EX-10 3 ex10.txt EXHIBIT 10.1 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT dated as of the 21st day of August, 2001, by and among Entertainment International Ltd., a New York corporation ("ENTI"), ENTI Acquisition I Corp., a New York corporation and a wholly-owned subsidiary of ENTI (the "Buyer"), CSTI Hi-Tech Ltd., an Israeli limited liability company ("CSTI" or the "Company") and the shareholders of CSTI as set forth in Schedule 2.1(a),(collectively, the "Sellers," and individually each a "Seller"). ENTI, CSTI and the Sellers are referred to collectively herein as the "Parties." WHEREAS, the Sellers own beneficially and of record 1,202 ordinary shares consisting of all of the issued and outstanding ordinary shares, par value NIS 1.00 per share, of the Company (the "Company Stock") as set forth on Schedule 2.1, hereto; WHEREAS, subject to and on the terms and conditions contained herein, the Sellers desires to sell to the Buyer, and the Buyer desires to purchase from the Sellers, the Company Stock in exchange for an aggregate of newly issued unregistered (under the Securities Act of 1933) shares of the common stock, par value $.01 per share, of ENTI in a transaction intended to qualify under ss.351 of the Internal Revenue Code; and NOW THEREFORE, in consideration of the premises and of the mutual agreements and covenants hereinafter set forth, the parties hereto agree as follows: ARTICLE 1 SALE AND PURCHASE; CLOSING SECTION 1.1 Purchase and Sale of the Company Stock. Subject to the terms and conditions set forth herein, at the Closing, the Sellers shall sell, transfer and deliver to the Buyer, and the Buyer shall purchase, acquire and accept from the Sellers, free and clear of all liens, encumbrances, charges, claims, rights, interests, security interests and any other encumbrances whatsoever, the Company Stock. SECTION 1.2 Purchase Price. (a) Issuance of ENTI Stock. Each share of Company Stock owned by a Seller and all rights existing with respect thereto shall be exchanged for newly issued unregistered shares of the common stock, par value $.01 per share, of ENTI (the "ENTI Stock"), to be issued as set forth below. (b) thirty one million fifty two thousand four hundred and eighty three (31,052,483) shares of ENTI Stock shall be issued at the Closing (as defined herein) to the Sellers in accordance with the allocation set forth in Schedule 1.2(b) attached hereto; 2 SECTION 1.3 Closing. Subject to the terms and conditions of this Agreement, the sale and purchase of the Company Stock contemplated hereby (the "Closing") shall take place at 2:00 p.m., local time, at the offices of Baer Marks and Upham LLP in New York on October 15, 2001, or if on such date the conditions specified in Article 5 shall not have been satisfied or waived, a date selected by Buyer not later than the fifth business day following such satisfaction or waiver (the "Closing Date"). ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE COMPANY SUBSIDIARIES AND THE CHIEF EXECUTIVE OFFICER OF THE COMPANY (MR. JACOB LUSTGARTEN) ON BEHALF OF HIMSELF AND OTHER SELLERS The Company, the Company Subsidiaries and the Chief Executive Officer of the Company (Mr. Jacob Lustgarten) on behalf of himself and other Sellers, jointly and severally, represent and warrant to the Buyer as follows: SECTION 2.1 Capitalization. (a) Schedule 2.1(a) sets forth a complete list of the Sellers, in each case indicating the class and number of shares of the Company's capital stock held by each such Seller. The authorized outstanding capital stock of the Company consists of one thousand eight hundred and fourteen (1,814) ordinary shares, par value NIS 1.00 per share, of which one thousand two hundred and two (1,202) shares are issued and outstanding. No shares of the Company Stock are held in the treasury of the Company. The Sellers are the record and beneficial owners of all of the Company Stock and all of such stock is duly authorized, validly issued, fully paid and non-assessable. (b) Except as set forth in Schedule 2.1(b), There are no shares of Company Stock or any other equity security of the Company or any rights, options, warrants or convertible securities outstanding or other agreements to acquire shares of (or convertible into) Company Stock, nor does the Company have any contractual obligations to purchase, redeem or otherwise acquire any of its outstanding shares. No shareholder of the Company is entitled to any preemptive or similar rights to subscribe for shares of capital stock of the Company except as provided in Schedule 2.3 below. SECTION 2.2 Receipt of ENTI Stock. (a) Investment Representations. The ENTI Stock being issued hereunder is being acquired, and will be acquired, by the Sellers for investment for their own accounts and not with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act or the applicable state securities law; the Sellers acknowledge that the ENTI Stock constitutes restricted securities under Rule 144 promulgated by the Commission pursuant to the Securities Act, and the Sellers agree that no shares of ENTI Stock may be sold, transferred, assigned, pledged or otherwise disposed of except pursuant to an effective registration statement or an exemption from registration under the Securities Act, the rules and regulations thereunder, and under all applicable state securities laws. Each Seller is an "accredited investor" as that term is defined in Rule 501 of Regulation D 3 promulgated by the Commission under the Securities Act. The Sellers have the knowledge and experience in financial and business matters, are capable of evaluating the merits and risks of the investment, and are able to bear the economic risk of such investment. The Sellers have had the opportunity to make inquiries of and obtain from representatives and employees of Buyer and ENTI such other information about Buyer and ENTI as it deems necessary in connection with such investment. (b) Legend. It is understood that, prior to sale of any shares of ENTI Stock pursuant to an effective registration, the certificates evidencing such shares of ENTI Stock shall bear the following (or a similar) legend (in addition to any legends which may be required in the opinion of ENTI's counsel by the applicable securities laws of any state), and upon sale of such shares pursuant to such an effective registration, new certificates shall be issued for the shares sold without such legends except as otherwise required by law: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. (c) Certain Transferees. Except in the case of any transfer of any shares of ENTI Stock issued pursuant to this Agreement to a person in an open market transaction subsequent to the effective date of, and pursuant to, any registration statement covering such shares of ENTI Stock, no Seller shall transfer any such shares of ENTI Stock to any person or entity unless such transferee shall have agreed in a writing, in form and substance satisfactory to ENTI, to be bound by the provisions applicable to the Sellers under this Section 2.2 and such transfer shall be made in accordance with all applicable Federal and state securities laws. SECTION 2.3 No Conflicts; Consents. The execution, delivery and performance by the Company, the Company Subsidiaries and the Sellers of this Agreement and each other Transaction Document to which it, he or she is a party, the consummation of the Contemplated Transactions to which the Company and the Sellers are a party or the contemplated change of control of the stock ownership of the Company, will not (i) violate any provision of the articles of association (or comparable instruments) of the Company, any Company Subsidiary or any Seller; (ii) require the Sellers or the Company to obtain any consent, approval or action of or waiver from, or make any filing with, or give any notice to, any Governmental Body or any other person, except as set forth on Schedule 2.3 (collectively, the "Seller Required Consents"); (iii) violate, conflict with or result in a breach or default under (after the giving of notice or the passage of time or both), or permit the termination of, any Contract of a type required to be listed on Schedule 2.3 to which the Sellers, the Company 4 Subsidiaries or the Company is a party or by which any of them or any of their Assets may be bound or subject, or result in the creation of any Lien upon the Company or any Company Subsidiary Stock or upon any of the Assets of the Company or any Company Subsidiary pursuant to the terms of any such Contract; (iv) violate any Law or Order of any Governmental Body, against, or binding upon, the Sellers or the Company, or upon their respective Assets or the Business; or (v) violate or result in the revocation or suspension of any Permit. SECTION 2.4 Corporate Existence and Power. (a) The Company and the Company's Subsidiaries are a, duly organized, validly existing and in good standing as corporations under the laws of Israel or its relevant jurisdiction of incorporation, and have all requisite powers and all material Permits required to carry on the Business as it is presently conducted. The Company and Company Subsidiaries are duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary. (b) Schedule 2.4 (b) sets forth the name of each wholly owned Subsidiary of the Company (collectively, the "Company Subsidiaries and each, a "Company Subsidiary"), its jurisdiction of incorporation or other organization, each jurisdiction in which it is duly qualified to do business as a foreign entity, the authorized capital stock or other ownership interests of, and the securities issued by, such Company Subsidiary. In addition to the Company is a shareholder in two additional subsidiaries which are not wholly owned and are set forth in Schedule 2.4 (b-1) (the "Additional Subsidiaries"). SECTION 2.5 Charter Documents and Corporate Records. The Company have heretofore delivered to the Buyer true and complete copies of the articles of association, by-laws and minute books, or comparable instruments, of the Company and each Company Subsidiary, as in effect on the date hereof. The stock transfer books (or comparable instruments) of the Company and each Company Subsidiary have been made available to the Buyer for its inspection and are true and complete. SECTION 2.6 Financial Information; Books and Records. (a) The Company has previously furnished to the Buyer, in U.S. dollars, true and complete copies of (i) the audited financial statements at and for the twelve-month period ended December 31, 2000 of the Company, (ii) and the unaudited financial statements for the six months ended June 30, 2001 (collectively the "Annual Statements" or the "Company Financial Statements"). The Annual Statements have been prepared by Itzchaky, Leon & Co. Certified Public Accountants in accordance with the Israeli generally accepted accounting principles consistently applied as set forth in the notes thereto (without qualification in the report thereof). The Annual Statements have been furnished to Buyer, copies of which are attached hereto as Schedule 2.6. (b) All financial, business and accounting books, ledgers, accounts and official and other records relating to the Company and each Company Subsidiaries have been properly and accurately kept and completed in all material respects, and there are no material inaccuracies or discrepancies contained or reflected therein. 5 SECTION 2.7 Liabilities. Except as set forth in the Annual Statements, the Company has no indebtedness, duties, responsibilities, claims or obligations of any nature, whether absolute, accrued, contingent or otherwise (collectively, "Liabilities"), whether as principal, agent, partner, co-venturer, guarantor or in any capacity whatsoever, other than (i) Liabilities which are set forth on and reflected or reserved against in the Company Financial Statements and which remain outstanding and undischarged as of the date hereof, or (ii) Liabilities arising in the ordinary course of business of the Company since June 30 , 2001 and as set forth in the Annual Statements. SECTION 2.8 Absence of Certain Changes. (a) Since the Financial Statement, except as set forth in this Agreement or its Schedules the Company and each Company Subsidiary has conducted its Business in the ordinary course consistent with past practices and there has not been: (i) Any material adverse change in the Condition of the Business or any event, occurrence or circumstance that could reasonably be expected to cause such a material adverse change; (ii) Any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company; (iii) Any damage, destruction or other casualty loss (whether or not covered by insurance), condemnation or other taking affecting the Assets of the Company or any Company Subsidiary to the extent material; (iv) Any material change in any method of accounting or accounting practice by the Company; (v) Any material increase in the compensation payable or to become payable to any officer, stockholder, director, partner, consultant, agent or full-time employee of the Company or any Company Subsidiary, or any alteration in the benefits payable to any thereof; (vi) there has not been any (i) incurrence, assumption or guarantee by the Company or any Company Subsidiary of any Liability other than in the ordinary course of business in amounts and on terms consistent with past practices, (ii) issuance or sale of any securities convertible into or exchangeable for debt securities of the Company, or (iii) issuance or sale of options or other rights to acquire from the Company, directly or indirectly, debt securities of the Company or any securities convertible into or exchangeable for any such debt securities; or (vii) Except in the ordinary course of the Business, consistent with past practice, any payment, directly or indirectly, of any Liability before the same became due in accordance with its terms. 6 (b) Except as set forth on Schedule 2.8(b) , the Company does not have any Liability that is past due, outside the ordinary course of business. SECTION 2.9 Intellectual Property. (a) The Company or a Subsidiary, if applicable owns or has legal right to use, sell or license all trade names and logos including applications therefor, domain names, inventions, formulas, methods and processes (all such items being hereinafter referred to as "CSTI IP") presently used or required by the Company or its Subsidiaries for the conduct of their respective businesses, without any infringement upon the proprietary rights of others. (b) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not constitute a material breach of any instrument or agreement governing any CSTI IP, will not cause the forfeiture or termination or give rise to a right of forfeiture or termination of any CSTI IP or materially impair the right of the Company to use, sell or license any CSTI IP or portion thereof. (c) Except as set forth on Schedule 2.9 (c) and the Company Subsidiaries, with respect to each item of CSTI IP required to be identified herein: (i) such CSTI IP is not subject to any outstanding injunction, judgement, order, decree, ruling or charge; (ii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or, to the knowledge of the Company or Sellers, is threatened which challenges the legality, validity, enforceability, use or ownership of such piece of CSTI IP; and (iii) the Company has not licensed or permitted any third party to use such piece of CSTI IP. SECTION 2.10 Claims and Proceedings. Except as set forth on Schedule 2.10 there are no actions, suits, claims or counterclaims or legal, administrative or arbitral proceedings or investigations (collectively, "Claims") (whether or not the defense thereof or Liabilities in respect thereof are covered by insurance), pending or threatened on the date hereof, against or involving the Company, any Company Subsidiary or their respective assets or businesses. Except as set forth on Schedule 2.10, there are no outstanding Orders of any Governmental body against or involving the Company, any Company Subsidiary or the business. SECTION 2.11 Taxes. (i) the Company and each Company Subsidiary has timely filed or, if not yet due, will timely file all Tax Returns required to be filed by it for all taxable periods ending on or before the Closing Date and all such Tax Returns are true, correct and complete; 7 (ii) the Company and each Company Subsidiary has paid or, if payment is not yet due, will, on or before the Closing Date, pay to the appropriate Tax Authority or have established, in accordance with Israeli GAAP and consistent with past practice, accruals that are reflected on the Interim Statements for the payment of all Taxes of the Company and each Company Subsidiary for all taxable periods ending on or before the Closing Date; SECTION 2.12 Employee-Related Matters. (a) Schedule 2.12 contains a true and correct list of all directors, officers, partners, full-time employees, consultants or agents of the Company and each Company Subsidiary. CSTI will furnish Buyer, prior to the Closing Date a list of all material agreements with directors, officers, partners, full-time employees, consultants and agents. SECTION 2.13 Compliance with Laws. Neither the Company nor any Company Subsidiary is in violation in any material respect of any order, judgment, injunction, award, citation, decree, consent decree or writ (collectively, "Orders"), or any law, statute, code, ordinance, rule, regulation or other requirement (collectively, "Laws"), of any government or political subdivision thereof, whether federal, state, local or foreign, or any agency or instrumentality of any such government or political subdivision, or any court or arbitrator (collectively, "Governmental Bodies") affecting or relating to their respective Assets, or the Business or to the employees conducting the Business. SECTION 2.14 Ability to Conduct Business. As of the Closing, the assets of the Company will be sufficient and adequate to permit the continued conduct of the business of the company and the Company Subsidiaries substantially as it has been conducted since January 1, 2001 and, assuming all Seller Required Consents are obtained, the consummation of the transactions contemplated by the terms of this Agreement will enable the Buyer to conduct the business substantially as it has been conducted since that date. SECTION 2.15 Disclosure. All documents, Exhibits and Schedules delivered or to be delivered by or on behalf of the Company or the Sellers to the Buyer in connection with this Agreement and the transactions contemplated under this Agreement are true and complete in all material respects. No representation or warranty of the Sellers contained in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in context in which made, not materially false or misleading. Prior to the Closing Date, CSTI will furnish Buyer with a list of all material agreements of the Company and the Company Subsidiaries. 8 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ENTI AND BUYER ENTI and Buyer hereby jointly and severally represent and warrant to CSTI and Sellers as follows: SECTION 3.1 (a) Organization and Standing. ENTI and Buyer are a corporation duly organized, validly existing and in good standing under the laws of the state in which it was incorporated. (b) Other than the Buyer which is wholly owned by ENTI, ENTI does not have any other subsidiaries. SECTION 3.2 Authority. ENTI and Buyer have the full legal power and authority to make, execute, deliver and perform this Agreement and the Transaction Documents. Such execution, delivery, performance and consummation have been duly authorized by all necessary action, corporate or otherwise, on the part of such Seller, and any necessary consents of holders of indebtedness of such Seller have been obtained. SECTION 3.3 Binding Effect. This Agreement and all Transaction Documents executed by ENTI constitute the valid and binding obligations of such party, enforceable against such Seller in accordance with their respective terms. SECTION 3.4 Absence of Conflicting Agreements. Neither the execution or delivery of this Agreement or any of the Transaction Documents by ENTI and Buyer nor the performance by ENTI and Buyer of the transactions contemplated hereby and thereby conflicts with, or constitutes a breach of or a default under (i) the charter or formation documents of such Seller, or (ii) any law, rule, judgment, order, writ, injunction, or decree of any court currently in effect applicable to such Seller, or (iii) any rule or regulation of any administrative agency or other governmental authority currently in effect applicable to ENTI and the ENTI Subsidiaries, or (iv) any agreement, indenture, contract or instrument to which such party is now a party or by which any of the assets of ENTI is bound. SECTION 3.5 Claims and Proceedings. There are no actions, suits, claims or counterclaims or legal, administrative or arbitral proceedings or investigations (collectively, "Claims") (whether or not the defense thereof or Liabilities in respect thereof are covered by insurance), pending or threatened on the date hereof, against or involving ENTI and the ENTI Subsidiaries, any ENTI and Buyer or its respective assets or businesses. There are no outstanding Orders of any Governmental body against or involving ENTI and the ENTI Subsidiaries. SECTION 3.6 Capitalization. (a) Schedule 3.6 sets forth a complete list of ENTI share capital as of the date of the Closing, computed on a post reverse split basis of 20:1. The authorized capital stock of ENTI consists of one hundred and ten million (110,000,000) common shares, par value $0.01 per share, of which as of the date of the Closing, on a post 9 reverse split basis of 20:1 five million four hundred seventy nine thousand eight hundred and fifty (5,479,850) shares are issued and outstanding. No shares of ENTI are held in the treasury of the Company. The Sellers are the record beneficial owners of all of the Company Stock and all of such stock is duly authorized, validly issued, fully paid and non-assessable. (b) There are no shares of ENTI Stock or any other equity security of the Enti or any rights, options, warrants or convertible securities outstanding or other agreements to acquire shares of ENTI Stock, nor does ENTI have any contractual obligations to purchase, redeem or otherwise acquire any of its outstanding shares. No shareholder of ENTI is entitled to any preemptive or similar rights to subscribe for shares of capital stock of ENTI. SECTION 3.7 Financial Information; Books and Records. (a) Until the Closing Date, ENTI shall furnished CSTI, in U.S. dollars, true and complete copies of ENTI's audited consolidated financial statements for the years ended on December 31, 1999, December 31, 2000 and June 30, 2001. (b) All financial, business and accounting books, ledgers, accounts and official and other records relating to ENTI have been properly and accurately kept and completed in all material respects, and there are no material inaccuracies or discrepancies contained or reflected therein. SECTION 3.8 Consents. No authorization, consent, approval, license, exemption by, filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is or will be necessary in connection with the execution, delivery and performance of this Agreement or any of the Transaction Documents by such Seller. SECTION 3.9 Liabilities. Except as set forth in Schedule 3.9, ENTI and Buyer shall have no indebtedness, charges, encumbers, pledges, duties, responsibilities, claims or obligations of any nature, whether absolute, accrued, contingent or otherwise (collectively, "Liabilities"), whether as principal, agent, partner, co-venturer, guarantor or in any capacity whatsoever exceeding an aggregate of $5,000 U.S. Dollars. At the Closing Date all Liabilities, including any and all liabilities to Trans-Continental and Mr. Louis Pearlman shall be waived, canceled and written off, and Trans-Continental and Mr. Louis Pearlman shall deliver to Company an irrevocable written waivers and cancellation of Liabilities owed to them. SECTION 3.10 SEC and NASD Compliance. ENTI has timely filed or, if not yet due, will timely file all required SEC and NASD filing requirements or filings required to be filed by it on or before the Closing Date and all such filings are true, correct and complete; To the best of ENTI's knowledge ENTI should be eligible to have its shares traded on the NASDAQ small cap market, provided that such listing requirements are meet. SECTION 3.11 ENTI is not in violation in any material respect of any material order , judgment, injunction, award, citation, decree, consent decree or writ (collectively, 10 "Orders"), or any material law, statute, code, ordinance, rule, regulation or other requirement (collectively, "Laws"), of any government or political subdivision thereof, whether federal, state, local or foreign, or any agency or instrumentality of any such government or political subdivision, or any court or arbitrator (collectively, "Governmental Bodies") affecting or relating to their respective Assets, or the Business or to the employees conducting the Business. SECTION 3.12 Except as set forth in Schedule 3.12, ENTI does not have any material future obligations (exceeding an aggregate of $2,000) of whatever content and nature. SECTION 3.13 (a) The ENTI Stock to be issued on a 20:1 reverse split basis as part of the Purchase Price is validly authorized stock and, when issued and delivered in accordance with this Agreement, will be validly issued, fully paid and non-assessable and will not be issued in violation of any preemptive rights, rights of first refusal or other contractual restrictions of any kind of the shareholders of ENTI, and Sellers will receive good title to the ENTI Stock free and clear of all Liens. (b) ENTI will reserve a sufficient number of shares of its unissued common stock and take any other necessary action to ensure that such shares are available for issuance to the Sellers in accordance with this Section. SECTION 3.14 No Conflicts; Consents. The execution, delivery and performance by each of ENTI and Buyer of this Agreement and each other Transaction Document to which it is or, at the Closing, will be a party and the consummation of the Contemplated Transactions to which it is or, at the Closing, will be a party do not and will not (i) require each of ENTI and Buyer to obtain any consent, approval or action of or waiver from, or make any filing with, or give any notice to, any Governmental Body or any other person, except as set forth in Schedule 3.15 (collectively, the "Buyer Required Consents"); (ii) if the Buyer Required Consents are obtained prior to the Closing, violate, conflict with or result in the breach or default under (after the giving of notice or the passage of time); or permit the termination of, any material Contract to which each of ENTI and Buyer is a party or by which each of ENTI and Buyer or its respective assets may be bound or subject; or (iii) if the Buyer Required Consents are obtained prior to the Closing, violate any Law or Order of any Governmental Body, against, or binding upon, the Buyer. Article 4 COVENANTS AND AGREEMENTS SECTION 4.1 Conduct of Business of the Company. (a) From the date hereof through the Closing Date, the Company agrees: (i) To conduct its operations according to the ordinary and usual course of the Business consistent with past practice, to preserve intact its present business organization and structure, to use reasonable efforts to keep available the services of its present 11 officers, agents and full-time employees, to use reasonable efforts to preserve and maintain its Assets and the good will of the Business and to use reasonable efforts to preserve its relationships with customers and suppliers, and others having business dealings with it. (ii) Not to sell pledge or otherwise encumber in any manner any of the CSTI IP. (iii) To maintain in the ordinary course of the Business, consistent with past practice and in accordance with all Contracts, the Real Property and all its material Assets in their present repair, order and condition, subject to ordinary wear and tear. (iv) Not to incur any Liability (other than Liabilities incurred in the ordinary course of the Business, consistent with past practice, which are not in the aggregate material thereto), nor enter into any Contract of a type required to be included in any Schedule hereto. (v) Not to incur any Company Debt. (vi) To conduct its operations according to the ordinary and usual course of the Business, not to pay, discharge or satisfy any Claim or Liability, other than the payment, discharge or satisfaction when due and in the ordinary course of the Business of Claims or Liabilities incurred in the ordinary course of Business, consistent with past practice. (vii) To conduct its operations according to the ordinary and usual course of the Business, not to increase the compensation payable or to become payable to any officer, stockholder, director, partner, consultant, agent or full-time employee of the Company, or make any alteration in the benefits payable to any thereof or, without the prior consent of the Buyer, hire any new employees, consultants, agents or representatives. (b) From the date hereof through the Closing Date, the Company and the Sellers agree that the affairs of the Company will be conducted in such a manner so that the representations and warranties of the Company and the Sellers contained herein shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date. SECTION 4.2 Corporate Examinations and Investigations. Prior to the Closing Date, the Company and the Sellers, on the one hand, and ENTI and the Buyer, on the other hand, agree that the other shall be entitled, through their respective directors, officers, Affiliates, employees, attorneys, accountants, representatives, lenders, consultants and other agents (collectively, "Representatives") to make such investigation of the Assets, the CSTI IP, the Business and operations of the Company or ENTI, as the case may be, and such examination of the books, records and financial condition of the Company or ENTI, as the case may be, as such party reasonably deems necessary. Any such investigation and examination shall be conducted at reasonable times, under reasonable circumstances and upon reasonable notice, and the Company and the Sellers, on the one hand, and ENTI, on the other hand, shall cooperate fully 12 therein. In that connection, the Company and the Sellers, on the one hand, and the Buyer, on the other hand, shall make available to the Representatives of the other party during such period, without however causing any unreasonable interruption in the operations of such party, all such information and copies of such documents and records concerning the affairs of the Company, on the one hand, or ENTI, on the other hand, as such Representatives may reasonably request, shall permit the Representatives of the other party access to their respective Assets, and all parts thereof and to their respective employees, customers, suppliers and others, and shall cause such Representatives to cooperate fully in connection with such review and examination. No investigation by any party hereto shall diminish or obviate any of the representations, warranties, covenants or agreements of the other parties hereto contained in this Agreement. SECTION 4.3 Additional Financial Statements. Prior to November 15, 2001, as soon as available and in any event within forty five (45) calendar days after the end of each monthly accounting period of the Company ending after the date of the most recent Interim Statement, the Company and the Sellers shall furnish ENTI and the Buyer with an unaudited consolidated (if applicable) financial statement of the Company for such month in form and substance comparable to the Interim Statements and with such other financial or other information routinely prepared by the Company. SECTION 4.4 Filings and Authorizations. The Company and the Sellers, on the one hand, and ENTI and the Buyer, on the other, promptly after the execution and delivery of this Agreement, shall file or supply, or cause to be filed or supplied, all notifications, reports and other information required to be filed or supplied and to obtain all Permits, consents, approvals and authorizations of third parties and Governmental Bodies necessary, pursuant to the rules and regulations of the Governmental Bodies in connection with the Contemplated Transactions and which are required by such Law or rules to effectuate the consummation of the Contemplated Transactions. The Company and the Sellers, on the one hand, and ENTI and the Buyer, on the other, shall cooperate with each other in connection with such filings and furnish each other with copies of such filings and any correspondence received from any third party or Governmental Body in connection therewith. The Company and the Sellers, on the one hand, and ENTI and the Buyer, on the other, as promptly as practicable, shall make, or cause to be made, all filings and submissions under such Laws or rules as are applicable to them, and their Affiliates, as may be required for them to consummate the Contemplated Transactions in accordance with the terms of this Agreement and shall furnish copies thereof to each other party, and to the extent possible each will consult with the other, subject to applicable law relating to the exchange of information, with respect to all material written information submitted to any third party or Governmental Body, prior to such filing and shall not make any such filing or submission to which the Buyer or the Sellers, as the case may be, reasonably objects in writing. All such filings shall comply in form and content in all material respects with applicable Law. Each party will keep the other appraised of the status of material matters relating to completion of the transactions contemplated hereby. Each party agrees, upon request, to furnish the other party with all information concerning itself, directors, officers and stockholders, and such other matters as may be reasonably necessary or advisable in connection with any filing, notice or application made by or on behalf of such other party to any third party or Governmental Body. 13 SECTION 4.5 Efforts to Consummate. Subject to the terms and conditions herein, each party hereto, without payment or further consideration, shall use its good faith efforts to take or cause to be taken all action and to do or cause to be done all things necessary, proper or advisable to consummate and make effective, as soon as reasonably practicable, the Contemplated Transactions, including, but not limited to, the obtaining of all Seller Required Consents and Buyer Required Consents and Permits or consents of any third party, whether private or governmental, required in connection with such party's performance of such transactions and each party hereto shall cooperate with the other in all of the foregoing. SECTION 4.6 Public Announcements. Prior to the Closing Date, the Company and the Sellers, on the one hand, and ENTI, on the other, will consult with each other before issuing any press release or otherwise making any public statement with respect to the Contemplated Transactions, and will not issue any such press release or make any such public statement without the prior approval of the Buyer or the Sellers, as the case may be, except as may be required by applicable Law, in which event the other party shall have the right to review and comment upon (but not approve) any such press release or public statement prior to its issuance. SECTION 4.7 Expenses. Except as otherwise specifically provided in this Agreement, the Buyer and the Sellers shall bear their respective expenses, and the Sellers will bear the expenses of the Company, in each case, incurred in connection with the preparation, execution and performance of this Agreement and the Contemplated Transaction, including, without limitation, all fees and expenses of their respective Representatives. SECTION 4.8 Confidentiality. (a) Prior to the Closing Date, the Company and the Sellers, on the one hand, and ENTI and the Buyer, on the other hand, shall hold in strict confidence, and shall use their best efforts to cause all their respective Representatives to hold in strict confidence, unless compelled to disclose by judicial or administrative process, or by other requirements of Law, all information concerning the other party which such party has obtained from the other party and their respective Representatives prior to, on or after the date hereof in connection with the Contemplated Transactions, and, prior thereto, the no party shall use or disclose to others, or permit the use or disclosure of, any such information so obtained, and will not release or disclose such information to any other person, except its respective Representatives who need to know such information in connection with this Agreement and who shall be advised of the provisions of this Section 4.8. The foregoing provision shall not apply to any such information to the extent (i) known by such party prior to the date such information was provided to such party in connection with the Contemplated Transactions, (ii) made known to such party from a third party not known by such party to be in breach of any confidentiality requirement or (iii) made public through no fault of such party or any of its respective Representatives. (b) If the Contemplated Transactions are not consummated and if requested by the other party hereto, the party shall return to the other all tangible evidence of such information regarding such party. 14 Article 5 CONDITIONS TO CLOSING SECTION 5.1 Conditions to the Obligations of the Parties. The obligations of the Company and the Sellers, on the one hand, and ENTI , on the other, to consummate the Contemplated Transactions are subject to the satisfaction of the following conditions: (a) No Injunction. No provision of any applicable Law and no Order shall prohibit the consummation of the Contemplated Transactions. (b) No Proceeding or Litigation. No claim instituted by any person shall have been commenced or pending against the Company, the Sellers, the Buyer or any of their respective Affiliates, officers or directors, which claim seeks to restrain, prevent, change or delay in any respect the Contemplated Transactions or seeks to challenge any of the terms or provisions of this Agreement or seeks damages in connection with any such transactions. SECTION 5.2 Conditions to the Obligations of the Company and the Sellers. The obligations of the Company and the Sellers hereunder to consummate the Contemplated Transactions are subject, at the option of the Sellers, to the fulfillment prior to or at the Closing of each of the following further conditions: (a) Performance. ENTI shall have performed and complied with all agreements, obligations and covenants required by this Agreement to be performed or complied with by them at or prior to the Closing Date. (b) Representations and Warranties. The representations and warranties of ENTI contained in this Agreement and in any certificate or other writing delivered by ENTI pursuant hereto shall be true at and as of the Closing Date as if made at and as of such time. (c) Buyer Required Consents. All Buyer Required Consents shall have been obtained. (d) Reverse Stock Split ENTI's Certificate of Incorporation shall be amended in order to evidence a 20:1 reverse split of all of the issued and outstanding common stock of ENTI, (e) Board of Directors. All members of the Board of Directors of ENTI and ENTI Subsidiaries shall resign from office and shall nominate alternate directors to replace them. The identity of such alternate directors shall be in the sole discretion of the Company. 15 (f) Deliveries. There shall have been delivered to the Sellers the following: (i) a certificate, dated as of the Closing Date, of the Secretary or Assistant Secretary of each of (ii) ENTI and the Buyer, certifying, among other things, that attached or appended to such certificate (A) is a true and correct copy of the certificate of incorporation and by-laws of ENTI and the Buyer and all amendments, if any, thereto as of the date thereof; (B) is a true copy of all corporate actions taken by the board of directors of ENTI and the Buyer authorizing the execution, delivery and performance of this Agreement and each other Transaction Document to be delivered by each of them pursuant hereto; and (C) are the names and signatures of its duly elected or appointed officers who are authorized to execute and deliver this Agreement and any certificate, document or other instrument in connection herewith. (iii) a signed opinion by ENTI's legal counsel, Baer, Marks and Upham LLP, addressed to the Sellers and CSTI, dated as of the Closing Date, in a form satisfactory to Sellers.. (iv) certificates representing the ENTI Stock; (g) The resignation letters of all members of the Board of Directors of ENTI and proper documentation of the appointment of alternate directors to ENTI's board of directors, the identity of which shall be in the sole discretion of CSTI. SECTION 5.3 Conditions to the Obligations of the Buyer. All obligations of the Buyer to consummate the Contemplated Transactions hereunder are subject, at the option of the Buyer, to the fulfillment prior to or at the Closing of each of the following further conditions: (a) Due Diligence. For a period of thirty (30) days following the execution of this Agreement, the Buyer and its officers, directors, employees, affiliates, attorneys, accountants, financial advisers, consultants, representatives and agents (collectively, the "Buyer's Agents") shall be provided reasonable access to undertake a complete investigation of the value, patentability and marketability of the CSTI IP, and the business, affairs, operations, properties, assets and liabilities of the Company including, but not limited to, a complete examination of all books and records, contractual commitments, obligations and assets, and the obligation of the Buyer to complete the Contemplated Transactions shall be subject to a determination by the Company after such investigation that it wishes to consummate the Contemplated Transactions. (b) Performance. The Company and the Sellers shall have performed and complied with all agreements, obligations and covenants required by this Agreement to be performed or complied with by it at or prior to the Closing Date. 16 (c) Representations and Warranties. The representations and warranties of the Company and the Sellers contained in this Agreement and in any certificate or other writing delivered by the Company or Sellers pursuant hereto shall be true at and as of the Closing Date as if made at and as of such time. (d) Seller Required Consents. All Seller Required Consents shall have been obtained. (e) Company Stock. The Buyer shall have received certificates representing the Company Stock duly endorsed in blank or accompanied by stock transfer powers duly executed in blank and in suitable form for transfer by delivery. (f) No Proceeding or Litigation. No Claim instituted by any person (other than the Buyer or its Affiliates), shall have been commenced or be pending against the Seller, the Company or the Buyer or any of their Affiliates, partners, officers or directors, which Claim (i) seeks to restrain, prevent, change or delay in any material respect the transactions Contemplated under the terms of this Agreement or seeks to challenge any of the material terms or provisions of this Agreement or seeks material damages in connection with any of the Contemplated Transactions and (ii) could, in the reasonable opinion of the Buyer, (x) result in a material adverse effect in the Condition of the business or (y) delay or otherwise affect, in a manner adverse to Buyer, the transactions Contemplated under the terms of this Agreement. (g) Deliveries. There shall have been delivered to the Buyer the following: (i) A "Cold Comfort Letter" signed by the Company's accountants, Itzchaky, Leon & Co.. (ii) A certificate, dated as of the Closing Date, of the Secretary or Assistant Secretary of the Company, certifying, among other things, that attached or appended to such certificate (A) is a true and correct copy of the articles of association (or comparable instruments) of the Company and all amendments, if any, thereto as of the date thereof; (B) is a true copy of all corporate actions taken by the board of directors of the Company authorizing the execution, delivery and performance of this Agreement and each other Transaction Document to be delivered by the Company pursuant hereto; and (C) are the names and signatures of its duly elected or appointed officers who are authorized to execute and deliver this Agreement and any certificate, document or other instrument in connection herewith. (iii) Stock certificates representing the Company Stock accompanied by stock powers duly executed in favor of Buyer, in proper form for transfer, together with any other documents that are necessary to transfer to Buyer good and marketable title to the Company Stock; 17 (iv) A suitable business plan describing the activities and business of the Company in a form and quality customary for presentation by companies seeking financing from financial institutions including three year projections, P&L and balance sheets.. (v) Dully executed Minutes of a shareholders meeting of the Company authorizing this Agreement and the transactions contemplated hereunder. (vi) A signed opinion of the Company's counsel, dated the Closing Date, addressed to the Buyer, in the form satisfactory to Buyer. SECTION 5.4 Copies of all Seller Required Consents and material Permits. Article 6 TERMINATION SECTION 6.1 Termination. This Agreement may be terminated and the Contemplated Transactions may be abandoned at any time prior to the Closing: (a) By mutual written consent of the of the Parties; (b) By the Sellers if (i) there has been a material misrepresentation or breach of warranty on the part of the Buyer in the representations and warranties contained herein and such material misrepresentation or breach of warranty, if curable, is not cured within 30 days after written notice thereof from the Sellers; (ii) the Buyer has committed a material breach of any covenant imposed upon it hereunder and fails to cure such breach within 30 days after written notice thereof from the Sellers; (c) By the Buyer, if (i) there has been a material misrepresentation or breach of warranty on the part of the Company or the Sellers in the representations and warranties contained herein and such material misrepresentation or breach of warranty, if curable, is not cured within 30 days after written notice thereof from the Buyer; (ii) the Company or Sellers have committed a material breach of any covenant imposed upon it hereunder and fails to cure such breach within 30 days after written notice thereof from the Buyer; (d) By the Sellers or by the Buyer, if there shall be any Law that makes consummation of the Contemplated Transactions illegal or otherwise prohibited, or if any Order enjoining the Company, the Sellers or the Buyer from consummating the Contemplated Transactions is entered and such Order shall have become final and nonappealable; (e) By the Sellers or by the Buyer, in the event that the Closing Date does not take place and occur prior to January 31, 2002. 18 Article 7 MISCELLANEOUS SECTION 7.1 Notices. (a) Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally by hand or by recognized overnight courier, telecopied or mailed (by registered or certified mail, postage prepaid) as follows: (i) If to the Buyer, one copy to: Entertainment International Ltd. 7380 Sand Lake Road Suite 350 Orlando, Florida 32819 Attention: Louis J. Pearlman, President (ii) If to the Company, one copy to: 4 Hashlagan Stret PO Box 8624 Kiryat Gat 82021, Israel Attention: Jacob Lustgarten, President (iii) If to the Sellers, one copy to: Mena, Shani, Elazar & Co., Law Offices and Notary 35 Jabotinski st. Ramat Gan, 52511, Israel Attention: Meir Elazar, Adv. (iv) Each such notice or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in Section 7.1(a) (with confirmation of transmission); or (ii) if given by any other means, when delivered at the address specified in Section 7.1(a). Any party by notice given in accordance with this Section 7.1 to the other party may designate another address (or telecopier number) or person for receipt of notices hereunder. Notices by a party may be given by counsel to such party. SECTION 7.2 Entire Agreement. This Agreement (including the Schedules and Exhibits hereto) and the other Transaction Documents executed in connection with the consummation of the Contemplated Transactions contain the entire agreement among the parties with respect to the subject matter hereof and the Contemplated Transactions and supersede all prior agreements, written or oral, with respect thereto. 19 SECTION 7.3 Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies. This Agreement may be amended, superseded, cancelled, renewed or extended only by a written instrument signed by the Sellers and the Buyer. The provisions hereof may be waived in writing by the Sellers and the Buyer. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. Except as otherwise provided herein, the rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. SECTION 7.4 Governing Law; Jurisdiction. This Agreement shall be governed and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such State, without regard to the conflict of laws rules thereof. SECTION 7.5 Binding Effect; No Assignment. This Agreement and all of its provisions, rights and obligations shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, heirs and legal representatives. This Agreement may not be assigned (including by operation of Law) by the Sellers or the Company without the express written consent of the Buyer and any purported assignment, unless so consented to, shall be void and without effect. Nothing herein express or implied is intended or shall be construed to confer upon or to give anyone other than the parties hereto and their respective heirs, legal representatives and successors any rights or benefits under or by reason of this Agreement and no other party shall have any right to enforce any of the provisions of this Agreement. SECTION 7.6 Exhibits. All Exhibits and Schedules attached hereto are hereby incorporated by reference into, and made a part of, this Agreement. SECTION 7.7 Severability. If any provision of this Agreement for any reason shall be held to be illegal, invalid or unenforceable, such illegality shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such illegal, invalid or unenforceable provision had never been included herein. SECTION 7.8 Counterparts. The Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. SECTION 7.9 Third Parties. Except as specifically set forth or referred to herein, nothing herein express or implied is intended or shall be construed to confer upon or give to any person other than the parties hereto and their permitted successors or assigns, any rights or remedies under or by reason of this Agreement or the Contemplated Transactions. 20 SECTION 7.10 Further Assurances. At any time and from time to time after the Closing Date, upon the request of the Buyer, the Sellers will do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged or delivered, all such further documents, instruments or assurances, as may be necessary, the desirable or proper to carry out the intent and accomplish the purposes of this Agreement. The Sellers and the Buyer will each, respectively, bear their or its own costs and expenses incurred in compliance with the first sentence of this Section 7.10. [Remainder of page intentionally left blank] 21 IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase Agreement as of the date set forth above. BUYER: ENTI ACQUISITION I CORP. By: /s/ Louis J. Pearlman --------------------------------------- Louis J. Pearlman, President ENTI: ENTERTAINMENT INTERNATIONAL, LTD. By: /s/ Louis J. Pearlman --------------------------------------- Louis J. Pearlman, President THE COMPANY: CSTI HI-TEC LTD. By: --------------------------------------- Jacob Lustgarten, President SELLERS: 22 IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase Agreement as of the date set forth above. BUYER: ENTI ACQUISITION I CORP. By: --------------------------------------- Louis J. Pearlman, President ENTI: ENTERTAINMENT INTERNATIONAL, LTD. By: --------------------------------------- Louis J. Pearlman, President THE COMPANY: CSTI HI-TEC LTD. By: /s/ Jacob Lustgarten --------------------------------------- Jacob Lustgarten, President SELLERS: 23 Burntwood Limited Cedarwood Trading and Investments Ltd. --------------------- ------------------------- Saffray Limited Outlets Ltd. --------------------- ------------------------- Mullinger Limited Link Business Solutions --------------------- ------------------------- Outlets Ltd. Lial Hi-Tec Ltd. s/s --------------------- ------------------------- Link Business Solutions Cedarwood Trading and Investments Ltd. --------------------- -------------------------
24 Burntwood Limited Cedarwood Trading and s/s Investments Ltd. --------------------- ------------------------- Saffray Limited Outlets Ltd. --------------------- ------------------------- Mullinger Limited Link Business Solutions --------------------- ------------------------- Outlets Ltd. Lial Hi-Tec Ltd. --------------------- ------------------------- Link Business Solutions Cedarwood Trading and Investments Ltd. --------------------- -------------------------
25 Burntwood Limited Cedarwood Trading and Investments Ltd. --------------------- ------------------------- Saffray Limited Outlets Ltd. For Wesley Secretaries Limited, Secretary --------------------- ------------------------- Mullinger Limited Link Business Solutions --------------------- ------------------------- Outlets Ltd. Lial Hi-Tec Ltd. --------------------- ------------------------- Link Business Solutions Cedarwood Trading and Investments Ltd. --------------------- -------------------------
26 Burntwood Limited Cedarwood Trading and Investments Ltd. --------------------- ------------------------- Saffray Limited Outlets Ltd. --------------------- ------------------------- Mullinger Limited Link Business Solutions s/s --------------------- ------------------------- Outlets Ltd. Lial Hi-Tec Ltd. --------------------- ------------------------- Link Business Solutions Cedarwood Trading and Investments Ltd. --------------------- -------------------------
27 Burntwood Limited Cedarwood Trading and Investments Ltd. --------------------- ------------------------- Saffray Limited Outlets Ltd. --------------------- ------------------------- Mullinger Limited Link Business Solutions --------------------- ------------------------- Outlets Ltd. Lial Hi-Tec Ltd. /s/ Alan Saisnford --------------------- ------------------------- Link Business Solutions Cedarwood Trading and Investments Ltd. --------------------- -------------------------
28 Burntwood Limited Cedarwood Trading and Investments Ltd. --------------------- ------------------------- Saffray Limited Outlets Ltd. --------------------- ------------------------- Mullinger Limited Link Business Solutions --------------------- ------------------------- Outlets Ltd. Lial Hi-Tec Ltd. --------------------- ------------------------- Link Business Solutions Cedarwood Trading and 2.10.2001 Investments Ltd. /s/ Hubert Bish --------------------- -------------------------
29 Burntwood Limited Cedarwood Trading and Investments Ltd. --------------------- ------------------------- Saffray Limited Outlets Ltd. --------------------- ------------------------- Mullinger Limited Link Business Solutions --------------------- ------------------------- Outlets Ltd. Lial Hi-Tec Ltd. --------------------- ------------------------- Link Business Solutions Cedarwood Trading and Investments Ltd. s/s --------------------- -------------------------
Schedule 1.2(b)
---------------------------------------------------------- Shareholder's Name Number of ENTI shares to be issued ---------------------------------------------------------- Burntwood Limited 490,846 ---------------------------------------------------------- Saffray Limited 490,846 ---------------------------------------------------------- Mullinger Limited 645,850 ---------------------------------------------------------- Cedarwood Trading and 335,842 Investments Ltd. ---------------------------------------------------------- Outlets Ltd. 3,255,085 ---------------------------------------------------------- Link Business Solutions 12,917,007 ---------------------------------------------------------- Lial Hi-Tec Ltd. 12,917,007 ----------------------------------------------------------
Schedule 2.1 1. A certain Agreement by and among the Company and certain investors dated as of January 19, 1997. 2. Warrant agreement dated as of March 28, 1999 between the Company and the Industrial Development Bank Ltd. 3. Warrant Agreement between the Company and Itzchaky, Leon & Co. Certified Public Accountants. Schedule 2.1(b) 1. A certain Agreement by and among the Company and certain investors dated as of January 19, 1997. 2. An Agreement dated as of March 28, 1999 between the Company and the Industrial Development Bank Ltd. 3. An Agreement between the Company and Itzchaky, Leon & Co. Certified Public Accountants. Schedule 2.3 1. A certain Agreement by and among the Company and certain investors dated as of January 19, 1997. 2. The Articles of Association of the Company. Schedule 2.4 (b)
-------------------------------------------------------------------------------- List Of Fully owned Subsidiaries -------------------------------------------------------------------------------- Name of Company Address -------------------------------------------------------------------------------- CSTI Hi-Tech (projects 1998) Ltd. 4 Ashlagan St., Kyriat Gat -------------------------------------------------------------------------------- CSTI Italy S.R.L Via S. Casati 20, Milano, Italy --------------------------------------------------------------------------------
Schedule 2.4 (b-1)
------------------------------------------------------------------------------------------------------- List Of Fully owned Subsidiaries ------------------------------------------------------------------------------------------------------- Name of Company Address Holdings ------------------------------------------------------------------------------------------------------- CSTC GmbH Betrieb 12107 Berlin Lankwitzer 33.3% Strabe 39 ------------------------------------------------------------------------------------------------------- Scandivian Gas Technology Botkyrka Vagen 4, S-143 01 CST AB VARBY Sweden 25% -------------------------------------------------------------------------------------------------------
Schedule 2.6 The Financial Statements attached hereto. CSTI HI-TEC LTD. Balance Sheets (In thousands)
AT 31 DECEMBER ------------------------- Note 2000 2000 ---- ------ ------ N.I.S U.S $ ----- ---- CURRENT ASSETS Cash and cash equivalents 245 61 Trade receivables 3 4,826 1,194 Other receivables 4 3,952 978 Inventory 2,597 643 ------ ------ 11,620 2,876 ------ ------ INVESTMENT Investment in a subsidiary 5 40 10 ------ ------ FIXED ASSETS 6 Cost 5,898 1,460 Accumulated depreciation 2,279 564 ------ ------ 3,619 896 ====== ====== 15,279 3,782 ====== ======
1 CSTI HI-TEC LTD. Balance Sheets (In thousands)
AT 31 DECEMBER --------------------------- Note 2000 2000 ---- ------- -------- N.I.S U.S $ ----- ----- CURRENT LIABILITIES Short-term credit 7 7,553 1,869 Trade payable 8 5,110 1,264 Advance payments for on-going work, net 9 3,516 870 Other payables and credits 10 1,633 404 ------- ------ 17,812 4,407 ------- ------ LONG-TERM LIABILITIES Shareholders' loans 11 314 78 Loan-term bank loans 12 - - Liability for employee rights upon retirement, net of amount funded 13 202 50 ------- ------ 516 128 ------- ------ CONTINGENCIES AND COLLATERALS 14 CAPITAL DEFICIENCY Share capital 15a 1 1 Premium shares 1,708 423 Receipts of account of shares 15b 707 175 Deficit (5,465) (1,352) ------- ------ (3,049) (753) ======= ====== 15,279 3,782 ======= ======
2 CSTI HI-TEC LTD. Statements Of Profit & Loss (In thousands)
FOR THE YEAR ENDED 31 DECEMBER ----------------------------- Note 2000 2000 ---- ----- ----- N.I.S U.S $ ----- ----- Sales 16 20,427 5,055 Cost of sales 17 14,486 3,585 ------ ----- Gross profit 5,941 1,470 Administrative and general expenses 18 4,725 1,169 ----- ----- Operating profit (loss), before financing expenses 1,216 301 ----- ----- Financing expenses, net 483 120 ----- ----- Operating profit (loss), after financing expenses 733 181 Other expenses 19 (393) (97) ----- ----- Profit 340 84 ===== =====
3 CSTI HI-TEC LTD. Statements Of Changes In Shareholders' Equity (In thousands)
Receipts on account Retained Total shareholders' Share capital Premium shares of shares earnings (deficit) equity (deficit) -------------- -------------- ------------------- ----------------- --------------- N.I.S U.S $ N.I.S U.S $ N.I.S U.S $ N.I.S U.S $ N.I.S U.S $ ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ Balance, January 1, 2000 1 1 1,708 423 707 175 (5,805) (1,436) (3,389) (837) Profit - - - - - - 340 84 340 84 --- --- ----- --- --- --- ------ ------ ------ ---- Balance, December 31, 2000 1 1 1,708 423 707 175 (5,465) (1,352) (3,049) (753) === === ===== === === === ====== ====== ====== ====
4 CSTI HI-TEC LTD. Statements of Cash Flow (In thousands)
FOR THE YEAR ENDED 31 DECEMBER ------------------------ 2000 2000 ------- ------ N.I.S U.S $ ----- ----- CASH USED IN OPERATING ACTIVITIES Profit (Loss) 340 84 Adjustments required to reconcile (loss) profit to net cash basis used in operating activities (Appendix A) (1,154) (286) ------ ------ Net cash used in operating activities (814) (202) ------ ------ CASH USED IN INVESTING ACTIVITIES Purchase of fixed assets (1,282) (317) Proceeds from sale of fixed assets 24 6 ------ ------ Net cash used in investing activities (1,258) (311) ------ ------ CASH PROVIDED BY FINANCING ACTIVITIES Changes in short-term credit, net 2,263 560 Repayment of short-term loans (392) (97) Proceeds from short-term loans 612 151 Repayment of long-term loans (503) (124) Repayment of shareholders loan (50) (12) ------ ------ Net cash provided by financing activities 1,930 478 ====== ====== (DECREASE) IN CASH AND CASH EQUIVALENTS (142) (35) CASH AND CASH EQUIVALENTS BEGINNING OF THE YEAR 387 96 ------ ------ CASH AND CASH EQUIVALENTS - END OF THE YEAR 245 61 ====== ======
5 CSTI HI-TEC LTD. Appendix To The Statements Of Cash Flow (In thousands) Adjustments Required To Reconcile Profit (Loss) To Net Cash Basis Used In Operating Activities
FOR THE YEAR ENDED 31 DECEMBER ------------------------ 2000 2000 ---- ---- N.I.S U.S $ ----- ----- Items not affecting cash flow: Depreciation 963 238 Profit on sale of fixed assets (3) (1) (Decrease) Increase in liability for employee rights upon retirement, net of amount funded (175) (43) Interest and linkage on long-term loans (7) (2) ------ ------ 778 192 ------ ------ Changes in working capital: (Increase) in trade receivables (3,513) (869) (Increase) in other receivables (2,078) (514) (Increase) in inventory (2,356) (583) Increase in advance payments deduction for on-going work 3,352 830 Increase in trade payable 2,584 639 Increase in other payables and credits 79 19 ------ ------ (1,932) (478) ====== ====== Total adjustments required to reconcile (loss) profit to net cash basis used in operating activities (1,154) (286) ====== ======
6 CSTI HI-TEC LTD. Notes To The Financial Statements Note 1 - General CSTI (Clean Systems Technology Israel) Hi-Tec Ltd. ("the company") is an Israeli Company engaged in design, manufacture, installation and maintenance of ultra-high purity systems for gases and liquids for the processing industry. The company commenced its operations in March 1995. Note 2 - Significant accounting policies The significant accounting policies, that were used in the preparation of the financial statements, in accordance with prior year, include the following: A. Revenue recognition Revenues from on-going contractor projects are recognized according to the stage of completing of the contract activity, after performing at least 25% of each contract activity. B. Cash equivalents Cash equivalents includes short-term deposits original maturity of not more than three months. C. Inventory and on-going work 1. Inventory is valued at the lower of cost and net realizable value. Cost is determined by the "first in first out" (FIFO) method. 2. On-going work is valued at direct cost of work and material and overhead expenses. D. Fixed assets Fixed assets are recorded at cost and are depreciated over their estimated useful lives, on the straight- Line method.
Depreciation rates: Annual depreciation rates are as follow: % --- Leasehold improvement 10 Machinery and equipment 6-20 Clean room 10 Office furniture and equipment 6-33 Vehicles 15
E. Investment Investment in a subsidiary is included as cost and not consolidated. 7 CSTI HI-TEC LTD. Notes To The Financial Statements (In thousands) Note 2 - Significant accounting policies (continued) F. Adjusted financial statements The financial statements have been prepared in accordance with generally accepted accounting principles, on the historical cost basis, without giving expression to the effect of the changes in the general purchasing power of the Israeli currency during the year, as indicated by the Israeli Consumer Price Index. G. Convenience translation The adjusted financial statements as of December 31, 2000 have been translated into U.S. dollars using the representative exchange rate as of that date (U.S. $ = NIS 4.040). The translation was made solely for the convenience of the reader. The dollar amounts so presented in these financial statements should not be construed as representing amounts receivable or payable in dollars or convertible into dollars, unless otherwise indicated. H. Significant estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. I. Fair value of derivative instruments The accountant number of cash and cash equivalents, short-term investments, trade receivables, debtors, bank credit and others, trade payables, creditors are at their fair value. Note 3 - Trade receivables
AT 31 DECEMBER -------------- 2000 -------------- Open accounts domestic 843 Open accounts abroad 4,068 Collectable cheques 8 ----- 4,919 Less, allowance for doubtful accounts 93 ----- 4,826 =====
8 CSTI HI-TEC LTD. Notes To The Financial Statements (In thousands) Note 4 - Other receivables
AT 31 DECEMBER -------------- 2000 -------------- Income receivable 2,856 Other debits 895 Sundry and prepaid expenses 201 ----- 3,952 =====
Note 5 - Investment in a subsidiary In 1997 the Company started a fully owned subsidiary in Italy named C.S.T. ITALY. The subsidiary is responsible for all of the Company's activities in Italy. Note 6 - Fixed assets A. The fixed assets consist of the following:
Office Machinery Furniture Leasehold And Clean And Land Improvements Equipment Room Equipment Vehicles Total ---- ------------ --------- ---- --------- -------- ----- Cost At January 1,2000 436 321 2,442 716 370 353 4,638 Additions during the year - 233 343 328 250 128 1,282 Deductions during the year - - - - - (22) (22) --- --- ----- --- --- --- ----- As at December 31, 2000 436 554 2,785 1,044 620 459 5,898 --- --- ----- --- --- --- ----- Accumulated depreciation At 1 January, 2000 - 190 684 209 169 65 1,317 Additions during the year - 20 298 507 71 66 962 Deductions during the year - - - - - - - --- --- ----- --- --- --- ----- As at December 31, 2000 - 210 982 716 240 131 2,279 --- --- ----- --- --- --- ----- Depreciated cost As at December 31, 2000 436 344 1,803 328 380 328 3,619 === === ===== === === === =====
B. Collaterals - See note 14. 9 CSTI HI-TEC LTD. Notes To The Financial Statements (In thousands) Note 7 - Short - term credit
AT 31 DECEMBER -------------- 2000 -------------- Short-term credit from banks 6,918 Short-term loans 354 Current maturities of long-term liabilities 281 ----- 7,553 =====
Note 8 - Trade payable
AT 31 DECEMBER -------------- 2000 -------------- Open accounts domestic 2,375 Open accounts abroad 990 Post - dated cheques 1,745 ----- 5,110 =====
Note 9 - Advance payments for on-going work
AT 31 DECEMBER -------------- 2000 -------------- Advance payments 6,867 Less, cost of on-going work 3,351 ----- 3,516 =====
Note 10 - Other payables and credits
AT 31 DECEMBER -------------- 2000 -------------- Institutions 215 Wages payable 793 Accrued liabilities 625 ----- 1,633 =====
10 CSTI HI-TEC LTD. Notes To The Financial Statements (In thousands) Note 11 - Shareholders' loans Loans from shareholders are not linked and are non-interest bearing. Maturity dates have not been determined yet. Note 12 - Long-term bank loan
Annual rate of interest AT 31 DECEMBER ----------------------- -------------- 2000 -------------- Non linked loans from banks 12.7% 281 Less - current maturities 281 --- - ===
Note 13 - Liability for employee rights upon retirement, net of amount funded A. The reserve for severance pay consist of the following:
AT 31 DECEMBER -------------- 2000 -------------- Accrued severance pay 330 Less, amounts in funds 128 --- 202 ===
B. The company's reserve for severance pay is pursuant to the Israeli law. The accrued severance pay reflects the Company's liability to its employees. The deposit in approved funds include and linkage increments thereon. 11 CSTI HI-TEC LTD. Notes to the Financial Statements (In thousands) Note 14 - Contingencies and collaterals A. In order to secure its debts to the banks, the company placed collaterals at unlimited amounts, on all its assets, shares, goodwill and insurance privileges. B. In 2000 there were two claims from suppliers against the Company, in the amount of 18,000 NIS and 5,000 NIS. In the financial statements the disclosure is on the amount of 10,000 NIS. Note 15 - Share capital A. The balances as at December 31, 2000:
Authorized Issued And Paid ---------- --------------- Common shares at 1 N.I.S Par value each 1,814 1,151 ----- ----- 1,814 1,151 ===== =====
B. In January 1997, an agreement to invest in the Company was reached between the Company and foreign investors. The agreement specifies a number of terms for issuance of Company shares. 51 shares will be issued in 2001. Note 16 - Sales
Years Ended December 31 ----------------------- 2000 ----------------------- Domestic sales 13,742 Sales abroad 6,685 ------ 20,427 ======
12 CSTI HI-TEC LTD. Notes to the Financial Statements (In thousands) Note 17 - Cost of sales
Years Ended December 31 ----------------------- 2000 ----------------------- Materials Inventory at January 1 241 Materials purchase 10,752 Inventory at December 31 (2,597) ------ 8,396 ------ Salaries and related expenses 4,742 Subcontractors 1,012 Cost of service abroad 1,326 Rent and taxes 307 Vehicles and transportation 902 Equipment maintenance and insurance 280 Sundry 151 Depreciation 356 Changes in on - going work (2,986) ------- 14,486 ======
Note 18 - Administrative and general expenses
Years Ended December 31 ----------------------- 2000 ----------------------- Salaries and related expenses 1,914 Vehicles and transportation 67 Professional fees 881 Telephone 368 Office and office maintenance 167 Foreign travel 622 Advertising 61 Depreciation 99 Doubtful accounts 54 Sundry 492 ----- 4,725 =====
13 CSTI HI-TEC LTD. Notes to the Financial Statements (In thousands) Note 19 - Other expenses
Years Ended December 31 ----------------------- 2000 ----------------------- Depreciation of old clean room and leasehold improvement (507) Capital gain 3 Other income 111 ---- (393) ====
14 CSTI HI-TEC LTD. Balance Sheets (In thousands)
AT 30 JUNE Note 2001 ---- -------------------- N.I.S U.S $ ----- ----- CURRENT ASSETS Cash and cash equivalents 336 81 Trade receivables 3 9,325 2,239 Other receivables 4 838 201 Inventory 3,025 726 ------ ----- 13,524 3,247 ------ ----- INVESTMENTS Investment in a subsidiary 5 40 10 ------ ----- FIXED ASSETS 6 Cost 7,087 1,702 Accumulated depreciation 2,586 621 ------ ----- 4,501 1,081 ------ ----- 18,065 4,338 ====== =====
1 CSTI HI-TEC LTD. Balance Sheets (In thousands)
AT 30 JUNE Note 2001 ---- ---------------------- N.I.S U.S $ ----- ----- CURRENT LIABILITIES Short-term credit 7 5,020 1,205 Trade payable 8 7,057 1,694 Advance payments for on-going work, net 9 537 129 Other payables and credits 10 2,016 484 ------ ------ 14,630 3,512 ------ ------ LONG-TERM LIABILITIES Shareholders' loans 11 62 15 Long-term bank loans 12 11 3 Liability for employee rights upon retirement, net of amount funded 13 245 59 ------ ------ 318 77 ------ ------ CONTINGENCIES AND COLLATERALS 14 SHAREHOLDERS' EQUITY Share capital 15a 1 1 Premium shares 1,708 410 Receipts of account of shares 15b 707 170 Retained earning 701 168 ------ ------ 3,117 749 ------ ------ 18,065 4,338 ====== ======
2 CSTI HI-TEC LTD. Statements Of Income (In thousands)
FOR THE PERIOD ENDED 30 JUNE -------------------- Note 2001 ---- -------------------- N.I.S U.S $ ----- ----- Sales 16 30,947 7,430 Cost of sales 17 21,373 5,131 ------ ----- Gross profit 9,574 2,299 Administrative and general expenses 18 2,872 690 ----- ------ Operating profit, before financing expenses 6,702 1,609 Financing expenses, net 472 113 ----- ------ Operating profit, after financing expenses 6,230 1,496 Other expenses (2) (1) ----- ------ Income before income taxes 6,228 1,495 Income taxes 19 62 15 ----- ------ Profit 6,166 1,480 ===== =====
3 CSTI HI-TEC LTD. Statements Of Changes In Shareholders' Equity (In thousands)
Receipts on account Retained Earnings Total shareholders' Share capital Premium shares of shares (deficit) equity (deficit) ------------- --------------- ------------------- ----------------- ------------------- N.I.S U.S $ N.I.S U.S $ N.I.S U.S $ N.I.S U.S $ N.I.S U.S $ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Balance, December 31, 2000 1 1 1,708 410 70 1 (5,465) (1,312) (3,049) (731) Profit - - - - - - 6,166 1,480 6,166 1,480 --- --- ----- --- -- --- ----- ----- ----- ----- Balance, June 30, 2001 1 1 1,708 410 70 1 701 3,117 749 === === ===== === == === ===== ===== ===== =====
4 CSTI HI-TEC LTD. Statements of Cash Flow (In thousands)
FOR THE PERIOD ENDED 30 JUNE -------------------- 2001 -------------------- N.I.S U.S $ ----- ----- CASH PROVIDED BY OPERATING ACTIVITIES Profit 6,166 1,480 Adjustments required to reconcile loss profit to net cash basis used in operating activities (Appendix A) (2,098) (503) ------ ---- Net cash provided by operating activities 4,068 977 ------ ---- CASH USED IN INVESTING ACTIVITIES Purchase of fixed assets (1,272) (305) Proceeds from sale of fixed assets 69 16 ------ ---- Net cash used in investing activities (1,203) (289) ------ ---- CASH USED IN FINANCING ACTIVITIES Changes in short-term credit, net (2,162) (519) Repayment of short-term loans (302) (73) Proceeds from long-term loans 100 24 Repayment of long-term loans (158) (38) Repayment of shareholders loan (252) (60) ------ ---- Net cash (used in) financing activities (2,774) (666) ------ ---- INCREASE IN CASH AND CASH EQUIVALENTS 91 22 CASH AND CASH EQUIVALENTS - BEGINNING OF THE PERIOD 245 59 ------ ---- CASH AND CASH EQUIVALENTS - END OF THE PERIOD 336 81 ====== ====
5 CSTI HI-TEC LTD. Appendix To The Statements Of Cash Flow (In thousands) Adjustments required to reconcile loss to net cash basis used in operating activities
FOR THE PERIOD ENDED 30 JUNE -------------------- 2001 -------------------- N.I.S U.S $ ----- ----- Items not affecting cash flow: Depreciation 319 77 Loss on sale of fixed assets 2 1 Increase in liability for employee rights upon retirement, net of amount funded 43 10 ------ ----- 364 88 ------ ----- Changes in working capital: Increase in trade receivables (4,499) (1,080) Decrease in other receivables 3,114 748 Increase in inventory (428) (103) Decrease in advance payments deduction for on-going work (2,979) (715) Increase in trade payable 1,947 467 Increase in other payables and credits 383 92 ------ ----- (2,462) (591) ------ ----- Total adjustments required to reconcile loss to net cash basis used in operating activities (2,098) (503) ====== =====
6 CSTI HI-TEC LTD. Notes To The Financial Statements Note 1 - General CSTI (Clean Systems Technology Israel) Hi-Tec Ltd. ("the company") is an Israeli Company engaged in design, manufacture, installation and maintenance of ultra-high purity systems for gases and liquids for the processing industry. The company commenced its operations in March 1995. Note 2 - Significant accounting policies The significant accounting policies, that were used in the preparation of the financial statements, in accordance with prior period, include the following: A. Adjusted financial statements The financial statements have been prepared in accordance with generally accepted accounting principles, on the historical cost basis, without giving expression to the effect of the changes in the general purchasing power of the Israeli currency during the year, as indicated by the Israeli Consumer Price Index. B. Convenience translation The adjusted financial statements as of June 30, 2001 have been translated into U.S. dollars using the representative exchange rate as of that date (U.S. $ = NIS 4.165). The translation was made solely for the convenience of the reader. The dollar amounts so presented in these financial statements should not be construed as representing amounts receivable or payable in dollars or convertible into dollars, unless otherwise indicated. C. Inventory and on-going work 1. Inventory is valued at the lower of cost and net realizable value. Cost is determined by the "first in first out" (FIFO) method. 2. On-going work is valued at direct cost of work and material and overhead expenses. D. Investment Investment in the subsidiary is included in the financial statements as cost. 7 CSTI HI-TEC LTD. Notes To The Financial Statements (In thousands) Note 2 - Significant accounting policies (continued) E. Fixed assets Fixed assets are recorded at cost and are depreciated over their estimated useful lives, on the straight-line method. Depreciation rates: Annual depreciation rates are as follow: % --- Leasehold improvement 10 Machinery and equipment 6-20 Clean room 10 Office furniture and equipment 6-33 Vehicles 15 F. Revenue recognition Revenues from on-going contractor projects are recognized according to the stage of completing of the contract activity, after performing at least a certain rate of each contract activity. G. Allowance for doubtful accounts The allowance is determined for specific debts doubtful of collection. H. Significant estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. I. Fair value of derivative instruments The accountant number of cash and cash equivalents, short-term investments, trade receivables, debtors, bank credit and others, trade payables, creditors are at their fair value. J. Cash equivalents Cash equivalents includes short-term deposits original maturity of not more than three months. 8 CSTI HI-TEC LTD. Notes To The Financial Statements (In thousands)
Note 3 - Trade receivables AT 30 JUNE 2001 -------------- N.I.S ----- Open accounts domestic 291 Open accounts abroad 3,378 Subsidiary company 5,749 ----- 9,418 Less, allowance for doubtful accounts 93 ----- 9,325 ===== Note 4 - Other receivables AT 30 JUNE 2001 -------------- N.I.S ----- Income receivable 150 Institutions 266 Employees 276 Sundry and prepaid expenses 146 --- 838 ===
Note 5 - Investment in a subsidiary In 1997 the Company started a fully owned subsidiary in Italy named C.S.T. ITALY S.R.L. 9 CSTI HI-TEC LTD. Notes To The Financial Statements (In thousands) Note 6 - Fixed assets
A. The fixed assets consist of the following: Office Machinery Furniture Leasehold And Clean And Land Improvements Equipment Room Equipment Vehicles Total ---- ------------ --------- ---- --------- -------- ----- Cost At January 1, 2001 436 554 2,785 1,044 620 459 5,898 Additions during the period - 30 711 29 186 316 1,272 Deductions during the period - - - - - (83) (83) --- --- ----- ------ --- --- ----- As at June 30, 2001 436 584 3,496 1,073 806 692 7,087 --- --- ----- ------ --- --- ----- Accumulated depreciation At January 1, 2001 - 210 982 716 240 131 2,279 Additions during the period - 20 183 18 50 48 319 Deductions during the period - - - - - (12) (12) --- --- ----- ------ --- --- ----- As at June 30, 2001 - 230 1,165 734 290 167 2,586 --- --- ----- ------ --- --- ----- Depreciated cost As at June 30, 2001 436 354 2,331 339 516 525 4,501 === === ===== ====== === --- =====
B. Collaterals - See note 14.
Note 7 - Short - term credit AT 30 JUNE 2001 ---------- Short-term credit from banks 4,756 Short-term loans from banks 52 Current maturities of long-term liabilities 212 ----- 5,020 ===== Note 8 - Trade payable AT 30 JUNE 2001 ---------- Open accounts domestic 3,389 Open accounts abroad 2,884 Postdated cheques 784 ----- 7,057 =====
10 CSTI HI-TEC LTD. Notes To The Financial Statements (In thousands)
Note 9 - Advance payments for on-going work AT 30 JUNE 2001 ---------- N.I.S ----- Advance payments 2,630 Less, cost of on-going work 2,093 ----- 537 ===== Note 10 - Other payables and credits AT 30 JUNE ---------- 2001 ---------- N.I.S ----- Institutions 10 Salaries and wages 1,142 Accrued liabilities 864 ----- 2,016 =====
Note 11 - Shareholders' loans Loans from shareholders are not linked and are non-interest bearing.
Note 12 - Long-term bank loans Annual rate of AT 30 JUNE interest 2001 -------------------- ---------- N.I.S ----- Non linked loans from 12.7% 145 banks Non linked and non interest bearing loans from banks 78 Less - current maturities (212) ---- 11 ====
11 CSTI HI-TEC LTD. Notes to the Financial Statements In N.I.S. (thousands) Note 13 - Liability for employee rights upon retirement, net of amount funded
AT 30 JUNE A. The reserve for severance pay consist of the following: 2001 ---------- N.I.S ----- Accrued severance pay 373 Less, amounts in funds 128 --- 245 ===
B. The company's reserve for severance pay is pursuant to the Israeli law. The accrued severance pay reflects the Company's liability to its employees. The deposit in approved funds include and linkage increments thereon. Note 14 - Contingencies and collaterals A. In order to secure its debts to the banks, the company placed collaterals at unlimited amounts, on all its assets, shares, goodwill and insurance privileges. B. In 2000 there were two claims from suppliers against the Company, in the amount of 18,000 NIS and 5,000 NIS. In the financial statements the disclosure is on the amount of 10,000 NIS. Note 15 - Share capital A. The balance as at June 30, 2001 is:
Authorized Issued And Paid ---------- --------------- Common shares at 1 N.I.S Par value each 1,814 1,151 ----- ----- 1,814 1,151 ===== =====
B. In January 1997, an agreement to invest in the Company was reached between the Company and foreign investors. The agreement specifies a number of terms for issuance of Company shares. 51 Company shares will be issued in 2001. 12 CSTI HI-TEC LTD. Notes to the Financial Statements (In thousands)
Note 16 - Sales FOR THE PERIOD ENDED 30 JUNE ------------ 2001 ------------ N.I.S ----- Domestic sales 599 Sales abroad 30,348 ------ 30,947 ======
Note 17 - Cost of sales FOR THE PERIOD ENDED 30 JUNE ------------ 2001 ------------ N.I.S ----- Materials Inventory at January 1 2,597 Materials purchase 12,693 Inventory at 30 June, 2001 (3,024) ------ 12,266 ------ Salaries and related expenses 3,574 Subcontractors 733 Cost of service abroad 2,329 Rent and taxes 210 Vehicles and transportation 436 Equipment maintenance and insurance 209 Depreciation 245 Changes in on-going work 1,258 Sundry 113 ------ 21,373 ======
13 CSTI HI-TEC LTD. Notes to the Financial Statements (In thousands) Note 18 - Administrative and general expenses
FOR THE PERIOD ENDED 30 JUNE ------------ 2001 ------------ N.I.S ----- Salaries and related expenses 1,262 Vehicles and transportation 35 Professional fees 469 Telephone 249 Office and office maintenance 66 Foreign travel 220 Advertising 93 Depreciation 73 Sundry 405 ----- 2,872 =====
Note 19 - Taxes on income A. Tax benefits under the law for the Encouragement of Capital Investments, 1959 (hereinafter - the law). At August 1, 2001 the company granted a status of "approved enterprise", the company will be entitled to various tax benefits. Under the law, by virtue of the "approved enterprise" status, the company will be entitled to various tax benefits, as follow: (1) Tax exemption on income from its approved enterprise for a period of 10 years since the company has elected the "alternative benefits" (involving waiver of investment grants). In the event of distribution of cash dividends out of income which was tax exempt as above, the company would have to pay corporate tax at the rate 25% of the amount distributed. (2) The company is entitled to claim accelerated depreciation for five tax years commencing in the first year of operation of each asset, in respect of property and equipment used by the approved enterprise. The entitlement to the above benefits is conditional upon the company's fulfilling the conditions stipulated by the law, regulations published thereunder and the instruments of approval for the specific investments in the approved enterprise. In the event of failure to comply with these conditions, the benefits may be cancelled and the company may be required to refund the amount of the benefits, in whole or in part, with the addition of interest. 14 CSTI HI-TEC LTD. Notes to the Financial Statements (In thousands) Note 19 - Taxes on income (continued) B. Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985 (hereinafter - the inflationary adjustments law). Under the inflationary adjustments law, results for the tax purposes are measured in real terms having regard to the changes in the consumer price index. The company will be taxed under this law. C. The law for the Encouragement of Industry (Taxation), 1969 The company will be an "industrial company" as defined by this law. As such, the company will be entitled to claim depreciation at increased rates for equipment used in industrial activity, as stipulated by regulations published under the inflationary adjustments law. 15 Schedule 2.9 A Settlement Agreement dated as of November 20th, 2000 between the Company and Clean Systems Technology Inc. Schedule 2.9 (c) Not Applicable To whom it may concern 8/9/2001 ---------------------- Re: Clean Systems Technology Hi-Tech Ltd. (hereinafter: "CSTI") Our client, CSTI, is involved in the following legal procedures: A lawsuit, that was submitted at the "Shalom Court" in Haifa (hereinafter: "the Court"), in which the company named Unirent Ltd. claimed from CSTI a sum of approximately NIS 11,000. In a compromise agreement, authorized by the Court, accordingly, CSTI was supposed to pay Unirent Ltd. a sum of NIS 6,000, there is an open dispute concerning the issue whether a deposit cheque that CSTI submitted the plaintiff regarding a different transaction, of NIS 5,000, that was withdrawn by the plaintiff would be regarded as a part of the authorized Compromise Agreement's payment. An additional lawsuit, that was submitted as well at the "Shalom Court" in Haifa, in which the company named Yakir Fried Michun Misradi Ltd. (translation: Yakir Fried Office Mechanism Ltd.) claimed from CSTI a sum of approximately NIS 18,000. The suit was submitted according to contracts signed between the parties and accordingly, we estimate that a decision in favor of the plaintiff might be given, although the defendant has some claims that might reduce the sum claimed in this lawsuit. Sincerely, Meir Elazar, Adv. Schedule 2.12
-------------------------------------------------------------- Name Profession -------------------------------------------------------------- Abutbol Josef Fitter -------------------------------------------------------------- Afsai Maayan Assistant fitter -------------------------------------------------------------- Allouch Michel Autocad technician -------------------------------------------------------------- Amar Yosef Project Manager -------------------------------------------------------------- Amsalem Oshrit Purchasing -------------------------------------------------------------- Atar Marco QC -------------------------------------------------------------- Azran Avraham Assistant fitter -------------------------------------------------------------- Bstiker Malka Houskeeper -------------------------------------------------------------- Bashenski Konstantin Locksmith -------------------------------------------------------------- Bhasteker Shimon Fitter -------------------------------------------------------------- Benavi Izhak Manager -------------------------------------------------------------- Benhamou Meir Fitter -------------------------------------------------------------- Bensaadon Yechiel Project Manager -------------------------------------------------------------- Blaywais haim QC -------------------------------------------------------------- Chocron Markos Storekeeper -------------------------------------------------------------- Cohen Eyal Fitter -------------------------------------------------------------- Cohen Moshe - Director Director -------------------------------------------------------------- Cureolapnik Michael Welder -------------------------------------------------------------- Dadon Tomer Assistant fitter -------------------------------------------------------------- Dagon Gal Assistant fitter -------------------------------------------------------------- Davidovitz Lior QC -------------------------------------------------------------- Diazdelcanto Victorherman Fitter -------------------------------------------------------------- Donchik Dimitry Fitter -------------------------------------------------------------- Donchou Alexsander Welder -------------------------------------------------------------- Donchou Louri Assistant fitter -------------------------------------------------------------- Dumbrava Genadi Welder / Fitter -------------------------------------------------------------- Elazar Gilad Budget control -------------------------------------------------------------- Elian Shai QC -------------------------------------------------------------- Elias Sarit Secretary -------------------------------------------------------------- Elimalic Dekel Assistant welder -------------------------------------------------------------- Eranshtain David Clerk -------------------------------------------------------------- Feingold Akivakirill Welder -------------------------------------------------------------- Ganot Shlomit Secretary -------------------------------------------------------------- Girafi Avishai Fitter -------------------------------------------------------------- Goldshmit Yehuda Welder / Fitter -------------------------------------------------------------- Gorlik Puter Locksmith -------------------------------------------------------------- Gueta Golan QC -------------------------------------------------------------- Gurevitz Tatiana Engineer -------------------------------------------------------------- Hadari Guy Assistant fitter -------------------------------------------------------------- Haimov Viatzislav Locksmith -------------------------------------------------------------- Horovitz Ester Engineer -------------------------------------------------------------- Illous Moshe Fitter -------------------------------------------------------------- Itzhakpour Oded Fitter -------------------------------------------------------------- Kabush Viacheslav Welder -------------------------------------------------------------- Khaut Naum Welder --------------------------------------------------------------
Klaiman Helena Welder -------------------------------------------------------------- Krispin Shahar QC -------------------------------------------------------------- Leibowitz Yona Finance manager -------------------------------------------------------------- Levitin Alexander Welder -------------------------------------------------------------- Lugasi Haim Bookeeper -------------------------------------------------------------- Lustgarten Jacob President -------------------------------------------------------------- Lustgarten Mario QC engineer -------------------------------------------------------------- Lvovsky Yehonatan Engineer -------------------------------------------------------------- Maman Shimon Welder -------------------------------------------------------------- Mazaltrim Inbal Secretary -------------------------------------------------------------- Milman Larik Fitter -------------------------------------------------------------- Nahmani Rany Itshak QC -------------------------------------------------------------- Nagauker Oren Assistant fitter -------------------------------------------------------------- Nasir Itzhak Fitter / Welder -------------------------------------------------------------- Nezri Amram Locksmith -------------------------------------------------------------- Peress Boris Welder -------------------------------------------------------------- Ponimansky Valeri Welder -------------------------------------------------------------- Popov Victor Asssistant welder -------------------------------------------------------------- Postriganev Alexander Welder assistant -------------------------------------------------------------- Pozin Konstantin Assistant fitter -------------------------------------------------------------- Reuben Abraham Project Manager -------------------------------------------------------------- Reuveni Alon Storekeeper -------------------------------------------------------------- Sarid Gabi Operation manager -------------------------------------------------------------- Strets Yacov Assistant welder -------------------------------------------------------------- Shariker Bar Yohai Project Manager -------------------------------------------------------------- Shvab Roman Fitter -------------------------------------------------------------- Tabachnic Boris Welder -------------------------------------------------------------- Tafra Avi Assistant welder -------------------------------------------------------------- Tzuria Beni Welder -------------------------------------------------------------- Urbach Yosef Gas system manager -------------------------------------------------------------- Uzan Feliks Tecnician -------------------------------------------------------------- Vaizgal Ranpinhas Assistant Fitter -------------------------------------------------------------- Vescer Arcadi Welder -------------------------------------------------------------- Yarden Avi Fitter -------------------------------------------------------------- Yitshak Lior Engineer -------------------------------------------------------------- Zikri Haim Assistant Fitter --------------------------------------------------------------
Schedule 3.9 Not Applicable Schedule 3.12 Not Applicable Schedule 3.15 Not Applicable CSTI HI-TECH LTD. Registration Number 51-210453-0 MINUTES Of the Meeting of the Board of Directors of the Company held at Kiryat-Gat, Israel On September 10th, 2001 PRESENT: A Legal Quorum CHAIRMAN: Jacob Lustgarten AGENDA: The ratification and approval of the agreement dated as of August 21, 2001 between CSTI Hi-Tech Ltd. (hereinafter: "the Company"), the shareholders of the Company, Entertainment International LTD and ENTI Acquisition I CORP and the transactions contemplated thereunder. After due deliberation, it was unanimously resolved - RESOLUTIONS: To ratify and approve the agreement dated as of August 21, 2001 between the Company, the shareholders of the Company, Entertainment International LTD and ENTI Acquisition I CORP and the transactions contemplated thereunder. There being no other businesses, the Meeting was concluded. /s/ Jacob Lustgarten ______________________________ Jacob Lustgarten, Chairman CSTI HI-TECH LTD. Registration Number 51-210453-0 MINUTES Of the Meeting of the Shareholders of the Company held at Kiryat-Gat, Israel On October 7th, 2001 PRESENT: A Legal Quorum CHAIRMAN: Jacob Lustgarten AGENDA: The ratification and approval of the agreement dated as of August 21, 2001 between CSTI Hi-Tech Ltd. (hereinafter: "the Company"), the shareholders of the Company, Entertainment International LTD and ENTI Acquisition I CORP and the transactions contemplated thereunder. After due deliberation, it was unanimously resolved - RESOLUTIONS: To ratify and approve the agreement dated as of August 21, 2001 between the Company, the shareholders of the Company, Entertainment International LTD and ENTI Acquisition I CORP and the transactions contemplated thereunder. There being no other businesses, the Meeting was concluded. /s/ Jacob Lustgarten __________________________________ Jacob Lustgarten, Chairman October 12, 2001 Ramat - Gan Our No:17262 COMFORT CERTIFICATE We refer to a certain Stock Purchase Agreement dated as of the 21st day of August 2001, by and among Entertainment International Ltd., ENTI Acquisition I Corp., CSTI Hi-Tech Ltd. ("CSTI"), and the shareholders of CSTI (the "Agreement"). The undersigned hereby certifies that to the best of his knowledge from the time of the signing of the Agreement and until the date of the Closing (as defined in the Agreement) CSTI did not undergo any material adverse changes with respect to its financial status. Sincerely Itzchaky Lion & Co. Certified Public Accountants (Isr) Schedule "B" WAIVER CSTI HI-TECH LTD ("CSTI" or the "Company") The undersigned hereby irrevocably waives and any and all preemptive rights, rights of first refusal and all similar rights which it may have or was entitled to have pursuant a certain investment agreement dated as of January 19, 1997 between the Company and the undersigned, the Article of Association of the Company or any other instrument or document, in connection with the Agreement (as defined in a letter sent to the undersigned by the Company dated as of September 11, 2001) and all the transactions contemplated thereunder. Shareholder: Mullingar Limited Date: Liel Hi-Tech Systems Ltd. _________________________ Signature: s/s _____________________ Schedule "B" WAIVER CSTI HI-TECH LTD ("CSTI" or the "Company") The undersigned hereby irrevocably waives and any and all preemptive rights, rights of first refusal and all similar rights which it may have or was entitled to have pursuant a certain investment agreement dated as of January 19, 1997 between the Company and the undersigned, the Article of Association of the Company or any other instrument or document, in connection with the Agreement (as defined in a letter sent to the undersigned by the Company dated as of September 11, 2001) and all the transactions contemplated thereunder. Shareholder: Saffray Limited Date: 3rd October 2001 _______________________ Signature: s/s _____________________ Schedule "B" WAIVER CSTI HI-TECH LTD ("CSTI" or the "Company") The undersigned hereby irrevocably waives and any and all preemptive rights, rights of first refusal and all similar rights which it may have or was entitled to have pursuant a certain investment agreement dated as of January 19, 1997 between the Company and the undersigned, the Article of Association of the Company or any other instrument or document, in connection with the Agreement (as defined in a letter sent to the undersigned by the Company dated as of September 11, 2001) and all the transactions contemplated thereunder. Shareholder: Burntwood Limited Date: 3-10-01 _______________________ Signature: s/s _____________________ Schedule "B" WAIVER CSTI HI-TECH LTD ("CSTI" or the "Company") The undersigned hereby irrevocably waives and any and all preemptive rights, rights of first refusal and all similar rights which it may have or was entitled to have pursuant a certain investment agreement dated as of January 19, 1997 between the Company and the undersigned, the Article of Association of the Company or any other instrument or document, in connection with the Agreement (as defined in a letter sent to the undersigned by the Company dated as of September 11, 2001) and all the transactions contemplated thereunder. Shareholder: Liel Hi-Tech Systems Ltd. Date: _______________________ Signature: _____________________ Schedule "B" WAIVER CSTI HI-TECH LTD ("CSTI" or the "Company") The undersigned hereby irrevocably waives and any and all preemptive rights, rights of first refusal and all similar rights which it may have or was entitled to have pursuant a certain investment agreement dated as of January 19, 1997 between the Company and the undersigned, the Article of Association of the Company or any other instrument or document, in connection with the Agreement (as defined in a letter sent to the undersigned by the Company dated as of September 11, 2001) and all the transactions contemplated thereunder. Shareholder: Link Business Solutions Date: 2/10/2001 _______________________ Signature: s/s _____________________ Schedule "B" WAIVER CSTI HI-TECH LTD ("CSTI" or the "Company") The undersigned hereby irrevocably waives and any and all preemptive rights, rights of first refusal and all similar rights which it may have or was entitled to have pursuant a certain investment agreement dated as of January 19, 1997 between the Company and the undersigned, the Article of Association of the Company or any other instrument or document, in connection with the Agreement (as defined in a letter sent to the undersigned by the Company dated as of September 11, 2001) and all the transactions contemplated thereunder. Shareholder: Outlets Ltd. Date: 1/10/2001 _______________________ Signature: s/s _____________________ Schedule "B" WAIVER CSTI HI-TECH LTD ("CSTI" or the "Company") The undersigned hereby irrevocably waives and any and all preemptive rights, rights of first refusal and all similar rights which it may have or was entitled to have pursuant a certain investment agreement dated as of January 19, 1997 between the Company and the undersigned, the Article of Association of the Company or any other instrument or document, in connection with the Agreement (as defined in a letter sent to the undersigned by the Company dated as of September 11, 2001) and all the transactions contemplated thereunder. Shareholder: Pelican Consulting Inc. Date:_______________________ Signature: __________________ Schedule "B" WAIVER CSTI HI-TECH LTD ("CSTI" or the "Company") The undersigned hereby irrevocably waives and any and all preemptive rights, rights of first refusal and all similar rights which it may have or was entitled to have pursuant a certain investment agreement dated as of January 19, 1997 between the Company and the undersigned, the Article of Association of the Company or any other instrument or document, in connection with the Agreement (as defined in a letter sent to the undersigned by the Company dated as of September 11, 2001) and all the transactions contemplated thereunder. Shareholder: Cedarwood Trading and Investment Ltd. Date: October 5, 2001 _______________________ Signature: s/s _____________________