sub-micron tolerances. Micro Milling allows the use of all Cimatron NC procedures with very small tools and for very fine geometry. Micro milling is supported in 3X and 5X configurations.

        GibbsCAM®

        GibbsCAM, our current generation of CAD/CAM software for discrete part production manufacturing, was first released in 1993. The current shipping version, GibbsCAM 2007 v8.7, was released in November 2007. GibbsCAM provides a comprehensive suite of tools, applications and process-automation/standardization solutions for industrial manufacturers.

        GibbsCAM is modular product family of PC-based, computer-aided manufacturing software, which allows customers to configure a seat of software specific to their current functionality needs, while protecting their investment by allowing the system to be seamlessly expanded over time to meet their on-going needs. GibbsCAM focuses on ease-of-use through an advanced graphical user interface (GUI) design, interactive graphics, full data associativity between part geometry, process and toolpath, and machining efficiency. GibbsCAM provides manufacturing-focused wireframe, surface and solid modeling (CAD) as well as a comprehensive range of CAM functionality for CNC toolpath creation. It provides post processing and machine simulation for a wide variety of CNC machines, including 3- through 5-axis mills, lathes, mill-turns, Swiss machine, wire-EDM, and multi-task machines (MTM). Since original part design is usually performed by a different user and different CAD software, GibbsCAM provides a variety of CAD data import options covering virtually all brands of CAD software in use today. GibbsCAM is certified under Autodesk’s AICAP program, is a Solid Edge Voyager Select Product and is a SolidWorks Certified CAM Product. GibbsCAM is certified for use on Windows XP and Windows Vista, Microsoft’s currently supported Windows operating systems.

The GibbsCAM product family includes the following module options:

Mill

        GibbsCAM Production Milling supports 2- through simple 3 -axis wireframe machining with full functionality for contouring, pocketing with unlimited bosses/islands, thread milling, face milling, 2D/3D spiral creation, drilling with support for many drill cycles, tapping, and boring. Simple 4th-axis positioning is also supported. Automatic cycles for face milling, such as spiral, zig-zag, back and forth and one direction, allow material to be cleaned off the top of a part. GibbsCAM Production Milling provides easy to use, powerful programming capability for milling machine tools.

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Lathe

        GibbsCAM Production Turning supports full 2-axis wireframe machining with full functionality for contouring, automatic roughing, multiple hills and valleys, plunge roughing, threading, repetitive shape roughing, drilling, tapping and boring. Advanced functionalities, such as maintaining an awareness of the current stock condition, make programming lathes not only easy but also extremely efficient. GibbsCAM Production Turning provides easy to use, powerful capability for programming turning centers.

Solid Import

        GibbsCAM Solids Import provides entry-level support for machining solid models. Solid models can be read, viewed and manipulated. Geometry can be selected and extracted for machining. Using this option users can import a solid model, view it, extract geometry from selected edges, which can then be machined. This option is ideal for users who have been machining wireframe geometry who want to expand their capabilities to support rudimentary machining of solids.

2.5D Solids

        GibbsCAM 2.5D Solids provides significant surface and solid modeling capabilities. Functionality to directly machine surfaces and solids is also included. With this module, users have the ability to create, import and modify solid models and then generate programs to machine them. Specialized tools are also provided to import, repair and automatically solidify surface data. Using GibbsCAM 2.5D Solids, CNC programs can be created faster and easier, making users more efficient and productive.

SolidSurfacer®

        GibbsCAM SolidSurfacer provides higher-level surface and solid modeling capabilities. Advanced functionality to machine surfaces and solids is also included. GibbsCAM’s intuitive graphical user interface allows complex surface and solid functions to be easy to use. Using SolidSurfacer, users can address the demanding surface and solid modeling and machining requirements for complex mold, tool and die work.

Advanced CS

        GibbsCAM’s standard functionality is to machine on conventional, orthogonal coordinate systems (XY, XZ, YZ planes). The Advanced CS option introduces support for non-orthogonal coordinate systems allowing local coordinate systems to be defined in any 3D orientation.

Rotary Mill

        GibbsCAM Rotary Mill supports machining using a rotary 4^th axis. The part geometry can either be radially defined, or can be flat geometry which is wrapped around an axis. This functionality is ideally suited for roller dies, feed screws, threading, engraving and any other application where geometry is machined around an axis.

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4-Axis Milling

        GibbsCAM 4-Axis Milling supports machining using a rotary 4^th axis. The part geometry is 3D wireframe geometry with surface controls, typically extracted from radially prismatic solid models. The user has complete control over the tool’s orientation relative to the part, including lead and lag angles. This functionality is ideal of off-center, Y-axis milling, such a camshafts, or pockets or grooves with variable tapers on the floors and walls.

5-Axis Simultaneous Milling

        GibbsCAM 5-Axis introduces support for 4^th and 5^th axis simultaneous rotary milling of multiple surfaces and solid models. Full support for tool types (ball, flat, bull, conical, and lollipop) is provided with collision checking of the tool tip, tool shaft and holder. With complete control over all aspects of the tool axis, superior surface finishes can be realized. Task oriented dialog panels are provided to only display the parameters specific to a particular machining situation, such as projection machining, swarf milling, mold cavity machining, cylinder head machining, electrode machining, and turbine blade shaft finishing. A set of dialog panels are also provided specifically for machining impellers: floor machining, general rouging and blade finishing. A variety of posting solutions are also available from Gibbs posts, ProAXYZ 5-axis drivers, or APT-CL, which allows users to make use of established posting solutions.

TMS (Tombstone Management System)

        GibbsCAM TMS supports part placement and program generation of multiple parts positioned on a tombstone fixture, a high-efficiency mode of machining on 4-axis horizontal machining centers. Various sequences can be examined and compared to identify the optimal machining strategy, minimizing traversals and tool changes. Full flexible is provided to the user while developing the program, allowing different aspects to be resolved independently and then optimized as a while. When complete, TMS outputs a complete G-code program, with optional sub-routines, canned cycles and B-rotation positions.

MTM™ (Multi-Task Machining)

        GibbsCAM MTM™ (Multi-Task Machining) was specifically designed to address the CNC programming requirements of multi-task machine tools, providing powerful programming tools that are easy to learn and use with the ultimate in flexibility and configurability. Machining processes are easily defined with GibbsCAM’s intuitive graphical user interface that provides seamless access to both turning and milling capabilities, and GibbsCAM’s associativity allows operations to be updated easily when modifications are made. Factory-supplied post processors output multi-flow NC code complete with utility operations and sync codes.

Wire-EDM

        Designed to handle the most demanding Wire-EDM programs while being easy-to-use, GibbsCAM Wire-EDM supports programming 2- thru 4-axis CNC Wire-EDM machines. With a very flexible and robust graphical user, novice users will find the system easy to understand and learn, while experienced users will find it a straightforward, efficient way to access its breadth of capability and options. GibbsCAM Wire-EDM provides the user with complete control over the Wire-EDM machining operations. Post processors for all major brands of Wire-EDM machines are included.

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Machine Simulation

        GibbsCAM Machine Simulation allows programs and corresponding machine tool motions to be graphically verified before running them on an actual CNC machine tool, avoiding potential mistakes which could result in scrap or potential machine crashes. While verifying the program, potential opportunities for optimization can also be identified, allowing the program to be further refined. Machine Simulation also provides an environment in which to do a virtual set-up of the machine tool, allowing various set-up parameters to also be verified before going to the actual machine tool.

Data Exchange Options

        In order to ensure that GibbsCAM is able to work with data files from the widest variety of CAD sources, a comprehensive selection of various data exchange options are available. These range from DXF/DWG, to IGES, VDA-FS, STEP AP203/AP214, CATIA V4, CATIA V5, Pro/ENGINEER and Granite, and ACIS. In addition, GibbsCAM has the ability to read the native data files of most popular CAD systems: SolidEdge, Unigraphics/NX, SolidWorks, Rhinoceros, and KeyCreator. The data exchange options or capabilities may require other GibbsCAM options.

CutDATA

        Machining feeds and speeds database

Post Processors

        GibbsCAM offers a variety of approaches to generate G-code for machine tools. For users who prefer to develop their own posts, GibbsCAM offers PostHASTE, a template-based post processing system along with over 225 post templates. For users who already have a legacy posting system based on APT-CL, GibbsCAM outputs APT-CL output. GibbsCAM also has a library of over 6500 post processors for a wide variety of controller and machine tool configurations. For the ultimate level of support, GibbsCAM also offers high-efficiency, custom post processors created by a team of expert developers.

Marketing and Distribution

        We employ a broad range of marketing activities to promote our products and develop name recognition and visibility. We use print and online advertising, trade shows, seminars, direct mail, online promotions, and regional marketing development in an effort to further penetrate the tooling and manufacturing segments of the CAD/CAM market. In addition to online promotions, we use the Internet as a marketing tool that increases our visibility in the marketplace, offers downloadable product demonstrations and facilitates communication between our clients and us.

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        Additionally, we have been increasing our penetration to the target market of mold, tool, die and fixture makers, as well as discrete part manufacturers, in an effort to become the lead supplier of CAD/CAM solutions to these segments of the manufacturing market. Our strategy involves examining the functionality of current and future products through in-depth focus-meetings with mold, tool, die fixture and discrete part makers, thereby making customers partners in the development of custom solutions for these market segments.

        Following our merger with Gibbs, we distribute our products to end-users in over 35 countries in five continents through certain of our subsidiaries, directly in Israel and the US and through a network of independent Providers and Resellers. Between us, our subsidiaries (including Gibbs) and our Providers and Resellers, our family of products has more than 40,000 installations.

        Providers

        We believe that our Providers are technically competent in the mechanical engineering and manufacturing aspects of CAD/CAM markets and offer a full range of sales, service and support functions. Most of the Providers assume overall responsibility for the integrity of each end-user customer’s CAD/CAM system in their respective territories, including selling, installation, training and maintenance. Providers are, in most cases, carefully selected on the basis of their ability to distribute and service our entire product line, with special emphasis on the ability of their engineering and sales teams to provide customer support.

        We furnish our Providers with technical guidance and marketing and sales resources. Providers regularly visit our Israeli headquarters, while our employees from various departments visit Providers’ sites. Our relationship with our Providers is further enhanced by international conferences, that we organize from time to time, regional workshops and cooperative exhibitions, and participation in local user meetings.

        Providers serve as an integral part of our marketing and service network around the world. They give our products a local “feel” by (a) offering technical support in the end-user’s native language, (b) being available to attend to customer needs during local business hours, (c) translating our manuals, product and marketing literature into the local language and (d) frequently organizing user programs and seminars. Providers continually develop new ways to adapt and enhance our products to meet their respective customers’ regional and company-specific needs.

        A typical agreement with a Provider is for a term of two years (subject to rolling two-year extensions). Our Providers are distributors and our agreements with them enable the Providers to purchase our products at a discounted price. Certain of our Providers act as our exclusive distributors in a single country or region. Other than our Provider in Japan, no Provider accounted for more than 1.5% of our total revenue for the year ended December 31, 2007. In July 2005 we acquired 27.5% of our Italian Provider and an option to purchase its remaining outstanding shares from its stockholders. In July 2007 we exercised our option to increase our holdings in our Italian distributor to 51%. This holding increase changed its status from an independent provider to a subsidiary.

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        There can be no assurance that all existing relationships with our Providers will be renewed. We believe that with the exception of our Provider in Japan, the termination of our relationship with a single Provider would not adversely effect us; however, the termination of our relationship with several of our Providers at approximately the same time or with one of our two Providers in Japan who accounted for 7.4% of our sales in 2007 could adversely affect us. There can be no assurance that, in the event that we lose any of our Providers, we will be successful in recruiting replacement professional and technically competent Providers.

        Gibbs Resellers

        We believe that our Resellers are technically competent in the mechanical engineering and manufacturing aspects of CAD/CAM markets and offer a full range of sales, service and support functions. Most of the Resellers assume overall responsibility for the integrity of each end-user customer’s CAD/CAM system in their respective territories, including selling, installation, training and maintenance. Resellers are, in most cases, carefully selected on the basis of their ability to distribute and service our entire product line. US-based Resellers count on Gibbs corporate for much of their service and support. Training is also provided at Gibbs Corporate Headquarters based in Moorpark, CA, USA. In International markets, Resellers are selected with special emphasis on their ability to provide customer service, support, and training.

        We furnish our Resellers with technical guidance and marketing, technical and sales resources in addition to the product and associated documentation. Resellers visit Gibbs’ headquarters in California, while our employees from various departments visit Resellers sites as needed. Our relationship with our Resellers is further enhanced by international conferences, that we organize from time to time, regional workshops and cooperative exhibitions, and participation in local user meetings.

        Resellers serve as an integral part of our marketing and service network around the world. They give our products a local “feel” by (a) offering technical support in the end-user’s native language, (b) being available to attend to customer needs during local business hours, (c) translating our manuals, product and marketing literature into the local language and (d) frequently organizing user programs and seminars. Resellers continually develop new ways to adapt and enhance our products to meet their respective customers’ regional and company-specific needs.

        A typical agreement with a Reseller is for a term of one year (subject to rolling one-year extensions). According to the terms of our agreements with them, the Resellers are able to purchase our products at a discounted price. Certain of our Resellers act as our only “sales agent” in a single country or region, even though we do not have an exclusivity agreement with any Reseller.

        Gibbs’ resellers include seven who comprise the Gibbs “President’s Club.” Each of these seven resellers are independent companies that primarily engage in reselling Gibbs products and that represent the resellers with the highest total sales of Gibbs products for the preceding year. Other than the seven Presidents’ Club resellers, no reseller accounted for more than 3.3% of Gibbs’ total revenue for the year ended December 31, 2007. However, none of the Presidents Club members accounted for more than 7% of Gibbs’ revenue during 2007.

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        There can be no assurance that all existing relationships with our Resellers will be renewed. We believe that with the exception of our President’s Club Members, the termination of our relationship with a single Reseller would not adversely effect us; however, the termination of our relationship with several of our Resellers at approximately the same time or with many of our President’s Club Resellers could adversely affect us. There can be no assurance that, in the event that we lose any of our Resellers, we will be successful in recruiting replacement professional and technically competent Resellers.

        Subsidiaries

        Our strategy over the years has been to increase our direct involvement in certain key markets in which we felt the Providers were not maximizing the business opportunities, through the formation or acquisition of marketing and support subsidiaries. In furtherance of this strategy, we have incorporated subsidiaries in France, Japan, United Kingdom, China, as well as India, where we formed a subsidiary at the end of 2005 that started commercial activities during the second quarter of 2006. We have also acquired all of the outstanding voting interests in Cimatron Technologies, Inc., our North American Provider, and have had our German subsidiary, Cimatron GmbH, purchase all of the Cimatron-related business of our German Provider. During August 2006, we acquired the remaining 69.83% of the outstanding shares of our Korean provider following which it became a wholly owned subsidiary. In January 2005 we announced the formation of Cimatron Guangzhou, a new joint venture in Guangzhou, China, with SGV, a distributor of our products since 1998. In late 2006 we transferred our business activity in France to an independent provider and substantially ceased the activity of our French subsidiary. During 2007 we transitioned our business activity in the United Kingdom from our United Kingdom subsidiary to an independent provider with the intent of achieving greater efficiencies in our United Kingdom business. See “Item 5. Operating and Financial Review and Prospects – Overview” for additional details regarding the merger with Gibbs and with respect to the transaction with Microsystem, our Italian provider and our increase in holdings thereof.

        Customers

        Our end-users are typically small to medium-sized companies involved in the mechanical engineering and manufacturing industry, subcontractors that supply major corporations within the core mechanical engineering and manufacturing industry and departments or divisions within these major corporations. Our customers are located in over 35 countries worldwide.

        In the years ended December 31, 2007, 2006 and 2005, approximately 66%, 52% and 51%, respectively, of our revenues were from Europe; approximately 4%, 7% and 8%, respectively, of our revenues were from Israel; approximately 18%, 23% and 22%, respectively, of our revenues were from the Far East; approximately 11%, 17% and 18%, respectively, of our revenues were from North America; and approximately 1%, 1% and 1%, respectively, of our revenues were from other countries.

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Geographical Breakdown of Our Revenue

        The following tables represent a geographical breakdown of our revenues from products and services from the last three years (in thousands of U.S. dollars):

        2007

Geographical Region	Products					Services
	Amount		Percent			Amount		Percent
Europe		8,946		62.4	%		9,885		69.2	%
Israel		507		3.5	%		664		4.6	%
Far East		3,622		25.3	%		1,621		11.3	%
North America		1,176		8.2	%		2,094		14.6	%
Other		80		0.6	%		45		0.3	%
Total		14,331		100.0	%		14,309		100.0	%

        2006

Geographical Region	Products					Services
	Amount		Percent			Amount		Percent
Europe		4,027		41.8	%		6,848		58.0	%
Israel		358		3.7	%		1,151		9.7	%
Far East		3,531		36.6	%		1,505		12.7	%
North America		1,397		14.5	%		2,234		18.9	%
Other		329		3.4	%		79		0.7	%
Total		9,642		100.0	%		11,817		100.0	%

        2005

Geographical Region	Products					Services
	Amount		Percent			Amount		Percent
Europe		3,802		42.4	%		6,974		58.3	%
Israel		435		4.9	%		1,204		10.1	%
Far East		3,048		34.0	%		1,576		13.2	%
North America		1,607		17.9	%		2,108		17.6	%
Other		76		0.8	%		95		0.8	%
Total		8,968		100.0	%		11,957		100.0	%

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        Other than our Provider agreements and certain maintenance contracts with customers in Israel, we currently have no significant long-term contracts with any customer and sales are generally made pursuant to purchase orders received from distributors.

Potential Fluctuations in Operating Results; Seasonality

        Potential Fluctuations in Operating Results

        See “Item 3 – Risk Factors – We may experience significant fluctuations in our quarterly results, which makes it difficult for investors to make reliable period-to-period comparisons and may contribute to volatility in the market price for our ordinary shares” for a discussion of factors that may cause annual or quarterly fluctuations in the results of our operations.

        Seasonality

        We sell our products to corporations and our sales are therefore subject to the fiscal and budgeting cycles of these corporations. Accordingly, a large percentage of our sales occur in the fourth quarter, while sales in the third quarter are traditionally the lowest due to the summer vacations and in the first and second quarters sales are slower than in the fourth quarter but higher than in the third quarter.

Organizational Structure

        Our principal shareholder, DBSI, holds 4,265,950 shares, representing approximately 45.6% of our outstanding share capital. Until June 2008, Koonras Technologies Ltd., or Koonras, held 2,554,360 of our Ordinary Shares. On June 3, 2008, Koonras sold 854,360 Ordinary Shares to 3Kotek 2 B.V., or Kotek. Following the consummation of such transaction Kotek holds approximately 9.1% of our share capital. On or about June 26, 2008, Koonras sold the remaining 1,700,000 Ordinary Shares to DBSI. Following the consummation of such transaction, DBSI holds approximately 45.6% of our share capital and effectively has the ability to control the outcome of most matters submitted to a vote of our shareholders. See “Item 7. Major Shareholders and Related Party Transactions” for additional details.

        For information about Cimatron’s subsidiaries and its beneficial ownership therein, see Exhibit 8.1.

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Property, Plants and Equipment

        We do not own any real property. We lease the office premises that we occupy in Givat Shmuel, Israel from a private commercial property owner pursuant to the terms of a lease agreement we entered into in February 2003. Until January 2006 we occupied an aggregate of approximately 2.100 square meters at this facility. As of January 10, 2006, we occupy approximately 1,750 square meters at this facility. In 2007, the aggregate annual lease payments for the office premises were approximately $290 thousand. The initial term of this lease ended on June 30, 2006 and we have exercised our option to extend the lease for an additional three years.

        Following the merger with Gibbs, we lease office space in Moonpark, California from a limited liability corporation controlled by Mr. Gibbs. In connection with the merger of Gibbs, the term of the lease was shortened from 2020 to December 31, 2012, with an option to extend the lease for an additional 5 years. The rent due to be paid during the initial term shall be $24,710 per month.

        The following table represents a breakdown of our approximate aggregate annual lease payments for office premises worldwide for the year 2007 (in thousands of U.S. Dollars):

ENTITY	LOCATIONS	APPROXIMATE ANNUAL EXPENSE (in thousands of US$)
Headquarters in Israel	Givat Shmuel	255
North American subsidiary	Michigan and Illinois (U.S.)*	81
German subsidiary	Ettlingen, Hamm, Nurenberg, Koln and Ismaning	220
Microsystem	Bologna, Milano, Ancona, Treviso	337
UK subsidiary	Huddersfield	6
Japanese subsidiary	Tokyo	4
Chinese subsidiaries	Beijing, Wuxi, Chengdu, Shanghai Guangzhou, Fujian, Wuhan	68
Korean subsidiary	Seoul	26
India subsidiary	Pune	5
	Total	1,002

* These offices are responsible for our marketing efforts in Canada as well.

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Item 5. Operating and Financial Review and Prospects

Overview

        We design, develop, manufacture, market and support a family of modular, high-performance, CAD/CAM software products. Our products provide an integrated design through manufacturing solution for small-to-medium sized companies and manufacturing divisions of large corporations, and interface easily with other CAD/CAM systems.

        In July 2005 we acquired 27.5% of the shares of Microsystem Srl, our Italian distributor, for 575,000 Euro, and an option, which we refer to as the First Call Option, to acquire up to additional 23.5% of Microsystem from Microsystem’s shareholders. In July 2007 we exercised this option at the stated exercise price of $599,250. In addition, upon exercise of the First Call Option we received a second option, which we refer to as the Second Call Option, to acquire up to the remaining 49% of Microsystem’s share capital, for an exercise price of approximately $1.25 million. The Second Call Option is exercisable at any time within a 30 day period, which we refer to as the Second Option Exercise Period, starting on July 3^rd, 2008, the 12 month anniversary of our exercise of the First Call Option. In addition, as a result of our exercise of the First Call Option, any remaining other shareholders of Microsystem have an option to require us to purchase, at any time during the Second Exercise Period, 49% of Microsystem’s share capital, for consideration of approximately $1.25 million. We have accounted for the original acquisition under the equity method and accordingly, as of July 1, 2005 we commenced recording our share of Microsystems’s profits or losses in our consolidated financial statements. Following the exercise of the First Call Option and the increase in our holding in Microsystem to 51%, we have fully consolidated the results of Microsystem.

        During August 2006, we acquired the remaining 69.83% of the outstanding shares of KCT Co. Ltd, our South Korean provider for approximately $225,000 plus an additional payment subject to collection of certain receivables, following which such provider became our wholly owned subsidiary.

        During January 2008, we merged Gibbs System, Inc., also known as Gibbs & Associates, with and into a newly established US subsidiary (Cimatron Gibbs LLC) of Cimatron Technologies Inc, our US subsidiary. In consideration for the transaction, Cimatron paid to Mr. William F. Gibbs, founder, Chairman and CEO of Gibbs System, and its sole shareholder, cash consideration of approximately $5 million, as well as 1,500,000 newly issued Ordinary Shares of Cimatron. Following such transaction, Cimatron Gibbs LLC acts as a separate unit in the Cimatron group that is responsible for the marketing, selling and developing of the GibbsCAM product family, in substantially the same manner as conducted prior to the merger.

        We released our newest major version of the Cimatron E (Version 8.0) in March 2007, to include significant improvements such as a new application for progressive die design, new automated drilling capabilities, NC-Preview functionality, concurrent mold design and the ability to handle mega-size molds, and new enhancements in 5-Axis Production.

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        Revenues

        We derive revenues mainly from (a) sale of our products, including software and hardware components, and (b) services which include primarily maintenance fees and the provision of technical support for our software products and, to a lesser extent, fees from the provision of engineering, training, consulting and implementation services. Revenues from sales of our products are generated by a relatively large number of sales and no one customer accounts for a material portion of our revenues. We provide maintenance services mainly pursuant to maintenance contracts, which usually provide for annual maintenance fees. Generally, maintenance contracts are for a one-year term. It has been our experience that most of our customers who purchase maintenance contracts elect to receive maintenance services from us on a continuing basis. While customers in most markets do purchase maintenance services from us, our customers in the Far East (other than in Japan) generally do not purchase maintenance but instead purchase product upgrades on a case-by-case basis.

        Cost of Revenues

        Our cost of revenues consists of five major components: (a) the cost of our Israel-based operations, which include primarily salaries (mostly for technical support personnel), subcontractors and facilities costs, (b) hardware costs in Israel and in our subsidiaries, (c) royalties payable to third parties for third party software and maintenance, (d) royalties payable to the Israeli Office of the Chief Scientist and (e) amortization of capitalized software development costs.

        Software Development Costs

        Costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional development costs are capitalized. Based on our product development process, technological feasibility is established upon completion of a working model. Any capitalization of software development costs continues up to the time the software is available for general release to customers. However, during 2004, 2006 and 2007 costs incurred between the completion of the working model and the point at which the products were ready for general release were insignificant. Therefore, all research and development costs incurred in 2004, 2006 and 2007 have been expensed. In 2005 we capitalized approximately $0.2 million in connection with the development of Cimatron E 7.0.

        Primary and Reporting Currency

        We market and sell our products and services in Europe, the Far East, North America and Israel and derive a significant portion of our revenues from customers in Europe and Asia. A majority of our revenues in 2005, 2006 and 2007 were from customers in Europe. Since our financial results are reported in U.S. dollars, decreases in the rate of exchange of non-U.S. dollar currencies in which we make sales relative to the U.S. dollar will decrease the U.S. dollar-based reported value of those sales. To the extent that decreases in exchange rates are not offset by a reduction in our costs, they may in the future materially adversely affect our results of operations.

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        Our reporting currency is the U.S. dollar while a portion of our expenses, principally salaries and the related personnel expenses are in new Israeli shekels, or NIS. As a result, we are exposed to the risk that the rate of inflation in Israel will exceed the rate of devaluation of the NIS in relation to the U.S. dollar or that the timing of this devaluation lags behind inflation in Israel. This would have the effect of increasing the U.S. dollar cost of our operations. In 2006 and 2007 the rate of devaluation of the NIS against the U.S. dollar exceeded the rate of inflation. During the first five months of 2008 the US Dollar has continued to devaluate against the NIS. If the U.S. dollar cost of our operations in Israel continues to increase, our U.S. dollar-measured results of operations will continue to be adversely affected. Following the merger with Gibbs, we anticipate an increase in the relative portion of our U.S. dollar based expenses and revenues from our total expenses and revenues. During the second quarter of 2008 we have taken cost control measures to counter the effect of the weakening U.S. dollar on our financial results. These measures mainly involved cost reductions in Israel and the US.

        See “- Liquidity and Capital Resources – Impact of Inflation and Devaluation on Results of Operation, Liabilities and Assets” for information relating to our policy of hedging against currency fluctuations.

Critical Accounting Policies

        The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which were prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates on an on-going basis. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        We believe that application of the following critical accounting policies entails the most significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

        We recognize revenues in accordance with the American Institute of Certified Public Accountants Statement of Position 97-2, Software Revenue Recognition, as amended.

        Revenues from software license fees are recognized when persuasive evidence of an arrangement exists, the software product covered by written agreement or a purchase order signed by the customer has been delivered, the license fees are fixed and determinable and collection of the license fees is considered probable. When software arrangements involve multiple elements we allocate revenue to each element based on the relative fair values of the elements. Our determination of fair value of each element in multiple element arrangements is based on vendor-specific objective evidence (“VSOE”). We limit our assessment of VSOE for each element to the price charged when the same element is sold separately.

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        In judging the probability of collection of software license fees we continuously monitor collection and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. In connection with customers with whom we have no previous experience, we may utilize independent resources to evaluate the creditworthiness of those customers. For some customers, typically those with whom we have long-term relationships, we may grant extended payment terms. We perform on-going credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current creditworthiness, as determined by our review of their current credit information. If the financial situation of any of our customers were to deteriorate, resulting in an impairment of their ability to pay the indebtedness they incur with us, additional allowances may be required.

        Our software products do not require significant customization or modification. Service revenues include consulting services, post-contract customer support and maintenance and training. Consulting revenues are generally recognized on a time and material basis. Software maintenance agreements provide technical customer support and the right to unspecified upgrades on an if-and-when-available basis. Post-contract customer support revenues are recognized ratably over the term of the support period (generally one year) and training and other service revenues are recognized as the related services are provided. Deferred revenues represent mainly amounts received on account of service agreements.

        Our sales are made pursuant to standard purchase orders, containing payment terms averaging between 30 – 120 days. For some customers with whom we have long-standing relationships and based on past experience with those customers and the same software products, we may grant payment terms of not over 180 days. Any payment terms that exceed 180 days must be approved by our Chief Financial Officer prior to the signing of any purchase order.

        Our arrangements do not include any refund provisions nor are payments subject to milestones. In addition, substantially all of our arrangements do not contain customer acceptance provisions.

        Allowance for Doubtful Accounts

        We evaluate the collectability of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us (e.g. bankruptcy filings, substantial down-grading of credit ratings), we record a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we recognize reserves for bad debts based on the length of time the receivables are past due and on our historical experience in collecting such receivables.

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Operating Results

	December 31,
	2005			2006			2007
	In thousands of US$ (except per share data)
Statement of Income Data:
Revenue:
Products		8,968			9,642			14,331
Services		11,957			11,817			14,309
Total		20,925			21,459			28,640
Cost of revenue:
Products		3,367			2,154			3,867
Services		1,568			1,469			1,573
Total		4,935			3,623			5,440
Gross profit		15,990			17,836			23,200
Research and development costs		4,815			4,426			4,281
Selling, general and administrative
expenses		15,650			13,362			17,243
Operating income (loss)		(4,475	)		48			1,676
Financial income (expenses), net		(148	)		574			353
Other income (expenses)		1			(5	)		(3	)
Income (loss) before taxes		(4,622	)		617			2,026
Taxes on income		(2	)		(27	)		-
Income (loss) after income taxes		(4,624	)		590			2,026
Company's equity in results of
affiliated company		(5	)		(105	)		(52	)
Minority interest in results of
subsidiary		36			29			(51	)
Net income (loss)		(4,593	)		514			1,923
Net income (loss) per share (basic and
diluted)		(0.59	)		0.07			0.24
Weighted average number of shares
outstanding		7,835			7,835			7,866

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	December 31,
	2005		2006		2007
	In thousands of US$
Balance Sheet Data
Cash and cash equivalents..		2,708		5,597		9,026
Short-term investments		2,167		-		-
Total cash, cash equivalents and
short-term investments		4,875		5,597		9,026
Long term marketable investments		1,309		1,287		1,158
Working capital		4,328		5,342		6,121
Total assets		16,442		17,907		27,327
Total liabilities.		8,460		9,062		16,357
Shareholders' equity		7,982		8,845		10,970

        Revenue

        Our total revenues increased to approximately $28.6 million in 2007 from approximately $21.5 million in 2006 and from approximately $20.9 million in 2005. Our revenues from the sale of products increased to approximately $14.3 million in 2007 from approximately $9.6 million in 2006 and from approximately $9.0 in 2005. The increase in the sale of products in 2007 was mainly due to an increase of approximately $4.9 million in product sales in Europe, which was in part due to the higher Euro – dollar exchange rate, but the majority of the increase in Europe was related to the consolidation of Microsystem’s results starting in the third quarter of 2007 and to real sales growth in Germany. We also experienced product sales growth in South Korea, India, Taiwan and Israel. Such increases were partially offset by decreases of sales in other regions. As 65% of our 2007 revenues were derived from Europe, changes in the Euro – dollar exchange rate can significantly influence our revenues. As of the third quarter of 2007, the Euro – dollar exchange rate had an increasing influence on our revenues and results of operation due to the consolidation of Microsystem’s financial results with ours, since substantially all of Microsystem’s revenues are Euro-denominated. While we believe that the trend of migration of European mold, tool, die and fixture makers operations to low cost labor markets in the Far East, which markets are also characterized by lower prices and by higher usage of pirated copies of software products, may continue, we have previously adjusted our European strategy slightly in order to increasingly focus on penetrating the high end European market, in which such migration is less frequent. In 2007, our largest organic revenue growth came from Europe, mainly from Germany. We continue to increase our sales efforts in China and in other emerging markets. In addition, following the Gibbs acquisition, we have begun to introduce the GibbsCAM product line into our legacy Cimatron sales channels in Germany, Italy, China, South Korea and Israel, and ultimately in all our other sales channels. As a percentage of revenues, our revenues from the sale of products increased from approximately 42.9% in 2005, and approximately 45% in 2006 to approximately 50% in 2007. Our revenues from services increased in 2007 to approximately S14.3 million, from approximately $11.8 million in 2006 and approximately $12.0 million in 2005. This increase is mainly attributed to the consolidation of Microsytem’s results starting in the third quarter of 2007, but also to organic growth in maintenance and other services revenues. As a percentage of revenues, our revenues from services decreased to approximately 50% in 2007 from approximately 57.1% in 2005 and approximately 55% in 2006.

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        Cost of Revenue

        Cost of revenue increased in 2007 to $5.4 million, from approximately $3.6 million in 2006 and $4.9 million in 2005. The increase in 2007 is mainly due to the consolidation of Microystem’s results starting in the third quarter of 2007. The decrease in 2006 resulted mainly from the implementation of a cost reduction plan in the second half of 2005. The overall increase in costs of revenue in 2005 was due to our write-off of capitalized software development expenses in the amount of $0.8 million, which was offset by a decrease in all other components of our cost of revenue, in line with the decrease in product sales.

        Gross Profit

        Gross profit, as a percentage of total revenue, was 81.0%, 83.1% and 76.4% in 2007, 2006 and 2005, respectively. The decrease in percentage in 2007 resulted mainly from the consolidation of Microystem’s results starting in the third quarter of 2007, as a portion of Microsystem’s product revenues include hardware sales, which feature lower gross profit margins than software. The increase in percentage in 2006 resulted mainly from our cost reduction plan implemented during the second half of 2005.

        Research and Development, Patents and Licenses, etc.

        Research and development costs primarily consist of salaries and related costs of employees engaged in ongoing research, design and development activities. Research and development costs were $4.3 million in 2007, $4.4 million in 2006 and $4.8 million in 2005. In 2007 we maintained the same level of research and development activity as in 2006. The decrease in 2006 was due mainly to our cost reduction plan implemented during the second half of 2005 and during 2006.

        Selling, General and Administrative Expenses

        Selling expenses consist of costs relating to promotion, advertising, trade shows and exhibitions, compensation (including sales commissions), sales support, travel and travel-related expenses and royalties to the Fund for the Encouragement of Marketing of the Government of Israel, or the Marketing Fund, including all such expenses for our subsidiaries. We did not receive any grants from the Marketing Fund in the years 2005, 2006 or 2007 and do not expect to receive any such grants in the future. General and administrative expenses consist of (a) compensation costs for administration, finance and general management personnel, (b) office maintenance and administrative costs, (c) rent, (d) fees paid for management services to DBSI and Koonras (e) reserves for doubtful debts and (f) amortization of investment in acquired companies.

        Selling, general and administrative expenses increased to $17.2 million in 2007 from $13.4 million in 2006 and $15.6 million in 2005. The main reason for the increase in 2007 was the consolidation of Microystem’s results starting in the third quarter of 2007, but we also increased our selling and marketing expenses in order to enhance our sales and marketing efforts in some selected markets. As our operations in Europe are in Euro, we also faced higher expense in Dollar terms due to the relative weakness of the US Dollar versus the Euro. As of the third quarter of 2007, the Euro – dollar exchange rate has had an increasing influence on our revenues and results of operation due to the consolidation of Microsystem’s financial results with ours, as substantially all of Microsystem’s revenues are Euro-denominated. The main reason for the decrease in 2006 was the cost reduction plan implemented in the second half of 2005.

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        Financial Income (Expenses), net

        Financial income (expenses), net, consists primarily of interest earned on our cash reserves, gains (losses) from sale of bonds and funds, as well as interest on trade receivables and tax rebates and currency translation adjustments between the U.S. dollar exchange rate imposed on our assets and liabilities. Financial income (expenses), net, were $0.4 million in 2007 compared to $0.6 million in 2006 and $(0.1 million) in 2005. The decrease in financial income, net, in 2007 was due primarily to lower income from changes in currency exchange rates. The $5 million consideration in the merger with Gibbs was funded from our accumulated cash and cash equivalents. As a result, we expect our financial income to significantly decrease.

        Net Income (Loss)

        We incurred net income of approximately $1.9 million and $0.5 million in 2007 and 2006, respectively. In 2004 and 2005 we incurred net losses. We cannot be certain that we will maintain profitability on a quarterly or annual basis. If the percentage of our overall revenues comprised by service revenue will increase, our gross margins and profitability will likely be adversely affected. In addition, if our revenues from the sale of products will decrease, such decrease may adversely affect our future service revenues, as it may result in a smaller user base to purchase service contracts from us. See “Item 3 – Risk Factors.” For a geographical breakdown of our revenues, please refer to “Item 4 – Information on the Company – Geographical Breakdown of our Revenue.”

Effective Corporate Tax Rate

        We and each of our subsidiaries are subject to corporate taxes in various countries in which we and they operate. We are currently most significantly affected by corporate taxes in Israel where we received a final tax assessment through the tax year ended December 31, 2000. Generally, as of January 1, 2008, Israeli companies are subject to corporate tax of 27% on taxable income and are subject to capital gains tax at a rate of 25% on capital gains derived after January 1, 2003 (other than capital gains from the sale of listed securities, which are subject to tax at the current rate of 31%). The corporate tax rate was reduced in July 2005, from 31% for the 2006 tax year to 29% for the 2007 tax year, 27% for the 2008 tax year, 26% for the 2009 tax year and 25% for the 2010 tax year and thereafter. However, the effective tax rate payable by a company that derives income from an approved enterprise (as discussed below) may be considerably less. We believe that our effective tax rates in the U.S., Germany, Italy, France, the U.K., China, Japan, India and Korea would have been approximately 34%, 25%, 31%, 33%, 19%, 35%, 31%, 34% and 27.5%, respectively, for the year ended December 31, 2007, had we not incurred tax losses in such countries. We believe that we had tax loss carryforwards in Israel in the aggregate amount of $7.3 million as of the end of 2007. In addition, as of December 31, 2007, we had approximately $6 million in net operating loss carryforwards in North America, $0.9 million in Germany, $2.8 million in France $0.5 million in the U.K and $0.5 millions in Korea. There can be no assurance that we will be able to use all the above-mentioned tax loss carryforwards at any time in the future. We expect that as our profits increase and our subsidiaries utilize their respective loss carryforwards, particularly in countries with relatively high corporate tax rates, our consolidated effective tax rate will increase.

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        We have been granted “Approved Enterprise” status under the Israeli Law for the Encouragement of Capital Investments, 1959 continuously since 1994. Consequently, we are eligible for certain Israeli tax benefits. Income derived from our Approved Enterprise plan is exempt from tax for a period of two years, commencing in the first year in which we generate taxable income from such Approved Enterprise (subsequent to use of all Israeli tax loss carryforwards), and is subject to a reduced tax rate of 25% for a further five years, respectively. See Note 13 of the notes to our consolidated financial statements included elsewhere in this annual report.

Liquidity and Capital Resources

        We finance our operations primarily from funds provided by operations and, to a lesser extent, from accumulated cash and cash generated by the sale of our investments. We believe that our accumulated cash, in addition to cash generated from operations and available funds, will be sufficient to meet our cash requirements for working capital and capital expenditures for at least the next 12 months. Thereafter, if cash generated from operations is insufficient to satisfy our liquidity requirements, we may sell additional equity or debt securities or obtain credit facilities. Prior to the closing of the merger with Gibbs we obtained two credit lines from banks for an aggregate amount of $8 million. Annual interest rates may vary from Libor + 0.9% to Libor +1.2%. Both credit lines are secured by negative pledges and certain financial covenants, such as minimum equity and minimum equity as percentage of total balance sheet assets, maximum financial debt and maximum financial debt as a percentage of total balance sheet assets, minimum cash balance, minimum current ratio, minimum EBITDA and maximum ratio between financial debt and EBITDA. As of March 31, 2008, we were in compliance with the covenants under these credit lines, and the aggregate outstanding amount drawn thereunder was approximately $250,000.

        As of December 31, 2007, we had $10.2 million in cash and marketable investments. During 2007, net cash provided by operating activities was $3.4 million, and was comprised of our net profit of $1.9 million, non-cash use of depreciation and amortization of $0.9 million, increase in trade payables, accrued expenses and other liabilities of $0.5 million, partially offset by increase in accrued severance fund of $0.2 million and decrease in deferred taxes of $0.1 million. Furthermore, we utilized a renewable loan in the amount of $0.5 million from a Swiss bank, which was secured by all our assets held by the bank. Such assets varied from time to time. In March 2008 we re-paid this loan to the bank and have not renewed it since. As of December 31, 2007, Microsystem had outstanding a long-term government loan of $0.4 million. and a short term bank credit in the amount of $0.3 million.

        In addition to the cash provided by investing activities described above, we gained a net amount of $0.3 million from the acquisition of Microsystem and $0.3 million from redemption of bonds, and invested $0.6 million in the purchase of property and equipment, resulting in net cash used in investing activities of $0 million.

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        These transactions caused our aggregate amount of cash and cash equivalents to be $9 million as of December 31, 2007 as compared to $5.6 million as of December 31, 2006, our long-term marketable investments to be $1.2 million as of December 31, 2007, as compared to $1.3 million as at December 31, 2006, and our short-term bank credit to be $0.8 million as of December 31, 2007, as compared to $0.5 million as at December 31, 2006.

        As of December 31, 2007, our working capital was $6.1 million and our total assets were $27.3 million, compared to $5.3 million and $17.9 million, respectively, as of December 31, 2006. The increase in working capital resulted mainly from an increase in cash and cash equivalents and short term investments, net of short-term bank credit. The change in total assets resulted mainly from the acquisition of Microsystem and the consolidation of its financial statements starting in the third quarter of 2007.

        Our trade receivables, net of allowance for doubtful accounts on December 31, 2007 totaled $7.3 million, compared to $4.8 million on December 31, 2006. The increase was mainly attributed to the consolidation of Microsystem’s financial statements, and to a lesser extent to higher sales in 2007. The collection cycle remained unchanged during 2007 compared to 2006. We believe that, generally, the quality of receivables remained unchanged and we will continue our efforts to shorten the collection cycle.

        Our capital expenditures for 2007 amounted to approximately $0.6 million and were mostly for the purchase of computers, computer equipment and other office equipment

        We financed the consideration in the merger with Gibbs from our accumulated cash and cash equivalents, as a result of which our cash, cash equivalents and marketable securities, net of short-term and long-term credit, were decreased immediately after the closing to approximately $5 million.

        Upon exercise of the First Call Option to acquire additional Microsystem’s share capital we received a second option, which we refer to as the Second Call Option, to acquire up to the remaining 49% of Microsystem’s share capital, for an exercise price of approximately $1.25 million. The Second Call Option is exercisable at any time within a 30 day period, which we refer to as the Second Option Exercise Period, starting on July 3^rd, 2008, the 12 month anniversary of our exercise of the First Call Option. In addition, as a result of our exercise of the First Call Option, the remaining shareholders of Microsystem have an option to require us to purchase, at any time during the Second Exercise Period, 49% of Microsystem’s share capital, for consideration of approximately $1.25 million. As a result, we expect that during July 2008 we will increase our holdings in Microsystem from 51% to 100% for a cash consideration of $1.25 million. This amount was already included in our current liabilities as of December 31, 2007.

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        Concentration of credit risk.

        Financial instruments that potentially subject us to concentration of credit risk consist principally of cash and cash equivalents, short-term investments and accounts receivable. Our cash and cash equivalents, short-term investments and long-term investments are invested in deposits with major banks in the United States, Europe and Israel. We believe that the financial institutions holding our cash funds are financially sound, and that minimal credit risk exists with respect to our marketable securities, which consist of debt securities of the Government of Israel and highly rated corporate bonds. Our accounts receivable are generated from a large number of customers located in Europe, Asia, the United States and Israel. We perform ongoing evaluations of our accounts receivable and maintain an allowance for doubtful accounts that we believe is adequate to cover all anticipated losses with respect to our accounts

        Impact of Inflation and Devaluation on Results of Operations, Liabilities and Assets

        Although part of our revenues are denominated and paid in U.S. dollars, the majority are not so denominated and paid. Therefore we believe that inflation and fluctuations in the U.S. dollar exchange rate may have a material effect on our revenue. The cost of our Israel operations, as expressed in U.S. dollars, is influenced by the extent to which any increase in the rate of inflation in Israel is not offset (or is offset on a lagging basis) by a devaluation of the NIS in relation to the U.S. dollar.

        The exchange rate between NIS and the U.S. dollar has fluctuated during 2007 and during the past 5 months (December 2007 – May 2008) from a low of NIS 3.242 to the dollar to a high of NIS 4.008 to the dollar. The high and low exchange rates between the NIS and U.S. dollar during the 6 most recent months, as published by the Bank of Israel, were as follows:

MONTH	LOW 1 U.S. dollar =	HIGH 1 U.S. dollar =
December 2007	3.841	4.008
January 2008	3.625	3.861
February 2008	3.553	3.849
March 2008	3.347	3.666
April 2008	3.432	3.641
May 2008	3.242	3.471

        The average exchange rate, using the average of the exchange rates on the last day of each month during the period, for each of the five most recent fiscal years, was as follows:

Period	Exchange Rate
January 1, 2003 - December 31, 2003	4.548 NIS/$1
January 1, 2004 - December 31, 2004	4.478 NIS/$1
January 1, 2005 - December 31, 2005	4.503 NIS/$1
January 1, 2006 - December 31, 2006	4.466 NIS/$1
January 1, 2007 - December 31, 2007	4.085 NIS/$1

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        In 2005 the rate of inflation was approximately 2.4% and the U.S. dollar was devaluated against the NIS by 6.8%. In 2006 the rate of inflation was approximately (0.1)% and the U.S dollar was devaluated against the NIS by 8.2%. In 2007 the rate of inflation was approximately 3.4% and the U.S dollar was devaluated against the NIS by 8.9%.

        Since our financial results are reported in dollars, fluctuations in the rates of exchange between the dollar and non-dollar currencies may have a material effect on our results of operations. We therefore use currency exchange forward contracts and currency exchange options to hedge the impact of the variability in the exchange rates on future cash flows from certain Euro-denominated transactions, as well as certain NIS-denominated expenses. Our policy is to hedge up to 100% of our Euro denominated future cash flows to protect against a reduction in reported operating income arising from decreases in the Euro – U.S. dollar exchange rate and to hedge up to 100% of our NIS denominated expenses to protect against an increase in reported expenses arising from increases in the U.S. dollar – NIS exchange rate. However, we may decide not to hedge in accordance with this policy where, in our judgment, the applicable exchange rate is sufficiently low. The counter-parties to our forward contracts and currency exchange options are major financial institutions with high credit ratings. We believe the risk of incurring losses on such forward contracts and currency exchange options related to credit risks is remote and that any losses would be immaterial. As of December 31, 2007 we had currency exchange options to sell up to 2.4 million Euro for a total amount of $3.36 million, and had written currency exchange options to sell up to 2.4 million Euro for a total amount of $3.75 million that were scheduled to expire prior to December 29, 2008. As of May 31, 2008, we had currency exchange options to sell up to 2.8 million Euro for a total amount of $4 million, and had written currency exchange options to sell up to 2.8 million Euro for a total amount of $4.4 million that were scheduled to expire prior to December 29, 2008. See “Item 11 – Quantitative and Qualitative Disclosure about Market Risk” for a description of hedging and other similar transactions.

Research and development, patents, licenses, etc.

        We conduct our research and development operations primarily in Israel and to a small extent in Russia. Following the merger with Gibbs in January 2008 we now also have substantial research and development operations in California. Our research and development efforts have been financed through internal resources and through plans sponsored by the Chief Scientist of the Government of Israel, or the OCS. In the years ended December 31, 2005, 2006 and 2007 our gross research and development expenditures were $4.8 million, $4.4 million and $4.3 million, respectively (23%, 21% and 15% of total revenues, respectively). Prior to 2001, we were granted royalty-bearing grants from the OCS for research and development activities. Under the provisions of Israeli law in effect until 1996, royalties of 2%-3% of the revenues derived from the sale of software products developed under a research and development program funded by the OCS and certain related services must be paid to the State of Israel. Pursuant to an amendment effected in 1996 effective with respect to OCS plans funded in or after 1994, royalties generally at the rate of 3% during the first three years, 4% over the following three years and 5% in or after the seventh year of the revenues derived in connection with products developed according to such plans are payable to the State of Israel. The maximum aggregate royalties will not exceed 100% (for funding prior to 1994, 100% to 150%) of the U.S. dollar-linked value of the total grants received. Pursuant to an amendment effected in 2000, effective with respect to OCS plans funded in or after 2000, the royalty rates described above were updated to 3% during the first three years and 3.5% in or after the fourth year, of the revenues derived in connection with products developed under such plans. Pursuant to an amendment effected on January 1, 1999, effective with respect to OCS plans approved in or after 1999, funds received from the OCS shall bear annual interest at a rate equal to LIBOR for twelve months. As of December 31, 2007, our contingent liability with respect to such grants was approximately $1.4 million, contingent upon us generating revenues from sales of products developed with funds provided by the OCS.

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        We believe that the majority of products that we have sold since January 1, 2005 are not based on technology developed with funds provided by the OCS and that, accordingly, such sales should not be subject to the payment of royalties to the OCS. Therefore, the royalty reports we submitted to the OCS for the period starting January 1, 2005 and thereafter have reflected significantly reduced royalty obligations in comparison to our royalty reports for the years prior to 2005. In addition, during the second half of 2005 we initiated a process with the OCS in an attempt to obtain the agreement of the OCS with our position and to the cessation of our obligation to pay future royalties. Following this application and further correspondence between the OCS and us, the OCS appointed an external professional examiner to examine our claim from a technological point of view. This examiner submitted his report to the OCS in November 2005. In December 2005, the OCS appointed a second professional examiner to submit a second opinion regarding our technological claim. During January 2006 our management met with the OCS in an attempt to, among other things, accelerate the OCS’s treatment of our application. In September 2006 we received a letter from the OCS rejecting our application. Following further inquiries made by us, we continued corresponding with the OCS and in January 2007 our management met again with the OCS. As a result of this meeting the OCS agreed to continue its examination of our application. In July 2007 we met with an OCS examiner and two additional OCS representatives. However, to date, we have not received any final decision from the OCS, despite our ongoing efforts to resolve this matter.

        Although we believe we have strong arguments to support our position, we have accrued royalty expenses in the amount of $2.3 million in our financial reports for the periods from January 1st, 2005 to March 31st, 2008, but we have not paid to the OCS any royalties associated with the products mentioned above. In light of the above-mentioned facts, we continue to evaluate and consider our next steps with the OCS, including without limitation, whether further royalty expense accruals will be necessary. See “Item 3. Risk Factors – We may be required to pay royalties to the OCS in respect of sales since January 1, 2005” for a discussion of the risks to us arising from the possibility that we may be obligated to pay to the OCS the amount we have accrued with regard to this issue or even more than such amount.

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        The State of Israel does not own proprietary rights in technology developed with OCS funding and there is no restriction on the export of products manufactured using technology developed with OCS funding. The technology is, however, subject to transfer restrictions, as described below. These restrictions may impair our ability to sell our technology assets or to outsource manufacturing and the restrictions continue to apply even after we have paid the full amount of royalties payable for the grants. In addition, the restrictions may impair our ability to consummate a merger or similar transaction in which the surviving entity is not an Israeli company.

        The transfer to a non-Israeli entity of technology developed with OCS funding, including pursuant to a merger or similar transaction, and the transfer of rights related to the manufacture of more than ten percent of a product developed with OCS funding are subject to approval by an OCS committee and to the following conditions:

— Transfer of Technology. If the committee approves the transfer of OCS-backed technology, such a transfer would be subject to the payment to the OCS of a portion of the consideration we receive for such technology. The amount payable would be a fraction of the consideration equal to the relative amount invested by the OCS in the development of such technology compared to our total investment in the technology, but in no event less than the amount of the grant. However, in the event that in consideration for our transfer of technology out of Israel we receive technology from a non-Israeli entity for use in Israel, we would not be required to make payments to the OCS if the approval committee finds that such transfer of non-Israeli technology would significantly increase the future return to the OCS.

— Transfer of Manufacturing Rights. The committee is authorized to approve transfers of manufacturing rights only if the transfer is conditioned upon either (1) payment of increased aggregate royalties, ranging from 120% to 300% of the amount of the grant plus interest, depending on the percentage of foreign manufacture or (2) a transfer of manufacturing rights into Israel of another product of similar or more advanced technology.

— Merger or Acquisition. If the committee approves a merger or similar transaction in which the surviving entity is not an Israeli company, such a transaction would be subject to the payment to the OCS of a portion of the consideration paid. The amount payable would be a fraction of the consideration equal to the relative amount invested by the OCS in the development of such technology compared to the total investment in the company, net of financial assets that the company has at the time of the transaction, but in no event less than the amount of the grant.

        In the event that the committee believes that the consideration to be paid in a transaction requiring payment to the OCS pursuant to the provisions of the law described above does not reflect the true value of the technology or the company being acquired, it may determine an alternate value to be used as the basis for calculating the requisite payments.

        In the years ended December 31, 2005, 2006 and 2007, we paid or accrued royalties to the OCS in the amount of $0.7 million, $0.7 million, and $0.8 million, respectively. We intend to consider whether further accruals will be necessary in light of the facts described above concerning our application to the OCS to recognize our claim that we are no longer obligated to pay royalties on a majority of our sales subsequent to January 1, 2005.

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        In addition to the OCS grants, we received grants from the Fund for the Encouragement of Overseas Marketing of the Israeli Government’s Ministry of Industry and Trade, with respect to which we are obligated to pay royalties amounting to 3% to 4% of the incremental exports, up to a maximum of 100% of the grants received. Our contingent liability as of December 31, 2007 with respect to such grants was $0.6 million, contingent upon our incremental exports.

        In addition, we are currently participating in a four year project of the European Sixth Research and Technological Development Framework Program, as part of a consortium led by European companies, with respect to machining of very high precision parts and molds aimed at mass production of optical lenses. Grants received under this project are not subject to any future royalty payments. As of December 31, 2007, we have recorded in our profit and loss statements only negligible amounts of grants received. In the first quarter of 2008 we recorded in our profit and loss statement a grant of $121,000 as R&D participation.

        Trend Information

        We are subject to various trends and uncertainties in the CAD/CAM business, including changing customer demands, new products developed by competitors, consolidation of operations and the use of cost-cutting measures. Following is a summary of the material trends and uncertainties influencing our operations:

        Cash and Cash Equivalents. The consideration in the merger with Gibbs was funded from accumulated cash and cash equivalents, as a result of which our cash and cash equivalents was decreased immediately after the closing from approximately $9 million dollars to approximately $3.5 million dollars.

        Merger with Gibbs and Related Effects. As a result of the merger with Gibbs we anticipate an increase in the following: (i) the Company’s overall expenses and revenues; (ii) relative portion of the U.S. dollar based expenses and revenues of the Company group; and (iii) geographic diversity due mainly to increase in sales in the U.S. market.

        Migration to Far East. Many mold, tool, die and fixture makers as well as discrete part manufacturers have migrated or intend to migrate their operations to markets in the Far East, such as China, in order to take advantage of the relatively lower cost of labor available in those markets for the manufacturing activities. We anticipate that this migration will continue and have expanded our operations in Asia, including in China, South Korea and India, in order to increase our share of those growing markets. Many of those markets, including China, South Korea and India, are characterized by lower prices and by higher usage of pirated copies of software products. While those markets are also often much larger than a number of our traditional markets in Europe, to the extent that we cannot offset the effects of lower prices and higher incidents of pirated software usage, our revenues and profitability may be adversely affected.

        Maintenance Revenues. It has been our experience that most of our customers who purchase maintenance contracts elect to receive maintenance services from us on a continuing basis. While customers in most markets do purchase maintenance services from us, our customers in the Far East (other than in Japan, and South Korea to a certain extent) generally do not purchase maintenance but instead purchase product upgrades on a case-by-case basis. Accordingly, our maintenance revenues may be adversely impacted to the extent that our customer base shifts to those markets in the Far East where customers often do not purchase maintenance and there is no corresponding increase in customers in other markets.

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        Maintenance Revenues. It has been our experience that most of our customers who purchase maintenance contracts elect to receive maintenance services from us on a continuing basis. While customers in most markets do purchase maintenance services from us, our customers in the Far East (other than in Japan, and South Korea to a certain extent) generally do not purchase maintenance but instead purchase product upgrades on a case-by-case basis. Accordingly, our maintenance revenues may be adversely impacted to the extent that our customer base shifts to those markets in the Far East where customers often do not purchase maintenance and there is no corresponding increase in customers in other markets.

        Decrease in prices. The strong competition in the software business generally, and in the CAD/CAM business specifically, has caused prices of products in our industry to decrease. Such decrease in software prices has resulted in a decrease in our revenues and thus in our profits. As a result, we have been forced to employ cost-cutting measures. If the foregoing trend continues, we may have to employ additional cost-reduction measures.

        Risk factors. In addition, our results of operations and financial condition may be affected by various other factors discussed in “Item 3 – Key Information – Risk Factors”, including market acceptance of our products, changes in political, military or economic conditions in Israel and in the Middle East, general slowing of local or global economies and decreased economic activity in one or more of our target industries.

E. OFF-BALANCE SHEET ARRANGEMENTS

        Other than as discussed below, we are not party to any off-balance sheet arrangements or subject to any contingent liabilities.

    1.        With respect to our contingent liability relating to payment of royalties to the OCS, see “ – Research and development, patents, licenses, etc.” above.

    2.        As consideration for grants received from the Fund for the Encouragement of Overseas Marketing of the Israeli Government’s Ministry of Industry and Trade, we are obligated to pay the Fund royalties amounting to 3% to 4% of the incremental exports, up to a maximum of 100% of the grants received. Our contingent liability as of December 31, 2007 was $0.6 million, contingent upon our incremental exports.

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F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

        The following table summarizes our contractual obligations and commercial commitments as of December 31, 2007:

Contractual Obligations as of December 31, 2007	Payments due by Period (US$ in thousands)
	Total			Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Operating Leases		4,505			1,784		2,276		445		-
Purchase Obligations and Commitments		1,220			786		-		-		-
Other Long-Term Liabilities		3,929	(1)
Total Contractual Cash Obligations		9,654			2,570		2,276		445		-

(1) Represents a provision for future severance pay obligations.

G. Safe Harbor

        This annual report on Form 20-F contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (collectively, the “Safe Harbor Provisions’”). These are statements that are not historical facts and include statements about our beliefs and expectations. These statements contain potential risks and uncertainties, and actual results may differ significantly. Forward-looking statements are typically identified by the words “believe,” “expect,” “intend,” “estimate” and similar expressions. Such statements appear in this annual report and include statements regarding the intent, belief or current expectation of the Company or its directors or officers. Actual results may differ materially from those projected, expressed or implied in the forward-looking statements as a result of various factors, including, without limitation, the factors set forth in Item 3 (“Key Information”) under the caption “Risk Factors” (“Cautionary Statements”). Any forward-looking statements contained in this annual report speak only as of the date hereof, and we caution potential investors not to place undue reliance on such statements. We undertake no obligation to update or revise any forward-looking statements. All subsequent written or oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements.

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Item 6. Directors, Senior Management and Employees

Directors and Senior Management

        As of the date of this annual report, our directors, senior management and key employees were as follows:

Name	Age	Position
Yossi Ben Shalom	53	Chairman of the Board
William F. Gibbs	54	Vice Chairman of the Board
Barak Dotan	40	Director
Yoel Rosenthal	53	Director
David Golan	67	Director
Eti Livni	59	External Director
Rami Entin	57	External Director
Dan Haran	50	President and Chief Executive Officer
Ilan Erez	40	Chief Financial Officer

Yossi Ben Shalom is a co-founder of DBSI Investments Ltd. Prior to establishing DBSI Investments, Mr. Ben Shalom served as Executive Vice President and Chief Financial Officer of Koor Industries Ltd. (NYSE:KOR), from 1998 through 2000. Prior to that, he served as Chief Financial Officer of Tadiran Ltd. Mr. Ben Shalom has also been an active director on numerous boards, such as NICE Systems (NASDAQ:NICE), Machteshim Agan, Bank Klali and others. Mr. Ben Shalom holds a bachelor’s degree in economics and a master’s degree in business administration from Tel Aviv University.

William F. Gibbs is the founder of Gibbs System, Inc. (aka Gibbs and Associates), the makers of GibbsCAM. He joined Cimatron in January 2, 2008, with the merger of Gibbs into Cimatron. Mr. Gibbs worked as a mechanical design engineer from 1972 to 1978. He designed his first CAM system for the Hasbach Co., as their VP of software development from 1978 to 1982. He started Gibbs and Associates as a contract programming service for CNC part programming in 1982, beginning CAM software development for the Macintosh computer in 1984. GibbsCAM, the 2^nd generation Gibbs software, was first released in 1993. Mr. Gibbs holds a Bachelor of Science degree in computer science from the California State University at Northridge California.

Barak Dotan is a co-founder of DBSI Investments Ltd. Prior to establishing DBSI Investments, Mr. Dotan worked as Product Manager for Jacada (NASDAQ:JCDA), formerly CST and later managed private investments in high-tech and other areas. Mr. Dotan graduated summa cum laude from the Hebrew University of Jerusalem with a bachelor’s degree in computer science and business administration.

Yoel Rosenthal has been the CFO of DBSI Investments Ltd. since 2001. Prior to joining D.B.S.I., Mr. Rosenthal was a founder and partner of a private accounting firm in Israel, Bruckner, Rosenthal, Ingber &Co. Prior to that he held the position of Loan Officer for multinational corporations at the Bank of Montreal in the USA. Mr. Rosenthal holds an MBA from the University of California in Los Angeles and a BA in Economics and Accounting from Tel Aviv University.

David Golan has been a director on our board since 1992 and is a former Chairman of the board. Mr. Golan is currently an independent businessman and a director. Previously he was an executive director in the Binat Group and served on the board of directors of several public and private companies. From May 1998 to September 2000 Mr. Golan was Managing Director in charge of Zeevi Holdings’ investments, not including ZCT. From March 1997 to May 1998, he was the Chief Executive Officer of Clal Trading Ltd., a subsidiary of the IDB group. From 1992 to March 1997, he was Executive Vice President of Clal Trading. Mr. Golan was formerly president of Gal Weisfield Industries Ltd. Mr. Golan holds a bachelors degree in economics and statistics from Hebrew University in Jerusalem and a master’s degree in business administration from New York University.

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Eti Livni is currently active as a lawyer in commercial issues, environmental issues, intellectual property and also serves as an arbitrator and mediator in various disputes. Mrs. Livni also currently serves as a director in various Israeli public companies, including the Israel Military Industry (IMI), New Makefet Pension and Benefit Funds Management Ltd., and Alrov Ltd. From 2003 until 2006, Mrs. Livni served as a member of the 16th Knesset and as a member of several Knesset committees. From 1999 until 2006, Mrs. Livni was a member of the Shinui Party and was also acting as head of the women’s section in the party. From 1995 until 2003, Mrs. Livni acted as a member of the managing committee of the Israeli Bar Association and as a member of the Association’s ethics committee. Mrs. Livni holds an L.L.B from the Hebrew University of Jerusalem, and is a certified lawyer in Israel.

Rami Entin currently serves as a director of ECtel Ltd., a Nasdaq-traded company that develops and markets fraud prevention and revenue assurance solutions for circuit-switched and packet-switched wireline and wireless networks, and is an external director of Solomon Holdings Ltd., an Israeli publicly traded construction company. Mr. Entin is also a director of Hilan-Tech Ltd., of Incentives Solutions Ltd. and of Gilon Business Insight Ltd., and serves as an external director of B.S.P. Biological Signals Processing Ltd. From 2002 until 2003, Mr. Entin was the chairman of the Hashavim Group, a data center for direct taxation and employment laws and a processor of wages and personnel data. From 1999 until 2001, Mr. Entin was Co-Chief Executive Officer and a director of Hilan-Tech Ltd., where he was in charge of financial, personnel, sales and marketing and Lotus Notes operations. From 1985 until 1999 he was financial manager and a director of Hilan Ltd., where he was in charge of financial and personnel operations. From 1981 until 1985, Mr. Entin worked for Kesselman & Kesselman, an accounting firm, where he served various publicly traded companies engaged in the services and industry fields. Mr. Entin holds a B.A. degree in accounting and economics and an M.B.A. degree from the Tel Aviv University, and is a certified accountant in Israel. He is also a graduate of the Advanced Management Program at Harvard University.

Dan Haran has been our President and Chief Executive Officer since July 2005. Mr. Haran joined Cimatron as Vice President of Marketing and Chief Operating Officer in November 2003 after having been employed by Comverse (Nasdaq:CMVT) where he held several senior management positions, most recently as Chief Operating Officer of the Intelligent Network Division. Prior to Comverse, Mr. Haran managed Medcon Systems, an Israeli-based start-up company. Mr. Haran holds a bachelor of science degree in computer engineering from the Technion, a master of science degree from the Weitzman Institute, and a master of business administration degree from Tel Aviv University.

Ilan Erez joined us as VP Finance in May 2005 and became Chief Financial Officer in July 2005. From 1998 to 2005 Mr. Erez served as the Chief Financial Officer of Silicom Ltd., a NASDAQ listed company engaged in the design, manufacturing and selling of server-networking cards. He also served as VP Operations of Silicom from May 2001 until his departure. From 1996 to 1998 Mr. Erez served as a Controller and assistant to the Chief Executive Officer at Bio-Dar Ltd. From 1994 until 1996 Mr. Erez served as an Auditor at Kesselman & Kesselman, a member of PriceWaterhouseCoopers. Mr. Erez is a Certified Public Accountant in Israel and holds a B.A in Accounting and Economics from the Hebrew University in Jerusalem and an LL.M. in Business Law from Bar-Ilan University.

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Arrangements for the Election of Directors

        DBSI Investments Ltd., our largest shareholder (holding approximately 45.6% of our share capital), controls the outcome of most matters submitted to a vote of our shareholders, including the election of members of our board of directors. Koonras and DBSI were parties to an agreement by which, among other matters, they would each appoint one half of our directors, not including our external directors, and vote together at our shareholders’ meetings. Following the sale of the 1,700,000 Ordinary Shares to DBSI and the sale of 854,360 Ordinary Shares to Kotek, Koonras is no longer a shareholder of the Company and such agreement has been terminated.

        Following the merger with Gibbs System, Mr. Gibbs was issued 1,500,000 Ordinary Shares which represent approximately 16% of our outstanding share capital. Additionally, Mr. Gibbs has been appointed as the vice chairman of our Board of Directors. Under the merger agreement, we undertook to Mr. Gibbs that he will serve as the vice chairman of our Board of Directors as long as he continues to hold 9% of our issued and outstanding share capital.

Compensation

        During the year ended December 31, 2007, we paid, in the aggregate, approximately $0.7 million in direct remuneration to our directors and officers for services provided by them to the Company in such capacities. The above does not include amounts expended by us for automobiles made available to our officers, expenses (including business travel, professional and business association dues and expenses) reimbursed to officers and other fringe benefits commonly reimbursed or paid by companies in Israel. We pay our external directors, as well as Mr. David Golan and Mr. William F. Gibbs an annual fee of approximately $8,000 plus approximately $410 for each meeting of the board of directors attended and each meeting of a committee of the board of directors attended and reimbursement for expenses incurred in connection with the discharge of responsibilities as a board member, including attending board of directors meeting.

        Please see Item 7 – “Major Shareholders and Related Party Transactions” for the employment agreement entered into with Mr. Gibbs, and the terms pursuant to which Cimatron Gibbs leases office space from Mr. Gibbs.

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Board of Directors

        Our Articles of Association provide for a Board of not less than two members. Each director, with the exception of external directors who are elected to serve set periods of time as described below, is elected to serve until the next annual general meeting of shareholders and until his or her successor has been duly elected. Officers serve at the discretion of the Board.

        Substitute Directors

        Our Articles of Association provide that any director may, by written notice to us, appoint another person to serve as a substitute director and may cancel such appointment. A person may not serve as a substitute director for more than one director and may not serve as both director and as a substitute director.

        The term of appointment of a substitute director may be for one meeting of the board of directors or for a specified period or until notice is given of the cancellation of the appointment. Any substitute director will have all of the rights and obligations of the director appointing him or her, except the power to appoint a substitute (unless the instrument appointing him or her provides otherwise), and the right to remuneration. The substitute director may not act at any meeting at which the director appointing him or her is present. Unless the appointing director limits the time period or scope of any appointment, the appointment is effective for all purposes, but will expire upon the expiration of the appointing director’s term. To our knowledge, no director currently intends to appoint any other person as a substitute director, except if the director is unable to attend a meeting of the board of directors.

        External Directors

        The Israeli Companies Law requires Israeli companies with shares that have been offered to the public in or outside of Israel to appoint at least two external directors.

        No person may be appointed as an external director if the person or the person’s relative, partner, employer or any entity under the person’s control, has or had, on or within the two years preceding the date of the person’s appointment to serve as external director, any affiliation with the company or any entity controlling, controlled by or under common control with the company. The term “affiliation” includes:

— an employment relationship;

— a business or professional relationship maintained on a regular basis;

— control; and

— service as an office holder.

        No person may serve as an external director if the person’s position or other business activities create, or may create, a conflict of interest with the person’s responsibilities as an external director or may otherwise interfere with the person’s ability to serve as an external director. If, at the time external directors are to be appointed, all current members of the board of directors are of the same gender, and then at least one external director must be of the other gender.

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        External directors are to be elected by a majority vote at a shareholders’ meeting, provided that either:

— the majority of shares voted at the meeting, including at least one-third of the shares held by non-controlling shareholders voted at the meeting, vote in favor of election of the director; or

— the total number of shares held by non-controlling shareholders voted against the election of the director does not exceed one percent of the aggregate voting rights in the company.

        The initial term of an external director is three years, and he or she may be reelected to one additional term of three years by a majority vote at a shareholders’ meeting. In addition, under a recent amendment to the regulations promulgated under the Companies Law, external directors of public companies whose shares are also registered for trading in certain stock exchanges outside of Israel, like ours, may be elected for additional three year terms (in excess of the original six year term) provided that in light of such external director’s expertise and special contribution to the work of the company’s board of directors and audit committee, the re-election of such external director is for the benefit of the company. An external director may be removed only by the same percentage of shareholders as is required for his or her election, or by a court, and then only if he or she ceases to meet the statutory requirements for his or her appointment or if he or she violates the duty of loyalty to the company.

        Each committee of a company’s board of directors that has the right to exercise powers delegated by the board must include at least one external director and our audit committee is required to include all of the external directors. Our external directors are Eti Livni and Rami Entin, who will complete their current terms in April 2011, in accordance with Israeli law.

        An external director is entitled to compensation as provided in regulations adopted under the Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with service provided as an external director.

        Under the Companies Law, at least one of the external directors serving on a company’s board of directors is required to have “financial expertise” and the other external director or directors are required to have “professional expertise.” A director is deemed to have “professional expertise” if he or she either (i) has an academic degree in economics, business management, accounting, law or public service, (ii) has an academic or other degree or completed another higher education, all in the field of business of the company or relevant for his/her position, or (iii) has at least 5 years experience as either a senior managing officer in the company’s line of business with a significant volume of business, a public office, or a senior position in the company’s main line of business. A director with “financial expertise” is a director that due to his education, experience and skills has a high expertise and understanding in financial and accounting matters and financial statements, in such a manner which allows him to deeply understand the financial statements of the company and initiate a discussion about the presentation of financial data. However, under regulations promulgated under the Companies Law, a public company whose shares are also registered for trading in certain stock exchanges outside of Israel, like ours, is not required to appoint an external director with financial and accounting expertise, if at such time there is another director serving on the board of directors of such company who has financial and accounting expertise and who is an independent director for purposes of membership on the audit committee thereof, in accordance with the applicable laws of the state in which such shares are registered (and the rules and regulations of such foreign stock exchange).

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        Audit Committee

        The Companies Law requires public companies to appoint an audit committee. The responsibilities of the audit committee include identifying irregularities in the management of the company’s business, approving related party transactions as required by law, and reviewing the quarterly and annual balance reports and recommending their approval before our board or directors. An audit committee must consist of at least three directors, including all the external directors of the company. The chairman of the board of directors, any director employed by or otherwise providing services to the company, and a controlling shareholder or any relative of a controlling shareholder, may not be a member of the audit committee.

        Under the Nasdaq rules, we are required to have at least three independent directors on the audit committee. In addition, Nasdaq requires that the members of the audit committee (a) not have any relationship to the company that may interfere with the exercise of their independence, and (b) must be financially literate.

        Under the Nasdaq rules and the Sarbanes-Oxley Act, the audit committee (i) has the sole authority and responsibility to select, evaluate, and, where appropriate, replace the company’s independent auditors, (ii) is directly responsible for the appointment, compensation and oversight of the work of the independent auditors for the purpose of preparing its audit report or related work, and (iii) is responsible for establishing procedures for (A) the receipt, retention and treatment of complaints received by the company regarding accounting, internal accounting controls or auditing matters, and (B) the confidential, anonymous submission by employees of the company of concerns regarding questionable accounting or auditing matters. The audit committee is required to consult with management but may not delegate these responsibilities. In addition, under the Sarbanes-Oxley Act, the audit committee is responsible, among other things, for the following:

— Have the sole authority to review in advance, and grant any appropriate pre-approvals of, (i) all audit and non-audit services to be provided by the independent auditors and (ii) all fees and other terms of engagement;

— Review and discuss with management and the independent auditors the company’s quarterly financial statements (including the independent auditors’ review of the quarterly financial statements) prior to any required submission to shareholders, the SEC, any stock exchange or the public;

— Review and discuss with management and the independent auditors the company’s annual audited financial statements prior to any required submission to shareholders, the SEC, any stock exchange or the public;

— Recommend to the Board, if appropriate, that the company’s annual audited financial statements be included in the company’s annual report;

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— Review and discuss with management all disclosures made by the company concerning any material changes in the financial condition or operations of the company;

— Review disclosures made to the audit committee by the company’s chief executive officer and chief financial officer during their certification process for the company’s annual report about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the company’s internal controls; and

— Review and approve all related-party transactions.

        As of the date of this annual report, Mr. David Golan, Ms. Eti Livni and Mr. Rami Entin are serving as members of our audit committee.

        Internal Auditor

        Under the Companies Law, the board of directors must appoint an internal auditor, nominated by the audit committee. The role of the internal auditor is to examine, among other matters, whether the company’s actions comply with the law and orderly business procedure. Under the Companies Law, the internal auditor may be an employee of the company but not an office holder, or an affiliate, or a relative of an office holder or affiliate, and he may not be the company’s independent accountant or its representative. During November 2007, we appointed Fahn Kanne Control Management, a member firm of Grant Thornton, as our internal auditor, replacing Ernst & Young – Kost, Forer, Gabbay & Kasierer Business Risk Services who informed us that it could not continue to serve as our internal auditor due to a conflict of interests arising from auditing services provided to third parties.

        Nasdaq Listing Requirements

        Nasdaq rules enable foreign private issuers, such as ourselves, to comply with the prevalent practice in our jurisdiction of incorporation in place of certain Nasdaq listing requirements.  To the extent that we choose to do so, we are required to disclose in our annual reports filed with the Commission each Nasdaq listing requirement that we do not follow and describe the home country practice we follow in lieu of such requirement.

        We have chosen not to comply with Nasdaq Marketplace Rules 4350(c)(4)(B) (requiring companies to adopt a formal written charter or board resolution addressing the company’s nominations process), 4350(c)(1) (majority of the board must be comprised of independent directors) and 4350(c)(2) (Regularly scheduled meetings of the company’s independent directors). Under Israeli law, the nominations process is conducted by the full board of directors. Similarly, under Israeli law all matters that are subject to the approval of a company’s board of directors are discussed by the full board of directors. Furthermore, under Israeli law, the board of directors needs to include external directors (as specified herein) but independent or external directors do not need to comprise a majority of the board. In addition, we do not intend to comply (if and when the events underlying such rule become relevant) with the Nasdaq listing requirement of shareholder approval for the establishment of and amendments to stock option or purchase plans (Rule 4350(i)(A)), which matter is not subject to shareholder approval under Israeli law and practice.

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Employees

        The following table sets forth for the last three financial years, the number of our employees broken down into categories.

Period ending December 31,	2007		2006		2005
Research and Development		56		56		59
Marketing, Sales and Customer Support		173		124		125
Administration Management and Information Systems		22		17		20
Total		251		197		204

        As of May 31, 2007, we employed 312 full-time personnel, of whom 74 (most of whom hold advanced technical degrees) were employed in research and development, 206 were employed in marketing, sales and customer support and 32 were employed in various administrative, information systems and management positions. Of these employees, 94 were employed in Israel operations, 20 were employed by our North American subsidiary and 61 were employed by Cimatron Gibbs LLC (the surviving entity in the merger with Gibbs) in North America, 33 were employed by our German subsidiary, 47 were employed by our Italian subsidiary, 48 were employed by our Chinese subsidiaries, 1 was employed by our Indian subsidiary and 8 were employed by our Korean subsidiary. In addition, we employed 9 subcontractors’ or free-lance personnel on average during the year 2007 and as of May 31, 2007 we employed 10 subcontractors’ personnel.

        Certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Associations) are applicable to our employees in Israel by order of the Israeli Ministry of Labor. These provisions concern principally the length of the workday; minimum daily wages for professional workers, insurance for work-related accidents, procedures for dismissing employees, determination of severance pay and other conditions of employment. We generally provide our employees with benefits and working conditions beyond the required minimums. In addition to salary and other benefits, certain of our marketing personnel are paid commissions based on our performance in certain territories worldwide.

        Israeli law generally requires severance pay, which may be funded by Managers’ Insurance described below, upon the retirement or death of an employee or termination of employment without cause (as defined in the law). The payments thereto amount to approximately 8.33% of wages. Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which is similar to the United States Social Security Administration. Such amounts also include payments by the employee for national health insurance. The total payments to the National Insurance Institute are equal to approximately 14.6% of the employee’s wages (up to a specified amount), of which the employee contributes approximately 66% and the employer contributes approximately 34%.

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        A general practice that we follow, which, as of May 2006, is also legally required, is the contribution of funds on behalf of our employees to a fund known as “Managers’ Insurance.” This fund provides a combination of savings plan, insurance and severance pay benefits to the employee, giving the employee payments upon retirement or death and securing the severance pay, if legally entitled, upon termination of employment. While prior to May 2006 we could decide whether each employee was entitled to participate in the plan, after that date, we are required to enable participation of all employees in the plan. Each employee is required to contribute an amount equal to 5% of their salary per month for the managers insurance and we contribute an additional amount between 13.3% and 15.8% of their salary per month.

Share Ownership

        1998 Share Option Plan

        In April 1998, the board of directors adopted an additional share option plan (the “1998 Share Option Plan”) pursuant to which 620,000 Ordinary Shares were reserved for issuance upon the exercise of options to be granted to our directors, officers, employees and consultants. The 1998 Share Option Plan is administered by our Board, which designates the optionees and dates of grant. The exercise price of an option granted under the 1998 Share Option Plan may be no less than 85% of the fair market value of an Ordinary Share, as determined by the board on the date that the option is granted. Options granted vest over a period determined by the board, terminate three years after they become exercisable, and are non-assignable except by the laws of descent. The board has the authority to amend the terms of option grants, provided that any such amendment is in the best interest of the grantee. The grantee will be responsible for all personal tax consequences of the grant and the exercise thereof. In March 2000, the board adopted new guidelines for the options to purchase Ordinary Shares reserved for issuance under the 1998 Share Option Plan upon the exercise of options to be granted to our directors, officers, employees and consultants. In August 2003, the board of directors approved the grant of options to purchase 150,000 of the Company’s shares at a price of $2.50 per share to two officers of the Company. These options are exercisable commencing one year after the date of grant at a rate of 25% per year, subject to the continued employment of the officers. As of December 31, 2007, 37,500 such options were outstanding at a price of $2.50 per share. For additional information relating to the stock options granted by us under the 1998 Share Option Plan, see Note 12(B) to our financial statements included in Item 18.

        As of May 31, 2008, 37,500 options were outstanding under the 1998 Share Option Plan. Other than such outstanding options, no shares are reserved for future issuances as such reserve has been previously transferred into the 2004 Share Option Plan (as defined below).

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        2004 Share Option Plan

        In October 2004, our board of directors and shareholders adopted the 2004 Share Option and Restricted Shares Incentive Plan (“2004 Share Option Plan”) pursuant to which 240,000 Ordinary Shares were reserved for issuance upon the exercise of options to be granted to our directors, officers, employees and consultants. The 2004 Share Option Plan is administered by our Board, which designates the optionees and dates of grant. The exercise price of an option granted under the 2004 Share Option Plan may be no less than 95% of the fair market value of an Ordinary Share, as determined by the board on the date that the option is granted. Options granted vest over a period determined by the board, terminate ten years from the date of grant, unless otherwise determined by the Board, and are non-assignable except by the laws of descent. The board has the authority to amend the terms of the option plan, provided that any such amendment does not adversely effect any options granted thereunder. In February 2005, 238,500 of such options were granted to employees of the Company at an exercise price of $2.20 per share and with a term of ten years, and in August 2005, the board of directors approved the grant of 32,000 of such options at an exercise price of $2.00 per share to the Company’s Chief Executive Officer. In December 2005 our board of directors increased the 2004 Share Option Plan reserve by an additional 250,000 shares. In May 2006 an additional 189,000 options were granted to Company employees under the 2004 Share Option Plan at exercise prices ranging from $1.75-$2.00 and with a term of five years. During August 2007, the Company granted an additional 74,000 options to Company employees at an exercise price of $2.78 and with a term of five years. During January 2008, the Company granted an additional 68,000 options to Company employees at an exercise price of $2.75 and with a term of five years including, 2,000 options to William F. Gibbs. As of May 31, 2008, 68,000 of such options were outstanding. These options are exercisable pursuant to a three (3) year vesting schedule as follows: (i) thirty three percent (33%) of the shares covered by the options become exercisable on the first anniversary of the grant date; and (ii) sixteen and one-half percent (16.5%) of the shares covered by the options become exercisable at the end of each subsequent six months period over the course of the following two (2) years, subject to the continued employment of each employee. The grantee will be responsible for all personal tax consequences of the grant and the exercise thereof. We intend to grant additional options under the 2004 Share Option Plan to various of our directors, executive officers and employees.

        In November 2007, our board of directors approved the transfer of a pool of 618,500 unallocated options from the 1998 Share Option Plan to the 2004 Share Option Plan for future grants.

        At May 31, 2008 options to purchase 540,666 of our ordinary shares were available for grants to various of our directors, officers, employees and consultants under the 2004 Share Option Plan.

        Repurchase of Our Shares

        We purchased 161,100 of our shares in the open market during 2002 and 2003 at an average price of $0.95 per share. Under Israeli law, while these shares are considered to be part of our outstanding share capital that can be reissued by us in the future, they are “dormant shares” and as such they cannot be voted and do not provide any other rights, other than upon liquidation.

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        On June 4, 2008, our Board of Directors has authorized the use of up to $1 million of our available cash to repurchase our ordinary shares. Under the repurchase program, share purchases may be made from time to time at the discretion of management in the open market or in privately negotiated transactions depending on market conditions, share price, trading volume and other factors. Such purchases will be made in accordance with the requirements of the Commission. The repurchase program has no time limit, does not require us to acquire a specific number of shares, and may be suspended from time to time or discontinued. As of June 27, 2008, we have purchased 29,722 of our shares pursuant to this plan at an average price of $2.24 per share.

Beneficial Ownership by Officers and Directors

        Messrs. Ben Shalom, Dotan and Rosenthal may be deemed to have beneficial ownership of an aggregate of 4,265,950 of our shares, representing 45.6% of our issued and outstanding capital share, by virtue of their positions with DBSI.

Item 7. Major Shareholders and Related Party Transactions

Major Shareholders

        The following table sets forth information, as of June 27, 2008, concerning the beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of ordinary shares by (i) any person who is known to own at least 5% of the ordinary shares of our company and (ii) all directors and executive officers as a group. The voting rights of our major shareholders do not differ from the voting rights of holders of all our ordinary shares.

Name and Address	Number of Ordinary Shares			Percent of Ordinary Shares
DBSI Investments Ltd.
85 Medinat Hayehudim St.
Herzliya, Israel		4,265,950			45.6	%
William F. Gibbs
4017 N. Cedarpine Lane
Moonpark, CA 93021
California, U.S		1,500,000			16.0	%
3Kotek 2 B.V. Wielewaaleg 1, 4791, PD,
Klundert, Netherlands		894,360	(3)		9.6	%
All directors and executive officers as a
group (12 persons)		5,774,939	(1)(2)		61.7	%

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(1)     Includes an aggregate of 4,265,950 shares beneficially held by DBSI, by virtue of the positions held by certain of our directors on the board of directors of DBSI, as to which such individuals disclaim beneficial ownership.

(2)     Includes an aggregate of 1,500,000 Ordinary Shares beneficially held by William F. Gibbs.

(3)     Of such 894,360 Ordinary Shares reported in this Statement, 854,360 Ordinary Shares are held by Kotek and 40,000 Ordinary Shares are held by a company wholly owned by Mr. Joel Koschitzki. Messrs. Jaap Stomp and Mr. Joel Koschitzki are the directors of Kotek and therefore may be deemed to beneficially own the Ordinary Shares held by Kotek. Messrs. Stomp and Koschitzki disclaim beneficial ownership of the Ordinary Shares held by Kotek.

In February 2002, Koonras, a subsidiary of Polar Communications Ltd., and DBSI consummated a transaction with Zeevi Computers and Technology Ltd., or ZCT, by which they acquired, for approximately $9,900,000, all of our Ordinary Shares previously held by ZCT, representing 64.3% of our share capital (including in this calculation 161,100 of our ordinary shares which we have repurchased and which, pursuant to Israeli law, cannot be voted and possess no rights other than upon liquidation). Following this transaction, each of Koonras and DBSI beneficially owned approximately 33% of our ordinary shares. Accordingly, DBSI and Koonras effectively had the ability to control the outcome of most matters that were submitted to a vote of our shareholders, including the election of members of our board of directors and approval of significant corporate transactions. Koonras and DBSI had entered into an agreement by which, among other matters, they had each appointed one half of our directors, not including our external directors, and vote together at our shareholders’ meetings. Following the consummation of the transactions described below, Koonras no longer holds any shares of the Company and all such arrangements with DBSI were terminated.

On May 11, 2008, DBSI and Koonras signed an agreement pursuant to which DBSI purchased 1,700,000 shares from Koonras (comprising approximately 18% of our outstanding share capital) at a price per share of $2.80. Following the consummation of such transaction on or about June 26, 2008, DBSI holds approximately 45.6% of our outstanding share capital.

On June 3, 2008, 3Kotek 2 B.V., a company incorporated under the laws of the Netherlands, purchased 854,360 shares from Koonras. Following the consummation of such transaction, Kotek holds approximately 9.1% of our share capital and Koonras does not hold any share capital of the Company.

Record Holders

        As of May 15, 2008, there were 30 record holders of our ordinary shares, of which 18 represented United States record holders owning an aggregate of approximately 48% of our outstanding ordinary shares.

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Related Party Transactions

Services Agreement and Lease Agreements

        Until February 2002, our former principal shareholder ZCT, provided us with certain corporate and administrative services, including, but not limited to, executive management, facilities and other such services as were agreed upon from time to time between us and ZCT. The primary executive management services that we received under the agreement represented the services of the chief executive officer and the chief financial officer of ZCT, who did not receive separate fees for such services. Pursuant to such agreement, we shared the expenses relating to the specific services we received from ZCT with the other subsidiaries of ZCT that also received such services from ZCT.

        As of February 21, 2002, ZCT assigned all rights and obligations under the foregoing services agreement to Koonras and DBSI. An assignment of this agreement to Koonras and DBSI was ratified by our shareholders on July 11, 2002. From February 21, 2002 through December 31, 2003 we paid Koonras and DBSI an aggregate of NIS 2,919,500 for these services. Koonras and DBSI continued to provide these services to the Company for an annual fee of NIS 1,560,000 (linked to the Israeli Consumer Price Index as of July 2002). Following the consummation of the sale of 1,700,000 of our shares from Koonras to DBSI, and the approval of our shareholders on June 24, 2008, the management agreement was assigned in full to DBSI, who will continue to provide all the services and receive the entire annual fee.

        Prior to the merger with Cimatron, Gibbs System, Inc. leased office space in Moonpark, California from a limited liability corporation controlled by Mr. Gibbs. In connection with the merger of Gibbs, the parties entered into an amendment to the original lease, pursuant to which the term of the lease was shortened from 2020 to December 31, 2012, with an option to extend the lease for an additional 5 years, and the rent to be paid during the initial term shall be $24,710 per month (in lieu of $22,464 per month).

Registration Rights

        In October 2004, we granted to Koonras and DBSI the registration rights described below. This action was approved by our board, audit committee and the requisite majority of disinterested shareholders in accordance with the related party transaction requirements of Israeli law. Pursuant to the registration rights agreement entered into with them, Koonras and DBSI have the right, subject to various conditions and limitations, to require us to file a registration statement for the resale of their shares or to include their shares in certain registration statements that we file. On June 3, 2008, in connection with the sale of certain of its shares to Kotek, Koonras assigned to Kotek all registration rights applicable to the Ordinary Shares transferred by Koonras to Kotek.

        In January 2008 and in connection with the merger agreement with Gibbs System, Inc., we granted Mr. Gibbs the registration rights described below, relating to the shares issued to him as part of the merger consideration. This action was approved by our board. Pursuant to the registration rights agreement entered into with him, Mr. Gibbs has the right, subject to various conditions and limitations, to include his shares in certain registration statements that we file.

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        Demand Registration Rights

        DBSI and Kotek, together, and pro-rata between themselves, are entitled to up to two demand registrations on Form F-1 (or an equivalent form) promulgated under the U.S. Securities Act of 1933, as amended, at our expense, provided that the anticipated aggregate offering price for the shares to be registered, net of any underwriting discounts and commissions, shall exceed US$1,000,000. 

        Notwithstanding the foregoing, we are not required to effect a demand registration during the period starting with the date of filing of, and ending on the date one hundred eighty (180) days following the effective date of, a registration statement pertaining to our securities.

        DBSI and Kotek, together, and pro-rata between themselves, also have the right to require us to effect up to four F-3 registrations, including for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act registering for resale from time to time by such holders of all of their shares (the “Shelf Registration Statement”), but no more than two such registrations in any 12 month period, in each case, at our expense, provided, however, that we are not required to bear the cost of more than one counsel for such holders. Mr. Gibbs has the right to require us to effect up to two F-3 registrations, under substantially the same terms specified above.

        We are required to use our best efforts to (a) cause the Shelf Registration Statement to be declared effective under the Securities Act within three months after the “demand” is made and (b) keep such Shelf Registration Statement continuously effective under the Securities Act until the expiration of five (5) years from the date that a Shelf Registration Statement is declared effective by the United States Securities and Exchange Commission.

        Piggyback Registration

        If (but without any obligation to do so) we propose to register for our own account any of our capital stock or other securities under the Securities Act in connection with a public offering of such securities solely for cash (subject to certain exceptions, such as the registration of employees options), then DBSI, Kotek and Mr. Gibbs shall be entitled to include their shares in such registration.

        The underwriter of any such offering by us shall have the right to reduce the number of shares proposed to be registered in light of market conditions, and in such event (a) the capital stock that we propose to register shall have first priority for inclusion in the relevant registration statement, and following our priority, (b) DBSI, Kotek and Mr. Gibbs shall have priority (pro rata among them) to have their shares included in such registration, before any other shares are included.

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Employment Agreement

        In connection with the merger of Gibbs, Cimatron Gibbs LLC, our subsidiary into which the Gibbs business was merged into, entered into an employment agreement with Mr. Gibbs. The employment agreement provides, among others, for an annual base salary of USD $160,000, an annual bonus based on increase in contribution to the Company’s sales in North America and to the sale of Gibbs products, and other fringe benefits as customary for comparable officers of the Company group in the United States. Mr. Gibbs also signed non-compete undertakings for our benefit. On February 15, 2008, we announced that Mr. Gibbs was appointed as President North America, replacing Mr. Sam Golan. Mr. Gibbs, who continues to maintain his position as President and CEO of Cimatron Gibbs is now responsible for promoting both Cimatron E and GibbsCAM product lines in North America. In addition, as part of an option grant approved in January 2008, Mr. Gibbs was granted 2,000 options to purchase our ordinary shares.

Item 8. Financial Information

Consolidated Statements and Other Financial Information

        Our consolidated financial statements and other financial information are included in this annual repot in “Item 18 – Financial Statements”.

Legal Proceedings

        In April 2004, Omega – Adem Technologies Ltd., an Israeli privately held company engaged in the development of software, filed a lawsuit against us, claiming that we caused four employees of the plaintiff located in Russia to terminate their employment with the plaintiff and join us. In June, 2004, the court rejected the plaintiff’s request for an injunction. In September 2004, Omega initiated arbitration proceedings against us pursuant to the services agreement between the parties and submitted to an arbitrator agreed upon between the parties a statement of claim for an amount of $20,000,000 for damages caused to Omega due to the employment of the four employees in question. On July 1, 2007 the arbitrator ruled that Cimatron pay to Omega NIS 600,000 as a final resolution of all of Omega’s claims. While we believed that there were no merits to the claim, we had nevertheless accrued in the fourth quarter of 2005 a sum of $250,000 for this claim. As a result of this accrual and the size of the final arbitration award, after paying Omega and all other expenses incurred in this case, no further expense was required to be recorded on our financial statements.

        On May 9, 2007, Collins & Aikman Corporation, on behalf of themselves and certain related parties, filed a complaint with the United States Bankruptcy court of Michigan, Detroit, against our wholly owned subsidiary, Cimatron Technologies, Inc. On May 17, 2005 the plaintiffs filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. The plaintiffs demanded repayment of an amount of $318,515 plus interest and expenses on the basis that, among other things, such payment was made within ninety days preceding the petition date. The payment to the subsidiary was mainly made in consideration for software delivered to the plaintiff, and to negligible extent, for services and maintenance provided to the plaintiff. The subsidiary engaged local counsel to vigorously oppose such claim. During March 2008, the parties reached a settlement agreement pursuant to which the subsidiary agreed to pay an amount of $5,000 in return for plaintiff’s waiving and releasing the subsidiary from any and all claims.

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        Dividend Distribution Policy

        Certain of our enterprises are Approved Enterprises. In the event of a distribution to shareholders of cash dividends out of earnings subject to the exemption from the payment of corporate tax provided to an Approved Enterprise, the Company will be subject to tax at a rate of 25%. We have not provided deferred taxes on future distributions of tax-exempt earnings, as management and the Board of Directors have determined not to make any distribution that may result in a tax liability for the Company. Accordingly, such earnings have been considered to be permanently reinvested. The tax-exempt earnings may be distributed to shareholders without subjecting the Company to taxes only upon a complete liquidation of the Company.

        Significant Changes

        Since the date of our consolidated financial statements there has not been a significant change in our Company other then as set forth in the Financial Statements.

        See “Item 5. Operating and Financial Review and Prospects – Overview” for additional details regarding the transaction with Microsystem, our Italian provider and our anticipated increase in holdings thereof.

        See “Item 6. Directors, Senior Management and Employees – Repurchase of Our Shares” for additional details regarding the Company’s repurchase of shares.

Item 9. The Offer and Listing

Offer and listing details

        Our ordinary shares were quoted on the NASDAQ Global Market System from March 1996 until April 17, 2001, from which time our ordinary shares have been traded on the NASDAQ Capital Market. Through April 16, 2000, we were quoted under the symbol CIMTF and since April 17, 2000 we have been quoted under the symbol CIMT. The Ordinary Shares are not listed on any other stock exchange and have not been publicly traded outside the United States. The table below sets forth the high and low bid prices of the Ordinary Shares, as reported by NASDAQ during the indicated fiscal quarters:

Period	High (U.S. $)		Low (U.S. $)
Six most recent months:
May 2008		3.05		2.05
April 2008		2.80		2.00
March 2008		3.20		2.53
February 2008		3.98		2.74
January 2008		3.48		2.67
December 2007		2.81		2.58

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Period	High (U.S. $)		Low (U.S. $)
Two most recent full financial years and subsequent periods:
First Quarter 2008		3.98		2.53
Forth Quarter 2007		3.06		2.13
Third Quarter 2007		2.50		1.83
Second Quarter 2007		4.58		2.00
First Quarter 2007		3.30		1.34
Forth Quarter 2006		1.73		1.16
Third Quarter 2006		1.54		1.15
Second Quarter 2006		1.53		1.15
First Quarter 2006		1.49		1.00
Five most recent years:
2007		4.58		1.34
2006		1.73		1.00
2005		2.14		1.05
2004		2.95		1.25
2003		2.48		0.88

Markets

        Our shares are traded only on the NASDAQ Capital Market, where they are listed and traded under the symbol “CIMT”.

Item 10. Additional Information

Memorandum and Articles of Association

Articles of Association; Israeli Companies Law

        In December 2006, our shareholders adopted amended and restated articles of association which replaced in their entirety our previous articles of association, which were approved prior to the adoption of the Companies Law and were not always consistent with the provisions of the Companies Law. Our objective as stated in our Articles and in our Memorandum of Association is to engage in any lawful activity.

        We currently have only one class of securities outstanding, our Ordinary Shares, par value NIS 0.10 per share. No preferred shares are currently authorized.

        Holders of Ordinary Shares have one vote per share, and are entitled to participate equally in the payment of dividends and share distributions and, in the event of our liquidation, in the distribution of assets after satisfaction of liabilities to creditors. Our Articles may be amended by a resolution carried at a General Meeting by a majority of the shares present and voting thereon (excluding abstained votes). The shareholders rights may not be modified in any other way unless otherwise expressly provided in the terms of issuance of the shares.

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        Our Articles require that we hold our annual general meeting of shareholders each year no later than 15 months from the last annual meeting, at a time and place determined by the board of directors, upon at least 21 days prior notice to our shareholders. No business may be commenced in any annual meeting until a quorum of two or more shareholders holding at least 33% of the voting rights are present in person or by proxy. Shareholders may vote in person or by proxy, and will be required to prove title to their shares as required by the Companies Law pursuant to procedures established by the board of directors. Resolutions regarding the following matters must be passed at a general meeting of shareholders:

— amendments to our Articles;

— appointment or termination of our auditors;

— appointment and dismissal of directors;

— approval of acts and transactions requiring general meeting approval under the Companies Law;

— increase or reduction of our authorized share capital or the rights of shareholders or a class of shareholders;

— any merger as provided in section 320 of the Companies Law;

— the exercise of the board of directors’ powers by a general meeting, if the board of directors is unable to exercise its powers and the exercise of any of its powers is vital for our proper management, as provided in section 52(a) of the Companies Law.

        In addition, the Companies Law provides that an extraordinary meeting of our shareholders shall be convened by the board, at the request of any two directors or one quarter of the directors, or by request of one or more shareholders holding at least 5% of our issued share capital and 1% of the voting rights, or by request of one or more shareholders holding at least 5% of the voting rights. Shareholders requesting a special meeting must submit their proposed resolution(s) with their request.

        Our Articles provide that our board of directors may from time to time, at their discretion, borrow or secure the payment of any sum of money for the objectives of the Company. Our directors may raise or secure the repayment of such sum in a manner, time and terms as they see fit.

        According to our Articles, the board of directors may delegate any authority they have to a committee comprised of members of the board. Any committee to whom the board’s powers were delegated to must abide by the regulations enacted by the board in respect of such delegated powers. In the absence of any such regulations, the committee must abide by our Articles. Our board has currently appointed one committee, which is our Audit Committee as described above in Item 6.

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        Transactions with Certain Shareholders

        The Companies Law codifies the fiduciary duties that “office holders,” including directors and executive officers, owe to a company. An office holder, is defined in the Companies Law, as a (i) director, (ii) general manager, (iii) chief business manager, (iv) deputy general manager, (v) vice general manager, (vi) executive vice president, (vii) vice president, (viii) another manager directly subordinate to the managing director or (ix) any other person assuming the responsibilities of any of the forgoing positions without regard to such person’s title. The duty of care prescribed by the Companies Law requires an office holder to act with the level of care, which a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty prescribed by the Companies Law generally requires an office holder to act in good faith and for the good of the company.

        The Companies Law requires that an office holder of a company promptly disclose any personal interest that he or she may have and all related material information known to him or her, in connection with any existing or proposed transaction by the company. In addition, if the transaction is an extraordinary transaction, as defined under Israeli law, the office holder must also disclose any personal interest held by the office holder’s spouse, siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of any of the foregoing, or by any corporation in which the office holder is a 5% or greater shareholder, holder of 5% or more of the voting power, director or general manager or in which he or she has the right to appoint at least one director or the general manager. An extraordinary transaction is defined as a transaction not in the ordinary course of business, not on market terms, or that is likely to have a material impact on the company’s profitability, assets or liabilities.

        In the case of a transaction that is not an extraordinary transaction, after the office holder complies with the above disclosure requirement, only board approval is required unless the Articles of Association of the company provide otherwise. The transaction must not be adverse to the company’s interest. If the transaction is an extraordinary transaction, then, in addition to any approval required by the Articles of Association, it must also be approved by the audit committee and by the board of directors, and, under specified circumstances, by a meeting of the shareholders.

        Agreements regarding directors’ terms of employment require the approval of the audit committee, the board of directors and the shareholders. In all matters in which a director has a personal interest, including matters of his/her terms of employment, he/she shall not be permitted to vote on the matter or be present in the meeting in which the matter is considered. However, should a majority of the audit committee or of the board of directors have a personal interest in the matter then:

— all of the directors shall be permitted to vote on the matter and attend the meeting in which the matter is considered; and

— the matter requires approval of the shareholders at a general meeting.

        According to the Companies Law, the disclosure requirements discussed above also apply to a controlling shareholder of a public company. In general, extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and agreements relating to employment and compensation terms of a controlling shareholder require the approval of the audit committee, the board of directors and the shareholders of the company. The term “controlling shareholder” is defined as a shareholder who has the ability to direct the activities of a company, other than if this power derives solely from the shareholder’s position on the board of directors or any other position with the company. The definition also includes shareholders that hold 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights in the company.

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        The shareholder approval must either include at least one-third of the shares held by disinterested shareholders who are present in person or by proxy at the meeting and who are voting thereon, or, alternatively, the total shareholdings of the disinterested shareholders who vote against the transaction must not represent more than one percent of the voting rights in the company.

        In addition, a private placement of securities that (i) includes the issuance of twenty percent or more of the company’s outstanding voting rights (prior to such issuance) in which the consideration, in whole or in part, is not in cash or in registered securities or is not at market value, and as a result of which a person holding five percent of more of the company’s share capital or voting rights will increase or that will cause any person to become, as a result of the issuance, a holder of more than five percent of the company’s outstanding share capital, or (ii) will cause any person to become, as a result of the issuance, a controlling shareholder of the company, requires approval by the board of directors and the shareholders of the company. The regulations to the Companies Law provide certain exceptions. Any placement of securities that does not fit the above description may be issued at the discretion of the Board of Directors.

        Under the Companies Law, a shareholder has a duty to act in good faith towards the company and other shareholders and refrain from abusing his power in the company, including, among other things, voting in the general meeting of shareholders on the following matters:

— any amendment to the Articles of Association;

— an increase of the company's authorized share capital;

— a merger; or

— approval of interested party transactions that require shareholder approval.

        In addition, any controlling shareholder, any shareholder who knows that it possesses the power to determine the outcome of a shareholder vote and any shareholder who has the power to appoint or prevent the appointment office holder in the company is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty, except to state that the remedies generally available upon a breach of contract will apply also in the event of a breach of the duty to act with fairness.

        Limitation on Ownership of Securities

        The ownership and voting of our ordinary shares by non-residents of Israel are not restricted in any way by our articles of association or by the laws of the State of Israel, except for shareholders who are subjects of countries which are in a state of war with Israel.

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Mergers and Acquisitions; Anti-Takeover Provisions

        The Companies Law includes provisions with respect to the approval of corporate mergers that are applicable to us. These provisions require that the board of directors of each company that is party to the merger approve the transaction. In addition, the shareholders of each company must approve the merger by a vote of the majority of the company’s shares, present and voting on the proposed merger at a shareholders’ meeting. In determining whether the requisite majority has approved the merger, shares held by the other party to the merger or any person holding at least 25% of such other party or otherwise affiliated with such other party are excluded from the vote.

        The Companies Law does not require court approval of a merger other than in specified situations. However, upon the request of a creditor of either party to the proposed merger, a court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties of the merger to their creditors.

        A merger may not be completed unless at least 50 days have passed from the date that a proposal of the merger was filed with the Israeli Registrar of Companies by each merging company and 30 days from the date that shareholder approval of both merging companies was obtained. The merger proposal may be filed once a shareholder meeting has been called to approve the merger.

        The Companies Law also provides that the acquisition of shares in a public company on the open market must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a 25% shareholder of the company. The rule does not apply if there already is another 25% shareholder of the company. Similarly, the law provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a 45% shareholder of the company, unless there already is a 45% shareholder of the company.

        If, following any acquisition of shares, the purchaser would hold 90% or more of the shares of the company that acquisition must be made by means of a tender offer for all of the target company’s shares. An acquirer who wishes to eliminate all minority shareholders must do so by means of a tender offer and acquire 95% of all shares not held by or for the benefit of the acquirer prior to the acquisition. However, in the event that the tender offer to acquire that 95% is not successful, the acquirer may not acquire tendered shares if by doing so the acquirer would own more than 90% of the shares of the target company.

Material Contracts

        Other than the registration rights agreements, service agreement and lease agreements described in “Item 6 – Major Shareholders and Related Party Transactions – Related Party Transactions,” our current lease agreement described below, the Microsystems investment contracts and the merger agreement with Gibbs System, Inc., both of which are described in “Item 4. History and development of the Company”, all of the contracts that we have entered into over the past two years have been in the ordinary course of our business.

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        We lease the office premises that we occupy in Givat Shmuel, Israel from a private commercial property owner pursuant to the terms of a lease agreement we entered into in February 2003. As of January 10, 2006, we occupy approximately 1,750 square meters at this facility. The initial term of the lease was three years, expiring in June 30, 2006, following which we exercised our option to extend the lease for an additional three years.

Exchange Controls

        There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding some transactions. However, legislation remains in effect under which currency controls can be imposed by administrative action at any time.

        The ownership or voting of our ordinary shares by non-residents of Israel, except with respect to citizens of countries which are in a state of war with Israel, is not restricted in any way by our memorandum of association or articles of association or by the laws of the State of Israel.

Taxation

        The following is a summary of the current tax law applicable to companies in Israel, with special reference to its effect on our subsidiaries and us.  The following also contains a discussion of specified Israeli tax consequences to our shareholders and government programs from which we, and some of our subsidiaries, benefit.  To the extent that the discussion is based on tax legislation that has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in the discussion will be accepted by the tax authorities in question. 

        The discussion is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.

General Corporate Tax Structure

        Generally, as of January 1, 2008, Israeli companies are subject to corporate tax at a rate of 27% on taxable income and are subject to capital gains tax at a rate of 25% on capital gains derived after January 1, 2003 (other than capital gains from the sale of listed securities, which are subject to tax at the current rate of 27%). The effective tax rate payable by a company that derives income from an Approved Enterprise (as discussed below), however, may be considerably less. Corporate tax rates, which were reduced from a rate of 31% for the 2006 tax year, to a rate of 29% for the 2007 tax year and 27% for the 2008 tax year, will further decline to 26% for the 2009 tax year and 25% for the 2010 tax year and thereafter. Capital gains derived after January 1, 2003 (other than gains derived from the sale of listed securities that are taxed at the prevailing corporate tax rates) are subject to tax at a rate of 25%. Under the Income Tax Law (Adjustment for Inflation) 1985, income for tax purposes is measured in terms of earnings in NIS adjusted for the increase in the Israeli Consumer Price Index. The difference between the annual changes in the Israeli Consumer Price Index and in the NIS/U.S. Dollar exchange rates causes a difference between taxable income and the income reflected in our financial statements. See note 13D of our financial statements.

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Law for the Encouragement of Capital Investments, 1959

        The Law for the Encouragement of Capital Investment, 1959, or the Investment Law provides that a proposed capital investment in production facilities or other eligible facilities may be designated as an Approved Enterprise. An application to the Investment Center of the Ministry of Industry and Trade, or the Investment Center, must be submitted to obtain Approved Enterprise status. Each instrument of approval for an Approved Enterprise relates to a specific investment program that is defined both by the financial scope of the investment, including sources of funds, and by the physical characteristics of the facility or other assets.

        The tax benefits available under any instrument of approval relate only to taxable profits attributable to the specific program and are contingent upon meeting the criteria set out in the instrument of approval. If a company has more than one approval or only a portion of its capital investments are approved, its effective tax rate is the weighted average of the applicable rates. Subject to certain qualifications, however, if a company with one or more approvals distributes dividends, the dividends are deemed attributable to the entire enterprise. As explained below, following the amendment of the Investment Law which became effective on April, 1, 2005, companies may receive tax benefits under the law without applying for an Approved Enterprise status.

Tax benefits for income from Approved Enterprises approved before April 1, 2005

        Before April 1, 2005, an Approved Enterprise was entitled to receive a grant from the Government of Israel or an alternative package of tax benefits, which we refer to as alternative benefits. We have elected to forego the entitlement to grants and have applied for the alternative benefits, under which undistributed income that we generate from our Approved Enterprises will be completely tax-exempt for two years commencing from the year that we first produce taxable income and will be subject to a tax rate of 10% to 25% for an additional five to eight years, depending on the extent of foreign investment in the company. Alternative benefits are available to us until the earlier of (i) seven consecutive years, commencing in the year in which the specific Approved Enterprise first generates taxable income, (ii) twelve years from commencement of production and (iii) fourteen years from the date of approval of the Approved Enterprise status.

        Dividends paid out of income generated by an Approved Enterprise (or out of dividends received from a company whose income is generated by an Approved Enterprise) are generally subject to withholding tax at the rate of 15%. This withholding tax is deductible at source by the Approved Enterprise. The 15% tax rate is limited to dividends and distributions out of income derived during the benefits period and actually paid at any time up to twelve years thereafter. We elected the alternative benefits track, and will additionally be subject to pay corporate tax at the rate of 25% in respect of the gross amount of the dividend that we may distribute out of profits which were exempt from corporate tax in accordance with the provisions of the alternative benefits track. If we are also deemed to be a Foreign Investors Company, or FIC (as defined below), and if the FIC is at least 49% owned by non-Israeli residents, the corporate tax rate paid by us in respect of the dividend we may distribute from income derived by our Approved Enterprises during the tax exemption period may be taxed at a lower rate.

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        As we have elected the alternative benefits package, we are not obligated to attribute any part of dividends that we may distribute to exempt profits, and we may decide from which year’s profits to declare dividends. We currently intend to reinvest any income that we may in the future derive from our Approved Enterprise programs and not to distribute the income as a dividend.

        If we qualify as a FIC, our Approved Enterprises will be entitled to additional tax benefits. Subject to certain conditions, a FIC is a company with a level of foreign investment of more than 25%. The level of foreign investment is measured as the percentage of rights in the company (in terms of shares, rights to profits, voting and appointment of directors), and of combined share and loan capital, that are owned, directly or indirectly, by persons who are not residents of Israel. Such a company will be eligible for an extension of the period during which it is entitled to tax benefits under its Approved Enterprise status (so that the benefit periods may be up to ten years) and for further tax benefits if the level of foreign investment exceeds 49%.

        The benefits available to an Approved Enterprise are subject to the fulfillment of conditions stipulated in the Investment Law and its regulations and the criteria in the specific certificate of approval, as described above. If a company does not meet these conditions, it would be required to refund the amount of tax benefits, together with consumer price index linkage adjustment and interest. In February 2007 we received a letter from the investment center stating that our approved enterprise from April 2001 is about to be terminated if we do not submit a final performance report. We have decided not to pursue the completion of this investment plan, as we have not had any tax benefits from it, and we intend to apply for tax benefits pursuant the amended law as described below, if and when relevant.

Tax benefits under an Amendment that became effective on April 1, 2005

        On April 1, 2005, the Investment Law was significantly amended. The amendment provides that terms and benefits included in any certificate of approval that was granted before the amendment came into effect will remain subject to the provisions of the Investment Law as they were on the date of such approval. Furthermore, the Investment Center will continue to grant Approved Enterprise status to qualifying investments. However, the amendment limits the scope of enterprises that may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of the Approved Enterprise’s income will be derived from export.

        The amendment provides that Approved Enterprise status will only be necessary for receiving grants. As a result, it is no longer necessary for a company to acquire Approved Enterprise status in order to receive the tax benefits previously available under the alternative benefits provisions. Rather, a company may claim the tax benefits offered by the Investment Law directly in its tax returns, provided that its facilities meet the criteria for tax benefits set out by the amendment. Companies are entitled to approach the Israeli Tax Authority for a pre-ruling regarding their eligibility for benefits under the amendment.

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        Tax benefits are available under the amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% of their business income from export. In order to receive the tax benefits, the amendment states that the company must make an investment that meets all the conditions set out in the amendment for tax benefits and exceeds a minimum amount specified in the Investment Law. Such investment allows the company to receive a benefited enterprise status, and may be made over a period of no more than three years ending at the end of the year in which the company requested to have the tax benefits apply to the benefited enterprise. Where the company requests to have the tax benefits apply to an expansion of existing facilities, only the expansion will be considered to be a benefited enterprise and the company’s effective tax rate will be the weighted average of the applicable rates. In this case, the minimum investment required in order to qualify as a benefited enterprise is required to exceed a certain percentage of the value of the company’s production assets before the expansion.

        The extent of the tax benefits available under the amendment to qualifying income of a benefited enterprise are determined by the geographic location of the benefited enterprise. The location will also determine the period for which tax benefits are available.

        Dividends paid out of income derived by a benefited enterprise will be treated similarly to payment of dividends by an Approved Enterprise under the alternative benefits track. Therefore, dividends paid out of income derived by a benefited enterprise (or out of dividends received from a company whose income is derived from a benefited enterprise) are generally subject to withholding tax at the rate of 15%. The reduced rate of 15% is limited to dividends and distributions out of income derived from a benefited enterprise during the benefits period and actually paid at any time up to twelve years thereafter. A company qualifying for tax benefits under the amendment which pays a dividend out of income derived by its benefited enterprise during the tax exemption period will be subject to corporate tax in respect of the gross amount of the dividend at the otherwise applicable rate of 25%, or lower in the case of a qualified FIC which is at least 49% owned by non-Israeli residents. The dividend recipient would be subject to tax at the rate of 15% on the amount received which tax would be deducted at source.

        As a result of the Amendment, tax-exempt income generated under the provisions of the new law will subject us to taxes upon distribution of the tax-exempt income to shareholders or liquidation of the company, and we may be required to record a deferred tax liability with respect to such tax-exempt income.

        The amendment sets a minimal amount of foreign investment required for a company to be regarded as a FIC.

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Law for the Encouragement of Industrial Research and Development, 1984

        Under the Law for the Encouragement of Industrial Research and Development, 1984 (the “Research Law”), research and development programs approved by the Research Committee of the Office of the Chief Scientist (the “Research Committee”) are eligible for grants or loans if they meet certain criteria, in return for the payment of royalties from the sale of the product developed in accordance with the program. Once a project is approved, the Office of the Chief Scientist, or OCS, will award grants of up to 50% of the project’s expenditures in return for royalties, usually at rates between 3% to 5% of sales of products developed with such grants, up to a dollar-linked amount equal to 100% to 150% of such grants. Grants received under programs approved after January 1, 1999, are subject to interest at an annual rate of LIBOR for 12 months applicable to dollar deposits, which will accrue annually based on the LIBOR rate published on the first day of each year.

        For information regarding restrictions upon, and conditions to, (a) the manufacture outside of Israel of products using technology developed using OCS funding and (b) the transfer of such technology to a non-Israeli entity whether through the direct transfer of the technology or through a transaction involving the company that received such funding, see “Item 5 – Operating and Financial Review and Prospects – Research and development, patents, licenses, etc.”

Tax Benefits and Grants for Research and Development

        Israeli tax law allows, under specified conditions, a tax deduction for research and development expenditures, including capital expenditures, for the year in which they are incurred. These expenses must relate to scientific research and development projects, and must be approved by the relevant Israeli government ministry, determined by the field of research. Furthermore, the research and development must be for the promotion of the company and carried out by or on behalf of the company seeking such tax deduction. The amount of such deductible expenses, however, is reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. Expenditures not so approved are deductible over a three-year period.

Law for the Encouragement of Industry (Taxes), 1969

        The following preferred corporate tax benefits, among others, are available to Industrial Corporations (including us).

— Deduction of purchases of know-how and patents over eight years for tax purposes.

— Deduction, for tax purposes, of expenses incurred in connection with certain public securities issuances.

— Accelerated depreciation rates on both equipment and buildings.

— The right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies and an industrial holding company.

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Taxation under Inflationary Conditions

        Under the Law for the Encouragement of Industry (Taxes), 1969, industrial companies, as defined under the law, are entitled to the following tax benefits, among others:

— deductions over an eight-year period for purchases of know-how and patents;

— expenses related to a public offering are deductible over a three-year period in equal amounts;

— the right to elect, under specified conditions, to file a consolidated tax return with other related Israeli industrial companies; and

— accelerated depreciation rates on equipment and buildings.

        Eligibility for benefits under the Law for the Encouragement of Industry is not subject to receipt of prior approval from any governmental authority. Under the law, an industrial company is defined as a company resident in Israel, at least 90% of the income of which, in any tax year, determined in Israeli currency, exclusive of income from government loans, capital gains, interest and dividends, is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity.

        We believe that we currently qualify as an industrial company within the definition under the Law for the Encouragement of Industry (Taxes). No assurance can be given that we will continue to qualify as an industrial company or that the benefits described above will be available in the future.

Capital Gains Tax

        Israeli law imposes a capital gains tax on the sale of capital assets by both residents and non-residents of Israel. The law distinguishes between the “Real Gain” and the “Inflationary Amount.” The Real Gain is the excess of the total capital gain over the Inflationary Amount, computed on the basis of the increase in the Israeli Consumer Price Index between the date of purchase and the date of sale. The Inflationary Amount accumulated prior to December 31, 1993 is taxed at a rate of 10% for residents of Israel (reduced to no tax for non-residents if calculated according to the exchange rate of the dollar instead of the Israeli CPI), while the Inflationary Amount accumulated following December 31, 1993 is exempt from any capital gains tax. Until the end of the year 2002, capital gains from the sale of our ordinary shares were generally exempt from Israeli Capital Gains Tax. This exemption did not apply to a shareholder whose taxable income is determined pursuant to the Israeli Income Tax Law (Inflationary Adjustments), 1985, or to a person whose gains from selling or otherwise disposing of our securities are deemed to be business income.

        An individual is subject to a 20% tax rate on real capital gains derived from the sale of shares, as long as the individual has not demanded a deduction of interest and linkage differences in connection with the purchase and holding of the securities; and as long as the individual is not a substantial shareholder of the company issuing the shares, which is generally a shareholder with 10% or more of the right to profits, the right to nominate a director and voting rights. A substantial shareholder (or a shareholder who has demanded a deduction of interest and linkage differences) will be subject to tax at a rate of 25% on real capital gains derived from the sale of shares issued by the company. The determination of whether the individual is a substantial shareholder will be made on the date that the securities are sold. In addition, the individual will be deemed to be a substantial shareholder if at any time during the twelve months preceding this date he or she had been a substantial shareholder. The foregoing tax rates, however, will not apply to dealers in securities. However, according to the tax reform legislation, non-residents of Israel will be exempt from any capital gains tax from the sale of our ordinary shares so long as the gains are not derived through a permanent establishment that the non-resident maintains in Israel, and so long as our ordinary shares remain listed for trading as described above.

77

U.S.-Israel Tax Treaty

        Pursuant to the Convention Between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income (referred to as the U.S.-Israel Tax Treaty), the sale, exchange or disposition of Ordinary Shares by a person who qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty and who is entitled to claim the benefits afforded to such resident by the U.S.-Israel Tax Treaty (called a “Treaty U.S. Resident”) will generally not be subject to Israeli capital gains tax unless (a) such Treaty U.S. Resident is an individual and was present in Israel for more than 183 days during the relevant taxable year or (b) such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more of the voting power of a company during any part of the 12-month period preceding such sale, exchange or disposition. A sale, exchange or disposition of shares by a Treaty U.S. Resident who either is an individual and was present in Israel for more than 183 days during the relevant taxable year or who holds, directly or indirectly, shares representing 10% or more of the voting power of a company at any time during such preceding 12-month period would be subject to such Israeli tax, to the extent applicable; however, under the U.S.-Israel Tax Treaty, such Treaty U.S. Resident would be permitted to claim a credit for such taxes against the U.S. income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits.

Taxation of Non-Residents

        Non-residents of Israel, including corporations, will generally be exempt from any capital gains tax from the sale of shares so long as (i) the gains are not derived through a permanent establishment that the non-resident maintains in Israel, (ii) the shares remain listed for trading on a designated stock market and (iii) the shares were purchased after being listed on the designated stock market. These provisions dealing with capital gains are not applicable to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income. However, non-Israeli corporations will not be entitled to the foregoing exemptions if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli corporation, or (ii) is the beneficiary of or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. In addition, pursuant to the Convention between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, as amended, which we refer to as the United States-Israel Tax Treaty, the sale, exchange or disposition of ordinary shares by a person who qualifies as a resident of the United States within the meaning of the United States-Israel Tax Treaty and who is entitled to claim the benefits afforded to such person by the United States-Israel Tax Treaty, which we refer to as a Treaty United States Resident, generally will not be subject to the Israeli capital gains tax unless such Treaty United States Resident holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the twelve-month period preceding such sale, exchange or disposition, subject to certain conditions. Under the United States-Israel Tax Treaty, such Treaty United States Resident would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The United States-Israel Tax Treaty does not relate to state or local taxes in the U.S.

78

        Non-residents of Israel are subject to income tax on income accrued or derived from sources in Israel. These sources of income include passive income, including dividends, royalties and interest, as well as non-passive income from services rendered in Israel. On distribution of dividends other than bonus shares or share dividends, income tax is withheld at the rate of 20% for dividends paid to an individual or foreign corporation who is not a substantial shareholder, 25% for dividends paid to a substantial shareholder and 15% for dividends generated by an Approved Enterprise, unless in each case a different rate is provided in a treaty between Israel and shareholder’s country of residence. Under the United States-Israel Tax Treaty, the maximum tax on dividends paid to a holder of ordinary shares who is a U.S. resident will be 25%. The maximum tax rate on dividends not generated by an Approved Enterprise paid to a U.S. corporation holding at least 10% of our voting power is 12.5%.

        A non-resident of Israel who receives dividends from which tax was withheld is generally exempt from the duty to file returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by the taxpayer, and the taxpayer has no other taxable sources of income in Israel.

Documents on Display

        We are required to file reports and other information with the SEC under the Securities Exchange Act of 1934 and the regulations thereunder applicable to foreign private issuers. Reports and other information filed by us with the SEC may be inspected and copied at the SEC’s public reference facilities described below. Although as a foreign private issuer we are not required to file periodic information as frequently or as promptly as United States companies, we generally do publicly announce our quarterly and year-end results promptly and file periodic information with the SEC under cover of Form 6-K. As a foreign private issuer, we are also exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements and our officers, directors and principal shareholders are exempt from the reporting and other provisions in Section 16 of the Exchange Act.

        This annual report and the exhibits thereto, are available for inspection and copying at the public reference facilities of the Securities and Exchange Commission located a Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, and the Commission’s regional offices located in New York, New York and Chicago, Illinois. Copies of all or any part of the annual report or other filings may be obtained from these offices after payment of fees required by the Commission. Please call the Commission at 1-800-SEC-0330 for further information. The Exchange Act file number for our Securities and Exchange Commission filing is 1-8201.

79

        The Commission also maintains a website at http://www.sec.gov from which certain filings may be accessed.

        All documents referenced herein concerning us are archived and may also be inspected at our head offices located at 11 Gush Etzion Street, Givat Shmuel, Israel. Information about us is also available on our website at http://www.cimatron.com. Such information is not part of this annual report.

Item 11. Quantitative and Qualitative Disclosures About Market Risks

        We are exposed to market risks from changes in foreign currency exchange rates and interest rates, which could impact our results of operations and financial condition. We seek to manage the exposure to these market risks through our regular operating and financing activities and through the use of foreign currency exchange contracts and other financial instruments.

        All of such financial instruments are managed and controlled under a program of risk management in accordance with established policies. These policies are reviewed and approved by our Board of Directors. Our treasury operations are subject to an internal audit on a regular basis.

        As of December 31, 2007 we had currency exchange options to sell up to 2.4 million Euro for a total amount of $3.36 million, and had written currency exchange options to sell up to 2.4 million Euro for a total amount of $3.75 million that were scheduled to expire prior to December 29, 2008. As of May 31, 2008, we had currency exchange options to sell up to 2.8 million Euro for a total amount of $4 million, and had written currency exchange options to sell up to 2.8 million Euro for a total amount of $4.4 million that were scheduled to expire prior to December 29, 2008.

Interest Rate Risks

        Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We have not used derivative financial instruments in our investment portfolio. As of December 31, 2007, we had financial assets totaling approximately $10.2 million. Fixed rate financial assets, comprised of cash, bank deposits and debt securities, totaled approximately $9 million. For the year 2007 we have classified all of our marketable debt securities as “available for sale securities” which exposes the consolidated statement of operations or balance sheets to fluctuations in interest rates. As of December 31, 2007, variable rate financial assets totaled approximately $1.2 million. As of May 31, 2008, variable rate financial assets totaled approximately $0.4 million. Assuming a 10% interest rate decrease, the net decrease in our earnings would be approximately $4,000 holding other variables constant.

80

Currency Exchange Rate Risks

        Our operating and pricing strategies take into account changes in exchange rates over time. However, there can be no assurance that future fluctuations in the value of foreign currencies will not have a material adverse effect on our business, operating results or financial condition. As of the beginning of 2000, we have been using financial instruments to hedge the following foreign currency exposure risks:

        Our Subsidiaries – We operate internationally and our subsidiaries in Germany and Italy conduct their respective operations in Euros. This exposes us to market risk from changes in foreign exchange rates to the extent that the functional currency of our subsidiaries will decline in value as compared to the U.S. dollar, resulting in a foreign currency exchange rate loss. Assuming an adverse 20% foreign exchange rate fluctuation, we would experience exchange rate losses of approximately $1,250 thousand excluding the effect of our hedging transactions.

        Our Providers – Commencing on June 1, 2000 we initiated a Euro denominated price list for all of our Providers in countries whose currency is linked to the Euro. Our revenues from these Providers are therefore exposed to exchange rate differences between the Euro and the United States dollar. Assuming an adverse 20% foreign exchange rate fluctuation, we would experience exchange rate losses from these providers of approximately $210 thousand excluding the effect of our hedging transactions.

        Expenses in New Israeli Shekels

        The cost of our Israel operations, as expressed in U.S. dollars, is influenced by the extent to which any increase in the rate of inflation in Israel is not offset (or is offset on a lagging basis) by a devaluation of the NIS in relation to the U.S. dollar. The inflation rate in Israel was 3.4%, (0.1)%, and 2.4%, in 2007, 2006 and 2005, respectively. The devaluation (appreciation) of the NIS against the U.S. dollar was (8.9)%, (8.2)% and 6.4% in 2007, 2006, and 2005, respectively. Assuming a 10% devaluation of the U.S. dollar against the NIS, and assuming a maximum deviation of 1% in inflation, we would experience exchange rate losses of approximately $1.0 million excluding the effect of our hedging transactions.

        A significant portion of our expenditures is employee compensation-related. Salaries are paid in NIS and may be adjusted for changes in the CPI through salary increases or adjustments. This increases salary expenses in U.S. dollar terms. The devaluation / appreciation of the NIS against the U.S. dollar decreases / increases employee compensation expenditures as expressed in dollars proportionally. Some of our other NIS-based expenses are either currently adjusted to U.S. dollars or are adjusted to the CPI.

Item 12. Descriptions of Securities Other than Equity Securities

Not Applicable

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PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

Item 15. Controls and Procedures

        (a) Disclosure Controls and Procedures – our management evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2007.  Based on their evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures were effective as of December 31, 2007.

        (b) Not applicable.

        (c) Not applicable.

        (d) Changes in Internal Control Over Financial Reporting – There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during 2006, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT

        Our Board of Directors has determined that Rami Entin qualifies to serve as our audit committee financial expert as well as our external director with “financial expertise” under the Companies Law.

Item 16B. CODE OF ETHICS

        We have adopted a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, Controller and persons performing similar functions, and which complies with the rules promulgated by the SEC. We will provide to any person, without charge, upon request, a copy of the code of ethics and respond to any questions concerning the code. Requests to receive a copy of the code should be sent to us at our corporate headquarters located at 11 Gush Etzion Street, Givat Shmuel 54030, Israel, Attention: Chief Financial Officer. In addition, we have adopted a code of business conduct that applies to all of our directors, officers and employees, and which complies with the rules of the Nasdaq Capital Market.

82

        The Chairman of our Audit Committee may approve a request by our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Controller or any person performing similar functions for a waiver from the requirements of the code of ethics pertaining to (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationship; (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we must file with, or submit to, the Securities and Exchange Commission and in other public communications made by us; (iii) compliance with applicable governmental laws, rules and regulations; (iv) the prompt internal reporting of violation of the code to the Chairman of our Audit Committee; and (v) accountability for adherence to the code; provided in each case that the person requesting such waiver provides to our Audit Committee a full disclosure of the particular circumstances relating to such request. The Chairman of our Audit Committee will first determine whether a waiver of the relevant requirements of the code of ethics is required and, if such waiver is required, whether a waiver will be granted. The person requesting such waiver may be required to agree to certain conditions before a waiver or a continuing waiver is granted.

        Any amendments to the code of ethics and all waivers from compliance with the code of ethics granted to the persons subject thereto have to be publicly disclosed by us as, and to the extent, required by any applicable law, rule and regulations.

Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

        Audit and Audit-related Fees

        The aggregate fees billed for professional services rendered to us by our principal accountants for the audit of our financial statements and for audit-related services in 2005, 2006 and 2007 were $66,000, $66,000 and $66,000, respectively.

        Tax Fees

        The aggregate fees billed for professional services rendered to us by our principal accountants for tax compliance, tax advice and tax planning in 2005, 2006 and 2007 were $18,000, $0, and $0 respectively. In 2005 we received from our principal accountants tax advice with respect to a transfer pricing study.

        All Other Fees

        In 2007 we received from our principal accountants additional services for which we paid an amount of $13 thousand.

        Audit Committee Approval

        In December 2007, our shareholders approved the engagement of Brightman Almagor & Co., a member of Deloitte Touche Tohmatsu, as our independent auditors for the fiscal year ended December 31, 2007 and until the next annual shareholder meeting. Such approval followed the approval by our board of directors and audit committee of such engagement.

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Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES - Not applicable

Item 16E. REPURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFLIATED PURCHASERS

Issuer Purchases of Equity Securities⁽¹⁾

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid Per Share		(c) Total Numbers of Shares Purchased as part of Publicly Announced Plans or Programs		(d) Maximum Dollar Value of Shares that May Yet Be Purchased Under Plans or Programs
June 5 through June 27, 2008		29,722		2.24		29,722		933,423

(1) On June 4, 2008 we announced that our board had approved the use of up to $1 million of our available cash to repurchase our ordinary shares.  Under the repurchase program, share purchases may be made from time to time at the discretion of management in the open market or in privately negotiated transactions depending on market conditions, share price, trading volume and other factors. Such purchases will be made in accordance with the requirements of the Commission. For a portion of the authorized repurchase amount, we may enter into a plan that is compliant with Rule 10b5-1 of the Securities Exchange Act of 1934 that is designed to facilitate such purchases. The repurchase program has no time limit, does not require us to acquire a specific number of shares, and may be suspended from time to time or discontinued.

PART III

Item 17. Financial Statements

Not Applicable

Item 18. Financial Statements

See page F-1 through F-25.

84

Item 19. Exhibits

1.1 Amended and Restated Articles of Association.*

4.1 Services Agreement with Koonras Technologies Ltd. and DBSI Investments Ltd., as assigned to them by Zeevi Computers and Technology Ltd.**

4.2.1 Letter of Agreement with Microsystem Srl and all the shareholders of Microsystem Srl dated May 24, 2005, including the First Call Option Agreement, the Second Call Option Agreement, and the Put Option Agreement, and the Shareholders Agreement, all dated July 1, 2005 with Microsystem Srl and all the shareholders of Microsystem Srl.***

4.2.2 Registration Rights Agreement with Koonras Technologies Ltd. and DBSI Investments Ltd.****

4.2.3 Registration Rights Agreement with William F. Gibbs.

4.2.4 Merger Agreement and Plan of Reorganization, dated December 31, 2007, by and among Cimatron Ltd., Cimatron Technologies, Inc., Nortamic LLC (name later changed to Cimatron Gibbs LLC), Gibbs System, Inc., and William F. Gibbs.

4.2.5 Employment Agreement dated January 2, 2008 by and between William F. Gibbs and Cimatron Gibbs LLC.

8.1 List of subsidiaries.

12.1 Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)

12.2 Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)

13 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350

15.1 Consent of Independent Public Accountants.

* Incorporated by reference to our current report on Form 6-K, filed on November 22, 2006.

** Incorporated by reference to our Registration Statement on Form F-1, File No. 333-1484, as amended, filed with the Securities and Exchange Commission on February 16, 1996.

*** Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2005, filed June 29, 2006 (File No. 0-27974).

**** Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2006, filed June 28, 2007 (File No. 0-27974).

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf in the City of Givat Shmuel, State of Israel, on this 30th day of June, 2008.

CIMATRON LTD.


By: /s/ Dan Haran
——————————————
Dan Haran
President and Chief Executive Officer

86

CIMATRON LIMITED

CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

	Page
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Balance Sheets as of December 31, 2007 and 2006	F-3
Statements of Operations for the years ended December 31, 2007, 2006 and 2005	F-5
Statement of Shareholders’ Equity and Comprehensive Income (Loss) for the years ended December 31, 2007, 2006 and 2005	F-6
Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005	F-7
Notes to the Consolidated Financial Statements	F-9 to F-32

	Brightman Almagor Zohar 1 Azrieli Center Tel Aviv 67021 P.O.B. 16593 Tel Aviv 61164 Israel
	Tel:  +972 (3) 608 5555 Fax: +972 (3) 609 4022 info@deloitte.co.il www.deloitte.co.il

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of
Cimatron Ltd

We have audited the accompanying consolidated balance sheets of Cimatron Ltd (the “Company”) and its subsidiaries as of
December 31, 2007 and 2006 and the related statements of operations, shareholders’ equity and comprehensive income (loss) and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2007 and 2006 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with U.S. generally accepted accounting principles.

Brightman Almagor & Co.

Certified Public Accountants

A member firm of Deloitte Touche Tohmatsu

Tel-Aviv, Israel
June 12, 2008

	Member of
Audit Ÿ Tax Ÿ Consulting Ÿ Financial AdvisoryŸ	Deloitte Touche Tohmatsu

F-2

CIMATRON LIMITED

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	December 31,
	2007		2006
ASSETS
Current assets
Cash and cash equivalents	$	9,026	$	5,597
Trade accounts receivable, net of allowance for doubtful accounts of $1,397 and $1,625 as of December 31, 2007 and 2006 respectively (Note 4)		7,308		4,848
Other accounts receivable and prepaid expenses (Note 5)		1,258		853
Inventory		209		127
Total current assets		17,801		11,425
Long-term investments (Note 3)		1,158		2,035
Deposits with insurance companies and severance pay funds (Note 9)		2,703		2,653
Property and equipment (Note 6)
Cost		8,375		5,840
Less - accumulated depreciation		7,038		4,830
Property and equipment, net		1,337		1,010
Other assets
Software development costs, net (Note 7)		112		156
Goodwill, net		3,343		628
Other Intangible Assets		873		–
Total other assets		4,328		784
Total assets		27,327		17,907

F-3

CIMATRON LIMITED

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) (cont)

	December 31,
	2007			2006
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term bank credit		791			500
Related parties		124			109
Trade payables		2,258			828
Other liabilities and accrued expenses (Note 8)		7,765			4,221
Deferred revenues		742			425
Total current liabilities		11,680			6,083
Long-term liabilities
Accrued severance pay (Note 9)		3,929			3,003
Long term loan		403			–
Deferred tax liability		282			–
		4,614			3,003
Minority interests		63			(24	)
Contingent liabilities and commitments (Note 10)
Shareholders’ equity
Share capital (Note 11):
Ordinary shares of NIS 0.10 par value (Authorized - 19,950,000 shares, issued and outstanding - 8,053,782 shares at December 31, 2007 and 8,001,270 at December 31, 2006)		265			264
Additional paid-in capital		13,754			13,521
Accumulated other comprehensive loss:
Foreign currency translation adjustments		(170	)		(515	)
Unrealized loss on available for-sale securities		(88	)		(209	)
Unrealized gain (loss) on derivative instruments		–			131
Accumulated deficit		(2,632	)		(4,188	)
		11,129			9,004
Treasury stock, at cost; 166,100 shares at December 31, 2007 and 2006		(159	)		(159	)
Total shareholders’ equity		10,970			8,845
Total liabilities and shareholders’ equity		27,327			17,907

The accompanying notes are an integral part of the financial statements.

F-4

CIMATRON LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

	Year ended December 31,
	2 0 0 7			2 0 0 6			2 0 0 5
Revenues (Note 14a):
Products	$	14,331		$	9,642		$	8,968
Services		14,309			11,817			11,957
Total		28,640			21,459			20,925
Cost of revenues (Note 14b):
Products		3,867			2,154			3,367
Services		1,573			1,469			1,568
Total		5,440			3,623			4,935
Gross profit		23,200			17,836			15,990
Research and development expenses, net		4,281			4,426			4,815
Selling, general and administrative expenses (Note 14c)		17,243			13,362			15,650
Operating income (loss)		1,676			48			(4,475	)
Financial income (expenses), net		353			574			(148	)
Other income (expenses)		(3	)		(5	)		1
Income (loss) before income taxes		2,026			617			(4,622	)
Income taxes (Note 12)		–			(27	)		(2	)
Income (loss) after income taxes		2,026			590			(4,624	)
Company’s equity in results of affiliated company		(52	)		(105	)		(5	)
Minority interest in results of subsidiary		(51	)		29			36
Net Income (loss)	$	1,923		$	514		$	(4,593	)
Net Income (loss) per share (basic and diluted)	$	0.24		$	0.07		$	(0.59	)
Weighted average number of shares outstanding
Basic EPS (in thousands)		7,866			7,835			7,835
Diluted EPS (in thousands)		7,910			7,835			7,835

The accompanying notes are an integral part of the financial statements.

F-5

CIMATRON LIMITED

STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
(in thousands)

	Share capital		Additional paid-in capital		Accumulated other comprehensive income (loss)			Retained earnings (accumulated deficit)			Treasury stock			Comprehensive income (loss)			Total shareholders’ equity
Total comprehensive loss														$	(673	)
Balance at January 1, 2005		264		13,417		(565	)		(109	)		(159	)					12,848
Changes during the year ended December 31, 2005:
Net loss									(4,593	)					(4,593	)		(4,593	)
Unrealized loss on available-for-sale securities						64									64			64
Unrealized loss on derivative instruments						(158	)								(158	)		(158	)
Foreign currency translation adjustment						(179	)								(179	)		(179	)
Total comprehensive loss														$	(4,866	)
Balance at December 31, 2005		264		13,417		(838	)		(4,702	)		(159	)					7,982
Changes during the year ended December 31, 2006:
Net loss									514						514			514
Unrealized gain on available-for-sale securities						(7	)								(7	)		(7	)
Unrealized loss on derivative instruments						289									289			289
Foreign currency translation adjustment						(37	)								(37	)		(37	)
Stock option compensation				104											104			104
Total comprehensive income														$	863
Balance at December 31, 2006		264		13,521		(593	)		(4,188	)		(159	)					8,845
Changes during the year ended December 31, 2007:
Net Income									1,923						1,923			1,923
Adjustment for the cumulative effect of prior years Adoption of Interpretation 48									(367	)								(367	)
Unrealized loss on available-for-sale securities						121									121			121
Unrealized gain on derivative instruments						(131	)								(131	)		(131	)
Foreign currency translation adjustment						345									345			345
Exercise of stock options		1		113														114
Stock option compensation				120														120
Total comprehensive income															2,258
Balance at December 31, 2007		265		13,754		(258	)		(2,632	)		(159	)					10,970

F-6

CIMATRON LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Year ended December 31,
	2 0 0 7			2 0 0 6			2005
CASH FLOWS - OPERATING ACTIVITIES
Net Income (loss)	$	1,923		$	514		$	(4,593	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		891			521			1,676
Increase (decrease) in accrued severance pay		(210	)		464			(736	)
Gain from sale of property and equipment, net		–			–			(13	)
stock options compensation		120			104			–
Loss (gain) from sale and devaluation (revaluation) of bonds and funds		–			22			284
Company’s equity in results of affiliated company		51			116			5
Minority interest in results of subsidiary		69			(28	)		(36	)
Deferred taxes, net		(125	)		–			–
Changes in assets and liabilities:
Decrease (increase) in accounts receivable and prepaid expenses		20			(266	)		1,354
Decrease (increase) in inventory		18			6			(11	)
Decrease (increase) in deposits with insurance companies and severance pay fund		89			(434	)		727
Increase in debts to related parties		15			(195	)		205
Increase (decrease) in trade payables, accrued expenses and other liabilities		532			434			935
Net cash provided by (used in) operating activities		3,393			1,258			(203	)
CASH FLOWS - INVESTING ACTIVITIES
Investment in bonds		–			–			(250	)
Proceeds from sale and redemption of bonds		250			2,160			2,935
Purchase of property and equipment		(555	)		(444	)		(429	)
Proceeds from sale of property and equipment		–			7			27
Acquisition of affiliated companies		–			–			(891	)
Capitalization of software development costs		–			–			(193	)
Acquisition of subsidiary, net of cash acquired (Appendix A)		301			(127	)		40
Net cash provided by (used in) investing activities		(4	)		1,596			1,239
CASH FLOWS - FINANCING ACTIVITIES
Short-term bank credit		204			(1	)		–
Long-term bank credit		(9	)		–			–
Proceeds from issuance of shares upon exercise of options		114			–			–
Net cash used in financing activities		309			(1	)		–
Effect of exchange rate changes on cash		(269	)		36			(39	)
Net increase (decrease) in cash and cash equivalents		3,698			2,853			1,036
Cash and cash equivalents at beginning of year		5,597			2,708			1,711
Cash and cash equivalents at end of year	$	9,026		$	5,597		$	2,708
Supplemental information:
Cash paid during the year for income taxes	$	47		$	–		$	47

The accompanying notes are an integral part of the financial statements.

F-7

CIMATRON LIMITED

APPENDIX TO STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)

	Year ended December 31,
	2 0 0 7			2 0 0 6		2005
Appendix A - Acquisition of subsidiary, net of cash acquired
Working capital - excluding cash		(2,938	)		59		–
Goodwill		2,598			41		–
Other intangible assets		968			–		–
Property and equipment		444			27		–
Investment		(771	)		–		–
	$	301		$	127	$	–
Appendix B - Non-cash transactions
Purchase of property on credit	$	28		$	60	$	36

The accompanying notes are an integral part of the financial statements.

F-8

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 1     –	GENERAL
	Cimatron Limited (“the Company”) designs, develops, manufactures, markets and supports a family of modular CAD/CAM software products which offer integrated design-through-manufacturing solutions for small to medium-sized companies. The Company’s products have been sold to end-users in numerous industries, including automotive, aviation and aerospace, household goods, mold and die making, machinery and tools, and telecommunications. The Company markets its products through distributors and through its subsidiaries located in different countries.
NOTE 2     –	SIGNIFICANT ACCOUNTING POLICIES
	The financial statements are prepared in conformity with U.S. generally accepted accounting principles.
	A.	Use of estimates in preparation of financial statements
		The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
	B.	Financial statements in U.S. dollars
		The reporting currency of the Company is the U.S. dollar (“dollar”).
		The dollar is the functional currency of the Company and its subsidiaries in the United States and Canada. Transactions and balances originally denominated in dollars are presented at their original amounts. Non-dollar transactions and balances are remeasured into dollars in accordance with the principles set forth in Statement of Financial Accounting Standards (“SFAS”) No. 52 “Foreign Currency Translation” (“SFAS No. 52”). All exchange gains and losses from remeasurement of monetary balance sheet items resulting from transactions in non-dollar currencies are recorded in the statement of operations as they arise.
		The financial statements of certain subsidiaries whose functional currency is other than the dollar are translated into dollars in accordance with the principles set forth in SFAS No. 52. Assets and liabilities have been translated at year-end exchange rates; results of operations have been translated at average exchange rates. The translation adjustments have been reported as a separate component of shareholders’ equity.
	C.	Principles of consolidation
		The consolidated financial statements include the financial statements of the Company and all of its subsidiaries. All significant intercompany transactions and balances have been eliminated.

F-9

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 2     –	SIGNIFICANT ACCOUNTING POLICIES (cont)
	D.	Cash and cash equivalents
	Cash equivalents consist of short-term, highly liquid investments that are readily convertible into cash with original maturities of three months or less.
	E.	Marketable debt securities
		The Company accounts for its investments in marketable securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”).
		Management determines the appropriate classification of the Company’s investments in marketable debt securities at the time of purchase and reevaluates such determinations at each balance sheet date. Debt securities for which the Company does not have the intent or ability to hold to maturity are classified as available-for-sale.
		As of December 31, 2007 and 2006 all marketable debt securities are designated as available-for-sale and accordingly are stated at fair value, with the unrealized gains and losses reported in shareholders’ equity under accumulated other comprehensive income (loss). Realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the consolidated statement of operations.
	F.	Fair value of financial instruments
		The financial instruments of the Company consist mainly of cash and cash equivalents, short-term investments, current accounts receivable, accounts payable and long-term liabilities. In view of their nature, the fair value of the financial instruments included in working capital of the Company is usually identical or close to their carrying amounts.
	G.	Concentrations of credit risk
		Financial instruments which potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, and accounts receivable. The Company’s cash and cash equivalents are invested primarily in deposits with major banks worldwide. Management believes that the financial institutions that hold the Company’s investments are financially sound, and accordingly, minimal credit risk exists with respect to these investments. The Company’s trade receivables are derived from sales to customers located primarily in the U.S., Europe, Asia and Israel. The allowance for doubtful accounts is provided with respect to all balances deemed doubtful of collection.
	H.	Allowance for doubtful accounts
		The allowance for doubtful accounts is computed on the specific identification basis for accounts, the collection of which, in management’s estimation, is doubtful.

F-10

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 2     –	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
	I.	Inventory
		Inventory is presented at the lower of cost or market. Cost is determined by the “first in, first out” method.
	J.	Property and equipment
		Property and equipment are stated at cost. Depreciation is computed using the “straight-line” method, over the estimated useful life of assets, as follows:

Computers and software	3 years
Office furniture and equipment	6.5 - 16.5 years

	Leasehold improvements are amortized over the shorter of the life of the respective lease or the service life of the improvements.
K.	Impairment of long-lived assets
	The Company regularly reviews whether facts and circumstances exist which indicate that the carrying amount of assets may not be recoverable. The Company assesses the recoverability of the carrying amount of its long-lived assets based on expected undiscounted cash flows. If an asset’s carrying amount is determined to be not recoverable, the Company recognizes an impairment loss based upon the difference between the carrying amount and the fair value of such assets, in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”).
L.	Software development cost
	The Company capitalizes software development costs in accordance with SFAS No. 86 “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed” (“SFAS No. 86”). Capitalization of software development costs begins upon the establishment of technological feasibility, and continues up to the time the software is available for general release to customers. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors including, but not limited to, anticipated future gross product revenue, estimated economic life and changes in software and hardware technology.
	Capitalized software development cost is amortized on a product-by-product basis and begins when the product is available for general release to customers. Annual amortization is the greater of the amount computed using the ratio of current gross revenue for a product to the total of current and anticipated product revenue or the straight-line basis over the remaining economic useful life of the software, which is not more than five years.

F-11

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 2     –	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
	M.	Acquisition-related intangible assets
		The Company accounts for its business combinations in accordance with SFAS No. 141 “Business Combinations” (“SFAS 141”) and the related acquired intangible assets and goodwill in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 141 specifies the accounting for business combinations and the criteria for recognizing and reporting intangible assets apart from goodwill.
		Acquisition-related intangible assets result from the Company’s acquisitions of businesses accounted for under the purchase method and consist of the values of identifiable intangible assets including developed software products, established workforce and trade names, as well as goodwill. Goodwill is the amount by which the acquisition cost exceeds the fair values of identifiable acquired net assets on the date of purchase. Acquisition-related intangible assets are reported at cost, net of accumulated amortization.
	N.	Stock-based compensation
		Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)). SFAS No. 123(R) requires employee share-based equity awards to be accounted for under the fair value method. Accordingly, stock-based compensation is measured at the grant date, based on the fair value of the award. Prior to January 1, 2006, the Company accounted for stock-based equity awards granted using the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25), and related interpretations, and provided the required pro forma disclosures prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), as amended. The exercise price of options is equal to the Company share market price on the date of grant.
		Under the modified prospective method of adoption for SFAS No. 123(R), the compensation cost recognized by the Company beginning in 2006 includes (a) compensation cost for all equity incentive awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all stock-based compensations granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). The Company uses the straight-line attribution method to recognize stock-based compensation costs over the service period of the award.

F-12

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 2     –	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
	N.	Stock-based compensation (cont)
		Stock-based compensation recognized in 2006 as a result of the adoption of SFAS No. 123(R), as well as pro forma disclosures according to the original provisions of SFAS No. 123 for periods prior to the adoption of SFAS No. 123(R), use the Black-Scholes option pricing model for estimating the fair value of options granted under the Company’s equity plans. The weighted average assumptions that were used in calculating such values during 2006, 2005, and 2004, were based on estimates at the date of grant as follows:

	2 0 0 7	2 0 0 6	2 0 0 5
Risk-free interest rate	4.75%	5.41%	3.3%
Expected life of options	3.19 year	3.25 year	4 year
Expected volatility	93%	67%	96%
Expected dividend yield	None	None	None

Pro forma information required under SFAS No. 123(R) for periods prior to fiscal year 2006, as if the Company had applied the fair value recognition provisions of SFAS No. 123 to options granted is as follows:

	2 0 0 5
Pro forma net income:
Net income for the year, as reported	$	(4,593	)
Deduct – stock-based compensation determined under APB-25		–
Add - stock-based compensation determined under SFAS 123		(77	)
Pro forma net income	$	(4,670	)
Pro forma basic earnings per share	$	(0.59	)
Basic earnings per share as reported	$	(0.60	)
Pro forma diluted earnings per share	$	(0.60	)
Diluted earnings per share as reported	$	(0.59	)

F-13

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 2     –	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
	O.	Revenue recognition
		The Company recognizes revenues in accordance with the American Institute of Certified Public Accountants (“AICPA”) Statement of Position 97-2, “Software Revenue Recognition”, as amended.
		Revenues from software license fees are recognized when persuasive evidence of an arrangement exists, the software product covered by written agreement or a purchase order signed by the customer has been delivered, the license fees are fixed and determinable and collection of the license fees is considered probable. When software arrangements involve multiple elements the Company allocates revenue to each element based on the relative fair values of the elements. The Company’s determination of fair value of each element in multiple element arrangements is based on vendor-specific objective evidence (“VSOE”). The Company limits its assessment of VSOE for each element to the price charged when the same element is sold separately.
		Service revenues include consulting services, post-contract customer support and training. Consulting revenues are generally recognized on a time and material basis. Software maintenance agreements provide technical customer support and the right to unspecified upgrades on an if-and-when-available basis. Post-contract customer support revenues are recognized ratably over the term of the support period (generally one year) and training and other service revenues are recognized as the related services are provided. Deferred revenues represent mainly amounts received on account of service agreements.
		The Company’s sales are made pursuant to standard purchase orders, containing payment terms averaging between 30 - 120 days. For some customers with whom the Company has long-standing relationships and based on past experience with those customers and the same software products, the Company may grant payment terms of not over 180 days. Any payment terms that are above 90-120 days must be approved by the Company’s Chief Financial Officer, prior to signing any purchase order.
		The Company’s arrangements do not include any refund provisions nor are payments subject to milestones. In addition, the Company’s arrangements do not contain customer acceptance provisions.
	P.	Research and development costs
		Research and development costs are expensed as incurred.
	Q.	Advertising costs
		Advertising costs are charged to expenses, as incurred.

F-14

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 2     –	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
	R.	Deferred income taxes
		Deferred income taxes are provided for temporary differences between the assets and liabilities, as measured in the financial statements and for tax purposes, at the tax rates expected to be in effect when these differences reverse, in accordance with SFAS No. 109 “Accounting for Income Taxes” (“SFAS No. 109”).
		On January 1, 2007, the Company adopted the provisions of FASB interpretation No 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”, an interpretation of SFAS No. 109. As a result of this adoption, the Company recognized a charge of $367 thousands to the beginning balance of the accumulated deficit on the accompanying consolidated balance sheet as of December 31, 2007
	S.	Net income (loss) per ordinary share
		Basic and diluted net income (loss) per share have been computed in accordance with SFAS No. 128 “Earning per Share” using the weighted average number of ordinary shares outstanding. Basic income (loss) per share excludes any dilutive effect of options and warrants.
	T.	Derivative financial instruments
		The Company’s primary objective for holding derivative financial instruments is to manage mainly currency market risks. The Company transacts business in various currencies other than the U.S. dollar, primarily the Euro and NIS. The Company has established balance sheet and forecasted transaction risk management programs to protect against volatility of future cash flows caused by changes in exchange rates. It uses currency forward contracts and currency options in these risk management programs. These programs reduce, but do not always entirely eliminate, the impact of currency exchange movements.
		In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, the Company recognizes all derivative instruments as either assets or liabilities on the balance sheet at fair value. Fair values of currency forward contracts and currency options are based on quoted market prices or pricing models using current market rates. The accounting for gains or losses from changes in fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship as well as on the type of hedging relationship.
		The Company’s accounting policies for these instruments are based on whether they meet the criteria for designation as hedging transactions, either as cash flow or fair value hedges. The criteria for designating a derivative as a hedge include the instrument’s effectiveness in risk reduction and one-to-one matching for the derivative instrument to its underlying transaction. Gains and losses on derivatives that are not designated as hedges for accounting purposes are recognized currently in earnings, and generally offset changes in the value of assets and liabilities.
		The Company’s outstanding derivative instruments as of balance sheet date are included in other receivables and other accrued liabilities.

F-15

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 2     –	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
	T.	Derivative financial instruments (cont)
		Currency forward contracts and currency options, which generally expire within 12 months and are used to hedge exposures to variability in expected future foreign-denominated cash flows, are designated as cash flows hedges. For these derivatives, the effective portion of the gain or loss is reported as a component of other comprehensive income in stockholders’ equity and is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings, and within the same income statement line item.
		The ineffective portion of the gain or loss on the derivative in excess of the cumulative change in the present or future cash flows of the hedged item, if any, is recognized in financial income (expenses) net during the period of change.
		The carrying amount of foreign currency forward contracts and foreign currency options outstanding at December 31, 2007 and 2006 is $2 and $131, respectively. As of the balance sheet dates, the fair value of these contracts approximates their carrying amount.
	U.	Recently issued accounting pronouncements
		In December 2007, the FASB issued FAS No. 141 (revised 2007), Business Combinations, and FAS No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51. FAS No. 141 (revised 2007) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. This standard also requires the fair value measurement of certain other assets and liabilities related to the acquisition such as contingencies and research and development. FAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as a component of shareholders’ equity in the consolidated financial statements. Consolidated net income should include the net income for both the parent and the noncontrolling interest with disclosure of both amounts on the consolidated statement of income. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. The effective date for both Statements is for fiscal years beginning after December 15, 2008. The adoption of FAS No. 141 (revised 2007) is prospective. The effects on our financial position and consolidated results of operations could be significant, but there will be no impact on our cash flows. The adoption of FAS No. 160 is prospective. The impact to presentation and disclosure are applied retrospectively. The Company currently in the process of evaluating the impact, if any, that the adoption of FAS No. 141 (revised 2007) and FAS No. 160 will have on our financial position, consolidated results of operations and cash flows.
		SFAS No. 157, “Fair Value Measurements” - In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies whenever other accounting standards require or permit assets or liabilities to be measured at fair value. Accordingly, it does not expand the use of fair value in any new circumstances. Fair value under SFAS 157 is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability. In support of this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, a reporting entity’s own data. Under SFAS 157, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for fiscal years beginning after November 15, 2006. Accordingly, the Company is to adopt SFAS 157 on January 1, 2007. The adoption of SFAS 157 is not expected to have a material effect on the Company’s financial position or results of operations.

F-16

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 2     –	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
	U.	Recently issued accounting pronouncements (cont)
		In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS No. 159). SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS No. 159 is effective for the Company beginning in the first quarter of fiscal year 2008, although earlier adoption is permitted. The company is currently evaluating the impact that SFAS No. 159 will have on its consolidated financial statements.
NOTE 3     –	LONG-TERM INVESTMENTS
		A.     Long-term investments
		Comprised as follows

	December 31,
	2 0 0 7		2 0 0 6
Marketable securities - Corporate bonds (1)		1,158	$	1,287
Investment in affiliated companies:
Microsystem Srl		–		748
Other		–		–
		–		748
	$	1,158	$	2,035

(1) Comprised of structured bonds, which are debt instruments whose cash flows are linked to the movement in interest rates. The structured notes were issued by financial institutions. The notes typically contain embedded option components such as caps, calls, and floors. Contractual cash flows for principal from such structured notes can vary in timing throughout the life of the structured notes. Interest income resulting from investment in structured notes is accounted for based on the guidance provided in EITF No. 96-12, “Recognition of Interest Income and Balance Sheet Classification of Structured Notes”. Under this guidance, the retrospective method is used for recognizing interest income.

F-17

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 3     –	SHORT-TERM AND LONG-TERM INVESTMENTS
	A.     Long-term investments (cont.)
	In June 2005, the Company completed the acquisition of 27.5% of the share capital of Microsystem Srl, its Italian distributor, for a consideration of $694. The Company had an option (First Call Option) to acquire up to additional 23.5% of Microsystem’s share capital until June 30, 2007, for an additional consideration of approximately $600. The Company exercised its option in June 2007. Upon exercise of the First Call Option the Company has a second option, at any time within a thirty days period (Second Exercise Period) starting at the expiration of twelve months from the exercise of the First Call Option to acquire up to the remaining 49% of Microsystem’s share capital, for an additional consideration of approximately $1,250. In addition, once the Company exercised the First Call Option, the then remaining other shareholders of Microsystem have an option to sell to the Company at any time during the Second Exercise Period 49% of Microsystem’s share capital, for a consideration of approximately $1,250. In accordance with EITF 00-4 following the exercise of the First Call Option and the increase in Cimatron’s holding in Microsystemto 51%, the Company has consolidated 100% of the results of Microsystem starting the third quarter of 2007.
	Microsystem is a leading CAD/CAM distributor in Italy.
	This acquisition was accounted for in accordance with SFAS No. 141 and SFAS No. 142.
	The purchase price was allocated on the basis of the estimated fair value of the assets purchased and the liabilities assumed. The excess of the purchase over the fair value of the net tangible assets acquired was attributed to intangible assets and goodwill. The purchase price attributed to intangible assets is being amortized over its estimated useful life, which is approximately 6 years. In accordance with SFAS No. 141 and SFAS No. 142, the purchase price attributed to goodwill is not amortized, but rather is subjected to periodic impairment tests.

F-18

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

The following table summarizes the fair value of assets acquired and liabilities assumed at the date of acquisition:

Cash and cash equivalents		951
Property and equipment		430
Other tangible assets		3,940
Other tangible liabilities		(6,218	)
Net tangible assets acquired		(897	)
Intangible assets acquired(1)		764
Goodwill		1,983
	$	1,850

(1) Intangible assets acquired are subject to amortization and include the following:

	Fair value		Estimated weighted- average useful life
Customer relationship		475		5
Distribution agreements		280		6
Backlog		9		0.5
		764

B.	As of December 31, 2007 and 2006 all the investments in marketable securities are classified in accordance with SFAS No. 115 as available-for-sale.
	Unrealized loss on available-for-sale securities of $87 and $7 at December 31, 2007 and 2006, respectively, were recorded in other comprehensive loss.
	The Company’s investments consist of:
	Aggregate maturities of marketable securities are as follows:

	December 31,
	2 0 0 7
Seven years	$	1,158

F-19

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 4     – TRADE ACCOUNTS RECEIVABLE

	December 31,
	2 0 0 7			2 0 0 6
Accounts receivable	$	8,705		$	6,473
Less - allowance for doubtful accounts		(1,397	)		(1,625	)
	$	7,308		$	4,848

NOTE 5     – OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

	December 31,
	2 0 0 7		2 0 0 6
Prepaid expenses	$	427	$	203
Deferred tax asset		107		–
Derivative instruments		2		131
Interest receivable		13		16
Other		709		503
	$	1,258	$	853

NOTE 6     – PROPERTY AND EQUIPMENT

	December 31,
	2 0 0 7		2 0 0 6
Cost:
Computers and software	$	5,684	$	4,374
Office furniture and equipment		1,976		964
Vehicles		135		–
Leasehold improvements		580		502
		8,375		5,840
Accumulated depreciation:
Computers and software		4,822		3,687
Office furniture and equipment		1,629		751
Vehicles		47		–
Leasehold improvements		540		392
		7,038		4,830
Property and equipment, net	$	1,337	$	1,010

F-20

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 7     – SOFTWARE DEVELOPMENT COSTS, NET

	December 31,
	2 0 0 7			2 0 0 6
Capitalized software development costs	$	193		$	193
Accumulated amortization		(81	)		(37	)
	$	112		$	156

NOTE 8     – ACCRUED EXPENSES AND OTHER LIABILITIES

	December 31,
	2 0 0 7		2 0 0 6
Employees and related liabilities	$	2,267	$	1,674
Accrued expenses		2,505		916
Accrued royalties		2,108		1,341
Taxes to government institutions		884		289
Others		1		1
	$	7,765	$	4,221

NOTE 9     –	ACCRUED SEVERANCE PAY (DEPOSITS WITH INSURANCE COMPANIES AND SEVERANCE PAY FUNDS)
	The Company’s liability for severance pay is calculated pursuant to Israeli severance pay law based on the most recent salary of the employee multiplied by the number of years of employment as of the balance sheet date. Employees are entitled to one month’s salary for each year of employment or a portion thereof.
	The Company’s liability for all of its employees is funded by monthly deposits with severance pay funds and insurance policies. An accrual is set up for any unfunded amount.
	The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli severance pay law or labor agreements. The value of the deposited funds is based on the cash surrender value of the policies.

F-21

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 10    –	CONTINGENT LIABILITIES AND COMMITMENTS
	A.	In consideration of grants by the Chief Scientist of the Ministry of Industry and Trade of the Government of Israel (the “Chief Scientist”), the Company is obligated to pay the Chief Scientist, in respect of awarded grants, royalties of 3.5% of sales of products developed with funds provided by the Chief Scientist, until the dollar-linked amount is equal 100% of the grants payments received by the Company plus Libor interest rate (the Libor interest rate applies to grants received since January 1999). The Company’s contingent liability as of December 31, 2007 is approximately $1,410 contingent upon the Company generating revenues from sales of products developed with funds provided by the Chief Scientist.
	B.	Regarding commitments in respect of the “Approved Enterprise”, see Note 13a.
	C.	In consideration of grants received from the Fund for the Encouragement of Overseas Marketing of the Israeli Government’s Ministry of Industry and Trade (the “Fund”), the Company is obligated to pay the Fund royalties amounting to 3% to 4% of the incremental exports, up to a maximum of 100% of the grants received.
		The Company’s contingent liability as of December 31, 2007 is $558, contingent upon the Company’s incremental exports.
	D.	The Company uses technology in respect of which it is obligated to pay royalties up to an amount of $1,412, until 2009.
	E.	Lease commitments
		The premises of the Company and its subsidiaries are leased under various operating lease agreements, which expire on various dates.
		Rent expenses for the years ended December 31, 2007, 2006 and 2005, were approximately $1,050, $705 and $627, respectively.
		The Company leases its motor vehicles under cancelable operating lease agreements for periods through 2007.
		The minimum payment under these operating leases, upon cancellation of these lease agreements, amounted to $374 as of December 31, 2007.
		Future minimum lease commitments under operating leases as of December 31, 2007 are as follows:

Year ended December 31,
2008		1,272
2009		974
2010		715
2011		542
2012 and thereafter		559
	$	4,062

F-22

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 11    –	SHAREHOLDERS’ EQUITY
	A.	Share issuance
		The Company’s shares are traded in the United States and are listed on the Nasdaq Capital Market.
	B.	Share Option Plan
		In April 1998, the Board of Directors adopted a share option plan (the “1998 Share Option Plan”) pursuant to which 620,000 Ordinary Shares were reserved for issuance upon the exercise of options to be granted to Directors, officers, employees and consultants of the Company. The 1998 Share Option Plan is administrated by the Board, which designates the optionees and dates of grant. The exercise price of an option granted under the 1998 Share Option Plan may be no less than 85% of the fair market value of an Ordinary Share, as determined by the board on the date that the option is granted. Options granted vest over a period determined by the option committee, terminate three years after they become exercisable, and are non-assignable except by the laws of descent. The board has the authority to amend the terms of option grants, provided that any such amendment is in the best interest of the grantee.
		As of December 31, 2007, none of these options were outstanding. These options are exercisable commencing two years after the date of grant at a rate of 25% per year, subject to the continued employment of each employee. The grantee will be responsible for all personal tax consequences of the grant and the exercise thereof.
		In March 2000, the board adopted new guidelines for the options to purchase Ordinary Shares reserved for issuance under the 1998 Share Option Plan upon the exercise of options to be granted to Directors, officers, employees and consultants of the Company. Such options are exercisable commencing two years after the date of grant at a rate of 50% on the second anniversary of the date of grant and 25% in each of the following two years, subject to the continued employment of each employee. As of December 31, 2005, options to purchase 18,750 of such shares were outstanding at a price of $4.50 per share.
		In August 2003 the Company’s Board of Directors approved the grant of options to purchase 150,000 of the Company’s shares at a price of $2.50 per share to two officers in the Company. These options are exercisable commencing one year after the date of grant at a rate of 25%-33.3% per year, subject to the continued employment of the officers. 37,500 of such options were outstanding at December 31, 2007.

F-23

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 11    –	SHAREHOLDERS’ EQUITY (cont)
	B.	Share Option Plan (Cont.)
		In October 2004, the Board of Directors adopted an additional share option plan (the “2004 Share Option Plan”) pursuant to which 240,000 Ordinary Shares were reserved for issuance upon the exercise of options to be granted to directors, officers, employees and consultants of the Company. The exercise price of an option granted under the Share Option Plan may be no less than 95% of the fair market value of an Ordinary Share, as determined by the board on the date that the option is granted. The options may be exercised over a 10-year term unless determined otherwise by the Board. The grantees will be responsible for all personal tax consequences of the grant and the exercise thereof. In February 2005, 238,500 of such options were granted to employees of the Company at an exercise price of $2.20 per share, and in August 2005, the board of directors approved the grant of 32,000 of such options at an exercise price of $2.00 per share to the Company’s Chief Executive Officer. 214,500 of such options were outstanding at December 31, 2005. In December 2005 our Board of Directors increased the 2004 Share Option Plan reserve by an additional 250,000 shares. The Company intends to grant additional options under the 2004 Share Option Plan to various directors, executive officers and employees of the Company. In May 2006 an additional 189,000 options were granted to Company employees under the 2004 Share Option Plan at an exercise price of $1.75-$2.00 and with a term of five years. In August 2007, the Company granted an additional 79,000 options to Company employees at an exercise price of $2.78 and with a term of five years. As of December 31, 2007, 443,072 of such options were outstanding. These options are exercisable pursuant to a three (3) year vesting schedule as follows: (i) thirty three percent (33%) of the shares covered by the options become exercisable on the first anniversary of the grant date; and (ii) sixteen and one-half percent (16.5%) of the shares covered by the options become exercisable at the end of each subsequent six months period over the course of the following two (2) years, subject to the continued employment of each employee. The Company intends to grant additional options under the 2004 Share Option Plan to various of our directors, executive officers and employees.
		At December 31, 2007 options to purchase 650,416 of Company shares were available for grants to Directors, officers, employees and consultants of the Company.

F-24

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 11    –	SHAREHOLDERS’ EQUITY (Cont.)
	B.	Share Option Plan (Cont.)
		The grantee will be responsible for all personal tax consequences of the grant and the exercise thereof. The Company intends to grant additional options to various Directors, executive officers and employees of the Company.
		A summary of the status of the Company’s stock option plan as of December 31, 2007, 2006 and 2005, and changes during the years ending on those dates, is presented below:

	Year ended December 31,
	2 0 0 7					2 0 0 6					2 0 0 5
	(in thousands)
	Shares			Weighted average exercise price		Shares			Weighted average exercise price		Shares			Weighted average exercise price
Outstanding at beginning of year		472,250		$	2.16		375,750		$	2.75		488,250		$	3.04
Granted		79,000		$	2.71		189,000		$	1.82		270,500		$	2.18
Exercised		(52,512	)	$	2.17		–			–		–			–
Cancelled		(55,666	)	$	2.95		(92,500	)	$	2.69		(383,000	)	$	2.72
Outstanding at year end		443,072		$	2.16		472,250		$	2.16		375,750		$	2.75
Options exercisable at year end		305,417		$	2.11		158,167		$	2.53		111,250		$	4.06
Weighted average fair value of options granted during the year	$	1.72				$	0.59				$	0.88

The following table summarizes information about stock options outstanding at December 31, 2007:

	Options outstanding						Option exercisable
Range of exercise prices	Number of shares outstanding at December 31, 2007		Weighted average remaining contractual life (years)		Weighted average exercise price		Number of shares exercisable at December 31, 2007		Weighted average exercise price
$1.75 – $3.00		443,072		7.98		2.16		305,417		2.11
		443,072						305,417

F-25

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 12    –	INCOME TAXES
	A.	The Law for Encouragement of Capital Investments, 1959 (hereafter: “the law”)
		Since 1994, the Company’s operations have “approved enterprise” status under the law. Reduced tax rates apply to the Company’s income from the approved enterprise (which is determined in accordance with the increase in the Company’s revenue during the first year of its having the abovementioned status as compared to the year before).
		In April 2001 the Company was granted an “approved enterprise” status, subject to the following terms:
		Tax exemption for 2 years, commencing in the first year the Company generates taxable income. For the remainder of the benefit period - 5 years - a reduced tax rate of 25%.
		The period of tax benefits for this approved enterprise will expire in 2015 or earlier, depending on whether the Company generates taxable income from this approved enterprise.
		Income derived from sources other than “approved enterprise” is taxable at the ordinary corporate tax rate of 29% in 2007 (“regular Company Tax”). The regular Company Tax rate is to be gradually reduced to 25% until 2010 (29% in 2007, 27% in 2008 and 26% in 2009).
		In the event of a distribution of cash dividends to shareholders of earnings subject to the exemption, the Company will be liable to tax at a rate of 25%. The Company has not provided deferred taxes on future distributions of tax-exempt earnings, as management and the Board of Directors have determined not to make any distribution that may result in a tax liability for the Company. Accordingly, such earnings have been considered to be permanently reinvested. The tax-exempt earnings may be distributed to shareholders without subjecting the Company to taxes only upon a complete liquidation of the Company.

F-26

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 12    –	INCOME TAXES (Cont.)
	A.	The Law for Encouragement of Capital Investments, 1959 (hereafter: “the law”) (cont)
		The tax benefits and grants described above are subject to fulfillment of the conditions stipulated by the Law for Encouragement of Capital Investments, 1959, as amended, the regulations promulgated thereunder and the criteria set forth in the certificate of approval. The entitlement to the benefits is subject to completion and final approval by the Investment Center, such approval being subject to fulfillment of all terms of the approved program. In the event of failure by an enterprise to comply with these conditions, the tax benefits could be cancelled, in whole or in part, and the enterprise would be required to refund the amount of cancelled benefits, including interest. The completion of the Company’s first, second and third approved enterprises has received final approval by the Investment Center.
		On April 1, 2005, a significant amendment to the Law for Encouragement of Capital Investments, 1959 (the “Investment Law”) became effective. The Investment Law provides that terms and benefits included in any certificate of approval that was granted before the amendment came into effect will remain subject to the provisions of the Investment Law as they were on the date of such approval. Pursuant to the amendment, the Investment Center will continue to grant Approved Enterprise status to qualifying investments. The amendment, however, limits the scope of enterprises that may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of the Approved Enterprise’s income will be derived from export.
		In February 2007 the Company received a letter from the investment center stating that its approved enterprise from April 2001 is about to be terminated if the Company does not submit a final performance report. The Company has decided not to pursue the completion of this investment plan, as it has not had any tax benefits from it, and it intends to apply for tax benefits pursuant the amended law as described above, if and when relevant
	B	Comprised as follows:

	Year ended December 31,
	2007		2 0 0 6			2 0 0 5
Income (loss) before taxes on income:
Domestic	$	21	$	372		$	(3,285	)
Foreign		2,005		245			(1,337	)
		2,026		617			(4,622	)
Current taxes		–		(27	)		(2	)
		–		(27	)		(2	)

F-27

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 12    –	INCOME TAXES (Cont.)
	C.	Deferred income taxes
		Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
		Significant components of the Company and its subsidiaries assets are as follows.

	December 31,
	2 0 0 7			2 0 0 6
Deferred tax assets:
Loss carryforwards	$	5,624		$	6,135
Other reserve and allowances		131			277
Total deferred tax assets		5,755			6,412
Valuation allowance		(5,648	)		(6,364	)
	$	107		$	48
Deferred tax liabilities:
Intangible assets		(247	)		–
Software development costs		(35	)		(48	)
Total deferred tax liabilities		(282	)		(48	)
	$	(175	)	$	–

The Company has provided valuation allowances in respect of deferred tax assets resulting from net operating loss carry forwards in Israel and for part of its net operating loss carry forwards in the US. Management currently believes that it is more likely than not that those deferred tax losses will not be realized in the foreseeable future.

F-28

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 12    –	INCOME TAXES (Cont.)
	D.	Under the Income Tax Law (Adjustments for Inflation) 1985, income for tax purposes is measured in terms of earnings in NIS, adjusted for the changes in the C.P.I. Following is a reconciliation of income taxes calculated at the statutory tax rate in Israel to the actual income tax in the financial statements:

	Year ended December 31,
	2007			2 0 0 6			2 0 0 5
Net Income (loss) as reported in the consolidated statements of operations	$	2,026		$	617		$	(4,622	)
Income taxes under statutory tax rate		528			117			(1,571	)
Increase (decrease) in taxes:
Increase in valuation allowance		(716	)		369			1,439
Increase in taxes resulting from permanent differences and non deductible expenses		43			26			278
Differences in taxes arising from differences between Israeli currency income and dollar income, net *		33			(126	)		–
Other		112			(359	)		(144	)
Income taxes in the statements of operations		0			27			2

* Resulting from the differences between the changes in the Israeli CPI (the basis for computation of taxable income of the Company and its Israeli Subsidiary) and the exchange rate of Israeli currency relative to the dollar

The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation, the Company recognized a $367 increase to reserves for uncertain tax positions. This increase was accounted for as an adjustment to the beginning balance of the accumulated deficit on the accompanying consolidated balance sheet as of December 31, 2007.

The following reconciliation summarizes the total gross unrecognized tax benefits

	Year ended December 31, 2007
Balance at January 1, 2007	$	367
Gross change tax positions of current period		–
Gross change for tax positions of prior year		–
Balance at December 31, 2007	$	367

F-29

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 12    –	INCOME TAXES (Cont.)
	E.	Tax assessments
		The Company has been issued final tax assessments by the Israeli income tax authorities through tax year ended December 31, 2000.
		Certain subsidiaries of the Company in Europe received tax assessments through the tax year ended December 31, 2004.

NOTE 13    –	TRANSACTIONS WITH RELATED PARTIES
	A.	In February 2002, Koonras Technologies Ltd., a subsidiary of Polar Investments Ltd. (“Koonras”) and DBSI Investments Ltd. (“DBSI”) consummated a transaction with Zeevi Computers and Technology Ltd. (“ZCT”), by which they acquired all of Ordinary Shares of the Company previously held by ZCT.
	B.	The following transactions with Koonras and DBSI are included in the financial statements:

	Year ended December 31,
	2 0 0 7		2 0 0 6		2 0 0 5
Management fees	$	400	$	318	$	349

F-30

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 14    –	SELECTED STATEMENTS OF OPERATIONS DATA
	A.	Revenues

	Year ended December 31,
	2 0 0 7			2 0 0 6			2 0 0 5
Revenue by geographical region:
Israel		1,171			1,509			1,639
Europe		18,831			11,120			10,776
Far East		5,243			5,036			4,624
North America		3,270			3,631			3,715
Others		125			163			171
		28,640			21,459			20,925
Revenue through major distributors, as a percentage of total revenues:
Distributor (A)		–			10	%		12	%
Distributor (B)		7	%		11	%		10	%

B. Cost of revenues

	Year ended December 31,
	2 0 0 7			2 0 0 6			2 0 0 5
Hardware and software		3,004			1,424			1,442
Salaries and employee benefits		585			970			1,051
Amortization of capitalized software development cost		39			39			1,204
Royalties to the Chief Scientist		825			692			721
Depreciation		33			33			24
Other		955			468			504
		5,441			3,626			4,946
Decrease in inventory		(1	)		(3	)		(11	)
		5,440			3,623			4,935

F-31

CIMATRON LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

NOTE 14    –	SELECTED STATEMENTS OF OPERATIONS DATA (CONT)
	C.	Selling, general and administrative expenses

	Year ended December 31,
	2 0 0 7		2 0 0 6		2 0 0 5
Marketing costs		435		435		417
Selling expenses		13,512		10,274		11,674
General and administrative expenses		3,014		2,482		3,356
Depreciation		282		171		203
		17,243		13,362		15,650

NOTE 15    – SUBSEQUENT EVENTS

In January 2008 the Company completed the merger of Gibbs System Inc., developer of GibbsCAM®, software for programming CNC machine tools, into Cimatron Gibbs LLC, a wholly owned subsidiary of the Company’s US-based subsidiary Cimatron Technologies, Inc.. Bringing together the CimatronE integrated CAD/CAM suite for toolmaking and GibbsCAM CAD/CAM solution for production will allow the merged company to offer a powerful product portfolio for a broader part of the manufacturing industry In consideration for the transaction, the Company paid to Mr. William F. Gibbs, founder, Chairman and CEO of Gibbs System, and its sole shareholder, cash in the amount of approximately $5 million, as well as 1,500,000 newly issued ordinary shares of Cimatron., which represent approximately 16% of its issued and outstanding share capital. In addition, Mr. Gibbs was nominated to serve as Vice Chairman of the Board of Directors of Cimatron.

SCHEDULE

CIMATRON LIMITED
VALUATION AND QUALIFYING ACCOUNTS

	Year ended December 31,
	2 0 0 7			2 0 0 6			2 0 0 5
Allowance for doubtful account at beginning of year	$	1,625		$	1,694		$	1,317
Provision		181			(69	)		421
Translation adjustments		(11	)		6			14
Newly consolidated subsidiary		206			183			–
Accounts receivable written off		(604	)		(189	)		(58	)
Allowance for doubtful accounts at end of year	$	1,397		$	1,625		$	1,694

F-32

EX-4

Exhibit 4.2.3

Execution Copy

REGISTRATION RIGHTS AGREEMENT

BY AND AMONG

CIMATRON LTD.

AND

MR. WILLIAM F. GIBBS

DATED DECEMBER 31, 2007

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is entered into as of the 31^st day of December, 2007, by and among CIMATRON LTD., a company incorporated under the laws of the State of Israel (the “Company”), and MR. WILLIAM F. GIBBS (“Gibbs”).

WHEREAS, the Company and Gibbs are party to a Merger Agreement and a Plan of Reorganization (the “Merger Agreement”) that provides for the issuance of the Company’s Ordinary Shares, par value NIS 0.1 each (“Ordinary Shares”) to Gibbs; and

WHEREAS, in connection with the Merger Agreement, the Company has agreed to grant certain registration rights with respect to the Ordinary Shares issued to Gibbs thereunder;

NOW, THEREFORE, the parties agree as follows:

1. DEFINITIONS.

As used in this Agreement the following terms shall have the following respective meanings:

“Additional Holders” means Koonras Technologies Ltd and/or DBSI Investment Ltd, and any assignees of the foregoing.

“Affiliate” means an entity which controls, is controlled by or under common control with a Holder. For the purpose of this definition of Affiliate, “control” shall mean the ability, directly or indirectly, to direct the activities of the relevant entity, whether by contract, voting rights or otherwise.

“Board”means the Board of Directors of the Company.

“Cimatron Shares” means the Ordinary Shares issued to Gibbs under the Merger Agreement.

“Exchange Act”means the Securities Exchange Act of 1934, as amended.

“Form F-3” means such form under the Securities Act as in effect on the date hereof or any successor or similar registration form under the Securities Act subsequently adopted by the SEC, which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

“Holder(s)” means Gibbs and/or any of his Affiliates as long as they own of record Registrable Securities in accordance with the provisions of this Agreement.

“Prospectus” means the prospectus included in the registration statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto and all material incorporated by reference in such prospectus.

“Register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.

“Registrable Securities” means all Cimatron Shares and any and all securities issued or issuable with respect thereto upon any stock split or stock dividend, or into which such Cimatron Shares have been or may be converted to or exchanged into in connection with any merger, consolidation, recapitalization or similar event, until the earliest of (i) their effective registration under the Securities Act and resale in accordance with the registration statement covering it, or (ii) or their sale to the public pursuant to Rule 144, or (iii) when the Holder is eligible to dispose all of its Registrable Securities under Rule 144 within a 90 day period.

- 2 -

“Registration Expenses” shall mean all expenses incurred by the Company in complying with Sections 2 and 3 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements of a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration, but excluding Selling Expenses.

“Rule 144” means Rule 144 under the Securities Act, as such Rule may be amended from time to time.

“SEC”or “Commission” means the United States Securities and Exchange Commission.

“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Selling Expenses” shall mean, with respect to each Holder, its underwriting discounts and/or commissions, placement agent or broker fees and commissions and transfer taxes, if any, in connection with the sale of securities by such Holder.

2. PIGGYBACK REGISTRATIONS.

2.1. Notice of Registration. The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company for cash (but other than registration relating solely to employee benefit plans on Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form F-4 or similar forms that may be promulgated in the future) and will afford each such Holder requesting to be included in such registration, in accordance with this Section 2.1, an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within twenty (20) days after delivery of the above-described notice by the Company, so notify the Company in writing specifying the number of Registrable Shares requested to be included. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein.

2.2. Underwritten Offering.

2.2.1. If the registration statement under which the Company gives notice under this Section 2 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities as part of its notice made pursuant to Section 2.1. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company.

- 3 -

2.2.2. Notwithstanding any other provision of this Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders and the Additional Holders pro-rata, based on the total number of Ordinary Shares held by each of them requesting to be included in such registration; and third, if any, to any shareholder of the Company (other than the Holder and the Additional Holders) on a pro rata basis. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration.

2.3. Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2 prior to the effectiveness of such registration, whether or not any Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 4 hereof.

3. SHELF REGISTRATION STATEMENT REGISTRATION.

3.1. Subject to the conditions of this Section 3, if the Company shall receive a written request(s) from any Holder (the “Initiating Holder”) or from any Additional Holder that the Company file a registration statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act registering the resale from time to time by the Holders thereof of all of the relevant Registrable Securities (the “Shelf Registration Statement”), then the Company shall, within thirty (30) days of the delivery thereof, give written notice of such request to all Holders, which may elect to join in such request, as specified in a written request given within fifteen (15) days after delivery of the Company’s written notice. The Shelf Registration Statement shall be on Form F-3 or another appropriate registration statement permitting registration of such Registrable Securities for resale by the Holders in accordance with the methods of distribution elected by them and set forth in such Shelf Registration Statement. The Company shall use its best commercial efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act within 3 months after the Holders initial request in accordance with this Section and to keep such Shelf Registration Statement continuously effective under the Securities Act until the expiration of five (5) years (the “Registration Period”) from the date the Shelf Registration is declared effective by the SEC.

3.2. Underwritten Offering. If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting then the Initiating Holders shall inform the Company in writing of their intention to do so and the intended plan of distribution and such information shall be included in the written notice referred to in Section 3.1. Distribution of the Registrable Securities by means of an underwriting shall be subject to the Company’s consent. Notwithstanding any other provision of this Section 3, if the offering is done by means of an underwriting and the underwriter advises the Company that marketing factors require a limitation of the number of Registrable Securities to be underwritten then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto (including the Additional Holders), and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities (including the Additional Holders) so requesting to be registered on a pro rata basis, based on the number of Ordinary Shares then held by all such Holders (including the Additional Holders). Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration.

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3.3. Exclusions. The Company shall not be required to effect a registration pursuant to this Section 3 (without limiting any other provisions of this Section 3 to that effect):

3.3.1. After the Company has effected two (2) registrations pursuant to this Section 3 at the request of the Initiating Holder(s), and such registrations have been declared or ordered effective;

3.3.2. If the market price of the Registrable Securities to be registered thereunder is less than US $250,000;

3.3.3. If Form F-3 is not available for such offering by the Holders;

3.3.4. If it is requested to effect more than one (1) registration under this Section 3 in any twelve (12) month period;

3.3.5. During the period starting with the date of filing of, and ending on the date one hundred eighty (180) days following the effective date of a registration statement pertaining to the Company’s securities (but other than registration relating solely to employee benefit plans on Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to SEC Rule 145 transaction on Form F-4 or similar forms that may be promulgated in the future);

3.3.6. If within ten (10) days of receipt of a written request from Initiating Holders pursuant to this Section 3.1, the Company gives notice to the Initiating Holders of the Company’s good faith intention to file a registration statement for a public offering within ninety (90) days, provided that the Company actually files such registration statement within such ninety (90) days and makes reasonable good faith efforts to cause such registration statement to become effective;

3.3.7. For a Holder if a registration statement filed pursuant to Section 2 herein is then effective and is available to such Holder for the resale of Registrable Securities;

3.3.8. If the Company shall furnish to the Initiating Holders requesting a registration statement pursuant to this Section 3, an officer’s certificate signed by order of the Board stating that in the good faith judgment of the Board, (i) such registration may interfere with or affect the negotiation or completion of any material transaction or other material event that is being contemplated by the Company (whether or not final decision has been made to undertake such transaction at the time the right to delay is exercised), or (ii) such registration involves initial or continuing disclosure obligations that might not be in the best interest of the Company or its shareholders, or (iii) it would be otherwise seriously detrimental to the Company and its shareholders for such Shelf Registration Statement to be filled and/or effected at such time, any in each of the events described above the Company shall have the right to defer the filing of the Shelf Registration Statement for a period of not more than one hundred and twenty (120) days after receipt of the request of the Holder under this Section 3; provided, that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period, or

3.3.9. In any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.

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3.4. Suspension.

3.4.1. In addition to any suspension rights under subsection 3.4.2 below, upon the happening of any pending corporate development, public filing with the SEC or similar event, that, in the judgment of the Company’s Board, renders it advisable to suspend the use of the Prospectus or upon the request by an underwriter in connection with an underwritten public offering of the Company’s securities, the Company may, on not more than two (2) occasions for not more than thirty (30) days on each such occasion, suspend use of the Prospectus, on written notice to each Holder (which notice will not disclose the content of any material non-public information and will indicate the date of the beginning and end of the intended period of suspension, if known), in which case each Holder shall discontinue disposition of Registrable Securities covered by the registration statement or Prospectus until copies of a supplemented or amended Prospectus are distributed to the Holders or until the Holders are advised in writing by the Company that sales of Registrable Securities under the applicable Prospectus may be resumed and have received copies of any additional or supplemental filings that are incorporate or deemed incorporated by reference in any such Prospectus. The suspension and notice thereof described in this Section 3.4 shall be held by each Holder in strictest confidence and shall not be disclosed by such Holder.

3.4.2. In the event of: (i) any request by the SEC or any other federal or state governmental authority during the Registration Period for amendments or supplements to a registration statement or related prospectus or for additional information, (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (iii) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, or (iv) any event or circumstance which necessitates the making of any changes in the registration statement or Prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the registration statement, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, then the Company shall deliver a certificate in writing to the Holders (the “Suspension Notice”) to the effect of the foregoing (which notice will not disclose the content of any material non-public information and will indicate the date of the beginning and end of the intended period of suspension, if known), and, upon receipt of such Suspension Notice, the Holders will discontinue disposition of Registrable Securities covered by the registration statement or Prospectus (a “Suspension”) until the Holders’ receipt of copies of a supplemented or amended Prospectus prepared and filed by the Company, or until the Holders are advised in writing by the Company that the current Prospectus may be used, and have received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such prospectus. In the event of any Suspension, the Company will use its commercially reasonable efforts to cause the use of the Prospectus so suspended to be resumed as soon as possible after delivery of a Suspension Notice to the Holders. The Suspension and Suspension Notice described in this Section 3.4.2 shall be held by each Holder in strictest confidence and shall not be disclosed by such Holder.

3.4.3. Provided that a Suspension is not then in effect, the Holders may sell Registrable Securities under the registration statement, provided that the selling Holder arranges for delivery of a current Prospectus to the transferee of such Registrable Securities to the extent such delivery is required by applicable law.

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4. EXPENSES OF REGISTRATION.

Except as specifically provided herein, all Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Sections 2 or 3 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the holders of the securities so registered, pro rata on the basis of the number of shares so registered.

5. OBLIGATIONS OF THE COMPANY.

5.1. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

5.1.1. Prepare and file with the SEC a Shelf Registration Statement with respect to such Registrable Securities and use its commercially reasonable best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to the Registration Period or, if earlier, until the Holder or Holders have completed the distribution related thereto.

5.1.2. Prepare and file with the SEC such amendments and supplements to Shelf Registration Statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in paragraph 5.1.1 above.

5.1.3. Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.

5.1.4. Use its reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

5.1.5. In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

5.1.6. Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. The Company will use reasonable efforts to amend or supplement such prospectus in order to cause such prospectus not to include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.

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5.1.7. Use its reasonable efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a letter, dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters.

5.1.8. Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed.

6. DELAY OF REGISTRATION; FURNISHING INFORMATION.

6.1. It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2 and 3 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be reasonably required to effect the registration of their Registrable Securities and so requested in writing by the Company.

6.2. If a registration pursuant to Section 3 is to be effected by means of an underwritten offering, the identity of the underwriter shall be determined by the Company, subject to the consent of the Initiating Holders which shall not be unreasonably withheld, and in such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein.

6.3. No Holder of Registrable Securities may participate in any underwritten registration under Section 3 unless such Holder (i) agrees to enter into a written underwriting agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company’s size and investment stature; provided, however, that no Holder shall be required to give representations and warranties pursuant to any such underwriting agreement other than as to their ownership of, and ability to transfer, such Holder’s Registrable Securities; and (ii) provides any relevant information and completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, and other documents required under the terms of such underwriting arrangements.

7. INDEMNIFICATION.

In the event any Registrable Securities are included in a registration statement under Sections 2 or 3:

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7.1. To the extent permitted by law, the Company will indemnify and hold harmless each Holder, its affiliates, the partners, officers, directors and shareholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”) by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will pay as incurred to each such Holder, its affiliates, partners, officers, directors, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this Section 7.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder.

7.2. To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers, directors, shareholders, legal counsel and accountants for the Company and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder’s its affiliates, partners, directors, shareholders or officers, legal counsel and accountants for each Holder, any underwriter (as defined in the Securities Act) for such Holder or any person who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will pay as incurred any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 7.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section 7.2 exceed the net proceeds from the offering received by such Holder.

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7.3. Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, shall, to the extent materially prejudicial to its ability to defend such action, relieve such indemnifying party of its liability to the indemnified party under this Section 7, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 7.

7.4. If the indemnification provided for in this Section 7 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Holder hereunder exceed the net proceeds from the offering received by such Holder.

7.5. The obligations of the Company and Holders under this Section 7 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this Agreement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation.

7.6. The indemnification provisions of this Section 7 shall not be in limitation of any other indemnification provisions included in any other agreement

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8. ASSIGNMENT OF REGISTRATION RIGHTS; TRANSFER OF REGISTRABLE SECURITIES.

8.1. The rights to cause the Company to register Registrable Securities pursuant to this Agreement may be assigned by a Holder to any Affiliate of the Holder that acquires at least 100,000 Registrable Securities (as adjusted for stock splits, combinations and other recapitalization events); provided, however, (i) the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee and the securities with respect to which such registration rights are being assigned, and (ii) such transferee shall agree to be subject to all provisions and restrictions set forth in this Agreement and shall have the rights and privileges of a “Holder” under this Agreement.

8.2. In the event of a sale of Registrable Securities by a Holder, such Holder must also deliver to the Company’s transfer agent, with a copy to the Company, a certificate of subsequent sale reasonably satisfactory to the Company, so that ownership of the Registrable Securities may be properly transferred. The Company will cooperate to facilitate the timely preparation and delivery of certificates (unless otherwise required by applicable law) representing Registrable Securities sold.

9. AGREEMENT TO FURNISH INFORMATION

Each Holder of Registrable Securities shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement.

10. RULE 144 REPORTING.

10.1. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company (at any time after it has become subject to such reporting requirements) agrees to use its best efforts to:

10.1.1. Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times;

10.1.2. File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and

10.1.3. So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration.

11. MISCELLANEOUS.

11.1. Expenses. Each of Gibbs and the Company shall pay its own expenses and costs incurred in connection with the negotiation, approval, authorization and execution of this Agreement.

11.2. Entire Agreement. This Agreement constitute the full and entire understanding and agreement between the parties with regard to the subject matters hereof and supersede all prior negotiations, agreements and understandings of the parties of any nature, whether oral or written, relating thereto.

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11.3. Amendment of Registration Rights. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company (subject to the required corporate approval) and Gibbs. Any amendment or waiver affected in accordance with this Section 11.3 shall be binding upon all Holders and the Company. By acceptance of any benefits under this Agreement, Holders of Registrable Securities hereby agree to be bound by the provisions hereunder.

11.4. Termination. This Agreement shall terminate and shall have no further force and effect at such time that the Holders cease to hold any Registrable Securities.

11.5. Governing Law; Venue. This Agreement shall be governed by and construed under the laws of the State of New York, without regard to the conflicts of law principles of such State. The parties hereto irrevocably submit to the exclusive jurisdiction of the Courts of New York located in the City of New York in respect of any dispute or matter arising out of or connected with this Agreement.

11.6. Successors and Assigns. Subject to the provisions of Section 8, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time.

11.7. Severability. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

11.8. Delays or Omissions. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holder’s part of any breach, default or noncompliance under the Agreement or any waiver on such Holder’s part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not alternative.

11.9. Aggregation of Shares. All Cimatron Shares held by any Holder and any Affiliate thereof, shall be aggregated together for the purpose of determining the availability of any rights under this Agreement, the applicability of any limitation under this Agreement, or calculating such Holder’s pro rata share.

11.10. Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) two (2) days after deposit with an internationally recognized courier, specifying two day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth below or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto.

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If to the Company:
Cimatron Ltd.
11 Gush Etzion Street
Givat Shmuel 54030, Israel
Fax: +972-3-5312097
Attn: Danny Haran, Chief Executive Officer

With a mandatory copy to:
Meitar, Liquornik, Geva & Leshem, Brandwein - Law Offices
16 Abba Hillel Road
Ramat Gan 52506, Israel
Fax: 972-3-6103111
Attn: Asaf Harel, Advocate

If to Gibbs:
William F. Gibbs
4017 N Cedarpine Lane
Moorpark, CA 93021
home telephone: 805-529-1991
office telephone: 805-523-0004
office fax 805-523-0006
cell 805-377-1789
email: bill@gibbsCAM.com

With a mandatory copy to:
Farella Braun + Martel LLP
Russ Building
235 Montgomery Street
San Francisco, CA 94104
Attn: Brian Donnelly
Telephone: 415.954.4400
Direct Phone: 415.954.4465
Fax: 415.954.4480
Email: BDonnelly@fbm.com

11.11. Counterparts. This Agreement may be executed in any number of counterparts (including by facsimile transmission), all of which together shall constitute one instrument.

- Signature Page to Follow -

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        IN WITNESS WHEREOF, the parties have duly signed this Registration Rights Agreement as of the Effective Date.

THE COMPANY:

_________________________________________

CIMATRON LTD.

Name:   Danny Haran
              _________________________________________

Title:     CEO
              _________________________________________

THE HOLDER:

_________________________________________

MR. WILLIAM F. GIBBS

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EX-4

Exhibit 4.2.4

Execution Copy

MERGER AGREEMENT AND

PLAN OF REORGANIZATION

BY AND AMONG

CIMATRON LTD.

CIMATRON TECHNOLOGIES, INC

NORTAMIC, LLC

AND

GIBBS SYSTEM, INC.

WILLIAM F. GIBBS

Dated as of December 31, 2007

TABLE OF CONTENTS

		Page
ARTICLE 1.	DEFINITIONS	2
1.1	Definitions	2
1.2	Construction	11
ARTICLE 2.	THE MERGER	11
2.1	The Merger	11
2.2	Effective Time	11
2.3	Effect of the Merger on the Constituent Entities	12
2.4	Articles of Organization and Operating Agreement of Surviving Company	12
2.5	Directors and Officers of Surviving Company	12
2.6	Tax Returns	12
2.7	Maximum Amount to be Paid; Effect on Outstanding Securities of the Company	12
2.8	Payment Procedures	13
2.9	No Further Ownership Rights in Company Capital Stock	13
2.10	Taking of Necessary Action; Further Action	13
2.11	Withholding Rights	13
2.12	Purchase Price Adjustment	14
ARTICLE 3.	REPRESENTATIONS AND WARRANTIES OF GIBBS	15
3.1	Organization and Authority	15
3.2	Noncontravention	16
3.3	Title to Shares	16
3.4	Accredited Investor Representations	16
ARTICLE 4.	REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND GIBBS	17
4.1	Organization and Qualification	17
4.2	Authority Relative to this Agreement	17
4.3	Capital Stock	18
4.4	Subsidiaries	19
4.5	Directors and Officers	19
4.6	No Conflicts	19
4.7	Books and Records; Organizational Documents	19
4.8	Company Financial Statements; Internal Controls	20
4.9	Absence of Changes	20
4.10	No Undisclosed Liabilities	23
4.11	Taxes	24
4.12	Legal Proceedings	26
4.13	Compliance with Laws and Orders	27

TABLE OF CONTENTS (Continued)

		Page
4.14	Plans; ERISA	27
4.15	Real Property	30
4.16	Tangible Personal Property	31
4.17	Intellectual Property	31
4.18	Contracts	35
4.19	Insurance	35
4.20	Affiliate Transactions	36
4.21	Employees; Labor Relations	37
4.22	Environmental Matters	38
4.23	Substantial Customers and Suppliers	38
4.24	Accounts Receivable	38
4.25	Inventory	39
4.26	Brokers; Third Party Expenses	39
4.27	Banks and Brokerage Accounts	39
4.28	Warranty Obligations	39
4.29	Foreign Corrupt Practices Act	39
4.30	Approvals	40
4.31	Takeover Statutes	40
4.32	Disclosure	40
ARTICLE 5.	REPRESENTATIONS AND WARRANTIES OF THE BUYERS	40
5.1	Organization and Qualification	41
5.2	Authority Relative to this Agreement	41
5.3	Consents, Approvals, Etc	41
5.4	Litigation and Governmental Orders	42
5.5	Brokers	42
5.6	Ownership of Sub; No Prior Activities	42
5.7	Financing	42
5.8	Reports and Financial Statements	42
5.9	Issuance of Shares	43
ARTICLE 6.	CONDUCT PRIOR TO THE EFFECTIVE TIME	43
6.1	Conduct of Business of the Company	43
6.2	No Solicitation	43
ARTICLE 7.	ADDITIONAL AGREEMENTS	44
7.1	Access to Information	44
7.2	Confidentiality	45
7.3	Expenses	45
7.4	Public Disclosure	45
7.5	Approvals	45
7.6	FIRPTA Compliance	46

TABLE OF CONTENTS (Continued)

		Page
7.7	Notification of Certain Matters	46
7.8	Additional Documents and Further Assurances; Cooperation	46
7.9	Certain Obligation towards Gibbs	46
ARTICLE 8.	CONDITIONS TO THE MERGER	46
8.1	Conditions to Obligations of Each Party to Effect the Merger	46
8.2	Additional Conditions to Obligations of the Company	47
8.3	Additional Conditions to the Obligations of the Buyers	48
ARTICLE 9.	SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS; ESCROW PROVISIONS	49
9.1	Survival of Representations, Warranties, Covenants and Agreements	49
9.2	Escrow Provisions	50
9.3	Process for Indemnification	53
9.4	Certain Rights and Limitations	54
ARTICLE 10.	TERMINATION, AMENDMENT AND WAIVER	55
10.1	Termination	55
10.2	Effect of Termination	55
10.3	Amendment	56
10.4	Extension; Waiver	56
ARTICLE 11.	MISCELLANEOUS PROVISIONS	56
11.1	Notices	56
11.2	Entire Agreement	57
11.3	Further Assurances; Post-Closing Cooperation	58
11.4	Waiver; Remedies	58
11.5	Third Party Beneficiaries	58
11.6	No Assignment; Binding Effect	58
11.7	Headings	58
11.8	Invalid Provisions	58
11.9	Governing Law	58
11.10	WAIVER OF TRIAL BY JURY	59
11.11	Construction	59
11.12	Counterparts	59
11.13	Specific Performance	59

TABLE OF EXHIBITS AND PRINCIPAL SCHEDULES

Exhibits

Exhibit A - Escrow Agreement
Exhibit B - Registration Rights Agreements
Exhibit C - California Agreement of Merger
Exhibit D - Form of Cimatron's Officers' Certificates
Exhibit E - Form of Company's Officers' Certificates
Exhibit F - Form of Company's Legal Opinion
Exhibit G - Termination of Guarantees
Exhibit H - Company's Amended Lease Agreement
Exhibit I - Share Transfer Deed
Exhibit J - Form of Cimatron's Legal Opinion

Schedules

Schedule 4 - Company's Disclosure Schedule
Schedule 8.3(d) - OCS Undertaking
Schedule 8.3(h) - Key Employees

MERGER AGREEMENT AND
PLAN OF REORGANIZATION

        This MERGER AGREEMENT AND PLAN OF REORGANIZATION (together with the Company Disclosure Schedule and the other schedules hereto, the “Agreement”) is made and entered into as of December 31, 2007, by and among Cimatron Ltd., an Israeli Company (“Cimatron”), Cimatron Technologies, Inc., a Michigan corporation and a direct wholly-owned subsidiary of Cimatron Ltd. (“CTI”), Nortamic, LLC, a California limited liability company and a direct wholly-owned subsidiary of CTI (“Sub”), Gibbs System, Inc., a California Corporation (“Company”), and the President and sole shareholder of the Company, William F. Gibbs (“Gibbs”). Capitalized terms used and not otherwise defined herein have the meanings set forth in ARTICLE 1.

RECITALS

    A.        The Board of Directors of the Company, Sub and Cimatron believe it is in the best interests of the stockholders of their respective companies, that Cimatron acquire the Company through the merger of the Company with and into Sub (the “Merger”), and, in furtherance thereof, have approved the Merger, this Agreement and the transactions contemplated hereby.

    B.        The stockholders of the Company have approved the Merger, this Agreement and the transactions contemplated herein in accordance with the applicable provisions of the California Code.

    C.        At the Effective Time of the Merger, on the terms and subject to the conditions of this Agreement, (i) the Merger will become effective, and (ii) all of the shares of capital stock of the Company which are issued and outstanding immediately prior to the Effective Time of the Merger will be converted into the right to receive cash and Ordinary Shares of Cimatron.

    D.        As a condition and an inducement to the willingness of Cimatron to enter into this Agreement, Gibbs has entered into a Non-Competition Agreement (the “Non-Competition Agreement”), and an employment agreement (the “Employment Agreement”), which will become effective at the Effective Time.

    E.        The parties desire to make certain representations, warranties, covenants and agreements in connection with the Merger and the other transactions referred to in this Agreement and the Ancillary Agreements.

    F.        A portion of the Aggregate Purchase Price otherwise payable by the Buyers pursuant to this Agreement will be placed into escrow by the Buyers, the release of which will be contingent upon certain events and conditions, all as set forth in ARTICLE 2 and ARTICLE 9.

        NOW, THEREFORE, in consideration of the premises, and the covenants, promises, representations and warranties set forth herein, and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by the parties), intending to be legally bound hereby, the parties agree as follows:

ARTICLE 1.
DEFINITIONS

1.1         Definitions. As used in this Agreement, the following defined terms shall have the meanings indicated below (with correlative meanings for the singular or plural forms thereof):

        “2007 Financial Statements” has the meaning ascribed to such term in Section 2.12.

        “AAA ”has the meaning ascribed to such term in Section 9.2(f).

        “Action or Proceeding” means any action, suit, complaint, petition, investigation, proceeding, arbitration, litigation or Governmental or Regulatory Authority investigation, audit or other proceeding, whether civil or criminal, in law or in equity, or before any arbitrator or Governmental or Regulatory Authority.

        “Affiliate” means, with respect to any Person, any other Person directly or indirectly Controlling, Controlled by or under common Control with such Person. For purposes of this Agreement, the term “Control” (including, with correlative meanings, the terms “Controlling”, “Controlled by” and “under common Control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or partnership interests, by contract or otherwise.

        “Aggregate Purchase Price” has the meaning ascribed to such term in Section 2.67.

        “Agreement” has the meaning ascribed to it in the forepart of this Agreement.

        “Ancillary Agreements” means any agreements entered into between any of the parties hereto in connection with the transaction contemplated herein.

        “Approval” means any approval, authorization, consent, permit, qualification or registration, or any waiver of any of the foregoing, required to be obtained from or made with, or any notice, statement or other communication required to be filed with or delivered to, any Governmental or Regulatory Authority or any other Person.

        “Assets and Properties” of any Person means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, operated, owned, licensed or leased by such Person, including cash, cash equivalents, Investment Assets, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and Intellectual Property.

        “Audited Financial Statement Date” means December 31, 2006.

        “Audited Financial Statements” means the audited balance sheet of the Company as of the last day of the fiscal year ended December 31, 2006, and the related audited consolidated statements of operations, stockholders’ equity and cash flows for the fiscal year then ended, including the notes thereto and the unqualified report of the Company’s independent accountants with respect thereto.

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        “Average Share Price” means the average last sale price of the Ordinary Shares, par value NIS 0.10 per share, of Cimatron (“Ordinary Shares”) reported on the primary stock exchange or quotation system in which such Ordinary Shares are traded or quoted, as the case may be, during the 30 trading days ending on the third trading day preceding the date on which such determination is made.

        “Books and Records” means all files, documents, instruments, papers, books and records relating to the business or condition of the Company, including financial statements, internal reports, Tax Returns and related work papers and letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title policies, minute books, stock certificates and books, stock transfer ledgers, Contracts, Licenses, customer lists, computer files and programs (including data processing files and records), retrieval programs, operating data and plans and environmental studies and plans.

        “Business Combination” means, with respect to any Person, (a) any merger, consolidation, share exchange reorganization or other business combination transaction to which such Person or any of its Subsidiaries is a party, (b) any sale, dividend, split or other disposition of any capital stock or other equity interests of such Person or any of its Subsidiaries, (c) any tender offer (including a self tender), exchange offer, recapitalization, restructuring, liquidation, dissolution or similar or extraordinary transaction involving such Person or any of its Subsidiaries, (d) any sale, dividend or other disposition of all or a material or significant portion of the Assets and Properties of such Person or any of its Subsidiaries (including by way of exclusive license or joint venture formation) or (e) the entering into of any agreement or understanding, the granting of any rights or options, or the acquiescence of such Person or any of its Subsidiaries, with respect to any of the foregoing.

        “Business Day” means a day other than Saturday, Sunday or any day on which banks located in the State of California are authorized or obligated to close.

        “Buyers” means Cimatron, CTI and Sub.

        “California Agreement of Merger” has the meaning ascribed to it in Section 2.2.

        “California Code” means the California Corporations Code and all amendments and additions thereto.

        “Cash Consideration” has the meaning ascribed to such term in Section 2.67.

        “Cimatron” has the meaning ascribed to it in the forepart of this Agreement.

        “Cimatron Indemnitees” has the meaning ascribed to it in Section 9.2(a).

        “Cimatron Material Adverse Effect” means a change, effect, event, occurrence or circumstance that is materially adverse to the business, condition (financial or other), operations, results of operations, Assets and Properties, Liabilities or prospects of Cimatron and its Subsidiaries, taking Cimatron together with its Subsidiaries as a whole; provided, that changes in the market price or trading volume of Cimatron Ordinary Shares shall not be deemed a Cimatron Material Adverse Effect.

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        “Closing” has the meaning ascribed to it in Section 2.2.

        “Closing Certificate” has the meaning ascribed to such term in Section 2.12.

        “Closing Date” has the meaning ascribed to it in Section 2.2.

        “COBRA” has the meaning ascribed to it in Section 4.14(e).

        “Code” means the U.S. Internal Revenue Code of 1986, as amended.

        “Common Stock Purchase Price” means the quotient obtained by dividing (a) the Aggregate Purchase Price by (b) the aggregate number of shares of Company Capital Stock.

        “Company” has the meaning ascribed to it in the forepart of this Agreement.

        “Company Capital Stock” means all issued and outstanding shares of Equity Interests in the Company.

        “Company Disclosure Schedule” has the meaning ascribed to it in the forepart of ARTICLE 24.

        “Company Financials” means the Audited Financial Statements and the Interim Financial Statements.

        “Company Intellectual Property” means any Intellectual Property that (a) is owned by the Company; (b) is licensed to the Company; (c) was developed or created by or for the Company or (d) is used or held for use in or necessary for the conduct of the business of the Company as presently or heretofore conducted or as proposed to be conducted, including any Intellectual Property created by any of the Company’s founders, employees, independent contractors or consultants for or on behalf of the Company.

        “Company Material Adverse Effect” means a change, effect, event, occurrence or circumstance that is materially adverse to the business, condition (financial or other), operations, results of operations, Assets and Properties, Liabilities or prospects of the Company.

        “Company Registered Intellectual Property” means all Registered Intellectual Property owned by, filed in the name of, assigned to or applied for by, the Company.

        “Competing Proposed Transaction” has the meaning ascribed to it in Section 6.2(a).

        “Confidentiality Agreement” has the meaning ascribed to it in Section 7.2.

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        “Contract” means any contract, commitment, agreement or other business arrangement (whether oral or written), including: (i) any distributor, sales, advertising, marketing, reseller, agency or manufacturer’s representative contract; (ii) any continuing contract for the purchase of materials, supplies, equipment or services; (iii) any contract that expires or may be renewed at the option of any person other than the Company so as to expire more than one (1) year after the date of this Agreement; (iv) any trust indenture, mortgage, promissory note, loan agreement or other contract for the borrowing of money, any currency exchange, commodities or other hedging arrangement or any leasing transaction; (v) any contract for capital expenditures; (vi) any contract limiting the freedom of the Company to engage in any line of business or to compete with any other Person including without limitation exclusivity agreements containing “most favored nations” or similar clauses or any confidentiality, secrecy or non-disclosure contract; (vii) any contract pursuant to which the Company is a lessor of any machinery, equipment, motor vehicles, office furniture, fixtures or other personal property; (viii) any contract with any person with whom the Company does not deal at arm’s-length; (ix) any contract that is not terminable by the Company upon thirty (30) days (or less) notice by the Company without penalty or obligation to make payments based on such termination and which requires the Company to provide services to any Person after the Closing; (x) any agreement of guarantee, support, indemnification, assumption or endorsement of, or any similar commitment with respect to, the obligations, liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness of any other Person, (xi) any agreement concerning partnership, joint ventures, joint development or other cooperation agreement, or (xii) any other agreement which is otherwise material to the Company.

        “CTI” has the meaning ascribed to it in the forepart of this Agreement.

        “Dispute Notice” has the meaning ascribed to it in Section 9.2(d).

        “Effective Time” has the meaning ascribed to it in Section 2.2.

        “Environmental Law” means any federal, state, local or foreign environmental, health and safety or other Law relating to Hazardous Materials, including the Comprehensive, Environmental Response Compensation and Liability Act, the Clean Air Act, the Federal Water Pollution Control Act, the Solid Waste Disposal Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the California Safe Drinking Water and Toxic Enforcement Act.

        “Equity Interest” means any share, capital stock, partnership, member or similar interest in any entity, and any option, warrant, right or security (including debt securities) convertible, exchangeable or exercisable therefor.

        “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.

        “ERISA Affiliate” has the meaning ascribed to it in the definition of Plan in this ARTICLE 1.

        “Escrow Agent” means [U.S. Bank, National Association] (or other institution acceptable to Cimatron and Gibbs).

        “Escrow Agreement” means an escrow agreement by and among the Buyers, Gibbs and the Escrow Agent attached hereto as Exhibit A.

5

        “Escrow Amount” means US$500,000 in cash (the “Cash Escrow”) and 250,000 Ordinary Shares (the “Share Escrow”).

        “Escrow Fund” has the meaning ascribed to it in Section 9.2(a).

        “Escrow Period” has the meaning ascribed to it in Section 9.2(b).

        “Excess Funds” has the meaning ascribed to such term in Section 2.12.

        “Excluded Representations” has the meaning ascribed to it in Section 9.1.

        “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder.

        “Expiration Date” has the meaning ascribed to it in Section 9.1.

        “Final Date” has the meaning ascribed to it in Section 10.1(b).

        “GAAP” means generally accepted accounting principles in the United States, as in effect from time to time.

        “Gibbs” has the meaning ascribed to it in the forepart of this Agreement.

        “Gibbs Shares” has the meaning ascribed to it in Section 3.3.

        “Governmental or Regulatory Authority” means any court, tribunal, arbitrator, authority, agency, bureau, board, commission, department, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision, and shall include any stock exchange, quotation service and the National Association of Securities Dealers.

        “Hazardous Material” means (a) any chemical, material, substance or waste including, containing or constituting petroleum or petroleum products, solvents (including chlorinated solvents), nuclear or radioactive materials, asbestos in any form that is or could become friable, radon, lead-based paint, urea formaldehyde foam insulation or polychlorinated biphenyls; (b) any chemicals, materials, substances or wastes which are now defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants” or words of similar import under any Environmental Law; or (c) any other chemical, material, substance or waste which is regulated by any Governmental or Regulatory Authority or which could constitute a nuisance.

        “Income Tax” means (a) any income, alternative or add-on minimum tax, gross income, gross receipts, franchise, profits, including estimated taxes relating to any of the foregoing, or other similar tax or other like assessment or charge of similar kind whatsoever, excluding any Other Tax, together with any interest and any penalty, addition to tax or additional amount imposed by any Taxing Authority responsible for the imposition of any such tax (domestic or foreign); (b) any Liability of a Person for the payment of any taxes, interest, penalty, addition to tax or like additional amount resulting from the application of Treas. Reg. §1.1502-6 or comparable provisions of any Taxing Authority in respect of a Tax Return of a Relevant Group or any Contract; or (c) any Liability to any Person for any amount described in the immediately preceding clause (a) or (b) as a result of an express or implied obligation to indemnify such Person, including pursuant to a tax sharing or allocation agreement.

6

        “Indebtedness” of any Person means all obligations of such Person (a) for borrowed money, (b) evidenced by notes, bonds, debentures or similar instruments, (c) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (d) under capital leases, and (e) in the nature of a guarantee of any of the obligations described in clauses (a) through (d) above of any other Person.

        “Indemnifiable Events” has the meaning ascribed to it in Section 9.2(a).

        “Indemnitee” has the meaning ascribed to it in Section 9.3(a).

        “Indemnifying Party” has the meaning ascribed to it in Section 9.3(a).

        “Intellectual Property” means all trademarks and trademark rights, trade names and trade name rights, service marks and service mark rights, service names and service name rights, patents and patent rights, utility models and utility model rights, copyrights, mask work rights, brand names, trade dress, product designs, product packaging, business and product names, logos, slogans, rights of publicity, trade secrets, inventions (whether patentable or not), invention disclosures, improvements, processes, formulae, industrial models, processes, designs, specifications, technology, methodologies, computer software (including all source code and object code), firmware, development tools, flow charts, annotations, all Web addresses, sites and domain names, all data bases and data collections and all rights therein, any other confidential and proprietary right or information, whether or not subject to statutory registration, and all related technical information, manufacturing, engineering and technical drawings, know-how and all pending applications for and registrations of (and all rights to apply for and register) patents, utility models, trademarks, service marks and copyrights, and the right to sue for past infringement, if any, in connection with any of the foregoing, and all documents, disks, records, files and other media on which any of the foregoing is stored.

        “Interim Financial Statement Date” means September 30, 2007.

        “Interim Financial Statements” means the unaudited balance sheet of the Company as of September 30, 2007, and the related unaudited statement of operations and statement of cash flows for the nine-month period ended on such date.

        “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

        “Investment Assets” means all debentures, notes and other evidences of Indebtedness, stocks, securities (including rights to purchase and securities convertible into or exchangeable for other securities), interests in joint ventures and general and limited partnerships, mortgage loans and other investment or portfolio assets owned of record or beneficially by the Company.

7

        “IRS” means the United States Internal Revenue Service or any successor entity.

        “Knowledge” means with respect to any fact, circumstance, event or other matter in question, actual knowledge, or, if a Person should have become aware of such fact or matter after making due inquiry or otherwise in the course of performing his or her duties, Knowledge of the Company shall be deemed to be the Knowledge of Gibbs and of those employees of the Company listed in Schedule 8.3(h) attached hereto.

        “Law” or “Laws” means any law, statute, Order, decree, consent decree, judgment, rule, regulation, ordinance or other pronouncement having the effect of law whether in the United States, any foreign country, or any domestic or foreign state, county, city or other political subdivision or of any Governmental or Regulatory Authority.

        “Lease Documents” has the meaning ascribed to it in Section 4.15(d).

        “Leased Real Property” has the meaning ascribed to it in Section 4.15(a).

        “Liability” means all Indebtedness, obligations and other liabilities of a Person, whether absolute or contingent (or based upon any contingency), known or unknown, fixed or otherwise, due or to become due, whether or not accrued or paid, and whether required or not required to be reflected in financial statements under GAAP.

        “License” means any Contract that grants a Person the right to use or otherwise enjoy the benefits of any Intellectual Property (including any covenants not to sue with respect to any Intellectual Property).

        “Lien” means any mortgage, pledge, assessment, security interest, lease, lien, easement, license, covenant, condition, levy, charge, option, equity, adverse claim or restriction or other encumbrance of any kind, or any conditional sale Contract, title retention Contract or other Contract to give any of the foregoing, except for any restrictions on transfer generally arising under any applicable federal or state securities Law.

        “Loss” means any and all damages, fines, fees, Taxes, penalties, deficiencies, losses (including lost profits and diminution in value) and expenses, including interest, reasonable expenses of investigation, court costs, reasonable fees and expenses of attorneys, accountants and other experts, and other expenses of any Action or Proceeding or of any claim, default or assessment (such fees and expenses to include all fees and expenses, including fees and expenses of attorneys, incurred in connection with (a) the investigation or defense of any Third Party Claim or (b) asserting or disputing any right under this Agreement against any party hereto or otherwise), plus any interest that may accrue on any of the foregoing.

        “Merger” has the meaning ascribed to it in the recitals to this Agreement.

        “Non-Competition Agreement” has the meaning ascribed to it in the recitals to this Agreement.

        “Notice of Claim” has the meaning ascribed to it in Section 9.3(a).

8

        “Officer’s Certificate” has the meaning ascribed to it in Section 9.2(c).

        “Phantom Stock” means any “phantom” stock right or other Contract held by employees of the Company prior to the Effective Time that provided such employees with a long term incentive compensation plan based on increase in value of common stock of Company. Such “phantom” stock rights did not give the holder any right to (a) purchase or otherwise receive or be issued any shares of capital stock or other written equity interests in the Company or any Affiliate of the Company (either, a “Company Party”) or any security of any kind convertible into or exchangeable or exercisable for any shares of capital stock or other equity interests of a Company Party or (b) receive any benefits or rights similar to any rights enjoyed by or accruing to the holder of shares of capital stock or other equity interests of such Company Party, including any rights to participate in the equity, income or election of directors or officers of such Company Party.

        “Order” means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final).

        “Other Tax” means (a) any sales, use, ad valorem, business license, withholding, payroll, employment, excise, stamp, transfer, recording, occupation, premium, property, value added, custom duty, severance, windfall profit or license tax, governmental fee or other similar assessment or charge, together with any interest and any penalty, addition to tax or additional amount imposed by any Taxing Authority responsible for the imposition of any such tax (domestic or foreign), or (b) any Liability to any Person for amounts described in clause (a) above as a result of an express or implied obligation to indemnify such Person, including pursuant to a tax sharing or allocation agreement.

        “PBGC” means the Pension Benefit Guaranty Corporation established under ERISA.

        “Permit” means any license, permit, franchise or authorization.

        “Person” means any natural person, corporation, general partnership, limited partnership, limited liability company or partnership, proprietorship, other business organization, trust, union, association or Governmental or Regulatory Authority.

        “Phantom Indemnification” has the meaning ascribed to it in Section 9.2(a).

        “Plan” mean (a) each of the “employee benefit plans” (as such term is defined in Section 3(3) of ERISA, of which any of the Company, any Subsidiary of the Company, or any member of the same controlled group of businesses as the Company or any Subsidiary of the Company within the meaning of Section 4001(a)(14) of ERISA (an “ERISA Affiliate”) is or ever was a sponsor or participating employer or as to which the Company or any Subsidiary of the Company or any of their ERISA Affiliates makes contributions or is required to make contributions, and (b) any similar employment, severance or other arrangement or policy of any of the Company, any Subsidiary of the Company or any of their ERISA Affiliates (whether written or oral) providing for health, life, vision or dental insurance coverage (including self-insured arrangements), workers’ compensation, disability benefits, supplemental unemployment benefits, vacation benefits or retirement benefits, fringe benefits, or for profit sharing, deferred compensation, bonuses, stock options, stock appreciation or other forms of incentive compensation or post-retirement insurance, compensation or benefits.

9

        “Pre-Closing Tax Return” has the meaning ascribed to such term in Section 2.12.

        “Price Adjustment Calculation” has the meaning ascribed to such term in Section 2.12.

        “PTO” means the United States Patent and Trademark Office.

        “Registered Intellectual Property” shall mean all United States, international, foreign and other non-U.S.: (a) patents and patent applications (including provisional applications); (b) registered trademarks and service marks, applications to register trademarks and service marks, intent-to-use applications, other registrations or applications to trademarks or service marks, or trademarks or service marks in which common law rights are owned or otherwise controlled; (c) registered copyrights and applications for copyright registration; (d) mask work registrations and applications to register mask works; and (e) other Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any Governmental or Regulatory Authority.

        “Registration Rights Agreement” means that certain Registration Rights Agreement entered into between Cimatron and Gibbs attached hereto as Exhibit B.

        “Relevant Group” has the meaning ascribed to it in Section 4.11(a).

        “Representatives” means officers, directors, employees, Affiliates, attorneys, investment bankers, financial advisers, agents and other representatives.

        “SEC” means the U.S. Securities and Exchange Commission or any successor entity.

        “Securities Act” means the U.S. Securities Act of 1933, as amended.

        “Subsidiary” means any Person, whether or not existing on the date hereof, in which the Company or Cimatron, as the context requires, directly or indirectly through subsidiaries or otherwise, beneficially owns at least fifty percent (50%) of either the equity interest, or voting power of or in such Person.

        “Surviving Company” has the meaning ascribed to it in Section 2.1.

        “Takeover Statute” means a “fair price,” “moratorium,” “control share acquisition” or other similar ant takeover statute or regulation enacted under state or federal laws in the United States.

        “Tax” or “Taxes” means Income Taxes and/or Other Taxes, as the context requires.

        “Tax Laws” means the Code, federal, state, county, local or foreign laws relating to Taxes and any regulations or official administrative pronouncements released thereunder.

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        “Tax Return” means any return, report, information return, schedule, certificate, statement or other document (including any related or supporting information) filed or required to be filed with, or, where none is required to be filed with a Taxing Authority, the statement or other document issued by, a Taxing Authority in connection with any Tax.

        “Taxing Authority” means any governmental agency, board, bureau, body, department or authority of any United States federal, state or local jurisdiction or any foreign jurisdiction, having or purporting to exercise jurisdiction with respect to any Tax.

        “Third Party Claim” has the meaning ascribed to it in Section 9.3(a).

        “Third Party Expenses” has the meaning ascribed to it in Section 7.3.

        “Threshold” has the meaning ascribed to it in Section 2.12.

1.2     Construction. Unless the context of this Agreement otherwise requires, (i) words of either gender or the neuter include the other gender and the neuter, (ii) words using the singular number also include the plural number and words using the plural number also include the singular number, (iii) the terms “hereof,” “herein,” “hereby”and derivative or similar words refer to this entire Agreement as a whole and not to any particular Article, Section or other subdivision, (iv) the terms “Article”or “Section” or other subdivision refer to the specified Article, Section or other subdivision of the body of this Agreement, and (v) the words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.

ARTICLE 2.
THE MERGER

2.1     The Merger. At the Effective Time and upon the terms and subject to the conditions of this Agreement and the provisions of applicable Law, the Company shall be merged with and into Sub, the separate corporate existence of the Company shall cease, and Sub shall continue as the surviving company. For times and periods after the Effective Time, Sub is sometimes referred to herein as the “Surviving Company.”

2.2     Effective Time. Unless this Agreement is earlier terminated pursuant to Section 10.1, the closing of the Merger (the “Closing”) will take place as promptly as reasonably practicable, but no later than three (3) Business Days following satisfaction or waiver of the conditions set forth in ARTICLE 8, at the offices of Meitar Liquornik Geva & Leshem Brandwein, Law Office, unless another place or time is agreed to by Sub and the Company. The date on which the Closing actually occurs is herein referred to as the “Closing Date.” At the Closing, the parties shall deliver the agreements, certificates, opinions and other instruments and documents required to be delivered at or prior to the Closing pursuant to ARTICLE 8. In connection with the Closing, the parties hereto shall cause the Merger to be consummated by filing an Agreement of Merger (or like instrument) (the “California Agreement of Merger”), in substantially the form attached hereto as Exhibit C, with the Secretary of State of the State of California in accordance with the relevant provisions of the California Code (the time of acceptance by the Secretary of State of the State of California of such filings or such later time as may be agreed to by the parties and set forth in such filings for the effectiveness of the Merger being referred to herein as the “Effective Time”).

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2.3     Effect of the Merger on the Constituent Entities. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the California Code. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of Sub and the Company shall vest in the Surviving Company, and all debts, liabilities, obligations, restrictions, disabilities and duties of Sub and the Company shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Company.

2.4     Articles of Organization and Operating Agreement of Surviving Company. From and after the Effective Time:

(a)     the articles of organization of Sub, as in effect immediately prior to the Effective Time, shall be the articles of organization of the Surviving Company until amended as provided by the articles of organization and operating agreement of the Surviving Company and applicable Law; and

(b)     the operating agreement of Sub, as in effect immediately prior to the Effective Time, shall be the operating agreement of the Surviving Company until amended as provided by the articles of organization and operating agreement of the Surviving Company and applicable Law.

2.5      Directors and Officers of Surviving Company. The directors of Sub immediately prior to the Effective Time shall be the directors of the Surviving Company, each to hold office in accordance with the articles of organization and operating agreement of the Surviving Company. The officers of Sub immediately prior to the Effective Time shall be the officers of the Surviving Company, each to hold office in accordance with the articles of organization and operating agreement of the Surviving Company.

2.6     Tax Returns. The parties hereto acknowledge and agree that that the Merger is intended to be a reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. The parties to this Agreement hereby adopt this Agreement as a “plan of reorganization” within the meaning of Treasury Regulation Sections 1.368-2(g) and 1.368-3T(a). Notwithstanding the foregoing or anything else to the contrary contained in this Agreement, the parties acknowledge and agree that no party is making any representation or warranty as to the status of the Merger as a reorganization under Section 368 of the Code.

2.7     Maximum Amount to be Paid; Effect on Outstanding Securities of the Company. Notwithstanding anything to the contrary in this Agreement, the maximum amount to be paid in exchange for all shares of Company Capital Stock which are issued and outstanding immediately prior to the Effective Time shall equal an amount in cash of US$ 5,011,191 (the “Cash Consideration”) and 1,500,000 validly issued, fully paid and nonassessable Ordinary Shares, NIS 0.10 par value per share, of Cimatron (the “Securities Consideration” and together with the Cash Consideration, the “Aggregate Purchase Price”). On the terms and subject to the conditions of this Agreement, at the Effective Time, without any action on the part of Sub, the Company or the holder of any shares of the Company Capital Stock, each share of Company Capital Stock issued and outstanding immediately prior to the Effective Time shall be converted automatically into the right to receive the Common Stock Purchase Price, payable, without interest, to holder of such Company Capital Stock, as provided in Section 2.8. Immediately prior to the Closing and the Effective Time, there shall be no Phantom Stock nor obligations with respect to such Phantom Stock outstanding.

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2.8     Payment Procedures.

    (i)        On the Closing Date, CTI shall deliver to Gibbs as the sole holder of all Company Capital Stock, cash in an amount equal to the Cash Consideration less the Cash Escrow to be deposited with the Escrow Agent, by wire transfer of immediately available funds to the bank account of Gibbs, which details will be provided to Cimatron prior to the Closing.

    (ii)        On the Closing Date, Cimatron will issue and deliver to Gibbs the Securities Consideration less the Share Escrow.

    (iii)        On the Closing Date and subject to and in accordance with the provisions of ARTICLE 9, CTI shall cause to be paid to the Escrow Agent, for deposit into the Escrow Fund, cash in an amount equal to the Cash Escrow and Cimatron will deposit with the Escrow Agent the Share Escrow. Such Escrow Amount shall be available to compensate the Buyers as provided in ARTICLE 9, and in accordance with the terms of the Escrow Agreement.

2.9     No Further Ownership Rights in Company Capital Stock. All consideration issued upon the surrender for exchange of shares of Company Capital Stock in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Capital Stock, and there shall be no further registration of transfers on the records of the Company of shares of Company Capital Stock which were outstanding immediately prior to the Effective Time.

2.10     Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any such further action on the part of Sub, the Company or the Surviving Company is necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Company with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company, or to effect the assignment to the Surviving Company of any and all assets of the Company, including but not limited to Company Intellectual Property, the officers and directors of the Surviving Company are fully authorized to take, and will take, all such lawful and necessary action.

2.11     Withholding Rights. CTI, Sub and Cimatron shall be entitled to deduct and withhold from the consideration otherwise payable in connection with the transactions contemplated by this Agreement such amounts as they are required to deduct and withhold under the Code or any provision of state, local or foreign tax law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holders of Company Capital Stock in respect of which such deduction and withholding was made. Gibbs will provide, at or before Closing, such documentation, including an IRS Form W-9 and certification of non-foreign status under FIRPTA, as Cimatron reasonably request to determine the amount of withholding if any that is required.

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2.12     Purchase Price Adjustment.

(a)     Promptly following the Closing, but in any event no later than 60 days thereafter, Gibbs and the Surviving Company shall cause to be prepared audited financial statements (including balance sheet and statements of operations and cash flows) of the Company for the year ended December 31, 2007 prepared in accordance with GAAP (the “2007 Financial Statements”). The 2007 Financial Statements shall be prepared by Lucas, Horsfall, Murphy & Pindroh, LLP, or such other auditors of the Company, which shall be approved in advance by Cimatron.

(b)     Based on the 2007 Financial Statements, Cimatron shall prepare an officer certificate (the “Closing Certificate”), setting forth a calculation (the “Price Adjustment Calculation”) which shall equal the Company’s total shareholder equity as of December 31, 2007 as set forth in the 2007 Financial Statements, plus (i) Third Party Expenses of the Company and Gibbs not exceeding US$325,000 which were paid or accrued on the 2007 Financial Statements, (ii) GAAP adjustments related to write off of inventory, (iii) additional provision for bad debts related to the balance of older than 180 days trade receivables in excess of bad debts that the Company would have considered as uncollectible, (iv) deferred revenues as set forth in the 2007 Financial Statements required to be deferred by GAAP, relating to the Company’s customers’ product return and refund option 60 days after delivery of product to the customer, (v) deferred revenues as set forth in the 2007 Financial Statements required to be deferred by GAAP, relating to the Company’s policy to grant two months free maintenance service with every license sale, (vi) gross costs of the Company relating to the termination and cash-out of the Phantom Stock, (vii) an amount of $200,000, (viii) any refund Gibbs is entitled to receive from the Tax authorities as set forth in Section 2.12(f) below, and (ix) deferred revenues as set forth in the 2007 Financial Statements required to be deferred by GAAP, relating to post processor sales.

(c)     In the event that the Price Adjustment Calculation is less than US$2,000,000, then the Aggregate Purchase Price (and specifically the Cash Consideration) shall be decreased as follows: (i) for every US Dollar of deficiency in the Price Adjustment Calculation between US$2,000,000 and US$2,000,000 less the lower of (x) the employee vacation accrual liability set forth in the 2007 Financial Statements, or (y) US$330,000 (the “Threshold”), the Aggregate Purchase Price shall be decreased by US$0.50, and (ii) for every US Dollar of deficiency in the Price Adjustment Calculation below the Threshold, the Aggregate Purchase Price shall be decreased by US$1.00. For illustration purposes only, if the employee vacation accrual liability set forth in the 2007 Financial Statements is $300,000 then the Threshold shall be $1,700,000, and if the Price Adjustment Calculation is $1,600,000, then the Aggregate Purchase Price shall be reduced by $150,000 for the deficiency of $300,000 between US$2,000,000 and US$1,700,000 and by an additional $100,000 for the deficiency between $1,700,000 and $1,600,000.

(d)     Any payment due as a result of the Price Adjustment Calculation being less than US$2,000,000 shall be promptly returned by Gibbs to CTI by wire transfer of immediately available funds. In the event that Gibbs fails to make any payment determined to be due to Cimatron pursuant to the provisions of this Section above, then, without limiting any other rights and remedies Buyers may have with respect to such breach, Buyers will be entitled to set-off such amount against any amount that may be due to Gibbs, including from the Escrow Funds (initially from the Cash Escrow). Any dispute as to the Price Adjustment Calculation shall be resolved pursuant to the provisions of Section 9.2.

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(e)     Gibbs shall cause to be prepared and filed the Company’s final S corporation tax returns for the fiscal year 2007, and any applicable stub period in 2008, required to be filed after the Closing Date (a “Company Pre-Closing Tax Return”). Gibbs shall also cause to be prepared and filed his individual 2007 tax returns (the “Gibbs’ Tax Return”). Gibbs will provide Cimatron with an opportunity to review each Pre-Closing Tax Return (and Gibbs’ Tax Return) prior to its submission to the applicable tax authorities, and will include any comments provided by Cimatron prior to the date such Pre-Closing Tax Return is to be submitted, provided such comments are consistent with applicable US tax laws.

(f)     If it transpires, that Gibbs is entitled to receive a refund from the Tax authorities as a result of excess tax distributions received by Gibbs from the Company for Gibbs’ 2007 tax payments, then Gibbs shall promptly pay an amount equal to such refund or benefit to CTI by wire transfer of immediately available funds. In the event that Gibbs fails to make any payment determined to be due to CTI pursuant to the provisions of this Section above, then, without limiting any other rights and remedies Buyers may have with respect to such breach, Buyers will be entitled to set-off such amount against any amount that may be due to Gibbs, including from the Escrow Funds. The above provisions shall not derogate from the Buyers’ right to seek information for any breach of Section 4.11.

(g)     In the event that it transpires that distributions made to Gibbs in 2007 resulted in Gibbs receiving distributions in excess of the Company’s “accumulated adjustment account” (as such term is defined in Section 1368(e) of the Code), (the “Excess Funds”), then with respect to such Excess Funds in an amount not exceeding $200,000, the Aggregate Purchase Price shall be increased by 31.58% of such Excess Funds, and CTI shall pay such amount to Gibbs by wire transfer of immediately available funds. Alternatively, CTI may offset such amount from any payment due to CTI under this Section 2.12.

ARTICLE 3.REPRESENTATIONS AND WARRANTIES OF GIBBS

        Gibbs hereby represents and warrants to the Buyers that each of the statements in this ARTICLE 3 is true, correct and complete, subject only to such exceptions as are specifically disclosed with respect to specific numbered sections and lettered subsections of this ARTICLE 3.

3.1     Organization and Authority.  Gibbs has all requisite power and authority and legal capacity, to execute and deliver this Agreement and the Ancillary Agreements to which he is a party, to perform his obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. This Agreement and any Ancillary Agreements to which Gibbs is a party have been duly executed and delivered by Gibbs and, assuming the due authorization, execution and delivery hereof by Cimatron, the Buyers, and/or the other parties thereto (other than the Company) constitute the legal, valid and binding obligations of Gibbs, enforceable against Gibbs in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to the enforcement of creditors’ rights generally and by general principles of equity.

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3.2     Noncontravention. None of the execution, delivery or performance by Gibbs of the Agreement or any Ancillary Agreements thereof, or the consummation by Gibbs of the Agreement does or will, with or without the giving of notice or the lapse of time or both, conflict with, or result in a breach or violation of, or a default under, or give rise to a right of amendment, termination, cancellation or acceleration of any obligation or to a loss of a benefit under any Contract to which Gibbs is a party (other than Contracts required to be terminated pursuant to the terms of this Agreement), or any Law or License to which Gibbs or his properties or assets are subject.

3.3     Title to Shares. Gibbs has good and valid title to, and is the legal and beneficial owner of, all the issued and outstanding Company Capital Stock, being 100,000 shares of Common Stock, (the “Gibbs Shares”) (and as of the Closing will have good and valid title to, and will be the legal and beneficial owner of, such Company Capital Stock), free and clear of any Liens, and such shares constitute the entire Equity Interest in the Company. The number of shares of Company Capital Stock set forth above constitutes all of the Company Capital Stock over which any voting or dispositive power is held by Gibbs and Gibbs does not own or hold, beneficially or otherwise, directly or indirectly, any other Company Capital Stock, Phantom Stock, or debt instruments of the Company. There are no (i) outstanding options, warrants, purchase rights, subscription rights, conversion rights, exchange rights or other similar Contracts relating to the Gibbs Shares, (ii) outstanding stock appreciation, Phantom Stock, profit appreciation or similar rights with respect to the Gibbs Shares, (iii) voting trusts, proxies, or other Contracts or understandings with respect to the voting of the Gibbs Shares, or (iv) transfer restrictions, except with respect to restrictions on transfer under applicable state and federal securities laws with respect to the Gibbs Shares.

3.4     Accredited Investor Representations.

(a)     Gibbs is an “accredited investor” within the meaning of Rule 501 of Regulation D of the Securities Act, as presently in effect. Gibbs is capable of evaluating the merits and risks of his investment and has the capacity to protect his own interests.

(b)     Gibbs is acquiring the Securities Consideration for investment for his own account, not as a nominee or agent, and not with the view to, or for resale or distribution thereof. Gibbs has no present intention of selling, granting any participation in, or otherwise distributing said Securities Consideration. Gibbs understands that the Securities Consideration to be purchased have not been, and will not be, registered under the Securities Act by reason of specific exemptions from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Gibbs’ representations as expressed herein. Gibbs represents and undertakes that he does not have any contract, undertaking, agreement or arrangement with any Person to sell, transfer, or grant participation to any such Person, with respect to any Securities Consideration.

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(c)     Gibbs acknowledges that the Securities Consideration is characterized as “restricted securities” under the U.S. federal securities laws and must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. Gibbs is aware of the provisions of Rule 144 promulgated under the Securities Act which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about Cimatron, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being effected through a “broker’s transaction” or in transactions directly with a “market maker” and the number of shares being sold during any three-month period not exceeding specified limitations.

ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND GIBBS

        The Company and Gibbs, jointly and severally, hereby represent and warrant to the Buyers that each of the statements in this ARTICLE 4 is true, correct and complete, except as set forth in the specific numbered sections and lettered subsections of this ARTICLE 4 in the disclosure schedule and schedule of exceptions, delivered herewith and dated as of the date hereof, and organized with corresponding numbered sections and lettered subsections (the “Company Disclosure Schedule”).

4.1     Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of California, and has full corporate power and authority to conduct its business as presently conducted and as presently proposed to be conducted and to own, use, license and lease its Assets and Properties. The Company is duly qualified, licensed or admitted to do business and is in good standing as a foreign corporation in each jurisdiction in which the ownership, use, licensing or leasing of its Assets and Properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except for such failures to be so duly qualified, licensed or admitted and in good standing that could not reasonably be expected to have a Company Material Adverse Effect. Section 4.1 of the Company Disclosure Schedule sets forth each jurisdiction where the Company is so qualified, licensed or admitted to do business and separately lists each other state or country in which the Company owns, uses, licenses or leases its Assets and Properties, or conducts business or has employees or engages independent contractors.

4.2     Authority Relative to this Agreement. The Company has full corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which the Company is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The Company’s Board of Directors and stockholders have approved this Agreement and declared its advisability and have approved the Ancillary Agreements to which the Company is a party. The execution and delivery by the Company of this Agreement and the Ancillary Agreements to which the Company is a party and the consummation by the Company of the transactions contemplated hereby and thereby, and the performance by the Company of its obligations hereunder and thereunder, have been duly and validly authorized by all necessary action of the Company, and no other action on the part of the Company is required to authorize the execution, delivery and performance of this Agreement and the Ancillary Agreements to which the Company is a party and the consummation by the Company of the transactions contemplated hereby and thereby. This Agreement and the Ancillary Agreements to which the Company is a party have been or will be, as applicable, duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof by Cimatron, the Buyers, and/or the other parties thereto (other than Gibbs), each constitutes or will constitute, as applicable, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to the enforcement of creditors’ rights generally and by general principles of equity.

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4.3     Capital Stock.

(a)     The authorized capital stock of the Company consists only of 1,000,000 shares of Capital Stock, of which 100,000 shares are issued and outstanding. The Company previously issued Phantom Stock in such amounts and based on such terms as set forth in Section 4.3(a) of the Company Disclosure Schedule, all of which were terminated prior to the date hereof. All of the issued and outstanding shares of Company Capital Stock are validly issued, fully paid and nonassessable, and have been issued in compliance with all applicable federal, state and foreign securities Laws. No shares of Company Capital Stock are held in treasury or are authorized or reserved for issuance.

(b)     There are no preemptive rights or agreements, arrangements or understandings (written or oral) to issue preemptive rights with respect to the issuance or sale of Company Capital Stock created by statute, the certificate of incorporation or bylaws of the Company, or any agreement or other arrangement (written or oral) to which the Company is a party or to which it is bound and there are no agreements, arrangements or understandings (written or oral) to which the Company is a party pursuant to which the Company has the right to elect to satisfy any Liability by issuing Company Capital Stock.

(c)     There are no bonds, debentures, notes or other indebtedness of any type whatsoever of the Company that are convertible into, exchangeable or exercisable for Company Capital Stock or other capital stock of the Company or that have the right to vote (or convertible into, or exchangeable or exercisable for, securities having the right to vote) on any matters on which any stockholders of the Company may vote. Except for the Company Capital Stock specified above, there are no (i) outstanding options, warrants, calls, demands, purchase rights, subscription rights, conversion rights, exchange rights, or other similar Contracts, Equity Interests, commitments, arrangements or understandings relating to the issuance by the Company of any Company Capital Stock or any other securities of the Company, (ii) outstanding stock appreciation, profit participation, or similar rights with respect to the Company, or (iii)  voting trusts, proxies, or other agreements or understandings with respect to the voting of any Company Capital Stock or any other securities of the Company, and the Company is not obligated, pursuant to any securities, options, warrants, calls, demands, Contracts or other rights of any nature or otherwise, now or in the future, contingently or otherwise, to issue, deliver, sell, purchase or redeem any share capital of the Company, any other securities of the Company or any interest in the Company to or from any Person or to issue, deliver, sell, purchase or redeem any stock appreciation rights or other Contracts of the Company relating to any share capital or other securities of the Company to or from any Person.

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4.4     Subsidiaries. The Company does not own and has never owned, directly or indirectly, any capital stock of or other voting securities or Equity Interests, or otherwise hold any equity, membership, partnership, joint venture or other ownership interest, in any other Person.

4.5     Directors and Officers. The names of each director and officer of the Company on the date hereof, and his or her position with the Company, are listed in Section 4.5 of the Company Disclosure Schedule.

4.6     No Conflicts. The execution and delivery by the Company of this Agreement and the Ancillary Agreements to which the Company is a party do not, and the performance by the Company of its obligations under this Agreement and the Ancillary Agreements to which the Company is a party and the consummation of the transactions contemplated hereby and thereby do not and will not:

(a)     conflict with or result in a violation or breach of any of the terms, conditions or provisions of the articles of incorporation or bylaws of the Company;

(b)    subject to obtaining the consents, approvals and actions, making the filings and giving the notices disclosed in Section 4.6(b) of the Company Disclosure Schedule, if any, conflict with or result in a violation or breach of any Law or Order applicable to the Company or any of its Assets and Properties; or

(c)    (i) conflict with or result in a violation or breach of, (ii) constitute a default (or an event that, with or without notice or lapse of time or both, would constitute a default) under, (iii) require the Company to obtain any consent, approval or action of, make any filing with or give any notice to any Person, which have not been obtained or given by the Closing, as a result or under the terms of, (iv) result in or give to any Person any right of termination, cancellation, acceleration or modification in or with respect to, (v) result in or give to any Person any additional right or entitlement to any increased, additional, accelerated or guaranteed payment or performance under, (vi) result in the creation or imposition of (or the obligation to create or impose) any Lien upon the Company or any of its Assets and Properties under, or (vii) result in the loss of any material benefit under, any of the terms, conditions or provisions of any Contract or License to which the Company is a party or by which any of the Company’s Assets and Properties is bound.

4.7     Books and Records; Organizational Documents. The minute books and stock record books and other similar records of the Company have been provided to Cimatron or its counsel prior to the execution of this Agreement, and are complete and correct in all respects. Such minute books contain a true and complete record of all actions taken at all meetings and by all written consents in lieu of meetings of the stockholders, directors, committees of the Board of Directors of the Company from the date of the Company’s incorporation through the date hereof. The Company has prior to the execution of this Agreement delivered to Cimatron true and complete copies of its articles of incorporation and bylaws, both as amended through the date hereof. The Company is not in violation of any provision of its articles of incorporation or bylaws, both as amended through the date hereof.

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4.8     Company Financial Statements; Internal Controls.

(a)     The Company Financials delivered to Cimatron are correct and complete in all material respects and have been prepared in accordance with GAAP applied on a basis consistent throughout the periods indicated and consistent with each other (except as may be indicated in the notes thereto as delivered to Cimatron prior to the date hereof). The Company Financials present fairly and accurately the financial condition and operating results of the Company (including assets, liabilities, profit, loss and cash flows) as of the dates and during the periods indicated therein.

(b)     The Company has at all times (i) made and kept accurate books and records and (ii) maintained, enforced and complied with internal accounting controls that have at all times provided reasonable assurance that (A) transactions are (and have been) executed in accordance with management’s authorization, (B) transactions are (and have been) recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is (and has been) permitted only in accordance with management’s authorization, (D) the reported accountability for its assets is (and has been) compared with existing assets at reasonable intervals, (E) all material information related to such controls are (and has been) reported or otherwise made known to the Company’s chief executive officer and chief financial officer, (F) all material information concerning the Company is (and has been) recorded, processed, summarized and timely reported to the appropriate members of the Company’s management, including its chief executive officer and chief financial officer, (G) all information required to be reported or reflected in the Company’s financial statements is (and has been) recorded, processed, summarized and timely reported to the appropriate members of the Company’s management, including its chief financial officer, and made available to the Company’s auditors. During the periods covered by the Audited Financial Statements, there has been (i) no significant change in the Company’s internal controls over financial reporting; (ii) no significant deficiency or material weakness in the design or operation of the Company’s internal controls over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information during any of the periods covered by the Audited Financial Statements; and (iii) to the Company’s Knowledge, no fraud, whether or not material, involving any member of the Company’s board of directors or management or any other employee of the Company who has a significant role in the Company’s internal control over financial reporting.

4.9     Absence of Changes. Since the Audited Financial Statement Date, there has not been any Company Material Adverse Effect or any occurrence or event that, individually or in the aggregate, could be reasonably expected to have any Company Material Adverse Effect. In addition, without limiting the generality of the foregoing, except as set forth in Section 4.9 of the Company Disclosure Schedule or as expressly required by this Agreement since the Audited Financial Statement Date:

(a)     the Company has not entered into any Contract, commitment or transaction or incurred any Liability outside of the ordinary course of business consistent with past practice;

(b)     the Company has not entered into, approved or resolved to enter into any Contract in connection with any transaction involving a Business Combination;

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(c)     the Company has not granted any additional Company Phantom Stock;

(d)     the Company has not altered or entered into any Contract or other commitment to alter, its debt or equity interest in any corporation, association, joint venture, partnership or business entity in which the Company directly or indirectly holds any interest (or any right to acquire any interest) on the date hereof;

(e)     the Company has not entered into any strategic alliance, joint development or joint marketing Contract;

(f)     there has not been any amendment or other modification (or agreement to do so), or any violation by the Company or (to the Knowledge of the Company) any other party thereto of any of the Contracts set forth or described in the Company Disclosure Schedule in any material respect;

(g)     the Company has not entered into any transaction with any officer, director, stockholder, Affiliate of the Company, other than pursuant to any Contract in effect on the Audited Financial Statement Date and identified in Section 4.9, Section 4.18(a) or Section 4.20(b) of the Company Disclosure Schedule or other than pursuant to any Contract of employment and listed in Section 4.18(a) of the Company Disclosure Schedule;

(h)     the Company has not entered into or amended any Contract pursuant to which any other Person is granted manufacturing, marketing, distribution, licensing or similar rights of any type or scope with respect to any product of the Company or Company Intellectual Property, other than as contemplated by the Contracts and Licenses disclosed in the Company Disclosure Schedule;

(i)     no Action or Proceeding has been commenced or threatened by or, to the Knowledge of the Company, against the Company and the Company has not settled any Action or Proceeding;

(j)     the Company has not declared or set aside or paid any dividend on or made any other distribution (whether in cash, stock or property) in respect of any Company Capital Stock or Equity Interest, or effected or approved any split, combination or reclassification of any Company Capital Stock or Equity Interest or issued or authorized the issuance of any other securities in respect of, in lieu of or in substitution for any Company Capital Stock or Equity Interest, or repurchased, redeemed or otherwise acquired, directly or indirectly, any Company Capital Stock or Equity Interest, except as identified in Section 4.9(j) of the Company Disclosure Schedule.

(k)     (A) the Company has not issued, granted, delivered, sold or authorized or proposed to issue, grant, deliver or sell, or purchased or proposed to purchase, any Capital Stock or Equity Interests; (B) the Company has not modified, waived or amended terms, or the rights of any holder, of any outstanding Capital Stock or Equity Interest; and (C) there has not been any agreement, arrangement, plan or understanding with respect to any such modification, waiver or amendment;

(l)     there has not been any amendment to the Company’s certificate of incorporation or bylaws;

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(m)     there has not been any transfer (by way of a License or otherwise) to any Person of right to any Company Intellectual Property;

(n)     the Company has not made or agreed to make any disposition or sale of, waiver of any right to, license or lease of, or incurrence of any Lien on, any Asset and Property of the Company, except in the ordinary course of business of the Company consistent with past practice;

(o)     the Company has not made or agreed to make any purchase of any Asset and Property of any Person other than (i) acquisitions of inventory, or licenses of products, in the ordinary course of business of the Company consistent with past practice and (ii) other acquisitions in an amount not exceeding fifty thousand dollars ($50,000) in the case of any individual item or one hundred thousand dollars ($100,000) in the aggregate;

(p)     the Company has not made or agreed to make any capital expenditure or commitment for additions to property, plant or equipment constituting capital assets in an amount exceeding fifty thousand dollars ($50,000) in the case of any individual item or one hundred thousand dollars ($100,000) in the aggregate;

(q)     the Company has not made or agreed to make any write-off or write-down, any determination to write off or write-down, or revalue, any of its Assets and Properties, or change any reserves or liabilities associated therewith in an amount exceeding fifty thousand dollars ($50,000) in the case of any individual item or one hundred thousand dollars ($100,000) in the aggregate;

(r)     the Company has not made or agreed to make payment, discharge or satisfaction, in an amount exceeding fifty thousand dollars ($50,000) in any one case or one hundred thousand dollars ($100,000) in the aggregate, of any claim, Liability or obligation (whether absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of Liabilities reflected or reserved against in the Company Financials;

(s)     the Company has not failed to pay or otherwise satisfy any Liability of the Company presently due and payable, except such Liabilities which are being contested in good faith by appropriate means or procedures and which, both individually and in the aggregate, are immaterial in amount;

(t)     the Company has not incurred any Indebtedness or guaranteed any Indebtedness in an amount exceeding twenty five thousand dollars ($25,000) in any individual case or fifty thousand dollars ($50,000) in the aggregate or issued or sold any debt securities of the Company or guaranteed any debt securities of any other Person;

(u)     the Company has not granted or paid or made any commitment to pay any severance or termination payment to any director, officer employee or consultant, except payments made pursuant to written Contracts outstanding on the date hereof, copies of which have been delivered to Cimatron and the terms of which are disclosed in Section 4.9 of the Company Disclosure Schedule;

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(v)     except pursuant to a Contract disclosed to Cimatron pursuant to Section 4.9 or Section 4.18 of the Company Disclosure Schedule, the Company has not granted or approved any increase of greater than five percent (5%) in salary, rate of commissions, rate of consulting fees or any other compensation of any current or former officer, director, stockholder, employee, independent contractor or consultant of the Company;

(w)     the Company has not paid or approved the payment of any consideration of any nature whatsoever (other than salary, commissions or consulting fees and customary benefits paid to any current or former officer, director, stockholder, employee or consultant of the Company, in each case in amounts, on terms, and of type consistent with the Company’s past practices) to any current or former officer, director, stockholder, employee, independent contractor or consultant of the Company except pursuant to a Contract disclosed to Cimatron pursuant to Section 4.9(w) of the Company Disclosure Schedule;

(x)     the Company has not established or modified any target, goal, pool or similar provision under, or any salary range, increased guideline or similar provision in respect of, any Plan, employment Contract or other employee compensation arrangement or independent contractor Contract or other compensation arrangement;

(y)     the Company has not (i) made, changed or rescinded any material election in respect of any Tax, or adopted or changed any accounting method in respect of any Tax, (ii) entered into any Tax allocation agreement, Tax sharing agreement, Tax indemnity agreement or closing agreement, settlement or compromise of any claim or assessment in respect of any Tax, or (iii) consented to any extension or waiver of the limitation period applicable to any claim or assessment in respect of any Tax with any Taxing Authority or otherwise;

(z)     the Company has not made any change in accounting policies, principles, methods, practices or procedures (including for bad debts, contingent liabilities or otherwise, respecting capitalization or expense of research and development expenditures, depreciation or amortization rates or timing of recognition of income and expense), except those required by GAAP;

(aa)     there has been no physical damage, destruction or other casualty loss (whether or not covered by insurance) affecting any of the real or personal property or equipment of the Company in an amount exceeding fifty thousand dollars ($50,000) in the case of any individual item or one hundred thousand dollars ($100,000) in the aggregate.

(bb)     the Company has not entered into or approved any Contract, arrangement or understanding, to do, engage in or cause or having the effect of any of the foregoing, except as identified in Section 4.9(bb) of the Company Disclosure Schedule.

4.10     No Undisclosed Liabilities. Except (i) as set forth in Section 4.10 of the Company Disclosure Schedule, (ii) as disclosed in the Interim Financial Statements, (iii) for liabilities incurred in the ordinary course of business and consistent with past practice of the Company since the Interim Financial Statements and not exceeding US$25,000 individually and US$100,000 in the aggregate, or (iv) arising under this Agreement, the Company has no other outstanding Liability.

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4.11     Taxes.

(a)     All Tax Returns required to have been filed by or with respect to the Company or any affiliated, consolidated, combined, unitary or similar group of which the Company is or was a member (a “Relevant Group”) have been duly and timely filed (including any extensions), and each such Tax Return is true, complete and correct in all material respects and correctly and completely reflects Tax liability and all other information required to be reported thereon. All Taxes due and payable by the Company or any member of a Relevant Group, whether or not shown on any Tax Return, or claimed to be due by any Tax Authority, for all periods (or portions of periods) covered by the Company Financials, and for any other period or portion thereof ending on or before the Closing Date, have been fully paid or fully accrued on the balance sheet included in the Company Financials and otherwise appropriately and fully reflected in the Company Financials; or arose in the ordinary course of business subject to the dates of the Company Financials. To the Company’s Knowledge, the Company has disclosed on its Tax Returns all positions (if any) that could give rise to a substantial understatement penalty under Section 6662 of the Code if the Company were otherwise liable for taxes.

(b)     The Company is not presently a party to any agreement extending the time within which to file any Tax Return. To the Company’s Knowledge, no claim has ever been made by a Taxing Authority of any jurisdiction in which the Company or any member of any Relevant Group does not file Tax Returns that the Company or such member is or may be subject to taxation by that jurisdiction.

(c)     The Company and each member of any Relevant Group has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, stockholder, director, supplier, creditor, independent contractor or other third party.

(d)     The Company has not received any demand for payment or notice of assessment of, and does not have Knowledge of any action by any Taxing Authority in connection with assessing, additional Taxes against or in respect of it or any Relevant Group for any past period. There is no dispute or claim concerning any Tax Liability of the Company either (i) threatened, claimed, raised or assessed by any Taxing Authority and (ii) no basis exists for any such claim or dispute. There are no Liens for Taxes upon the Assets and Properties of the Company other than Liens for Taxes not yet due. Section 4.11(d) of the Company Disclosure Schedule lists those Tax Returns, if any, of the Company and each member of any Relevant Group that have been audited or examined by Taxing Authorities, and indicates those Tax Returns of the Company and each member of any Relevant Group that currently are the subject of audit or examination. The Company has delivered to Cimatron complete and correct copies of all federal, state, local and foreign income Tax Returns, all information document requests, notices of proposed deficiencies, deficiency notices, protests, petitions, closing agreements, settlement agreements, pending ruling requests or other documents of a similar nature that, in any such case, were submitted, received, or agreed to by or with respect to the Company and all Tax examination reports and statements of deficiencies assessed against or agreed to by, the Company and each member of any Relevant Group since the fiscal year ended December 31, 2002.

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(e)     There are no outstanding agreements or waivers extending the statutory period of limitation applicable to any Tax Return required to be filed by, or which includes or is treated as including, the Company or with respect to any Tax assessment or deficiency affecting the Company or any Relevant Group, and the time for filing any Tax Return has not been extended to a date later than the date of this Agreement.

(f)     The Company has not received any written ruling related to Taxes or entered into any agreement with a Taxing Authority relating to Taxes.

(g)     The Company has no liability for any Tax of any Person other than the Company (i) under Section 1.1502-6 of the Treasury regulations (or any similar provision of state, local or foreign Law), (ii) as a transferee or successor, (iii) by Contract or (iv) otherwise.

(h)     The Company has neither agreed to make nor is required to make any adjustment under Section 481 of the Code by reason of a change in accounting method.

(i)     The Company is not a party to or bound by any obligations under any Tax sharing, Tax allocation, Tax indemnity or similar agreement or arrangement.

(j)     The Company is not involved in, subject to, or a party to any joint venture, partnership, Contract or other arrangement that is treated as a partnership for federal, state, local or foreign Income Tax purposes.

(k)     During the periods covered by the Tax Returns referred to in the last sentence of paragraph (d) of this Section, the Company has filed Tax Returns in the following jurisdictions only: the United States of America; the States of Arizona, California, Colorado, and North Carolina. No claim has ever been made in writing by any Tax Authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by that jurisdiction.

(l)     All information returns required to be filed by the Company have been filed, including information returns with respect to persons classified as independent contractors, and to the Knowledge of the Company all persons so classified are appropriately classified for all Tax purposes.

(m)     The Company has not made any payment, is not obligated to make any payment, and is not a party to any Contract, agreement or arrangement covering any current or former employee or consultant of the Company that could require it to make or give rise to any payment that is not deductible as a result of Section 280G of the Code or the Treasury regulations thereunder or would result in an additional tax to the recipient of any such payment (or an acceleration of income to a year before the year in which payment is made) under Section 409A or Section 4999 of the Code.

(n)     There is currently no limitation on the utilization of the net operating losses, built-in losses, capital losses, Tax credits or other similar items of the Company under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii) Section 384 of the Code, and (iv) Section 1502 of the Code and Treasury regulations promulgated thereunder.

(o)     Each material election with respect to Income Taxes affecting the Company is set forth in Section 4.11(o) of the Company Disclosure Schedule.

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(p)     The Company is not and has never been a United States real property holding corporation within the meaning of Section 897(c)(1)(A)(ii) of the Code.

(q)     The Company is not a “publicly held corporation” for purposes of Section 162(m) of the Code.

(r)     The Company has not constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (A) in the two (2) years prior to the date of this Agreement or (B) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the transactions contemplated by this Agreement.

(s)     The Company does not have, nor has ever had, a permanent establishment in any country other than the United States, and has not engaged in a trade or business in any country other than the United States that subjected the Company to any Taxes in such country.

(t)     The Company has not at any time (i) engaged in any transaction that constitutes a “reportable transaction” described in Treasury Regulation §301.6011-4(b) or similar provision of state or local Tax law or that would have constituted such a reportable transaction if, at the time that such transaction occurred, such regulation and any interpretive guidance under such regulation (in the form of existence on the date of this Agreement) published by IRS or state or local Tax Authority had been in effect, or (ii) paid a fee to any promoter of a transaction the principal purpose of which was to reduce the Federal or state or local income tax liability of the Company.

(u)     Section 4.11(u) of the Company Disclosure Schedule sets forth all distributions made by the Company to Gibbs, in his capacity as a shareholder during the year 2007. All such payments were properly and duly submitted by Gibbs to the IRS.

(v)     (i) The Company elected to be an S corporation (a) under Code section 1362(a) for U.S. Federal Income Tax purposes and (b) under the Income Tax laws of California, effective as of July 1, 1999 and ending on the date immediately before the Effective Time; (ii) Gibbs, as the sole shareholder of the Company at the time of said election, consented to said election; (iii) to the Knowledge of the Company and Gibbs, the Company has at all times thereafter remained an S corporation, with Gibbs as its sole shareholder, for all such purposes, and no attempt has been made by Gibbs or the Company to revoke said election; and (iv) neither the Company nor Gibbs has taken any reporting position on any Tax Return inconsistent with the foregoing.

(w)     For purposes of this Section 4.11, any reference to the Company shall be deemed to include Gibbs, in his capacity as a stockholder or otherwise with respect to the Company.

4.12     Legal Proceedings

(a)     There is no Action or Proceeding pending or, to the Knowledge of the Company, threatened against, relating to or affecting the Company or any of its Assets and Properties. There is no fact or circumstance known to the Company that, either alone or together with other facts and circumstances, could reasonably be expected to give rise to any Action or Proceeding against, relating to or affecting the Company or any of its Assets and Properties. The Company has not received notice, and does not otherwise have Knowledge of, any Order outstanding against the Company; and the Company has not received notice and does not otherwise have Knowledge of any defect, dangerous or substandard condition in any product or material sold, distributed, or currently proposed to be sold or distributed by the Company that could cause bodily injury, sickness, disease, death or damage to property, or result in loss of use of property, or any claim, suit, demand for arbitration or notice seeking damages for bodily injury, sickness, disease, death, or damage to property, or loss of use of property.

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(b)     Prior to the execution of this Agreement, the Company has delivered to Cimatron all responses of counsel for the Company to auditor requests for information for the period since January 1, 2002 (together with any updates provided by such counsel) regarding Actions or Proceedings pending or threatened against, relating to or affecting the Company. Section 4.12(b) of the Company Disclosure Schedule sets forth all Actions or Proceedings pending or, to the Knowledge of the Company, threatened against, relating to or affecting, the Company or any of its Assets and Properties at any time since January 1, 2002.

4.13     Compliance with Laws and Orders. Neither the Company nor any of its directors, officers, Affiliates, agents or employees has violated in any material respect since the incorporation of the Company, or is currently in default or violation in any material respect under, any Law or Order applicable to the Company or any of its Assets and Properties, and the Company has no Knowledge of any claim of violation, or of any actual violation, of any such Law or Order by the Company since the incorporation of the Company.

4.14     Plans; ERISA.

(a)     Existence of Plans. Except as set forth in Section 4.14 of the Company Disclosure Schedule (i) neither the Company nor any of its ERISA Affiliates maintains or sponsors (or ever maintained or sponsored), or makes or is required to make contributions to, any Plans, (ii) none of the Plans is or was a “multi-employer plan”, as defined in Section 3(37) of ERISA, (iii) none of the Plans is or was a “defined benefit pension plan” within the meaning of Section 3(35) of ERISA, (iv) none of the Plans provides or provided post-retirement medical or health benefits, (v) none of the Plans is or was a “welfare benefit fund,” as defined in Section 419(e) of the Code, or an organization described in Sections 501(c)(9) or 501(c)(20) of the Code, (vi) neither the Company nor any of its ERISA Affiliates is or was a party to any collective bargaining agreement, (vii) neither the Company nor any of its ERISA Affiliate has announced or otherwise made any commitment to create or amend any Plan, and (viii) none of the Plans is or was adopted or maintained by the Company or any ERISA Affiliate for the benefit of individuals who perform services outside the United States. Notwithstanding any statement or indication in this Agreement to the contrary, there is no Plan (A) as to which the Buyers will be required to make any contribution or with respect to which the Buyers shall have any obligation or Liability whatsoever, whether on behalf of any of the current employees of the Company or on behalf of any other Person, after the Closing, or (B) which the Buyers or the Surviving Company or any of its Subsidiaries will not be able to terminate immediately after the Closing in accordance with their terms and ERISA. With respect to each of such Plans, at the Closing there will be no unrecorded Liabilities with respect to the establishment, implementation, operation, administration or termination of any such Plan, or the termination of the participation in any such Plan by the Company or any of their respective ERISA Affiliates. The Company has delivered to Cimatron true and complete copies of: (I) each of the Plans and any related funding agreements thereto (including insurance contracts) including all amendments, all of which are legally valid and binding and in full force and effect and there are no defaults thereunder, (II) the currently effective Summary Plan Description pertaining to each of the Plans, (III) all annual reports for each of the Plans (including all related schedules), (IV) the most recently filed PBGC Form 1 (if applicable), (V) the most recent IRS determination letter, opinion, notification or advisory letter (as the case may be) for each Plan which is intended to constitute a qualified plan under Section 401 of the Code and each amendment to each of the foregoing documents, and (VI) for each unfunded Plan, financial statements consisting of (x) the consolidated statement of assets and liabilities of such Plan as of its most recent valuation date, and (y) the statement of changes in fund balance and in financial position or the statement of changes in net assets available for benefits under such Plan for the most recently-ended plan year, which financial statements fairly present the financial condition and the results of operations of such Plan in accordance with GAAP, consistently applied, as of such dates.

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(b)     Penalties; Reportable Events. Neither the Company nor any of its ERISA Affiliates is subject to any material liability, tax or penalty whatsoever to any person or agency whomsoever as a result of engaging in a prohibited transaction under ERISA or the Code, and neither the Company nor any of its ERISA Affiliates has any Knowledge of any circumstances which reasonably might result in any material Liability, Tax or penalty, including a penalty under Section 502 of ERISA, as a result of a breach of any duty under ERISA or any other Law. Each Plan which is required to comply with the provisions of Sections 4980B and 4980C of the Code, or with the requirements referred to in Section 4980D of the Code, has complied with such provisions and requirements in all material respects. No event has occurred which could subject any Plan to Tax under Section 511 of the Code. None of the Plans subject to Title IV of ERISA has been completely or partially terminated nor has there been any “reportable event,” as such term is defined in Section 4043(b) of ERISA, with respect to any of the Plans since the effective date of ERISA nor has any notice of intent to terminate been filed or given with respect to any such Plan. There has been no (i) withdrawal by the Company or any of its ERISA Affiliates that is a substantial employer from a single-employer plan which is a Plan and which has two or more contributing sponsors at least two of whom are not under common control, as referred to in Section 4063(b) of ERISA, or (ii) cessation by the Company or any of its ERISA Affiliates of operations at a facility causing more than twenty percent (20%) of Plan participants to be separated from employment, as referred to in Section 4062(e) of ERISA. Neither the Company nor any of its ERISA Affiliates, nor any other organization of which any of them are a successor as defined in Section 4069(b) of ERISA, has engaged in any transaction described in Section 4069(a) of ERISA.

(c)     Deficiencies; Qualification. None of the Plans nor any trust created thereunder has incurred any “accumulated funding deficiency” as such term is defined in Section 412 of the Code, whether or not waived, since the effective date of said Section 412, and no condition has occurred or exists which by the passage of time could be expected to result in an accumulated funding deficiency as of the last day of the current plan year of any such Plan. Furthermore, neither the Company nor any of its ERISA Affiliates has any unfunded Liability under ERISA in respect of any of the Plans. Each of the Plans which is intended to be a qualified plan under Section 401(a) of the Code has received a favorable determination letter, opinion, notification or advisory letter from the Service and has been operated in accordance with its terms and with the provisions of the Code and the regulations promulgated thereunder. All of the Plans have been administered and maintained in substantial compliance with ERISA, the Code and all other applicable Laws. All contributions required to be made to each of the Plans under the terms of that Plan, ERISA, the Code or any other applicable Law have been timely made. Each Plan intended to meet the requirements for tax-favored treatment under Subchapter B of Chapter 1 of the Code is in compliance with such requirements. There are no Liens against any of the Assets and Properties of the Company or any of its ERISA Affiliates under Section 412(n) of the Code or Sections 302(f) or 4068 of ERISA. The Interim Financial Statements properly reflect all amounts required to be accrued as liabilities to date under each of the Plans.

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(d)     Acceleration. Neither the execution and delivery of this Agreement or any of the Ancillary Agreements nor the consummation of any of the transactions contemplated hereby or thereby (whether alone or upon the occurrence of any additional or further acts or events) will (i) result in any obligation or Liability (with respect to accrued benefits or otherwise) on the part of the Company, Cimatron, the Surviving Company, or any of their respective Subsidiaries to the PBGC, to any Plan, or to any present or former employee, director, officer, stockholder, contractor or consultant (or any of their dependents) of the Company, Cimatron, the Surviving Company, or any of their respective Subsidiaries or any of their dependents, (ii) be a trigger event under any Plan that will result in any payment (whether of severance pay or otherwise) becoming due to any such present or former employee, officer, director, stockholder, contractor, or consultant, or any of their dependents, or (iii) accelerate the time of payment or vesting, or increase the amount, of any compensation theretofore or thereafter due or granted to any employee, officer, director, stockholder, contractor, or consultant of the Company or any of their dependents. With respect to any insurance policy which provides, or has provided, funding for benefits under any Plan, (A) there is and will be no Liability of the Company, Cimatron, the Surviving Company or any of their respective Subsidiaries in the nature of a retroactive or retrospective rate adjustment, loss sharing arrangement, or actual or contingent Liability as of the Closing Date, nor would there be any such Liability if such insurance policy were terminated as of the Closing Date, and (B) no insurance company issuing any such policy is in receivership, conservatorship, bankruptcy, liquidation, or similar proceeding, and, to the Knowledge of the Company, no such proceeding with respect to any insurer is imminent.

(e)     COBRA. With respect to each Plan which provides health care coverage, the Company and each of its ERISA Affiliates have complied in all material respects with (i) the applicable health care continuation and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), and the applicable COBRA regulations and (ii) the applicable requirements of the Health Insurance Portability and Accountability Act of 1996 and the regulations thereunder, and neither the Company nor any ERISA Affiliate has incurred any Liability under Section 4980B of the Code.

(f)     Litigation. Other than routine claims for benefits under the Plans, there is no pending, or, to the Knowledge of the Company, threatened, Action or Proceeding involving any of the Plans, any fiduciary, administrator, or trustee of any of the Plans, or the Company, any Subsidiary or any of their respective ERISA Affiliates as the employer or sponsor under any Plan, with any of the IRS, the U.S. Department of Labor, the PBGC, any participant in or beneficiary of any Plan, or any other Person. The Company knows of no reasonable basis for any such Action or Proceeding.

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(g)     Section 409. To the Company’s Knowledge, no payment pursuant to any Plan or other arrangement between the Company and any “service provider” (as such term is defined in Section 409A of the Code and the United States Treasury Regulations and IRS guidance thereunder), including, without limitation, the grant, vesting or exercise of any equity option, would subject any Person to a tax pursuant to Section 409A of the Code, whether pursuant to the consummation of the Merger, any other transaction contemplated by this Agreement or otherwise.

4.15     Real Property.

(a)     Section 4.15(a) of the Company Disclosure Schedule contains a true and correct list of (i) each parcel of real property leased, utilized and/or operated by the Company (as lessor or lessee or otherwise) (the “Leased Real Property”) and (ii) all Liens relating to or affecting any parcel of real property referred to in clause (i) to which the Company is a party. The Company owns no real property other than Company-owned leasehold improvements, if any, on the Leased Real Property.

(b)     Subject to the terms of its respective leases, the Company has a valid and subsisting leasehold estate in and the right to quiet enjoyment of each of the Leased Real Properties for the full term of the leases (including renewal periods) relating thereto. Each lease referred to in clause (i) of Section 4.15(a) above is a legal, valid and binding agreement, enforceable in accordance with its terms, of the Company and of each other Person that is a party thereto, and there is no, and the Company has not received notice of any, default (or any condition or event which, after notice or lapse of time or both, would constitute a default) thereunder. The Company does not owe brokerage commissions or finder’s fees with respect to any such Leased Real Property, except to the extent that the Company may renew the term of any such lease, in which case, any such commissions and fees would be in amounts that are reasonable and customary for the spaces so leased, given their intended use and terms.

(c)     All improvements on the Leased Real Property (A) to the Company’s Knowledge, comply with and are operated in accordance with applicable Laws (including Environmental Laws) and all applicable Liens, Approvals, Contracts, covenants and restrictions and (B) are in all material respects in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, and such improvements are in all material respects adequate and suitable for the purposes for which they are presently being used and there is no condemnation or appropriation proceeding pending or, to the Knowledge of the Company, threatened against any of such real property or any of the improvements thereon.

(d)     True and correct copies of the documents under which the Leased Real Property is leased, subleased (to or by the Company or otherwise), utilized, and/or operated (the “Lease Documents”) have been delivered to Cimatron. The Lease Documents are unmodified and in full force and effect, and there are no other Contracts between the Company and any other Person or by and among any other Persons, claiming an interest in the interest of the Company in the Leased Real Property or otherwise relating to the use and occupancy of the Leased Real Property.

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4.16     Tangible Personal Property. The Company is in possession of and has good and marketable title to, or has valid leasehold interests in or valid rights under Contract to use, all tangible personal property used in the conduct of its business, including all tangible personal property reflected on the Company Financials and tangible personal property acquired since the Audited Financial Statement Date, other than property disposed of since such date in the ordinary course of business consistent with past practice which is not material in nature or amount. All such tangible personal property (including plant, property and equipment) is free and clear of all Liens and is adequate and suitable in all material respects for the conduct by the Company of its business as presently conducted, and is in good working order and condition in all material respects, ordinary wear and tear excepted, and its use complies in all material respects with all applicable Laws.

4.17     Intellectual Property.

(a)     Section 4.17(a) of the Company Disclosure Schedule lists all Company Registered Intellectual Property (including all trademarks and service marks that the Company has used with the intent of creating or benefiting from any common law rights relating to such marks) and lists any proceedings or actions pending as of the date hereof before any court or tribunal (including the PTO or equivalent authority anywhere in the world) related to any of the Company Registered Intellectual Property.

(b)     The Company has all requisite right, title and interest in, to and under (or valid and enforceable rights under Contracts or Licenses to use) all Intellectual Property necessary to the conduct of its business as presently conducted and as presently proposed to be conducted (including Intellectual Property necessary for the design, development, distribution, marketing, manufacture, use, import, license and sale of the Company’s present and proposed products, technologies and services). Each item of Company Intellectual Property, including all Company Registered Intellectual Property listed in Section 4.17(a) of the Company Disclosure Schedule, is owned exclusively by the Company (excluding Intellectual Property licensed to the Company under any License, which licensed Intellectual Property is so identified in Section 4.17(b) of the Company Disclosure Schedule) and is free and clear of all Liens. The Company (i) owns exclusively all trademarks, service marks and trade names used by the Company in connection with the operation or conduct of the business of the Company, including the sale of any products or technology or the provision of any services by the Company; provided, however, that the Company may use trademarks, service marks and trade names of third parties which are licensed to the Company or are in the public domain, and (ii) owns exclusively, and has good title to, each copyrighted work that is incorporated in any Company product and each other work of authorship that the Company otherwise purports to own.

(c)     To the extent that any Company Intellectual Property has been developed or created by any Person other than the Company, the Company has a legal, valid and binding written agreement with such Person with respect thereto, enforceable in accordance with its terms, and the Company either (i) has obtained ownership of, and is the exclusive owner of, all such Intellectual Property by operation of law or by valid assignment of any such rights or (ii) has obtained a License under or to such Intellectual Property. Each such agreement, assignment and License is listed in Section 4.17(c) of the Company Disclosure Schedule.

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(d)     Except for standard customer license agreements or pursuant to agreements listed and summarized in Section 4.17(d)(i) of the Company Disclosure Schedule, the Company has not (i) transferred ownership of or granted (and is not obligated to grant) any License of or other right to use any Intellectual Property that is or was Company Intellectual Property, to any other Person, or (ii) authorized any other Person to retain any right to use any Intellectual Property that is or was Company Intellectual Property. None of the Company Intellectual Property is required to be licensed under any forum, consortium or other standards body agreement. Section  4.17(d)(ii) of the Company Disclosure Schedule lists all forums, consortiums, standards bodies or similar organizations in which the Company currently, or has in the past participated, or been a member or to which the Company has made any disclosure or contribution of any Intellectual Property.

(e)     The Company’s Intellectual Property includes all the Intellectual Property used in and/or necessary for the conduct of the Company’s business as it presently is conducted and as presently proposed to be conducted, including for the design, development, distribution, marketing, manufacture, use, import, license, and sale of the products, technologies and services of the Company (including products, technologies, and services currently under development).

(f)     Section 4.17(f) of the Company Disclosure Schedule lists all Contracts and Licenses (including all inbound Licenses other than standard off-the-shelf shrink-wrap software) to which the Company is a party with respect to any Intellectual Property. No Person other than the Company has any ownership right to any improvement made by the Company in Intellectual Property which has been licensed to the Company.

(g)     Section 4.17(g) of the Company Disclosure Schedule lists all Contracts and Licenses between the Company and any other Person wherein or whereby the Company has agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any obligation or Liability or provide a right of rescission with respect to the infringement or misappropriation by the Company or such other Person of the Intellectual Property of any Person other than the Company.

(h)     The operation of the business of the Company as heretofore conducted, as presently conducted and as presently proposed to be conducted, including the Company’s design, development, distribution, marketing, manufacture, use, import, license, and sale of products, technologies and services (including products, technologies and services currently under development by the Company), does not (and did not at any time) (i) infringe or misappropriate the Intellectual Property of any Person, (ii) violate any term or provision of any License or Contract concerning such Intellectual Property, (iii) violate any right of any Person (including any right to privacy or publicity), (iv) disclose any confidential information of the Company that is not pursuant to a confidentiality agreement or any third-party confidential information that is protected by a confidentiality agreement, or (v) constitute unfair competition or an unfair trade practice under any Law. Neither the Company nor any of its Representatives has received from any Person any notice claiming that such operation or any act, product, technology or service of the Company (including products, technologies and services currently under development) infringes or misappropriates the Intellectual Property of any Person or constitutes unfair competition or trade practices under any Law. The Company has not brought any Action or Proceeding for infringement of Intellectual Property or breach of any License or Contract involving Intellectual Property against any Person.

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(i)     Each item of Company Registered Intellectual Property is valid and subsisting, and all necessary registration, maintenance, renewal fees, annuity fees and taxes in connection with such Company Registered Intellectual Property that were due as of the Effective Time, have been paid and all necessary documents and certificates in connection with such Company Registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property. Section 4.17(i) of the Company Disclosure Schedule lists all actions that must be taken by the Company within one hundred eighty (180) days from the date hereof, including the payment of any registration, maintenance, renewal fee, annuity fee and Tax or the filing of any document, application or certificate for the purposes of maintaining, perfecting or preserving or renewing any Company Registered Intellectual Property. In each case in which the Company has acquired ownership of any Intellectual Property right from any Person, the Company has obtained a valid and enforceable assignment sufficient to irrevocably transfer all rights in such Intellectual Property.

(j)     To the Company’s Knowledge, there is no Contract or License between the Company and any other Person with respect to Company Intellectual Property under which there is any dispute (and, to the Company’s Knowledge, there are no facts or circumstances that may reasonably be expected to lead to a dispute) regarding the scope of such Contract or License, or performance under such Contract or License, including with respect to any payment to be made or received by the Company thereunder.

(k)     To the Knowledge of the Company, no Person is infringing or misappropriating any Company’s Intellectual Property.

(l)     The Company has taken all commercially reasonable steps to protect the Company’s rights in confidential information and trade secrets of the Company or provided by any other Person to the Company subject to a duty of confidentiality or a limitation on use. Without limiting the generality of the foregoing, the Company has, and enforces, a policy requiring each employee, consultant and independent contractor to execute proprietary information, confidentiality and invention and copyright assignment agreements substantially in the form attached to Section 4.17(l) of the Company Disclosure Schedule, and all current and former employees, consultants and independent contractors of the Company have executed such an agreement and copies of all such agreements have been provided to Cimatron or made available to Cimatron for review. The Company has provided to Cimatron all confidentiality and non-disclosure agreements to which it is a party, and all amendments thereto.

(m)     No Company Intellectual Property or product, technology or service of the Company is subject to any Order, Action or Proceeding or settlement, that restricts, or that could reasonably be expected to restrict, in any manner the use, transfer or licensing of any Company Intellectual Property by the Company or that may affect the validity, use or enforceability of such Company Intellectual Property. Except as disclosed under Section 4.17(m) of the Company Disclosure Schedule, the Company has not developed or created any technology or Intellectual Property by or for any Governmental Entity, university, academic institution or other similar non-commercial enterprise and has not received any funding from such enterprise or otherwise have any obligation to such enterprise with respect to any Company Intellectual Property.

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(n)     No (i) product, technology, service or publication of the Company, (ii) material published or distributed by the Company or (iii) conduct or statement of Company constitutes obscene material, a defamatory statement or material, false advertising or otherwise violates any Law.

(o)     Neither this Agreement nor the Ancillary Agreements, nor any transaction contemplated by this Agreement or any of the Ancillary Agreements, will result in the grant of any right or license with respect to the Intellectual Property of Cimatron, the Company or the Surviving Company to any Person pursuant to any Contract to which the Company is a party or by which any of its Assets and Properties are bound.

(p)     The Company’s products comply in all material respects with all applicable standards and with the feature specifications and performance standards set forth in the Company’s product data sheets [confirm what these are]. There are no outstanding claims (or facts that may reasonably lead to a claim) for breach of warranty by the Company in connection with such standards and specifications.

(q)     Section 4.17(q) of the Company Disclosure Schedule lists all software or other material that is or is required to be distributed as “freeware,” “free software,” “open source software” or under a similar licensing or distribution model (including but not limited to any license which complies with the Open Source Initiative Corporation’s (OSI) open source definition or which is, or is equivalent to, a license approved by OSI) that the Company uses or license, and identifies that which is incorporated into, combined with, or distributed in conjunction with the Company’s products or services (“Incorporated Open Source Software”) copies of which have been provided to Cimatron. The Company’s use and distribution of each component of Incorporated Open Source Software complies with all material provisions of the applicable license agreement, and in no case does such use or distribution give rise under such license agreement to any rights in any third parties under any Intellectual Property or obligations for the Company with respect to any Intellectual Property, including without limitation any obligation to disclose or distribute any such Intellectual Property in source code form, to license any such Intellectual Property for the purpose of making derivative works, or to distribute any such Intellectual Property without charge.

(r)     Section 4.17(r) of the Company’s Disclosure Schedule sets forth a complete list of all Contracts pursuant to which any source code that relates to, or is part of, any Intellectual Property has been placed in escrow for the benefit of any third party. Neither the execution of this Agreement, the Ancillary Agreements nor any of the transactions contemplated hereby or thereby will cause the release of or give any Person the right to demand any source code or other data or information from any escrow agreement or similar arrangement to which the Company is a party and which relate to or is part of any Intellectual Property.

(s)     Except as set forth in Section 4.17(s) of the Company Disclosure Schedule, (i) all Company Intellectual Property is freely transferable, conveyable, and/or assignable by the Company to any entity located in any jurisdiction in the world without any restriction, constraint, control, supervision, or limitation whatsoever and (ii) there exists no restriction, constraint, control, supervision, or limitation on the place, method and scope of exploitation of any Company Intellectual Property (including the operation of the business of Company as it is currently conducted, including, without limitation, the design, development, use, import, branding, advertising, promotion, marketing, manufacture and sale of products incorporating any of the Company Intellectual Property and any products, technology and services currently under development by the Company).

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4.18     Contracts.

(a)     Section 4.18(a)(1) of the Company Disclosure Schedule contains a true and complete list of each of the Contracts to which the Company is a party or by which any of its Assets and Properties is bound. True and complete copies of all such Contracts and arrangements or, if not reduced to writing, reasonably complete and accurate written descriptions of which, together with all amendments and supplements thereto and all waivers of any terms thereof, have been provided to Cimatron prior to the execution of this Agreement. Section 4.18(2) of the Company Disclosure Schedule contains a true and complete list of each Contract of the Company (i) not terminable by the Company upon thirty (30) days (or less) notice by the Company without penalty or obligation to make any payment based on such termination or (ii) which provides for continuing design or other services (including engineering and research and development services) by the Surviving Company after the Closing Date. True, correct and complete copies of each Contract listed or required to be listed in Section 4.18(2) of the Company Disclosure Schedule have been provided to Cimatron.

(b)     Each Contract required to be disclosed in Section 4.18(a) of the Company Disclosure Schedule is in full force and effect and constitutes a legal, valid and binding agreement, enforceable in accordance with its terms, and to the Knowledge of the Company, each other party thereto; and to the Knowledge of the Company, no other party to any such Contract is, or has received any claim or notice that it is, in violation or breach of or default under any such Contract (or with notice or lapse of time or both, would be in violation or breach of or default under any such Contract).

(c)     The Company is not a party to or bound by any Contract that has had or could reasonably be expected to have, individually or in the aggregate with any other similar Contracts, a Company Material Adverse Effect.

(d)     The Company is not a party to or bound by any Contract that (i) automatically terminates or allows termination by the other party thereto upon consummation of any of the transactions contemplated by this Agreement or any of the Ancillary Agreements or (ii) contains any covenant or other provision which limits the Company’s ability to compete with any Person in any line of business or in any area or territory.

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4.19     Insurance.

(a)     Section 4.19(a) of the Company Disclosure Schedule contains a true and complete list (including the names of the insurers, the expiration dates of the policies, the annual premiums thereof, frequency of payment thereof, the due date of the next payment thereof, the period of time covered thereby and a brief description of the interests insured thereby) of all liability, property workers’ compensation, directors’ and officers’ liability and other insurance policies currently in effect that insure any of the business, operations, directors, officers or employees of the Company or affect or relate to the ownership, use or operation of any of the Assets and Properties of the Company and that (i) have been issued to the Company or (ii) to the Knowledge of the Company, have been issued to any other Person for the benefit of the Company. The insurance coverage provided by the policies set forth in Section 4.19(a) of the Company Disclosure Schedule will not terminate or lapse by reason of any of the transactions contemplated by this Agreement or any of the Ancillary Agreements. Each policy listed in Section 4.19(a) of the Company Disclosure Schedule is valid and binding and in full force and effect, all premiums due thereunder have been paid when due and neither the Company nor the Person to whom such policy has been issued has received any notice of cancellation or termination in respect of any such policy or is in default thereunder, and the Company has no Knowledge of any reason or state of facts that could reasonably be expected to lead to the cancellation of such policies or of any threatened termination of, or material premium increase with respect to, any of such policies. The insurance policies listed in Section 4.19(a) of the Company Disclosure Schedule, (x) in light of the business, operations and Assets and Properties of the Company, to the Company’s Knowledge, are in amounts and have coverages that are reasonable and customary for Persons engaged in similar businesses and operations and having similar Assets and Properties and (y) are in amounts and have coverages required by any Contract to which the Company is a party or by which any of its Assets and Properties is bound.

(b)     Section 4.19(b) of the Company Disclosure Schedule contains a list of all claims made under any insurance policies covering the Company in the two years immediately preceding the date of this Agreement. The Company has not received notice that any insurer under any policy listed (or required to be listed) in Section 4.19(b) of the Company Disclosure Schedule is denying, disputing or questioning liability with respect to a claim thereunder or defending under a reservation of rights clause. The Company has, in its reasonable judgment, in light of its business, location, operations and Assets and Properties, maintained, at all times, without interruption, appropriate insurance, both in scope and amount of coverages.

4.20     Affiliate Transactions.

(a)     Except as set forth in Section 4.20 of the Company Disclosure Schedule, (i) there is no Contract or Liability between the Company, on the one hand, and (A) any current or former officer, director, stockholder, or to the Company’s Knowledge, any Affiliate of the Company or (B) any Person who, to the Company’s Knowledge, is an Affiliate of any such officer, director, stockholder or Affiliate, on the other hand; (ii) the Company does not provide or cause to be provided any asset, service or facility to any such current or former officer, director, employee, security holder, Affiliate, including loans relating to the purchase of any security; (iii) no current or former officer, director, stockholder, Affiliate provides or causes to be provided any assets, services or facilities to the Company; and (iv) the Company does not beneficially own, directly or indirectly, any Investment Assets of any such current or former officer, director, stockholder and Affiliate.

(b)     To the Company’s Knowledge, each of the Contracts and Liabilities listed in Section 4.20 of the Company Disclosure Schedule was entered into or incurred, as the case may be, on terms no less favorable to the Company (in the reasonable judgment of the Company) than if such Contract or Liability was entered into or incurred on an arm’s length basis on competitive terms.

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4.21     Employees; Labor Relations.

(a)     The Company is not a party to any collective bargaining agreement and there is no unfair labor practice or labor arbitration proceedings pending with respect to the Company, or, to the Knowledge of the Company, threatened, and there are no facts or circumstances known to the Company that could reasonably be expected to give rise to such a complaint or claim. To the Knowledge of the Company, there is no organizational effort presently underway or threatened involving any employees of the Company. There has been no work stoppage, strike or other concerted action by employees of the Company.

(b)     Each Person who is an employee of the Company is employed at will, and no employee of the Company is represented by a union. Each Person who is an independent contractor of the Company is properly classified as an independent contractor for purposes of all employment-related Laws and all Laws concerning the status of independent contractors. Section 4.21(b) of the Company Disclosure Schedule sets forth, individually and by category, the name of each officer, employee, independent contractor and consultant, together with his or her position or function, annual base salary or wage and any applicable incentive, severance or bonus arrangements. The Company has provided Cimatron with a copy of any agreement with any of the persons listed in Section 4.21(b) of the Company Disclosure Schedule. Except as set forth Section 4.21(b) of the Company Disclosure Schedule, the completion of the transactions contemplated by this Agreement will not result in any payment or increased payment becoming due from the Company to any current or former officer, director, or employee of, or consultant to, the Company, and to the Knowledge of the Company no employee of the Company has made any threat, or otherwise revealed an intent, to terminate his or her relationship with the Company, for any reason, including because of the consummation of the transactions contemplated by this Agreement. The Company is not a party to any agreement for the provision of labor from any outside agency. To the Knowledge of the Company, there has been no claim by any employee of any such outside agency with regard to any employee assigned to work for the Company, and no claim by any governmental agency with regard to any such employee, during the three (3) years immediately preceding the date of this Agreement.

(c)     There has been no federal or state complaint or claim during the three (3) years immediately preceding the date of this Agreement based on sex, sexual or other harassment, age, disability, race or other discrimination or common law claims, including claims of wrongful termination, by any employee of the Company or by any employee performing work for the Company but provided by an outside employment agency, and there are no facts or circumstances known to the Company that could reasonably be expected to give rise to such a complaint or claim. The Company has complied in all material respects with all Laws related to the employment of employees and has not received any notice during the three (3) years immediately preceding the date of this Agreement of any claim that it has not complied in any material respect with any Law relating to the employment of employees, including any provisions thereof relating to wages, hours, collective bargaining, the payment of social security and similar taxes, equal employment opportunity, employment discrimination, the WARN Act, employee safety, or that it is liable for any arrearage of wages or any Tax or penalty for failure to comply with any of the foregoing.

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(d)     The Company has furnished Cimatron with true, correct and complete copies of all written employee policies, employee handbooks and employee manuals.

(e)     To the Knowledge of the Company, no officer, employee or consultant of the Company is bound by, subject to or obligated under any Contract or subject to any Order or Law that would interfere with the Company’s business as presently conducted or as presently proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company’s business as presently conducted or as presently proposed to be conducted, nor any activity of such officers, employees or consultants in connection with the carrying on of the Company’s business as presently conducted or as presently proposed to be conducted, will conflict with or result in a breach of the terms, conditions or provisions of, constitute a default under, or trigger a condition precedent to any right under any Contract or other agreement under which any such officer, employee or consultant is now bound.

4.22     Environmental Matters. To the Company’s Knowledge, the Company has complied in all material respects with all applicable Environmental Laws, and no claim, action, suit, litigation, proceeding or investigation has been filed or commenced against the Company alleging any failure to comply with any such Environmental Laws. The Company does not have any liability under any applicable Environmental Laws concerning the release or threatened release of hazardous substances, public health and safety, or pollution or protection of the environment. To the Company’s Knowledge, the Company has not exposed any Person to any substance or condition that could form the basis for any liability for any illness of or personal injury to such Person.

4.23     Substantial Customers and Suppliers.Section 4.23(i) and (ii) of the Company Disclosure Schedule list, respectively, (i) the fifteen (15) largest customers of the Company on the basis of revenues collected or accrued for the most recent complete fiscal year and (ii) the customers who accounted for ninety percent (90%) of such revenue. Section 4.23(iii) of the Company Disclosure Schedule lists the fifteen (15) largest suppliers of the Company on the basis of cost of goods or services purchased for the most recent fiscal year. No such customer or supplier has ceased or materially reduced its purchases from or sales or provision of services to the Company since the Audited Financial Statement Date or, to the Knowledge of the Company, has threatened to cease or materially reduce such purchases or sales or provision of services since such date or after the date hereof. To the Knowledge of the Company, no such customer or supplier is threatened with bankruptcy or insolvency.

4.24     Accounts Receivable. The accounts and notes receivable of the Company reflected on the Company Financials, and all accounts and notes receivable arising subsequent to the Audited Financial Statement Date, (a) arose from bona fide sales transactions in the ordinary course of business, consistent with past practice, and are payable on ordinary trade terms, (b) are legal, valid and binding obligations of the respective debtors enforceable in accordance with their respective terms, (c) are not subject to any valid set-off or counterclaim and (d) do not represent obligations for goods sold on consignment, on approval or on a sale-or-return basis or subject to any other repurchase or return arrangement.

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4.25     Inventory. All inventory of the Company reflected on the balance sheet included in the Company Financials consisted, and all such inventory acquired since the Audited Financial Statement Date consists, of a quality and quantity usable and salable in the ordinary course of business. Except as disclosed in the notes to the Audited Financial Statements, all items included in the inventory of the Company are the property of the Company free and clear of any Lien, have not been pledged as collateral, are not held by the Company on consignment from others and conform in all material respects to all standards applicable to such inventory or its use or sale imposed by Governmental or Regulatory Authorities.

4.26     Brokers; Third Party Expenses. The Company has not authorized or retained any Person to act as an investment banker, broker, finder or other intermediary who is or might be entitled to any fee, commission or payment in connection with the negotiation, preparation, execution or delivery of any transaction document or the consummation of the Agreement or the Ancillary Agreements, nor is there any basis for any such fee, commission or payment to be claimed by any Person.

4.27     Banks and Brokerage Accounts.Section 4.27 of the Company Disclosure Schedule sets forth (a) a true and complete list of the names and locations of all banks, trust companies, securities brokers and other financial institutions at which the Company has an account (including “deposit accounts” as defined in Section 9105 of the California Commercial Code and “securities accounts” as defined in Section 8501 of the California Commercial Code) or a safe deposit box or maintains a banking, custodial, trading or other similar relationship, (b) a true and complete list and description of each such account, box and relationship, indicating in each case the account number and the names of the respective officers, employees, agents or other similar representatives of the Company having signatory power with respect thereto, and (c) a list of each Investment Asset, the name of the record and beneficial owner thereof, the location of the certificates, if any, therefor, the maturity date, if any, and any stock or bond powers or other authority for transfer granted with respect thereto.

4.28     Warranty Obligations. Section 4.28 of the Company Disclosure Schedule sets forth the aggregate expenses incurred by the Company in fulfilling its obligations under its guaranty, warranty, right of return and indemnity provisions during each of the fiscal years and the interim period covered by the Company Financial Statements; and the Company has no Knowledge of any reason why such expenses should significantly increase as a percentage of sales in the future. The Company is not currently required to maintain any reserve for warranty claims pursuant to GAAP. The Company has no liability to provide a customer or other third party with any new services or products of the Company excluding ongoing maintenance and support.

4.29     Foreign Corrupt Practices Act. Neither the Company, nor to the Knowledge of the Company, any agent, employee or other Person associated with or acting on behalf of the Company has, directly or indirectly, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity, made any unlawful payment to any foreign or domestic government official or employee or to any foreign or domestic political party or campaign from corporate funds, violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other similar unlawful payment.

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4.30     Approvals.

(a)     Section 4.30(a) of the Company Disclosure Schedule sets forth a list of all material Approvals of Governmental or Regulatory Authorities relating to the business conducted by the Company which are required to be given to or obtained by the Company from any and all Governmental or Regulatory Authorities in connection with the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements (other than the filing of the California Agreement of Merger, together with the required officers’ certificates, and such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under state or federal securities Laws).

(b)     Section 4.30(b) of the Company Disclosure Schedule sets forth a list of all material Approvals which are required to be given to or obtained by the Company from any and all Persons other than Governmental or Regulatory Authorities in connection with the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements.

(c)     The Company has obtained all material Approvals from Governmental or Regulatory Authorities necessary to the conduct of the business of the Company as heretofore and presently conducted and there has been no written notice received by the Company of any material violation or material non-compliance with any such Approvals; and each Approval required for the conduct of the business of the Company as presently conducted is in full force and effect. All material Approvals from Governmental or Regulatory Authorities necessary to the conduct of the business of the Company as presently conducted are listed in Section 4.30(c) of the Company’s Disclosure Schedule.

4.31     Takeover Statutes. No Takeover Statute applicable to the Company is applicable to the Merger or any of the transactions contemplated by this Agreement or any of the Ancillary Agreements.

4.32     Disclosure. No representation or warranty made by the Company or Gibbs contained in this Agreement, and no statement contained in the Company Disclosure Schedule or in any certificate, list or other writing furnished to Cimatron pursuant to any provision of this Agreement (including the Company Financials and the notes thereto) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein, in the light of the circumstances under which they were made, not misleading. The Company has provided (or made available to) Cimatron with all of the Contracts and Licenses heretofore requested on behalf of Cimatron in writing, and all other material information concerning the Company in the possession, custody or control of the Company.

ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF THE BUYERS

        Each of the Buyers, jointly, hereby represents and warrants to the Company that each of the statements in this ARTICLE 5 are true, correct and complete.

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5.1     Organization and Qualification. Cimatron is a corporation duly organized, validly existing and in good standing under the Laws of the State of Israel. Cimatron has full corporate power and authority to conduct its business as presently conducted and as presently proposed to be conducted and to own, use and lease its Assets and Properties. Cimatron is duly qualified, licensed or admitted to do business and is in good standing in each jurisdiction in which the ownership, use, licensing or leasing of its Assets and Properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except for such failures to be so duly qualified, licensed or admitted and in good standing that could not reasonably be expected to have a Cimatron Material Adverse Effect. CTI is a corporation duly organized, validly existing and in good standing under the Laws of the State of Michigan. CTI has full corporate power and authority to conduct its business as presently conducted and as presently proposed to be conducted and to own, use and lease its Assets and Properties. CTI is duly qualified, licensed or admitted to do business and is in good standing in each jurisdiction in which the ownership, use, licensing or leasing of its Assets and Properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except for such failures to be so duly qualified, licensed or admitted and in good standing that could not reasonably be expected to have a Cimatron Material Adverse Effect. Sub is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of California. Sub is duly qualified, licensed or admitted to do business and is in good standing in each jurisdiction in which the ownership, use, licensing or leasing of its Assets and Properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except for such failures to be so duly qualified, licensed or admitted and in good standing that could not reasonably be expected to have a Cimatron Material Adverse Effect.

5.2     Authority Relative to this Agreement. Each Buyer has full corporate or other power and authority to execute and deliver this Agreement and the Ancillary Agreements to which each of them is a party, to perform their obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by each of the Buyers of this Agreement and the Ancillary Agreements to which each of them is a party and the consummation by each one of them of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary action by the Board of Directors (or Managers, as the case may be) of Cimatron, CTI and Sub, as applicable and no other action on the part of their respective Boards of Directors (or Managers, as the case may be) is required to authorize the execution, delivery and performance of this Agreement and the Ancillary Agreements to which each of them is a party and the consummation by each of them of the transactions contemplated hereby and thereby. This Agreement and the Ancillary Agreements to which Cimatron, CTI and Sub are parties to have been or will be, as applicable, duly and validly executed and delivered by Cimatron, CTI and Sub and, assuming the due authorization, execution and delivery hereof by the Company and/or the other parties thereto, constitutes or will constitute, as applicable, a legal, valid and binding obligation of each of them enforceable against them in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to the enforcement of creditors’ rights generally and by general principles of equity.

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5.3     Consents, Approvals, Etc. Except for the required statutory approvals, no consent, waiver, approval, authorization, order or permit of, or declaration, filing or registration with, or notification to, any Governmental or Regulatory Authority is required to be made or obtained by the Buyers in connection with the execution and delivery of this Agreement by each of them, the performance by each of them hereunder, or the consummation by each them of the transactions contemplated by this Agreement.

5.4     Litigation and Governmental Orders. (i) There are no Actions pending or, to the Knowledge of each Buyer threatened against them, or any other subsidiaries of them, or any of the Assets or Properties of Cimatron, CTI or Sub, that would materially impair the ability of any of them to perform their respective obligations under this Agreement or consummate the transactions contemplated by this Agreement and (ii) the Buyers and their respective Assets and Properties are not subject to any Order that would materially impair either of them from performing their respective obligations under this Agreement or consummating the transactions contemplated by this Agreement.

5.5     Brokers. Except for Collins Stewart plc., no broker, finder, investment banker or other person is entitled to any brokerage, finder’s fee or other commission in connection with the transactions contemplated by this Agreement based upon any arrangements made by or on behalf of the Buyers.

5.6     Ownership of Sub; No Prior Activities. All of the membership interests of Sub are duly authorized, validly issued and outstanding, fully paid and nonassessable and owned by CTI free and clear of all Liens. Sub was formed solely for the purpose of engaging in a Business Combination with the Company. Sub is not a party to any agreements and has not conducted any activities other than in connection with the organization of Sub, the negotiation and execution of this Agreement and the consummation of the transactions contemplated hereby. Sub has no Subsidiaries.

5.7     Financing. Immediately prior to the Effective Time, Cimatron and CTI will have sufficient cash on-hand to make payment of the Cash Consideration.

5.8     Reports and Financial Statements. Cimatron has previously made available to the Company (including through public access) true and complete copies of (a) all annual reports filed with the SEC pursuant to the Exchange Act since December 31, 2006, (b) all other reports, filed with the SEC since December 31, 2006, and (c) any registration statements declared effective by the SEC since December 31, 2006. Since December 31, 2006, CTI has timely filed all reports and filings required to be filed by CTI under the Exchange Act. The consolidated financial statements of Cimatron included in Cimatron’s most recent report on Form 20-F and any other reports filed with the SEC by Cimatron subsequent thereto were prepared in accordance with GAAP applied on a consistent basis during the periods involved and fairly present the consolidated financial position for Cimatron and its Subsidiaries as of the dates thereof and the consolidated results of their operations and changes in financial position for the periods then ended (except with respect to interim period financial statements and for normal year-end adjustments; Cimatron’s financial reports were prepared in all material respects in accordance with the requirements of the Securities Act and the Exchange Act and the rules of any stock exchange or trading system on which the shares of Cimatron were traded or quoted at such time, as the case may be; and, as of the time of filing or on the date that an amendment or supplement thereto was filed, Cimatron’s financial reports, as amended or supplemented, did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

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5.9     Issuance of Shares. The Securities Consideration, when issued and allotted at the Closing in accordance with this Agreement will be duly authorized, validly issued, fully paid, non-assessable, and free of any pre-emptive rights, and will have the rights, preferences, privileges, and restrictions set forth in the Articles of Association of Cimatron as in effect from time to time, and will be free and clear of any Liens, except as set forth in this Agreement and the Ancillary Agreements thereof.

ARTICLE 6.
CONDUCT PRIOR TO THE EFFECTIVE TIME

6.1     Conduct of Business of the Company. During the period from the execution and delivery of this Agreement by the Company and continuing until the earlier of the termination of this Agreement or the Effective Time, the Company agrees (unless it is required to take such action pursuant to this Agreement or Cimatron shall give its prior consent in writing, which consent shall not be unreasonably withheld) to carry on its business in the usual, regular and ordinary course consistent with past practice to pay its Liabilities and Taxes consistent with the Company’s past practices (and in any event when due), to pay or perform other obligations when due consistent with the Company’s past practices (other than Liabilities, Taxes and other obligations, if any, contested in good faith through appropriate proceedings), and, to the extent consistent with such business, to use all commercially reasonable efforts and institute all policies required to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, independent contractors and other Persons having business dealings with it, all with the express purpose and intent of preserving unimpaired its goodwill and ongoing businesses at the Effective Time. Except as expressly required by this Agreement, the Company shall not, without the prior written consent of Cimatron, take or agree in writing or otherwise take, any action that would result in the occurrence of any of the changes described in Section 4.9 or any other action that would make any of its representations or warranties contained in this Agreement untrue or incorrect in any material respect or prevent the Company from performing or cause the Company not to perform its agreements and covenants hereunder or cause any condition to Cimatron’s closing obligations in Section 8.1 or Section 8.3 (or any condition to the Company’s closing obligations in Section 8.1 or Section 8.2) not to be satisfied.

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6.2     No Solicitation. Until the earlier of the Effective Time or the date of termination of this Agreement pursuant to the provisions of Section 10.1, the Company shall not take nor shall the Company permit any of the Company’s Representatives to take (directly or indirectly) any of the following actions with any Person other than Cimatron and its designees: (a) solicit, initiateor encourage any proposal or offer from, or participate or engage in or conduct discussions or negotiations with, any Person relating to any offer or proposal, oral, written or otherwise, formal or informal, with respect to any possible Business Combination with the Company (a “Competing Proposed Transaction”), (b) provide information with respect to the Company to any Person other than Cimatron, relating to (or which the Company believes would be used for the purpose of formulating an offer or proposal with respect to), or otherwise assist, cooperate with, facilitate or encourage any effort or attempt by any such Person with regard to, any possible Business Combination with the Company, (c) approve or agree to or enter into a Contract with any Person other than Cimatron providing for a Business Combination with the Company, (d) make or authorize any statement, recommendation, solicitation or endorsement in support of any possible Business Combination with the Company other than the Business Combination with Cimatron contemplated by this Agreement and the Ancillary Agreements, or (e) authorize or permit any of the Company’s Representatives to take any such action. The Company shall immediately cease and cause to be terminated any such contacts or negotiations with any Person relating to any such transaction or Business Combination. In addition to the foregoing, if (after this Agreement is signed and delivered by the Company and prior to the Effective Time or the earlier termination of this Agreement in accordance with Section 10.1) the Company receives any offer or proposal (formal or informal, oral, written or otherwise) relating to, or any inquiry or contact from any Person with respect to, a Competing Proposed Transaction, the Company shall immediately notify Cimatron thereof and provide Cimatron with the details thereof, including the identity of the Person or Persons making such offer or proposal, and shall keep Cimatron fully informed on a current basis of the status and details of any such offer, proposal, inquiry or contact and of any modifications to the terms thereof; provided, however, that this provision shall not in any way be deemed to limit the obligations of the Company and its Representatives set forth in the previous sentence. Each of the Company and Cimatron acknowledge that this Section 6.2 was a significant inducement for Cimatron to enter into this Agreement and the absence of such provision would have resulted in either (i) a material reduction in the consideration to be paid to the stockholders of the Company in the Merger or (ii) a failure to induce Cimatron to enter into this Agreement

ARTICLE 7.
ADDITIONAL AGREEMENTS

7.1     Access to Information. Between the date of this Agreement and the earlier of the Effective Time or the termination of this Agreement in accordance with Section 10.1, upon reasonable notice, the Company shall (a) give Cimatron and its officers, employees, accountants, counsel, financing sources and other agents and representatives full access to all buildings, offices, and other facilities and to all Books and Records of the Company, whether located on the premises of the Company or at another location; (b) permit Cimatron to make such inspections as Cimatron may require; (c) cause its officers to furnish Cimatron such financial, operating, technical and product data and other information with respect to the business and Assets and Properties of the Company as Cimatron from time to time may reasonably request, including financial statements and schedules; (d) allow Cimatron the opportunity to interview such employees and other personnel and Affiliates of the Company with the Company’s prior written consent, which consent shall not be unreasonably withheld or delayed; and (e) assist and cooperate with Cimatron in the development of integration plans for implementation by Cimatron and the Surviving Company following the Effective Time; provided, however, that no investigation pursuant to this Section 7.1 shall affect or be deemed to modify any representation or warranty made by the Company herein. Prior to the Effective Time, materials furnished to Cimatron pursuant to this Section 7.1 may be used by Cimatron for strategic and integration planning purposes relating to accomplishing the transactions contemplated hereby, subject to the terms of the Confidentiality Agreement.

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7.2     Confidentiality. The parties acknowledge that Cimatron and the Company have previously executed a Confidentiality and Non-Disclosure Agreement dated July 20, 2007 (the “Confidentiality Agreement”), the confidentiality provisions of which shall continue in full force and effect in accordance with its terms for the following periods: all information furnished to Cimatron and its officers, employees, accountants and counsel by or on behalf of the Company shall be governed by the confidentiality provisions of the Confidentiality Agreement until the Effective Time (whereupon such provisions shall lapse), and all information furnished to the Company and Gibbs by or on behalf of Cimatron and its officers, employees, accountants and counsel shall be governed by the confidentiality provisions of the Confidentiality Agreement for the time periods set forth therein.

7.3     Expenses. Whether or not the Merger is consummated, all fees and expenses incurred in connection with the Merger, including all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties (“Third Party Expenses”) incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, shall be the obligation of the respective party incurring such fees and expenses, provided that Gibbs will pay, directly, 12.5% of such aggregate Third Party Expenses.

7.4     Public Disclosure. Except for the joint announcement of the execution and delivery of this Agreement, the timing and content of which have been mutually agreed by the parties hereto, no party hereto shall issue any press release or otherwise make any public announcement with respect to this Agreement, the Merger or the other transactions contemplated hereby or an acquisition proposal without first consulting with the other parties and providing the other parties with reasonable opportunity to review and comment upon such press release or public announcement. Notwithstanding the foregoing, if such an announcement is required by applicable Law or any listing agreement with a national securities exchange or quotation system (including Nasdaq) the party required to make such announcement shall provide notice to and a copy of such as promptly as practicable in advance of such announcement and will use all reasonable efforts to consult with the other party and take the views of the other party in respect of such announcement into account prior to making such announcement, subject to applicable Law or listing requirements.

7.5     Approvals. The Company shall use all requisite commercially efforts to obtain, as soon as practicable after the date hereof, all Approvals from Governmental or Regulatory Authorities and under the Contracts to which it is a party as are required in connection with the Merger (including all the Approvals identified in Sections 4.6(b), 4.30(a) and 4.30(b) of the Company Disclosure Schedule to preserve all rights of and benefits to the Company and Cimatron and the Surviving Company thereunder, and Cimatron shall provide the Company with such assistance and information as is reasonably required to obtain such Approvals. With respect to all Approvals under Contracts to which the Company is a party as are required in connection with the Merger that are not obtained prior to the Closing, the parties hereto (including Gibbs) shall use commercially reasonable efforts following the Closing, to receive such Approvals.

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7.6     FIRPTA Compliance. On or prior to the Closing Date, the Company shall deliver to Cimatron a properly executed statement in a form reasonably acceptable to Cimatron for purposes of satisfying Cimatron’s obligations under Treasury Regulation Section 1.1445-2(c)(3).

7.7     Notification of Certain Matters. The Company shall give immediate notice to Cimatron of (a) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of the Company in this Agreement to be untrue or inaccurate at or prior to the Effective Time and (b) any failure of the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, and Cimatron shall give prompt notice to the Company of (x) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of Cimatron in this Agreement to be untrue or inaccurate at or prior to the Effective Time and (y) any failure of Cimatron to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 7.7 shall not limit or otherwise affect any remedies available to the party receiving such notice.

7.8     Additional Documents and Further Assurances; Cooperation. Cimatron and the Company, at the request of the other party, shall execute and deliver such other instruments and do and perform such other acts and things as may be reasonably necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby (including all action reasonably necessary to seek and obtain any and all Approvals of any Governmental or Regulatory Authority or other Person required in connection with the Merger; provided, however, that neither Cimatron nor (unless approved and so directed by Cimatron in advance) the Company shall be obligated to make or consent to any divestiture or operational limitation or activity in connection therewith, or any waiver or modification of any right, or any payment of money or grant of any other commercial concession as a condition to obtaining any such Approval). Each party agrees to use commercially reasonable efforts to cause the conditions set forth in ARTICLE 8 to be satisfied, where the satisfaction of such conditions depends on action or forbearance from action by such party.

7.9     Certain Obligation towards Gibbs. As of the Effective Date, Cimatron undertakes that Gibbs will be appointed to serve as the Vice Chairman of the Board of Directors of Cimatron. As long as Gibbs holds at least 9% of the issued and outstanding share capital of Cimatron, Gibbs shall be entitled to continue to serve as the Vice Chairman of the Board of Cimatron and Cimatron undertakes to take all necessary actions so as to ensure such appointment. Cimatron further undertakes that, for his service as a member of Cimatron’s Board of Directors, Gibbs will receive the same remuneration provided by Cimatron to its external directors.

ARTICLE 8.
CONDITIONS TO THE MERGER

8.1     Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of the Buyers and the Company to consummate the Merger and the other transactions that are to occur at or after the Effective Time pursuant to this Agreement shall be subject to the satisfaction at or prior to the Closing of the conditions set forth in this Section 8.1:

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(a)     Governmental and Regulatory Approvals. All Governmental or Regulatory Authority Approvals necessary for consummation of the Merger and the other transactions contemplated hereby shall have been obtained and shall be in full force and effect.

(b)     No Injunctions or Regulatory Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other Order issued by any court or other Governmental or Regulatory Authority of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Merger or any of the other transactions that are to occur at or after the Effective Time pursuant to this Agreement shall be in effect; nor shall there be any action taken, or any Law or Order enacted, entered, enforced or deemed applicable to the Merger or the other transactions contemplated to occur after the Effective Time hereby that would prohibit the consummation of the Merger or which would permit consummation of the Merger only if certain divestitures were made.

(c)     Registration Rights Agreement. Both Gibbs and Cimatron have duly signed and executed the Registration Rights Agreement.

8.2     Additional Conditions to Obligations of the Company. The obligations of the Company to consummate the Merger and the other transactions that are to occur at or after the Effective Time pursuant to this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the conditions set forth in this Section 8.2, any of which may be waived, in writing, exclusively by the Company:

(a)     Representations and Warranties. The representations and warranties of the Buyers contained in this Agreement shall each be true, correct and complete as of the date of this Agreement and shall each be true, correct and complete as of the Closing Date as if made on and as of the Closing Date (other than representations and warranties which by their express terms are made solely as of a specified earlier date, which shall be true, correct and complete as of such specified earlier date).

(b)     Performance. The Buyers shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or complied with each of them at or before the Closing.

(c)     Officers’ Certificates. Cimatron shall have delivered to the Company a certificate, dated the Closing Date and executed by its President and Chief Executive Officer, in the form attached hereto as Exhibit D.

(d)     Legal Opinion. Gibbs shall have received a legal opinion from Meitar, Liquornik, Geva & Leshem, Brandwein, legal counsel to Cimatron, as to the matters set forth in Exhibit J.

(e)     Delivery of Agreements. Cimatron shall have executed and delivered to Gibbs the Employment Agreement and the Non-Competition Agreement.

(f)     No Company Material Adverse Effect. No Cimatron Material Adverse Effect shall have occurred, and no event or circumstance shall have occurred or arisen that could reasonably be expected to result in a Cimatron Material Adverse Effect.

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8.3     Additional Conditions to the Obligations of the Buyers. The obligations of the Buyers to consummate the Merger and the other transactions contemplated that are to occur at or after the Effective Time pursuant to this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the conditions set forth in this Section 8.3, any of which may be waived, in writing, exclusively by Cimatron:

(a)     Representations and Warranties. The representations and warranties of the Company and Gibbs contained in this Agreement shall each be true, correct and complete as of the date of this Agreement and shall each be true, correct and complete as of the Closing Date as if made on and as of the Closing Date (other than representations and warranties which by their express terms are made solely as of a specified earlier date, which shall be true, correct and complete as of such specified earlier date).

(b)     Performance. The Company and Gibbs shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by each of them on or before the Closing Date.

(c)     Officers’ Certificates. The Company shall have delivered to Cimatron a certificate, dated the Closing Date and executed by the President and Chief Executive Officer of the Company, in the form set forth in Exhibit E hereto.

(d)     OCS Undertaking. Gibbs shall have executed and delivered the standard form of foreign shareholder undertaking to the Office of Chief Scientist in the Israel Ministry of Industry and Trade, in the form of Schedule 8.3(d) attached hereto.

(e)     Legal Proceedings. No Governmental or Regulatory Authority shall have commenced, or notified either Cimatron or the Company or any of their respective Representatives that such Governmental or Regulatory Authority intends to commence, proceedings to restrain, prohibit, condition, rescind or take any substantially similar action with respect to any of the transactions contemplated by this Agreement or any of the Ancillary Agreements, unless such Governmental or Regulatory Authority shall have withdrawn such notice and abandoned all such proceedings.

(f)     Legal Opinion. Cimatron shall have received a legal opinion from Farella Braun + Martel LLP, legal counsel to the Company, as to the matters set forth in Exhibit F.

(g)     Delivery of Agreements. Gibbs shall have executed and delivered to Cimatron the Employment Agreement and the Non-Competition Agreement and both agreements shall be in full force and effect.

(h)     Employees. At least 80% of the employees of the Company named in Schedule 8.3(h) shall continue to be employed by the Company at the Closing and shall not have given any notice or other indication that they are not willing or do not intend to be employed by Cimatron, the Surviving Company or a Subsidiary of Cimatron, following the Merger. At least 90% of all other employees of the Company (excluding the employees identified in Schedule 8.3(h)) employed as of the date of this Agreement shall continue to be employed by the Company at the Closing and shall not have given any notice or other indication that they are not willing or do not intend to be employed by Cimatron, the Surviving Company or a Subsidiary of Cimatron following the Merger.

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(i)     No Company Material Adverse Effect. No Company Material Adverse Effect shall have occurred, and no event or circumstance shall have occurred or arisen that could reasonably be expected to result in a Company Material Adverse Effect.

(j)     Certain Waivers and Actions. The holders of all Phantom Stocks shall have executed and delivered waivers to Cimatron and the Company, in form reasonably acceptable to Cimatron, prior to the Closing, accepting the consideration set forth therein in lieu of any other consideration that might be claimed by any such holder and unconditionally and irrevocably waiving and releasing all right or claim that such holder might have or assert in respect of such consideration. The consideration for the Phantom Stock shall have been fully paid by the Company prior to the Closing.

(k)     Termination of Guarantees. The Company shall have provided to Cimatron copies of documents evidencing the cancellation of any and all guarantees provided for the personal benefit of Gibbs, attached hereto as Exhibit G.

(l)     Amendment of Lease Agreement. The Company and Gibbs shall have entered into an amendment to the Company’s current lease agreement attached hereto as Exhibit H.

(m)     Escrow Agreement. The parties to the Escrow Agreement shall have entered into the Escrow Agreement and Gibbs shall have duly signed and delivered to the Escrow Agent the share transfer deed with respect to the Share Escrow, attached hereto as Exhibit I.

(n)     Stock Certificate. Gibbs shall have delivered to Cimatron the stock certificate(s) representing all the Company Capital Stock.

ARTICLE 9.
SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS; ESCROW PROVISIONS

9.1     Survival of Representations, Warranties, Covenants and Agreements. Notwithstanding any right of Cimatron or the Company (whether or not exercised) to investigate the affairs of Cimatron or the Company (whether pursuant to Section 7.1 or otherwise) or a waiver or non-assertion by Cimatron or the Company of any condition to Closing set forth in ARTICLE 8 or any termination right set forth in ARTICLE 10, each party shall have the right to rely fully upon the representations, warranties, covenants and agreements of the other party contained in this Agreement, the Ancillary Agreements and the certificates and instruments delivered in connection herewith or therewith. All of the representations and warranties of the Company, Gibbs and Buyers contained in this Agreement, the Ancillary Agreements and the certificates and instruments delivered in connection herewith or therewith shall survive the Merger and continue until 11:59 p.m. California time on the day which is eighteen (18) months after the date on which the Effective Time occurs (the “Expiration Date”), provided however, that (all of the following collectively, the “Excluded Representations”) (a) the Company’s representations and warranties contained in Section 4.17 (Intellectual Property) shall survive the Merger and continue until 11:59 p.m. California time on the day which is twenty four (24) months after the date on which the Effective Time occurs, and (b) Gibbs’ representations and warranties contained in ARTICLE 3, the Company’s representations and warranties contained in Sections 4.2 (Authority Relative to this Agreement), 4.3 (Capital Stock), 4.11 (Taxes), and 4.26 (Brokers; Third Party Expenses), and Buyers’ representations and warranties contained in Section 5.2 (Authority Relative to this Agreement) and Section 5.5 (Brokers) will survive the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the Closing Date until the earlier of all applicable statutes of limitation (including any extensions thereof) plus 60 days have expired or ten (10) years from the date hereof and then expire with respect to any theretofore unasserted claims arising out of or otherwise in respect of any breach of such representations and warranties. Nothing in this Section 9.1 or any other provision of this Agreement shall be construed to limit the survival of any covenant or agreement of the Company, Cimatron or any other Person contained in this Agreement or any of the Ancillary Agreements, which shall survive the Merger and continue for the time periods set forth therein (or, if no time period is set forth therein, indefinitely), other than covenants and agreements of the parties which by their terms are to be wholly performed prior to the Effective Time, which covenants and agreements shall survive until 11:59 p.m. California time on the Expiration Date.

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9.2     Escrow Provisions.

(a)     Indemnification; Recourse to the Escrow Fund. The Escrow Amount (together with all interest and other earnings thereon, the “Escrow Fund”) shall be available to compensate the Buyers and their officers, directors, employees, agents, Affiliates (collectively, the “Cimatron Indemnitees”) for any and all Losses (whether or not involving a Third Party Claim) incurred or sustained by Cimatron or any other Cimatron Indemnitee as a result of: (i) any breach or violation of, inaccuracy in or omission from any representation or warranty, or any breach or violation of any covenant or agreement, of Gibbs or the Company contained in this Agreement or any of the Ancillary Agreements or any certificate, agreement or instrument delivered in connection herewith or therewith or any claim by any third party alleging, constituting or involving such a breach, violation, inaccuracy or omission, or (ii) any excess capped payroll taxes and related expenses of the Company arising solely from any holder of Phantom Stock ceasing to be employed by the Company during 2008 (the “Phantom Indemnification” and together with subsection (i), collectively, the “Indemnifiable Events”). Subject to the limitations on indemnification by Gibbs hereunder and in accordance with the procedures set forth below, from and after the Closing Date, Gibbs shall indemnify, defend and hold harmless the Buyers and Cimatron Indemnitees from and against, and pay or reimburse, as the case may be, the Buyers and Cimatron Indemnitees for, any and all Losses incurred or sustained by any of them to the extent arising out of or resulting from an Indemnifiable Event.

(b)     Escrow Period; Distribution of Escrow Fund upon Termination of Escrow Period. Subject to the following requirements, the Escrow Fund shall be in existence immediately following the Effective Time and shall terminate at 11:59 p.m. Pacific Time on the Expiration Date (the period of time from the Effective Time through and including 11:59 p.m. Pacific Time on the Expiration Date is referred to herein as the “Escrow Period”); provided that the Escrow Cash (less any Escrow Cash previously distributed and less any Escrow Cash subject to any unresolved (or resolved in favor of the Buyers but not distributed) claims for indemnification which have been duly made by the Buyers in accordance with the terms hereof) shall be distributed to Gibbs on the third Business Day after Escrow Agent receives written notice from Cimatron stating that three (3) months have passed since the receipt by Cimatron of the later of (i) the 2007 Financial Statements, (ii) the Company’s Pre-Closing Tax Return for 2007, which tax return has been previously filed, or (iii) the Gibbs’ Tax Return, which tax return has been previously filed, and all cash and shares thereafter remaining in the Escrow Fund shall be distributed to Gibbs (except for any amount of any unresolved (or resolved in favor of the Buyers but not distributed) claims for indemnification which have been duly made by the Buyers in accordance with the terms hereof) on the first Business Day following the Escrow Period. As soon as all such claims, if any, have been resolved, the Escrow Agent shall deliver to Gibbs the remaining portion of the Escrow Fund not required to satisfy such claims.

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(c)     Claims Upon Escrow Fund. Upon receipt by the Escrow Agent at any time on or before the last day of the Escrow Period of a certificate signed by any officer of Cimatron (an “Officer’s Certificate”): (A) stating that any of the Buyers or another Cimatron Indemnitee has incurred or sustained (or anticipates that it will incur or sustain) Losses, directly or indirectly, as a result of an Indemnifiable Event, and (B) specifying in reasonable detail the individual items of Loss included in the amount so stated, the date (if known) when each such item of Loss was incurred or sustained (or, in the case of anticipated Losses, the basis for such anticipated Loss), and the general nature of the representation, warranty, agreement or covenant or other matter to which such item of Loss or anticipated Loss is related, the Escrow Agent shall, subject to the provisions of Section 9.2(d), deliver to Cimatron out of the Escrow Fund, as promptly as practicable, a combination of cash and shares (on a pro-rata basis (to the extent any Cash Escrow remains on deposit at such time)) held in the Escrow Fund with a value equal to such Losses. Any Cimatron Ordinary Shares to be disbursed by the Escrow Agent shall be valued based on the Average Share Price as of the date of such release. If it has been determined that Cimatron is due Ordinary Shares, Gibbs may elect, or Cimatron may require Gibbs, to pay the value of the applicable Loss (or portion thereof), up to the value of the Share Escrow then held by the Escrow Agent, in immediately available funds (in U.S. dollars) by wire transfer no later than the date on which release of the Share Escrow for such Loss (or portion thereof) is required; all in accordance with and subject to, the terms of the Escrow Agreement.

(d)     Objections to Claims. A copy of the Officer’s Certificate shall be delivered to Gibbs substantially contemporaneously with the delivery of the Officer’s Certificate to the Escrow Agent, and for a period of ten (10) Business Days after such delivery to the Escrow Agent, the Escrow Agent shall make no delivery to Cimatron of any portion of the Escrow Fund pursuant to Section 9.2(c) unless the Escrow Agent shall have received written authorization from Gibbs to make such delivery. After the expiration of such ten (10) Business Day period, the Escrow Agent shall make delivery of such cash and shares from the Escrow Fund in accordance with Section 9.2(c), provided that no such payment or delivery may be made if Gibbs shall object in a written statement to the claim made in the Officer’s Certificate setting forth in reasonable detail the basis for objection, and such statement shall have been delivered to the Escrow Agent and Cimatron prior to 5 p.m. Pacific Time on the last day of such ten (10) Business Day period (the “Dispute Notice”).

(e)     Notwithstanding the receipt of one or more Dispute Notices, the Escrow Agent will be authorized to disburse Escrow Funds to the Buyers in such amounts specified in one or more Officer’s Certificates for which no Dispute Notices have been timely received by it and Cimatron regardless of whether such disbursal would reduce the value of the Escrow Funds to an amount less than the amount subject to Dispute Notices which have been timely received by Cimatron and the Escrow Agent.

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(f)     Resolution of Conflicts; Arbitration.

    (i)        If Gibbs has objected in writing to any claim or claims made in any Officer’s Certificate in accordance with the procedures of Section 9.2(d), Gibbs and Cimatron shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If Gibbs and Cimatron so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and to distribute cash from the Escrow Fund in accordance with the terms thereof.

    (ii)        If no such agreement is reached after good-faith negotiations, either Cimatron or Gibbs may demand arbitration of the dispute unless the amount of the Loss is at issue in a pending Action or Proceeding involving a Third Party Claim, in which event arbitration shall not be commenced until such amount is determined in such Action or Proceeding (whether by verdict, judgment, finding of fact, settlement or other order, stipulation or agreement) or otherwise ascertained, or both parties agree to arbitration

    (iii)        Any such arbitration shall be held in the City of New York, New York, under the rules then in effect of the American Arbitration Association (“AAA”). The arbitrator shall be jointly selected by Cimatron and Gibbs, or, if such parties do not select the arbitrator within the ten (10) Business Days of the delivery of a notice by either party to the other requesting such selection, then the Arbitrator shall be selected in accordance with the Commercial Arbitration rules of the American Arbitration Association.

    (iv)        The arbitrator shall determine how all expenses relating to the arbitration shall be paid, including without limitation, the respective expenses of each party, the fees of each arbitrator and the administrative fee of the AAA. The arbitrator shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrator to discover relevant information from the opposing parties about the subject matter of the dispute. The arbitrator shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys’ fees and costs, to the extent as a competent court of law or equity, should the arbitrator determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of the arbitrator, as to the validity and amount of any claim in such Dispute Notice shall be final, binding, and conclusive upon the parties to this Agreement. Such decision shall be written and shall be supported by written findings of fact and conclusions that shall set forth the award, judgment, decree or order awarded by the arbitrator(s). Within five (5) days of a decision of the arbitrator(s) requiring payment by one party to another, such party shall make the payment to such other party.

    (v)        Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction. The forgoing arbitration provision shall apply to any dispute between the Buyers and Gibbs under this Article 9 hereof, whether relating to claims upon the Escrow Fund or to the other indemnification obligations set forth in this Article 9.

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9.3     Process for Indemnification.

(a)     If a claim or demand is made against the Buyers or any Cimatron Indemnitee (each an “Indemnitee”), or an Indemnitee shall otherwise learn of an assertion, by any Person who is not a party to this Agreement (and who is not an Affiliate of a party to this Agreement), including a complaint, counterclaim or cross-claim in litigation (a “Third Party Claim”) as to which a party (the “Indemnifying Party”) may be obligated to provide indemnification pursuant to this Agreement, such Indemnitee will notify the Indemnifying Party in writing, in reasonable detail and deliver all relevant documentation, of the Third Party Claim as promptly as practical after becoming aware of such Third Party Claim (“Notice of Claim”); provided, however, that failure to give any such Notice of Claim will not affect the indemnification provided hereunder except to the extent that the Indemnitee shall have been actually prejudiced as a result of such failure.

(b)     The Indemnitee shall have the right in its sole discretion to conduct the defense of, and to settle, any Third Party Claim; provided, however, that except with the consent of the Indemnifying Party, no settlement of any such Third Party Claim with third party claimants shall be determinative of the amount of Losses relating to such matter; provided further, however, that the Indemnifying Party shall be entitled, at its expense, to participate in, but not to determine or conduct, the defense of such Third Party Claim. If the Indemnifying Party has consented to any such settlement, no party shall have a power or authority to object under any provisions of this Agreement to the amount of Losses arising with respect to such settlement, subject to limitations on indemnification set forth in this ARTICLE 9. If the Indemnitee elects to conduct the defense of a Third Party Claim, it shall advise the Indemnifying Party thereof within twenty (20) days of delivery of the applicable Notice of Claim. If the Indemnitee fails to undertake the defense of such Third Party Claim within twenty (20) days after the delivery of the applicable Notice of Claim, then the Indemnifying Party may take any and all necessary action to dispose of such claim subject to the provisions of Subsection (c) below; provided, however, that the Indemnifying Party may not settle any such claim without the prior written consent of the Indemnitee, not to be unreasonably withheld.

(c)     The Indemnifying Party and the Indemnitee shall make available to each other and their counsel and accountants, subject to the execution of reasonable confidentiality agreements, all books and records and information reasonably required by such party in connection with any Third Party Claims, keep each other apprised as to the details and progress of all proceedings relating thereto and render to each other such assistance as may be reasonably required to ensure the proper and adequate defense of any and all Third Party Claims.

(d)     Subject to the provisions of Section 9.2, any claim on account of Losses which does not involve a Third Party Claim as to which an Indemnifying Party may be obligated to provide indemnification pursuant to this Agreement, shall be asserted by written notice given by the Indemnitee to the Indemnifying Party from whom such indemnification is sought. Without derogating from the provisions regarding survival of representations set forth in Section 9.1 above, the failure by any Indemnitee so to notify the Indemnifying Party will not relieve the Indemnifying Party from any liability which it may have to such Indemnitee under this Agreement, except to the extent that the Indemnitee shall have been actually prejudiced as a result of such failure. Any notice pursuant to this Subsection will contain (i) all details in connection with such claim known to the Indemnitee, (ii) all supporting and other documents and material relevant to such claim in the possession or control of the Indemnitee, and (iii) a statement, in prominent and conspicuous type, that if the Indemnifying Party does not dispute its liability to the Indemnitee with respect to the claim made in such notice by notice to the Indemnitee prior to the expiration of a thirty (30)-Business Day period following the Indemnifying Party’s receipt of notice of such claim, the claim will be conclusively deemed a liability of the Indemnifying Party, subject to all limitations on liability of an Indemnitee hereunder and other pertinent terms contained herein. If the Indemnifying Party has timely disputed its liability with respect to such Damages subject to such claim, as provided above, the Indemnifying Party and the Indemnitee will proceed in good faith to negotiate a resolution of such dispute and, if not resolved through negotiations by the 60^th day after notice of such claim was given to the Indemnifying Party, the Indemnifying Party and the Indemnitee will be free to pursue such remedies as may be available under this Agreement or applicable law.

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9.4     Certain Rights and Limitations.

(a)     Excluding with respect to claims for fraud, intentional misrepresentation, a breach by Gibbs of the representations set forth in ARTICLE 3, the Phantom Indemnification, or a breach by the Company of the representation set forth in Section 4.3 (Capital Stock), an Indemnitee will not be entitled to any indemnification until the aggregate amount of Losses actually incurred by Indemnitee, with respect to such claims exceeds $100,000 in the aggregate, in which event the Indemnitee shall be entitled to indemnification with respect to such Losses from the first dollar of such Losses.

(b)     Any indemnity payment made pursuant to this Agreement will be treated as an adjustment to the purchase price for Tax purposes.

(c)     Notwithstanding anything to the contrary in this Agreement, the maximum aggregate Liability of Gibbs for Losses arising from Indemnifiable Events, other than with respect to the Phantom Indemnification, fraud or intentional misrepresentation or a breach of the Excluded Representations, shall be limited to the Escrow Funds. Gibbs further acknowledges that he shall be required to satisfy any indemnification with respect to the Phantom Indemnification by way of payment to the Buyers of cash. If Gibbs breaches such obligation and does not make a cash payment of such amount on the date so scheduled, then without derogating from or waiving (i) Gibb’s obligation to effect such payment, (ii) the continued breach thereof by Gibbs, and (iii) any and all remedies available to the Buyers under law or otherwise, Cimatron shall be entitled to seek such indemnification either from the Escrow Funds or by offsetting any amounts that may be due to Gibbs from the Buyers hereunder or under any other agreement.

(d)     The sole and exclusive remedy of an Indemnitee hereunder for all Losses relating to this Agreement or the transactions contemplated hereby (including with respect to a breach of representation or warranty or covenant or agreement in this Agreement to be performed on or prior to the Closing) shall be the indemnification provisions set forth in this ARTICLE 9, other than for claims for fraud, intentional misrepresentation or willful misconduct. Nothing herein shall be construed to limit the remedies available to or the amount of damages recoverable by any of the parties for a breach of any of the Ancillary Agreements by any of the parties thereto.

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ARTICLE 10.
TERMINATION, AMENDMENT AND WAIVER

10.1    Termination . Except as provided in Section 10.2, this Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time:

(a)     by mutual agreement of the Company and Cimatron;

(b)     by Cimatron or the Company if: (i) the Effective Time has not occurred before 5 p.m. Pacific Time on March 31, 2008 (the “Final Date”) (provided, however, that the right to terminate this Agreement under this Section 10.1(b)(i) shall not be available to any party whose willful failure to fulfill any obligation hereunder has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date); (ii) there shall be a final nonappealable order of a federal or state court in effect preventing consummation of the Merger; or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental or Regulatory Authority that would make consummation of the Merger illegal;

(c)     by Cimatron if there shall be any action taken, or any Law or Order enacted, promulgated or issued or deemed applicable to the Merger, by any Governmental or Regulatory Authority, which would: (i) prohibit Cimatron’s ownership or operation of all or any portion of the business of the Company or (ii) compel Cimatron to dispose of or hold separate all or any portion of the Assets and Properties of the Company, or limit its operation of the Company’s business, as a result of the Merger;

(d)     by Cimatron if it is not in material breach of its representations, warranties, covenants and agreements under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of the Company or Gibbs and (i) the Company is not using its reasonable efforts to cure such breach, or has not cured such breach within thirty (30) days after notice of such breach to the Company (provided, however, that, no cure period shall be required for a breach which by its nature cannot be cured) and (ii) as a result of such breach any of the conditions set forth in Section 8.1 or Section 8.3, as the case may be, would not be satisfied prior to the Closing Date;

(e)     by the Company if neither it nor Gibbs is in material breach of its representations, warranties, covenants and agreements under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of the Buyers and (i) Cimatron is not using its reasonable efforts to cure such breach, or has not cured such breach within thirty (30) days after notice of such breach to Cimatron (provided, however, that no cure period shall be required for a breach which by its nature cannot be cured), and (ii) as a result of such breach any of the conditions set forth in Section 8.1 or Section 8.2, as the case may be, would not be satisfied as of the Closing Date;

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10.2     Effect of Termination. In the event of a valid termination of this Agreement as provided in Section 10.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Cimatron or the Company, or their respective officers, directors or shareholders or Affiliates; provided, however, that each party shall remain liable for any breaches of this Agreement prior to its termination; and provided further that, the provisions of Sections 7.2, 7.3 and 10.2, ARTICLE 11(exclusive of Section 11.3) and the applicable definitions set forth in ARTICLE 1 shall remain in full force and effect and survive any termination of this Agreement.

10.3     Amendment. Except as is otherwise required by applicable Law, this Agreement may be amended by the parties hereto at any time but only by an instrument in writing duly and validly signed on behalf of and delivered to each of the parties hereto.

10.4     Extension; Waiver. At any time prior to the Effective Time, Cimatron and the Company may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations of the other party hereto, (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (c) waive compliance with any of the agreements, covenants or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of the party against which such waiver or extension is asserted.

ARTICLE 11
MISCELLANEOUS PROVISIONS

11.1     Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or by nationally recognized overnight courier prepaid, or by registered mail return receipt requested, to the parties at the following addresses or facsimile numbers:

If to the Buyers to:

Cimatron Ltd.
11 Gush Etzion St.
Givat Shmuel, Israel
Attention: Ilan Erez, CFO
Fax: 972-3-531-2097
Email: ilane@Cimatron.com

with a copy to (which shall not constitute notice):

Meitar Liquornik Geva & Leshem Brandwein
16 Abba Hillel Silver Road
Ramat-Gan 52506
Israel
Attention: Asaf Harel
Fax: 972-3-610-3656
Email: aharel@meitar.com

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If to the Company or Gibbs to:

William F. Gibbs
4017 N Cedarpine Lane
Moorpark, CA 93021
home telephone: 805-529-1991
office telephone: 805-523-0004
office fax 805-523-0006
cell 805-377-1789
email: bill@gibbsCAM.com

        with a copy (which shall not constitute notice) to:

s Farella Braun + Martel LLP
Russ Building
235 Montgomery Street
San Francisco, CA 94104
Attn: Brian Donnelly
Telephone: 415.954.4400
Direct Phone: 415.954.4465
Fax: 415.954.4480
Email: BDonnelly@fbm.com

        All such notices, requests and other communications will (a) if delivered personally to the address as provided in this Section 11.1, be deemed given upon delivery, (b) if delivered by facsimile transmission to the facsimile number as provided for in this Section 11.1, be deemed given upon facsimile or telephonic confirmation of successful completion of transmission, and (c) if delivered by overnight courier to the address as provided in this Section 11.1, be deemed given on the earlier of the first Business Day following the date deposited with such overnight courier with the requisite payment and instructions to effect delivery on the next Business Day or upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section 9.1). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other parties hereto.

11.2     Entire Agreement. This Agreement and the Exhibits and Schedules hereto, including the Company Disclosure Schedule and the Ancillary Agreements, constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, except for the confidentiality provisions of the Confidentiality Agreement, which shall continue in full force and effect and shall survive any termination of this Agreement in accordance with its terms.

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11.3     Further Assurances; Post-Closing Cooperation. At any time or from time to time after the Closing, the parties shall execute and deliver to each other party such other documents and instruments, provide such materials and information and take such other actions as the other party may reasonably request to consummate the transactions contemplated by this Agreement and otherwise to cause the other parties to fulfill their respective obligations under this Agreement and the transactions contemplated hereby.

11.4     Waiver; Remedies. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, shall be cumulative and not alternative.

11.5     Third Party Beneficiaries. The terms and provisions of this Agreement are intended solely for the benefit of the parties hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights, and this Agreement does not confer any such rights, upon any other Person.

11.6     No Assignment; Binding Effect. Neither this Agreement nor any right, interest or obligation hereunder may be assigned (by operation of Law or otherwise) by any party without the prior written consent of the other parties and any attempt to do so shall be void. Subject to the preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by the parties hereto and their respective successors and assigns.

11.7     Headings. The headings and table of contents used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

11.8     Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision shall be fully severable, (b) this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.

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11.9     Governing Law. This Agreement and the Ancillary Agreements hereunder shall be governed by and construed in accordance with the domestic laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. Subject to the provisions of Section 9.2(f) the competent courts of the state of New York and U.S. Federal courts situated in the State of New York shall have exclusive jurisdiction in all matters relating to this Agreement and each of the parties to this Agreement hereby irrevocably and unconditionally (subject to Section 9.2(f) above) (i) agrees not to commence any such action or proceeding except in such courts; (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by Law, in such Federal court; (iii) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such action or proceeding in any such New York State or Federal court and (iv) waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such New York State or Federal court. Each of the parties to this Agreement hereby agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. Each of the parties to this Agreement hereby irrevocably consents to service of process in the manner provided for notices in Section 11.1. Nothing in this Agreement shall affect the right of any party to this Agreement to serve process in any other manner permitted by applicable Law.

11.10     WAIVER OF TRIAL BY JURY. IN ANY ACTION OR PROCEEDING ARISING HEREFROM, THE PARTIES HERETO CONSENT TO TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO OR ITS SUCCESSORS AGAINST ANY OTHER PARTY HERETO OR ITS SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION OR PROCEEDING.

11.11     Construction. The parties hereto agree that this Agreement is the product of negotiation between sophisticated parties and individuals, all of whom were represented by counsel, and each of whom had an opportunity to participate in and did participate in the drafting of each provision hereof. Accordingly, ambiguities in this Agreement, if any, shall not be construed strictly or in favor of or against any party hereto but rather shall be given a fair and reasonable construction without regard to the rule of contra proferentem.

11.12     Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

11.13     Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. Except where this Agreement specifically provides for arbitration, it is agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.

[SIGNATURE PAGE FOLLOWS]

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        IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their duly authorized representatives, all as of the date first written above.

GIBBS SYSTEM, INC.	CIMATRON LTD.
By:___________________________      William F. Gibbs      President and Chief Executive Officer	By:___________________________       ___________________       ___________________
WILLIAM F. GIBBS	CIMATRON TECHNOLOGIES, INC.
By:___________________________	By:____________________________       ___________________
	NORTAMIC, LLC
	By:___________________________       ___________________

EX-4

Exhibit 4.2.5

Execution Copy

EMPLOYMENT AGREEMENT

        THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made as of the 2^NDday of January, 2008 (“Effective Date”) by and between William F. Gibbs, a resident of 4017 N Cedarpine Lane, Moorpark, CA  93021, United States of America (the “Executive”), and Nortamic, LLC, a California limited liability company with offices at 323 Science Drive, Moorpark, CA 93021 (the “Company”).

        WHEREAS, the Company desires to employ Executive as its President and Chief Executive Officer, and Executive desires to be employed by the Company as its President and Chief Executive Officer, upon the terms and conditions hereinafter set forth.

        NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein, and intending to be legally bound, the parties, subject to the terms and conditions set forth herein, agree as follows:

1. Employment and Term. The Company hereby agrees to employ Executive, and Executive hereby agrees to accept employment with the Company, in the position of the President and Chief Executive Officer of the Company (the “Position”), upon the terms set forth in this Agreement, for the period (the “Term”) commencing as of the Effective Date and continuing until terminated by either party in accordance with the provisions of Section 7. The Executive shall be under the direct supervision of, and comply with the directives of, the President and Chief Executive Officer of Cimatron Ltd. (“Cimatron”). During the Term, the Executive will form part of Cimatron’s management team.

2. Duties. During the Term, Executive shall serve the Company faithfully and to the best of his ability and shall devote his full time, attention, skill and efforts to the performance of the lawful duties required by or appropriate for the Position. Accordingly, during the Term, Executive agrees not to accept any other employment or position (as an employee, consultant or otherwise) with any third party or otherwise engage in any other business activities. Executive shall be responsible for the efficient performance of his duties and of the responsibilities of the Position as determined by the Company on an on-going basis. During the Term, Executive agrees to refrain from engaging in any activity that does, will or could reasonably be deemed to conflict with the best interests of the Company. Provided, however, while performing services hereunder, Executive may serve as a member of a board of directors of one (1) non-competitive company, the identity of which has been approved in advance by the Company and engage in charitable and public service activities provided that such services or activities do not interfere with the performance of his duties and responsibilities under this Agreement.

3. Compensation. The Company shall pay Executive, and Executive hereby agrees to accept, as compensation for all services rendered hereunder and for Executive’s covenants provided for herein and in Exhibit C, the compensation set forth in this Section 3.

        Base Salary. The Company shall pay Executive a base salary (the “Base Salary”) at the annual rate of US$160,000, in equal semi-monthly installments. The Base Salary shall be subject to withholding for all applicable income, social security and other taxes and charges that are required by law to be withheld by the Company, or are requested to be withheld by Executive, and shall be withheld and paid in accordance with the normal payroll practice for similarly situated employees of the Company, Cimatron and Cimatron Technologies, Inc. (“CTI” and together with the Company and Cimatron, the “Company Group”) in the United States as in effect from time to time.

        Bonus Program. Executive shall be entitled to receive a bonus (the “Annual Bonus”) (subject to withholding as described above in Section 0) for each calendar year of continues employment ending (starting with the calendar year 2008) during the Term based upon the criteria set forth in Exhibit A attached hereto.

        Fringe Benefits. Executive shall be entitled to health, life and disability insurance and other fringe benefit programs (including a 401(k) or similar plan funded by Executive) (the “Benefits”) of the Company on terms and conditions as are customary for other comparable officers and employees of the Company Group in the United States.

        Reimbursement of Expenses. The Executive acknowledges and agrees that from time to time he may be required by the Company to travel abroad and inside the US as part of his work in the Company. Executive shall be reimbursed for all normal items of travel and miscellaneous expenses reasonably incurred by him on behalf of Company, provided that such expenses are documented and submitted to the Company all in accordance with the reimbursement policies of the Company Group as in effect from time to time.

        Vacation The Executive shall be entitled to an annual vacation of twenty (20) business days per year. It is hereby clarified that the Executive must make every effort to take annual vacation, but if he is unable to utilize all his vacation days, he shall be entitled to accumulate the unused portion of his vacation days up to a ceiling of fifty (50) vacation days (the “Ceiling”). The balance of vacation days in excess of the Ceiling shall be paid in accordance with the Company’s policies as may be amended from time to time. Any outstanding vacation days due to the Executive as aforesaid upon the termination of his employment, shall be paid in accordance with applicable law.

4. Stock Options. Subject to the terms of Cimatron’s Stock Option Plan and the stock option agreement attached hereto as Exhibit B, the Executive shall be granted as promptly as possible after the date hereof (the “Date of Grant”) an option to purchase such number of Ordinary Shares of Cimatron as shall be agreed by the Company and the Executive (not to exceed 20,000 shares) at the then current fair market value of such Ordinary Shares (the “Options”). The Executive undertakes to take all actions and to sign all documents required, at the discretion of Cimatron, in order to give effect to and enforce the above terms and conditions. Any tax liability in connection with the Options (including with respect to the grant, exercise, sale of the Options or the shares receivable upon their exercise) shall be borne solely by the Executive.

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5. Taxes; Section 409A of Internal Revenue Code. Any tax liability in connection with any payments or compensation due to the Executive hereunder shall be borne solely by the Executive. The Company shall deduct from any such payments or compensation any relevant taxes and charges that are required by law to be withheld by the Company, or are requested to be withheld by Executive. Executive hereby elects to receive, and the Company hereby agrees to pay, the compensation payable to Employee under Section 7 of this Agreement (the “Post-Termination Compensation”) at the time, in the manner, and on the terms and conditions set forth in Section 7. The parties acknowledge and agree that the Post-Termination Compensation is intended to be for Executive’s compliance with the restrictions in Section 6 and is not to be considered deferred compensation or severance pay in connection with Executive’s employment under this Agreement.  Notwithstanding the foregoing, however, if the payment of the Post-Termination Compensation is ever determined to be subject to Section 409A (“Section 409A”) of the Internal Revenue Code (the “Code”), (i) neither Executive nor the Company shall have the right to accelerate or defer any payment of such Post-Termination Compensation; (ii) the Post-Termination Compensation shall be payable only if Executive has incurred a Separation from Service from the Company (as defined below), (iii) Post-Termination Compensation shall be paid out of the Company’s general assets, and (iv) if Executive is a Code Section 416(i) key employee (determined without regard to Code Section 416(i)(5) which treats a key employee’s beneficiary as a key employee) of the Company at any time during the 12-month period ending on December 31^st of the calendar year preceding the calendar year in which payment of Post-Termination Compensation commences, and if any Company’s stock is publicly traded on an established securities market or otherwise on the date of Executive’s Separation from Service, payments of the Post-Termination Compensation shall commence on the first regular Company payday in the seventh month following the month in which Executive’s Separation from Service occurs.  If the Post-Termination Compensation is ever determined to be subject to Section 409A, a “Separation from Service” is deemed to occur if Executive dies, retires, or otherwise has a termination of employment with the Company; provided, that Executive’s employment relationship is treated as continuing intact while on sick leave or other bona fide leave of absence if the period of such leave does not exceed six months or longer, if Executive’s right to reemployment is provided either by statute or by contract; and provided, further, if Executive continues to provide services to the Company in any capacity after termination or expiration of this Agreement or termination of Executive’s employment relationship with the Company (the “Post-Termination Services”), the determination of whether a Separation from Service has occurred shall be made in accordance with Section 409A.  For purposes of this paragraph, the term “Company” includes all other organizations that together with the Company are part of a Code Section 414(b-c) control group of organizations.

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6. Confidentiality; Invention Assignment and Non-Compete. Executive shall execute the Confidential Information, Non-Compete and Invention Assignment Agreement attached hereto as Exhibit C simultaneously with the execution of this Agreement. Nothing set forth in Exhibit C shall limit or terminate any obligations that Executive may have pursuant to any other agreement of confidentiality, non-compete, or assignment of rights with the Company or any of its predecessor entities.

7. Termination. In the event of a termination of this Agreement, then the following shall apply:

        In the event that the Company terminates the Executive’s employment for “Cause” (as defined below) then (a) Executive shall be entitled to receive all accrued but unpaid (as of the effective date of such termination) Base Salary and Benefits, and (b) the Company may terminate the Executive’s employment immediately and without prior notice. All Base Salary and Benefits shall cease at the time of such termination. Executive shall not be entitled to receive any Bonus for (i) the then current calendar quarter or calendar year, as may be the case. Except as specifically set forth in this Section 0, the Company shall have no liability or obligation to Executive hereunder by reason of such termination of the Executive.

For purposes of this Agreement, termination for “Cause” shall mean termination due to the occurrence of any of the following: (i) any material breach by Executive of any of the covenants set forth herein, including any covenants set forth in Exhibit C attached hereto, which, to the extent cureable, continues after notice and a reasonable opportunity to cure of 10 Business Days has been provided; (ii) Executive has been grossly negligent or has committed willful misconduct in carrying out his duties hereunder, which, to the extent cureable, continues after notice and a reasonable opportunity to cure of 10 Business Days has been provided; (iii) the Executive’s conduct causing grave injury to the Company Group, monetarily or otherwise; (iv) conviction of a felony or other criminal act punishable by more than one (1) year in prison, or (v) commission by Executive of an intentional tort or an act involving moral turpitude or constituting fraud. If, as a result of arbitration, an arbitrator later determines that termination by the Company of Executive’s employment purportedly for cause was without cause, the termination will be deemed a termination without cause, and Executive will be entitled to the benefits set forth in Section 7.2. For the purpose of this Agreement, “Business Day” means a day other than Saturday, Sunday or any day on which banks located in the State of California are authorized or obligated to close.

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        The Company may terminate the Executive’s employment at any time without “Cause”, upon a prior written notice (a) during the first year of employment – of nine (9) months, (b) during the second year of employment – of six (6) months, and (c) at any time following two (2) years of employment – of three (3) months. In such event, Executive shall be entitled to receive all accrued but unpaid (as of the effective date of such termination) Base Salary, Benefits and a pro-rata amount (as determined in good faith by the Company’s management) of the Bonus applicable to the then calendar quarter or calendar year, as may be the case, in exchange for a release of claims in the form attached hereto as Exhibit D to be executed by the Executive. Except as specifically set forth in this Section 0, the Company shall have no liability or obligation to Employee hereunder by reason of such termination.

        The Company shall have the right at any time to terminate the Executive’s employment if the Executive is substantially unable to perform the essential functions of the Position by reason of any mental, physical or other disability for a period of at least six (6) consecutive months (after any accommodations required by the American with Disabilities Act or applicable state law). This Agreement shall also terminate upon the death of the Executive. Termination pursuant to this Section 0 shall be deemed termination not for “Cause.”

        At any time after five (5) years from the date hereto, Executive shall be entitled to terminate his employment hereunder for any reason and for no reason, upon a prior written notice of three (3) months. A breach by the Executive of this Section shall be deemed a material breach of this Agreement.

        Notwithstanding the provisions of Section 0 above, the Executive may terminate this Agreement at any time upon the occurrence of Good Reason (as defined below). In such event, Executive shall be entitled to compensation as set forth in Section 0 as though the Company had terminated the Executive’s employment without “Cause.” For this purpose, the term “Good Reason” shall mean (i) a material diminution in the Executive’s authority, duties, title or responsibilities, provided, however, that a reduction in authority and responsibilities solely by virtue of the Company / CTI / Cimatron being acquired and made part of a larger entity will not constitute “Good Reason” to the extent the Executive remains Chief Executive Officer (or equivalent position) of a division, unit or subsidiary of the acquiror, which division, unit or subsidiary conducts substantially the same core business as was conducted by the Company prior to any such acquisition or similar corporate transaction, (ii) a decrease in Executive’s Base Salary of 10% or greater, except in the event that all employees of the Company Group who hold executive positions have a similar reduction in their respective base salaries, or (iii) the Company’s material breach of this Agreement, which, to the extent cureable, continues after notice and a reasonable opportunity to cure of 10 Business Days has been provided.

        Notwithstanding anything to the contrary herein, the Company may immediately cease the Executive’s employment and may shorten all or part of any notice period whether given by the Company or the Executive and in such event the Executive shall be entitled to all Base Salary and all other benefits as provided in Section 3 above (except for Bonus) as if the Executive would have been employed by the Company for duration of the applicable notice period specified above; provided, however, that Bonus payments will be made in accordance with the provisions of Section 0 and 0 above.

5

        Subject to the foregoing provisions of this Section 7, the employment relationship with the Company is one of employment at will and may be terminated by either Executive or the Company at any time, with or without cause or prior notice, subject always to the terms and conditions set forth above.

8. Representations, Warranties and Covenants of Executive. Executive represents and warrants to the Company that:

        There are no restrictions, agreements or understandings whatsoever to which Executive is a party which would prevent or make unlawful Executive’s execution of this Agreement or Executive’s continued employment hereunder, or which is or would be inconsistent or in conflict with this Agreement or Executive’s employment hereunder, or would prevent, limit or impair in any way the performance by Executive of the obligations hereunder;

        Executive has disclosed to the Company in writing all restraints, confidentiality commitments or other employment restrictions that he has with any other employer, person or entity; and

        In any event of the termination of this Agreement, the Executive shall, for as long as he is still an Executive of the Company (including any notice period), cooperate with the Company and use his best efforts to assist with the integration into the Company’s organization of the person or persons who will assume the Executive’s responsibilities.

9. Survival of Provisions. The provisions of this Agreement set forth in Sections 5, 6, 7, 9, 10, 12, 13 and 14 hereof and Exhibit C attached hereto shall survive the termination of Executive’s employment hereunder for any reason whatsoever.

10. Successors and Assigns. Neither party may assign or transfer this Agreement nor any right or obligation herein, without the prior written consent of the other party, and any such prohibited assignment or transfer shall be null and void.

11. Entire Agreement; Amendments. This Agreement and its exhibits supersede all prior agreements and understandings between the parties as to its subject matter. This Agreement may not be changed or modified, except by an agreement in writing signed by each of the parties hereto.

6

12. Governing Law; Arbitration. This Agreement shall be construed and enforced in accordance with, and shall be governed by, the laws of the State of California. In the event any claim or controversy arises concerning any provision of this Agreement, Company and Executive hereby agree that such claim or controversy, including the termination of employment, alleged intentional torts or allegations of harassment or discrimination between Company and Executive and commission disputes shall be settled by final, binding arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association, provided, however, that the impartial arbitrator shall be selected as follows: If Company and Executive are unable to agree upon an impartial arbitrator within five (5) days of a request for arbitration, the parties shall request a panel of five (5) labor and employment arbitrators from the American Arbitration Association and shall alternately strike names until a single arbitrator remains. Arbitration shall occur in the County of San Francisco, State of California. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Depositions may be taken and other discovery may be obtained during such arbitration proceedings to the same extent as authorized in civil judicial proceedings, subject to any limitations placed on discovery by the arbitrator. If the Executive commences arbitration, he/she shall pay the initial fee, and all other fees shall be borne equally by the parties. Each party shall be solely responsible for its own attorney’s fees.

13. Invalidity. If any provision of this Agreement shall be determined to be void, invalid, unenforceable or illegal for any reason, the validity and enforceability of all of the remaining provisions hereof shall not be affected thereby. If any particular provision of this Agreement shall be adjudicated to be invalid or unenforceable, such provision shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such amendment to apply only to the operation of such provision in the particular jurisdiction in which such adjudication is made; provided that, if any provision contained in this Agreement shall be adjudicated to be invalid or unenforceable because such provision is held to be excessively broad as to duration, geographic scope, activity or subject, such provision shall be deemed amended by limiting and reducing it so as to be valid and enforceable to the maximum extent compatible with the applicable laws of such jurisdiction.

14. Specific Enforcement. Executive acknowledges that a material breach or threatened breach by Executive of any of the provisions contained herein or Exhibit C may cause the Company irreparable injury. Executive therefore agrees that, notwithstanding anything to the contrary in Section 14 above, the Company Group shall be entitled, in addition to any other right or remedy, to a temporary, preliminary and permanent injunction, without the necessity of proving the inadequacy of monetary damages or the posting of any bond or security, enjoining or restraining Executive from any such violation or threatened violation or from any other material violations which may cause material harm to the Company Group.

15. Shareholders Approval. This Agreement (including the grant of the Options) is subject to the approval of the shareholders of Cimatron. The Company shall use reasonable best efforts to convene such meeting by April 30, 2008.

16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument.

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17. Notices. Any notice hereunder by either party shall be given by personal delivery or by sending such notice by certified mail, return-receipt requested, or faxed, with confirmation of transmission retained, as the case may be, to the other party at its address set forth in the preamble to this Agreement or at such other address designated by notice in the manner provided in this section. Such notice shall be deemed to have been received upon the date of actual delivery if personally delivered or, in the case of mailing, seven (7) days after deposit with the U.S. mail, or, in the case of facsimile transmission, when confirmed by the facsimile machine report.

8

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

NORTAMIC, LLC
By:______________________	_______________________
Name:____________________	William F. Gibbs
Title:_____________________

9

Exhibit A

Annual Bonus

The criteria for the annual bonus are comprised of two parts:

1. The Company will pay to the Executive 5% of the Annual Gibbs Growth (as defined below) for the relevant year of employment reported by the Financials.

2. The Company will pay to the Executive 10% of the Annual North America Cimatron Growth (as defined below) for the relevant year of employment reported by the Financials.

The calculations shall be made within 30 days of the approval of the Company’s audited annual consolidated financial statements for the previous year (the “Financials”) and payment of the bonus will be made promptly thereafter but in any event, no later than the end of the calendar year following the year covered by the Financials (for example — the bonus for 2008 will be determined based on the Financials of 2008 and will be paid promptly following the approval of the 2008 Financials but in any event no later than the end of 2009).

“Annual Gibbs Growth” shall mean the increase in contribution to the Company’s business from the sales of Gibbs products, maintenance and services, as compared to the contribution in the prior year. With respect to any sales of Gibbs products, maintenance and services made through other entities within the Company Group (other than the Company) – only 50% of the revenues received by such entity from such sale shall be deemed part of the revenues of the Company for the purpose of the contribution calculation. The contribution shall be calculated in accordance with Financials and shall be based on the revenues received from such business less expenses related thereto.

“Annual North America Cimatron Growth” shall mean the increase in contribution to the Company Group’s business from the sales of Cimatron E products in North America, as compared to such contribution in the prior year. The contribution shall be calculated in accordance with Financials and shall be based on the revenues received from such business less expenses related thereto (provided that payments made by CTI to Cimatron shall not be taken into consideration as expenses).

10

Exhibit D

WAIVER AND RELEASE

        In consideration of the payment obligation of Nortamic, LLC, the (“Company”) for the severance benefits identified in that certain Employment Agreement entered into between the Company and Executive (the “Employment Agreement”) pursuant to Section 7.2 of such Employment Agreement the undersigned (“Executive”) on behalf of himself and his agents, representatives, heirs, partners, spouse, affiliates, predecessors, successors and assigns and any person acting by, through, under or in concert with each of them, or any of them, hereby releases and forever discharges Company, its agents, directors, officers, attorneys, employees, affiliates, predecessors, successors and assigns, and any person acting by, through, under or in concert with each of them, or any of them, of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liabilities, claims, demands, losses, damages, costs or expenses, including but not limited to court costs and attorneys’ fees, of any nature whatsoever, whether or not now known, claimed or suspected, fixed or contingent (hereinafter collectively referred to as “Claims”) which Executive now has, ever had, ever claimed to have had, or hereafter may have arising out of, based upon or related in any manner whatsoever to the parties’ activities prior to the execution of this Agreement including, without limiting the generality of the foregoing, all Claims related to any incentive plans or otherwise arising out of or in any way connected with Executive’s employment relationship with Company; provided, however, that this waiver and release does not release or discharge Company from its obligations under any of the other provisions of this Waiver and Release or that certain Employment Agreement between Executive and the Company, or under the Merger Agreement and Plan of Reorganization entered into as of December 31, 2007 by and among Gibbs System, Inc., Cimatron Ltd., Cimatron Technologies, Inc., the Company, and Executive. This release includes any and all claims, direct or indirect, relating to the matters described in the foregoing sentence which might otherwise be made under any applicable state or federal authority, including but not limited to any claim arising under the state statutes dealing with discrimination in employment, Title VII of the Civil Rights Act of 1964, the Equal Pay Act of 1963, 42 U.S.C Executive Order 11246, the Rehabilitation Act, the Age Discrimination in Vietnam Era Veterans Reemployment Adjustment Act, the Age Discrimination in Employment Act, the Fair Labor Standards Act, state wage and hour statutes, all as amended, any regulations under such authorities, and any applicable contract, tort or other common law theories. Executive acknowledges that Executive has carefully read this Agreement and fully understands the terms of this separation release and has been advised that:

(a) Executive should consult with personal legal counsel regarding the terms of this Agreement, and that advice is hereby reemphasized;

(b) Executive has been provided with at least twenty-one (21) days to consider this agreement; and

(c) Executive has the right to rescind this agreement within seven (7) days after its execution.

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        This Waiver and Release shall be effective on the ___ day after its signing by Executive.

WAIVER OF CIVIL CODE § 1542

Executive acknowledges that he has been advised by legal counsel and is familiar with the provisions of California Civil Code § 1542, which provides as follows:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

Executive, being aware of said code section, hereby expressly waives any rights he may have thereunder, as well as under any other statute or common law principal with similar effect.

_____________________________

Name: ________________________

_____________________________
Date

Acknowledged and Accepted by:

[COMPANY]

By: ________________________________

Name: ______________________________

Title: _______________________________

12

EX-8.1

EXHIBIT 8.1

Subsidiaries

ENTITY	PLACE OF INCORPORATION
Cimatron Gibbs LLC*	United States
Cimatron Technologies, Inc.	United States
Cimatron Technologies, Inc.	Canada
Cimatron GmbH	Germany
Cimatron Sarl	France
Cimatron UK Ltd.	United Kingdom
Microsystem Srl **	Italy
Cimatron Japan K.K	Japan
Cimatron Technologies (P) Ltd	India
Cimatron (Beijing) Technology Co. Ltd.	China
Cimatron (Guangzhou) Technology Co. Ltd.***	China
Korea Cimatron Technologies Co. Ltd.	Korea

* Cimatron Gibbs LLC is a wholly owned subsidiary of Cimatron Technologies, Inc. (US) and was incorporated on December 20, 2007 under the name of Nortamic LLC. On January 1, 2008 Gibbs System, Inc. merged with and into Cimatron Gibbs LLC, with Cimatron Gibbs LLC being the surviving entity.

** In June 2005 we completed the acquisition of 27.5% of the share capital of Microsystem. In July 2007 we exercised option to acquire up to additional 23.5% of the share capital of Microsystem. As of July 2007 we hold 51% of the outstanding share capital of Microsystem.

*** We hold only 60% of the shares of this joint venture.

EX-12.1

Exhibit 12.1

CERTIFICATION

I, Dan Haran, certify that:

I have reviewed this annual report on Form 20-F of Cimatron Ltd.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: June 30, 2008

By: /s/ Dan Haran
——————————————
Dan Haran
President and Chief Executive Officer

EX-12.2

Exhibit 12.2

CERTIFICATION

I, Ilan Erez, certify that:

I have reviewed this annual report on Form 20-F of Cimatron Ltd.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) for the company and have:

(d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(e) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(f) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(c) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(d) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: June 30, 2008

By: /s/ Ilan Erez
——————————————
Ilan Erez
Chief Financial Officer

EX-13

Exhibit 13

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Cimatron Ltd. (the “Company”) on Form 20-F for the period ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Dan Haran, Chief Executive Officer of the Company, and Ilan Erez, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: June 30, 2008

By: /s/ Dan Haran
——————————————
Dan Haran
President and Chief Executive Officer

By: /s/ Ilan Erez
——————————————
Ilan Erez
Chief Financial Officer

EX-15.1

EXHIBIT 15.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the registration statement of Cimatron Ltd. on Form S-8, File number 333-12458, and on Form S-8, File number 333-140809, of our report dated June 12, 2008 on the consolidated financial statements of Cimatron Ltd. included in the Annual Report on Form 20-F for the year ended December 31, 2007.

/s/ Brightman Almagor & Co.
Brightman Almagor & Co.
Certified Public Accountants
A member firm of Deloitte Touche Tohmatsu

Tel Aviv, Israel
June 30, 2008